Colorado 20-8980078 _ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer," and "smaller reporting company"company," and "emerging growth company in Rule 12b-2 of the Exchange Act.
Large | ☐ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 27,147,21733,350,089 shares of common stock as of AprilNovember 30, 2016.
Table of Contents
Page | |
Part I - Financial Information | |
Item 1 - Financial Statements | 3 |
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Part II - Other Information | |
Item 1 - Legal Proceedings | 19 |
Item 1A - Risk Factors | 19 |
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds | 19 |
Item 3 - Defaults Upon Senior Securities | 19 |
Item 4 - Mine Safety Disclosures | 19 |
Item 5 - Other Information | 19 |
Item 6 – Exhibits | 20 |
Signatures | 21 |
STWC HOLDINGS, INC.
INTERIM FINANCIAL STATEMENTS
As of October 31, 2018 and January 31, 2018 and for the Three and Nine month periods Ended October 31, 2018 and 2017
(UNAUDITED)
(Unaudited) April 30, 2016 | (Audited) January 31, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 25,348 | $ | 151,311 | ||||
Due from affiliated entities, net of collection allowance reserve of $3,168,009 and $3,222,535 at April 30 and January 31, 2016, respectively | - | - | ||||||
Total current assets | 25,348 | 151,311 | ||||||
Commercial operating property, net of accumulated depreciation of $26,666 and $22,667 at April 30 and January 31, 2016, respectively | 633,333 | 637,333 | ||||||
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $120,037 and $77,308 at April 30 and January 31, 2016, respectively | 596,824 | 639,553 | ||||||
Security deposits | 150,000 | 150,000 | ||||||
Equity method investment in unconsolidated subsidiary | 11,659 | 11,659 | ||||||
Trademark, net of accumulated amortization of $1,708 and $1,525 at April 30 and January 31, 2016, respectively | 9,302 | 9,485 | ||||||
Total assets | $ | 1,426,466 | $ | 1,599,341 | ||||
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY | ||||||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 378,163 | $ | 340 605 | ||||
Accrued interest | 240,205 | 138 458 | ||||||
Convertible notes payable, net of discount of $0.0 and $336,117 at April 30 and January 31, 2016, respectively | 2,465,000 | 2,073,883 | ||||||
Settlement and equipment advance payable | 100,100 | 150,100 | ||||||
Current portion of mortgage note payable | 222,760 | 211,273 | ||||||
Total current liabilities | 3,406,228 | 2,914,319 | ||||||
Mortgage payable | 85,369 | 145,737 | ||||||
Deferred rent and interest payable discount | 1,006,857 | 965,319 | ||||||
Total liabilities | 4,498,454 | 4,025,375 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Common stock, no par value, 100,000,000 shares authorized, 27,147,217 issued and outstanding at April 30, and January 31, 2016, respectively | - | - | ||||||
Additional paid in capital | 3,152,658 | 3,152,658 | ||||||
Retained (deficit) | (6,224,646 | ) | (5,578,692 | |||||
Total stockholders' equity | (3,071,988 | ) | (2,426,034 | ) | ||||
Total liabilities and stockholders' (deficit) equity | $ | 1,426,466 | $ | 1,599,341 |
STWC HOLDINGS, INC. | ||||||||
CONDENSED STATEMENTS OF OPERATIONS | ||||||||
(Unaudited) Three Months Ended April 30, | ||||||||
2016 | 2015 | |||||||
Rental income from Regulated Entities | $ | 973,798 | $ | 1,223,386 | ||||
Consulting services | - | 2,000 | ||||||
Total revenues | 973,798 | 1,225,386 | ||||||
Operating costs and expenses | ||||||||
Collection reserve for amounts due from Regulated Entities | (54,526 | ) | 943,649 | |||||
Rents and other occupancy | 838,183 | 1,156,406 | ||||||
Compensation | 163,231 | 134,874 | ||||||
Professional, legal and consulting | 96,267 | 60,428 | ||||||
Depreciation and amortization | 46,911 | 79,031 | ||||||
General and administrative | 35,653 | 13,618 | ||||||
Total operating costs and expenses | 1,134,406 | 2,388,006 | ||||||
Loss from continuing operations | (160,608 | ) | (1,162,620 | ) | ||||
Other costs and expenses | ||||||||
Interest expense | (485,346 | ) | (180,225 | ) | ||||
Loss from continuing operations, before provision for taxes on income | (645,954 | ) | (1,342,845 | ) | ||||
Provision for taxes on income | - | - | ||||||
Loss from continuing operations, net of tax | (645,954 | ) | (1,342,845 | ) | ||||
Loss from discontinued operations, net of tax | -- | (171,329 | ) | |||||
Net loss | $ | (645,954 | ) | $ | (1,514,174 | ) | ||
Basic loss and fully diluted loss per common share | ||||||||
Continuing operations | $ | (0.02 | ) | $ | (0.056 | ) | ||
Discontinued operations | $ | - | $ | (0.006 | ) | |||
Weighted average number of shares outstanding, basic and fully diluted | 27,147,217 | 27,147,217 |
| October 31, 2018 | January 31, 2018 | ||||||
| (Unaudited) | (Audited) | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 30,243 | $ | 27,925 | ||||
Accounts Receivable, net | 48,998 | 5,000 | ||||||
Inventory | 29,786 | 11,888 | ||||||
Prepaid expenses and other assets | 28,881 | 17,592 | ||||||
Total current assets | 137,908 | 62,405 | ||||||
Tenant improvements and office equipment, net of accumulated amortization and depreciation of $25,458 and $24,703 at October 31, 2018 and January 31, 2018, respectively | 3,018 | 3,773 | ||||||
Notes receivable | 503,333 | 94,061 | ||||||
Equity method investment in unconsolidated subsidiary | 339,292 | — | ||||||
Trademarks, net of accumulated amortization of $3,538 and $2,989 at October 31, 2018 and January 31, 2018, respectively | 9,722 | 8,021 | ||||||
Total assets | $ | 993,273 | $ | 168,260 | ||||
LIABILITIES AND STOCKHOLERS' EQUITY (DEFICIT) | ||||||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 909,590 | $ | 366,438 | ||||
Due to related party | 218,526 | 490,970 | ||||||
Deferred revenue | 176,000 | 150,000 | ||||||
Total current liabilities | 1,304,116 | 1,007,408 | ||||||
Notes payable, net of discount | 27,273 | — | ||||||
Total liabilities | 1,331,389 | 1,007,408 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders' deficit | ||||||||
Common stock, no par value, 100,000,000 shares authorized, 33,350,089 issued and outstanding | — | — | ||||||
Additional Paid in Capital | 6,950,980 | 5,325,684 | ||||||
Retained deficit | (7,289,096 | ) | (6,164,832 | ) | ||||
Total stockholders' deficit | (338,116 | ) | (839,148 | ) | ||||
Total liabilities and stockholders' deficit | $ | 993,273 | $ | 168,260 |
See accompanying notes.
For the Three Months Ended October 31, |
| For the Nine Months Ended October 31, | |||||||||||
2018 |
| 2017 |
|
| 2018 |
|
| 2017 | |||||
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| ||||||
Consulting services | $ | 12,500 |
| $ | 20,000 |
| $ | 143,749 | $ | 173,500 | |||
Cost of consulting services |
| (12,500) |
|
| (55,121) |
|
| (24,943) |
|
| (172,473) | ||
Gross profit |
| — |
|
| (35,121) |
|
| 118,806 |
| 1,027 | |||
Operating costs and expenses |
|
|
|
|
|
|
|
| |||||
Rents and other occupancy |
| 13,500 |
|
| 28,143 |
|
| 39,516 |
| 56,445 | |||
Compensation |
| 148,856 |
|
| 137,206 |
|
| 433,341 |
| 389,734 | |||
Professional, legal and consulting |
| 335,429 |
|
| 33,150 |
|
| 420,518 |
| 84,283 | |||
Depreciation and amortization |
| 435 |
|
| 183 |
|
| 1,304 |
| 1,874 | |||
General and administrative |
| 79,895 |
|
| 97,202 |
|
| 221,536 |
| 238,328 | |||
Total operating costs and expenses |
| 578,115 |
|
| 295,884 |
|
| 1,116,215 |
| 770,664 | |||
Loss from continuing operations |
| (578,115) |
|
| (331,005) |
|
| (997,409) |
| (769,637) | |||
Loss on equity investment in unconsolidated subsidiary |
| (10,129) |
|
| — |
|
| (10,129) |
|
| — | ||
Other |
| (114,986) |
|
| (115) |
|
| (116,726) |
| (1,016) | |||
Loss from continuing operations, before provision for taxes on income |
| (703,230) |
|
| (331,120) |
|
|
(1,124,264) |
|
(770,653) | |||
Provision for taxes on income |
| — |
|
| — |
|
| — |
| — | |||
Loss from continuing operations, net of tax |
| (703,230) |
|
| (331,120) |
|
| (1,124,264) |
| (770,653) | |||
Income from discontinued operations, net of tax |
| — |
|
| 1,974,363 |
|
| — |
| 1,144,976 | |||
Net income/(loss) | $ | (703,230) |
| $ | 1,643,243 |
| $ | (1,124,264) | $ | 374,323 | |||
Basic earnings and fully diluted income (loss) per common share |
|
|
|
|
|
|
|
| |||||
Continuing operations | $ | (.02) |
| $ | (0.01) |
| $ | (0.04) | $ | (0.03) | |||
Discontinued operations | $ | — |
| $ | 0.07 |
| $ | — | $ | 0.04 | |||
|
|
|
|
|
|
|
|
|
|
|
| ||
Basic and fully diluted weighted average number of shares outstanding |
|
|
|
|
|
|
|
| |||||
29,437,372 |
|
| 27,140,550 |
| 27,914,571 | 27,140,550 | |||||||
STWC HOLDINGS, INC. |
CONDENSED STATEMENTS OF OPERATIONS |
(Unaudited) See accompanying notes. |
(Unaudited) Three Months Ended April 30, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) | $ | (645,954 | ) | $ | (1,514,174 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Increase (decrease) in amounts due to/from Regulated Entities | 54,526 | (943,648 | ) | |||||
Increase (decrease) in collection allowance reserve for amounts due from Regulated Entities | (54,526 | ) | 943,648 | |||||
Increase in accrued interest payable | 101,747 | 26,712 | ||||||
Increase in prepaid expenses and other assets | - | (43,343 | ) | |||||
Depreciation and amortization | 46,728 | 78,848 | ||||||
Increase (decrease) in accounts payable | 37,559 | (57,473 | ) | |||||
Decrease in discount on convertible notes | 336,117 | - | ||||||
Increase in deferred rent and interest discount | 41,538 | 171,119 | ||||||
Decrease in trademark | 183 | 183 | ||||||
Net cash flow used in operating activities | (82,082 | ) | (1,338,128 | ) | ||||
Cash flows from investing activities: | ||||||||
Investment in tenant improvements and office equipment | - | (235,579 | ) | |||||
Net cash flow used in investing activities | - | (235,579 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible notes | 55,000 | 1,250,000 | ||||||
Payments on tenant allowances note and mortgage | (48,881 | ) | (79,057 | ) | ||||
Payment on settlement of lease termination | (50,000 | ) | - | |||||
Net cash flows from financing activities | (43,881 | ) | 1,170,943 | |||||
Net cash flows | (125,963 | ) | (167,185 | ) | ||||
Cash and cash equivalents, beginning of period | 151,311 | 674,495 | ||||||
Cash and cash equivalents, end of period | $ | 25,348 | $ | 507,310 | ||||
Supplemental cash flow disclosures: | ||||||||
Cash paid for interest | $ | 47,482 | $ | 153,513 | ||||
Cash paid for income taxes | $ | - | $ | - |
STWC HOLDINGS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine months Ended October 31, | ||||||||
| 2018 | 2017 | ||||||
Cash flows from operating activities: | ||||||||
Net (loss)/Income | $ | (1,124,264 | ) | $ | 374,323 | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 755 | 1,325 | ||||||
Decrease in trademark | 549 | 549 | ||||||
Loss from equity investment in unconsolidated subsidiary | 10,129 | 15,000 | ||||||
Bad debt expense | — | 3,000 | ||||||
Stock-based compensation and conversion of debt | 183,775 | — | ||||||
Increase in accounts receivable | (43,998 | ) | (8,000 | ) | ||||
Increase in inventory | (17,898 | ) | — | |||||
Increase in prepaid expenses and other assets | (11,289 | ) | — | |||||
Increase in deferred revenue | 26,000 | 135,000 | ||||||
Increase in accounts payable and accrued expenses | 543,152 | 418,420 | ||||||
Net cash flow (used in)/provided by operating activities from continuing operations | (433,089 | ) | 939,617 | |||||
Net cash flow used in operating activities from discontinued operations | — | (1,013,193 | ) | |||||
Net cash flow used in operating activities | (433,089 | ) | (73,576 | ) | ||||
Cash flows from investing activities: | ||||||||
Investment in trademark | (2,250 | ) | — | |||||
Purchase of equipment | — | (4,024 | ) | |||||
Investment in unconsolidated subsidiary | (152,983 | ) | — | |||||
Net cash flow used in investing activities from continuing operations | (155,233 | ) | (4,024 | ) | ||||
Net cash flow used in investing activities from discontinued activities | — | — | ||||||
Net cash flow used in investing activities | (155,233 | ) | (4,024 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of stock | 683,200 | — | ||||||
Proceeds from conversion of warrants | 42,150 | — | ||||||
Cash advances for notes receivable | (409,272 | ) | (58,766 | ) | ||||
Proceeds from notes payable | 225,000 | — | ||||||
Cash (payments)/advances from related parties | 49,562 | 68,629 | ||||||
Net cash flows from financing activities from continuing operations | 590,640 | 9,863 | ||||||
Net cash flow from financing activities from discontinued activities | — | — | ||||||
Net cash flows from financing activities | 590,640 | 9,863 | ||||||
Net cash flows | 2,318 | (67,737 | ) | |||||
Cash and equivalent, beginning of period | 27,925 | 133,189 | ||||||
Cash and equivalent, end of period | $ | 30,243 | $ | 65,452 | ||||
Supplemental cash flow disclosures: | ||||||||
Cash paid for interest | $ | 6,477 | $ | 92,861 | ||||
Cash paid for income taxes | $ | — | $ | — | ||||
| ||||||||
Supplemental disclosure of non-cash activities: | ||||||||
Conversion of related party advances | $ | 402,508 | $ | — | ||||
Acquisition of interest in unconsolidated subsidiary | $ | 196,438 | $ | — |
See accompanying notes.
(Unaudited)
Common Stock | ||||||||||||||||||||
Shares | Amount | Additional Capital In Excess of Par Value | Deficit Accumulated | Total | ||||||||||||||||
Balance, January 31, 2018 | 27,140,550 | — | $ | 5,325,684 | $ | (6,164,832 | ) | $ | (839,148 | ) | ||||||||||
Issuance of common stock for: | ||||||||||||||||||||
Regulation D offering | 3,416,000 | 683,200 | 683,200 | |||||||||||||||||
Warrant conversions | 281,000 | — | 42,150 | — | 42,150 | |||||||||||||||
Conversion of debt | 2,012,539 | — | 402,508 | — | 402,508 | |||||||||||||||
Stock-based compensation | — | — | 76,000 | — | 76,000 | |||||||||||||||
Common stock issued | ||||||||||||||||||||
for Volume 2, LLC | 500,000 | — | 100,000 | — | 100,000 | |||||||||||||||
Warrants issued for | ||||||||||||||||||||
Volume 2, LLC | — | — | 96,438 | — | 96,438 | |||||||||||||||
Beneficial conversion feature | ||||||||||||||||||||
Related to convertible note | — | — | 225,000 | — | 225,000 | |||||||||||||||
Net Loss | — | — | — | (1,124,264 | ) | (1,124,264 | ) | |||||||||||||
Balance, October 31, 2018 | 33,350,089 | — | $ | 6,950,980 | $ | (7,289,096 | ) | $ | (338,116 | ) | ||||||||||
April 30, 2016 | January 31, 2016 | |||||||
Security deposits | $ | 150,000 | $ | 150,000 |
| October 31, 2018 |
| January 31, 2018 |
| ||||
Leasehold improvements | $ | 2,200 | $ | 2,200 | ||||
Office equipment, furniture and fixtures |
| 26,276 |
| 26,276 | ||||
| 28,476 |
| 28,476 | |||||
Accumulated amortization and depreciation |
| (25,458) |
| (24,703) | ||||
$ | 3,018 | $ | 3,773 | |||||
|
|
|
|
|
| |||
8
April 30, 2016 | January 31, 2016 | |||||||
Tenant improvements: | ||||||||
Grow lights for cultivation purposes | $ | 452,700 | $ | 452,700 | ||||
Structural improvements | 48,511 | 48,511 | ||||||
Office equipment: | ||||||||
Computer equipment | 41,200 | 41,200 | ||||||
Office furniture and fixtures | 24,450 | 24,450 | ||||||
Cultivation equipment | 150,000 | 150,000 | ||||||
716,861 | 716,861 | |||||||
Accumulated amortization and depreciation | (120,037 | ) | (77,308 | ) | ||||
$ | 596,824 | $ | 639,553 |
Income taxes -– The Company accounts for income taxes pursuant to ASC 740. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Long-Lived Assets -– In accordance with ASC 350, the Company regularly reviews the carrying value of intangible and other long-lived assets for the existence of facts or circumstances, both internally and externally, that suggest impairment. If impairment testing indicates a lack of recoverability, an impairment loss is recognized by the Company if the carrying amount of a long-lived asset exceeds its fair value.
Trademarks - – Trademarks and other intangible assets are stated at cost and are amortized using the straight-line method over fifteen years. Accumulated amortization was $1,708$3,538 and $1,525at April 30$2,989 at October 31, 2018 and January 31, 2016,2018, respectively, and consisted of the following at April 30, 2015:
Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||
Trademarks | $ | 11,010 | $ | 1,708 | $ | 9,302 |
| Gross Carrying Amount |
| Accumulated Amortization |
|
| Net | ||
Trademarks | $ | 13,260 |
| $ | 3,538 |
| $ | 9,722 |
Deferred Rent -Revenue – The Company recognizes rent expenseperiodically collects advances from operating leases on the straight-line basis. Differences between the expense recognized and actual paymentscustomers related to consulting services. These advances are recorded as deferred rent.
Revenue RecognitionShare-Based Payments and Stock-Based Compensation - Until June 30, 2015, revenue had been recognized– Share-based compensation awards, including warrants and restricted stock awards, are recorded at estimated fair value of the awards' grant date, based on an accrual basis as earned under termsestimated number of Fulfillment Services contracts ("Master Service Agreements") that we entered into with two cultivation facilities and nine retail stores (five of which sell both recreation and medical marijuana to the public, three of which on sell medical marijuana to the public, and one of which only sells recreation marijuana to the public) ("Regulated Entities")awards that are owned by Shawn Phillips, the former Chief Executive Office, former director of the Company, and who expected to vest. The grant date fair value is also the husband of our majority owner and present Chief Executive Officer and President. Subsequent to June 30, 2015, Shawn Phillips made the decision, with the concurrence of the management of the Company, to cancel all of the above referenced Master Service Agreements. Such cancellation was deemed advisable by Mr. Phillips and management of the Company in light of the uncertainty of the right of the Company to supply such Fulfillment Services in Colorado.
The fair value of warrants is estimated using the Black-Scholes option-pricing model. The determination of the fair value of each stock award using this option-pricing model is affected by the Company's assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the Regulated Entities. Additionally, we leased grow facilities and equipment to the Regulated Entities for a period equal toexpected stock price volatility over the term of the underlying leaseawards and the expected term of the awards based on an analysis of the actual and projected employee stock option exercise behaviors and the contractual term of the awards. The Company recognizes stock-based compensation expense over the requisite service period, which is generally consistent with an independent, third party lessor in an amount equalthe vesting of the awards, based on the estimated fair value of all stock-based payments issued to employees and directors that are expected to vest.
Discontinued Operations – During November 2017, the sumCompany settled all remaining operations related to its rental activities with regulated entities. As a consequence of (i) the monthly lease payment, (ii) plussale, the costoperating results and the assets and liabilities of reimbursed operating expenses paid to the lessor each month, (iii) plusdiscontinued operations, which formerly comprised the amount of monthly amortization of tenant improvements, and (iv) plus a premium of forty percent. Since there was no additional milestone that needed to be met with respect to providing the above enumerated services, in accordance with ASC 605, the revenue was recognizedrental operations, are presented separately in the month in whichCompany's financial statements. There were no components of major assets and liabilities associated with the services were provided. For the period from July 1, 2015 throughdiscontinued operations at October 31, 2018 and at January 31, 2016, revenues from2018. Summarized financial information for the Regulated Entities consisted solely of subleases with mark-ups from tendiscontinued rental business is shown below. Prior period balances have been reclassified to forty percent frompresent the amounts we pay the landlordsoperations of the properties. And, since there are no additional milestones that need to be met, other than actually leasing the facilities and equipment to the Regulated Entities, in accordance with ASC 605, such revenue is recognized in the month in which the lease payments were made by us to the respective independent, third party lessorsrental business as a discontinued operation.
Three Months Ended October 31, 2017 |
|
|
| Nine months Ended October 31, 2017 | ||
|
|
|
| |||
Rental income from the Regulated Entities (Affiliates) | $ | 397,198 |
| $ | 2,254,793 | |
Total revenues |
| 397,198 |
|
| 2,254,793 | |
Operating costs and expenses |
|
|
|
| ||
Reserve for amounts due from Regulated Entities (Affiliates) |
| 99,698 |
|
|
| 984,428 |
Rents and other occupancy |
| (1,719,769) |
|
|
| (87,212) |
Depreciation and amortization |
| 38,831 |
|
|
| 120,756 |
Total operating costs and expenses |
| (1,581,240) |
|
| 1,017,972 | |
Operating (loss)/income from discontinued operations |
| 1,978,438 |
|
| 1,236,821 | |
Other income and (expenses) |
|
|
|
| ||
Interest expense |
| (4,075) |
|
|
| (91,845) |
Loss from discontinued operations | $ | 1,974,363 |
| $ | 1,144,976 |
Net income per share of common stock - We have adopted applicable FASB Codification regarding Earnings per Share, which require presentation of basic and diluted earnings per shareEPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic earnings per shareEPS computation to the numerator and denominator of the diluted earnings per shareEPS computation. In the accompanying financial statements, basic earnings per share of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share gives effect
Recently Issued Accounting Pronouncements
The Company continually assesses any new accounting pronouncements to all potential dilutive securities outstanding duringdetermine their applicability. When it is determined that a new accounting pronouncement affects the period including convertible debt, stock options, and warrants, using the treasury stock method. Diluted earnings per share excludes all potential dilutive shares if their effect is anti-dilutive or would reduce net loss per share amounts. Diluted earnings per share figures are equal to those of basic earnings per share for each period, sinceCompany's financial reporting, the Company hadundertakes a net loss forstudy to determine the periods presented.
Three Months Ended April 30, | ||||||||
2016 | 2015 | |||||||
Warrants issued to consultant | 500,000 | 500,000 | ||||||
Warrants attached to common stock subscriptions | 1,112,350 | 1,112,350 | ||||||
Warrants granted to holders of convertible debt | 2,465,000 | 1,800,000 | ||||||
4,077,350 | 3,412,350 |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. We have incurred net losses of $6,224,646 sinceSince inception, andwe have not achieved profitable operations, raisingand have cumulative losses through October 31, 2018 of $7.1 million. Our losses to date raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our achieving a sustainable level of profitability. The Company intends to continue financing its future development activities and its working capital needs largely from the private sale of our securities, with additional funding from other traditional financing sources, including convertible term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. TheHowever, the financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 34 – Related Party TransactionsFair value of financial instruments
The carrying amounts of cash and Collection Reserve for Amounts Due from Affiliated Entities:
The FASB Codification clarifies that fair value is an exit price, representing the Company,amount that would be received to cancel allsell an asset or paid to transfer a liability in an orderly transaction between market participants. It also requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1: | Quoted prices in active markets for identical assets or liabilities. |
Level 2: | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability. |
Level 3: | Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
The determination of where assets and liabilities fall within this hierarchy is based upon the above referenced Master Service Agreements. Such cancellation was deem advisable by Mr. Phillips and managementlowest level of the Company in light of the uncertainty of the right of the Company to supply such Fulfillment Services in the state of Colorado. Concurrent with the cancellation of the Master Service Agreements, the Company laid off substantially all of its employees.
The Company entered into a lease agreement with an affiliate for ourthe Company's corporate office needs.needs, consisting of 6,176 square feet of office space. The lease isoriginally provided for a 31 month31-month period, that commenced in January 2014 for 6,176 square feet at an annual rate of $64,848 for the first twelve months, $67,936 for the subsequent 12 months, and $41,431 for the subsequent 7 months paid monthly, through October 31, 2016. The lease was extended in November 2016 for a 5-year period ending October 31, 2021. This lease to the Company is on the same terms and conditions as is the direct lease between the affiliate and the independent lessor. Consequently, we believethe Company believes that the lease terms to the Company are comparable to lease terms wethe Company would receive directly from third party lessors in ourthe Company's market, because the related party terms mirror the terms of the direct lease between the independent, third party lessor and the affiliated entity.
During the three months ended October 31, 2018 and 2017, rent expense was $13,500 and $28,143, respectively. During the nine months ended October 31, 2018 and 2017, rent expense was $39,516 and $56,445, respectively.
As of October 31, 2018, future minimum lease payments are as follows:
For the Fiscal Year Ending January 31,
| ||||
Remainder of 2019 |
| $ | 13,750 |
|
2020 |
|
| 55,250 |
|
2021 |
|
| 56,250 |
|
2022 |
|
| 42,750 |
|
Thereafter |
|
| ||
Total minimum lease payments |
| $ | 168,000 |
|
Note 6 – Note Receivable
The Company entered into management and licensing agreements with a private entity in Puerto Rico, COPR Enterprises, LLC, 49% owned by Erin Phillips to operate five dispensaries and two cultivation operations in Puerto Rico. In conjunction with these agreements, the Company has begun providing funds to operate the Puerto Rico operations, which is evidenced by a promissory note. The note provides for a 36-month payment schedule bearing interest at 12%. The principal amount of the loan has not been determined. Through October 31, 2018 the Company has advanced $275,107 related to the note.
The Company entered into management and licensing agreements with a private entity to establish a joint venture in Oklahoma, 2600 Meridian, LLC, that is owned 25% by the Company. In conjunction with this joint venture the Company has agreed to provide funds to operate the operations. The note provides for a 36-month payment schedule bearing interest at 12%. The principal amount of the loan has not been determined. Through October 31, 2018 the Company has advanced $228,227 related to the note.
Note 7 – Due to Related Party
The Company borrowed $49,562 from related parties to fund operations during the nine months ended October 31, 2018. One of the related parties converted $322,006 in loans to common stock during the nine months ended October 31, 2018. The loans do not carry an interest rate and do not have a maturity date. As of October 31, 2018 and January 31, 2018, the Company owed related parties $218,526 and $490,970, respectively.
Note 8 – Notes Payable
On August 29, 2018, the Company entered into a lease agreement on April 1, 2014Note Purchase and Security Agreement (the "Purchase Agreement") with Richland Fund, LLC., a Delaware limited liability company ("Richland"). Pursuant to lease from an independent third party a cultivation facility of approximately 65,000 square feet ("51st Ave Lease") for a term of five years and nine months. The termsthe Agreement, Richland agreed to purchase Convertible Promissory Notes of the 51st Ave Lease stipulatesCompany (collectively, the payment of $15,000 per month, prorated if necessary, until such time that the Lessor is able to deliver a Certificate of Occupancy, which occurred on August 1, 2014. Thereafter, lease payments are scheduled to be $176,456 per month for the first six months of the lease, and then are scheduled to be $221,833 per month for the subsequent 24 months, $231,917 per month for the subsequent 12 months, $242,000 per month for the subsequent 12 months and $247,041 per month for the final 12 months of the lease. Under the terms of the 51st Ave Lease, we are obligated to reimburse the lessor for operating expenses applicable to the leased property and we paid the lessor a security deposit of $150,000 We have the option to renew the 51st Ave Lease at the end of the term of the lease at a mutually agreed upon rate per square foot; there is no option to purchase the property underlying the 51st Avenue Lease. The Lessor provided all of the tenant improvements that enable the continuous cultivation of marijuana plants"Notes"), in the facility. We account for this lease as an operating lease rather than as a capital lease, becauseaggregate principal amount of $225,000, funded in three tranches, (i) $100,000.00 (the "First Note"), (ii) $67,000.00 (the "Second Note"), and (iii) the lease does not transfer ownership to us atbalance of $58,000.00 (the "Third Note"). The Notes bear 12% interest per annum, with the end of the lease, there is no bargain purchase price for the cultivation facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the cultivation facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We subleased this cultivation facility to a Regulated Entitylast payment under the termsNotes due January 15, 2020. The Notes are secured by all assets of a Master Service Agreement up until June 30, 2015, at which time the Master Service Agreement with the Regulated Entity that operates the cultivation facility was terminated. The term of the Master Service Agreement was for five years and nine months in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, and (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the 51st Avenue cultivation facility has been recognized on a monthly basis, as the user is charged for the amount of the sublease. On June 1, 2015, upon the cancellation of the related Master Service Agreement, we entered into a sublease with the Regulated Entity that holds the license to operate the 51st Avenue cultivation facility. The term of the sublease is for the period of July 1, 2015 terminating May 1, 2017 on a triple net lease basis, payable in a monthly lease amount of $265,800. At the end of the term of the sublease, the Company will negotiate an extension period at a monthly rate mutually acceptable to the Company and the subtenant.
The Notes are obligatedconvertible into common stock of the Company. The conversion price will be equal to paythe lower of (i) $0.15 cents per share (ii) or the average of the closing bid price of the Company's common stock taken over the three trading days prior to conversion or (iii) upon any issuance by the Company of common stock, or a security depositthat is convertible into
common stock, at a price lower than a net receipt to the Company of $133,679 one half of which was due and paid upon$0.15 per share, at such price that shall be at the executionsame discount ratio as on the Funding Date. The conversion price of the Nome Lease, the final half was due and payable 30 days after the commencement date. We are responsibleNotes will be further subject to provide allproportional adjustment for stock splits, reverse stock splits or combinations of the tenant improvements that will enable the continuous cultivation of marijuana plants at this cultivation facility. We accounted for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the cultivation facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the cultivation facility,shares, stock dividends, and the current present value oflike. There are penalties for failure to timely deliver conversion shares.
Green Acres Note
In order to continue to fund ongoing California operations, on or around April 6, 2018, the minimum lease payments is less than 90% of the fair market value of the asset. The Regulated Entities were not been able to obtain sufficient licenses from the state of Colorado to allow for sufficient production levels for the facility to be economically viable. As a result, the Nome facility was closed on May 12, 2015 and the employees that had been hired by the Regulated Entities to operate the facility were terminated. On September 30, 2015, with the consent of the owner of the Nome property, the Company's lease for this property was terminated and the associated tenant improvement loan was cancelled. We wrote off assets comprised of tenant improvements, security deposits and prepaid lease amounts in the aggregate of $1,792,910 and wrote off related balances comprised of a tenant improvement loan, deferred lease payments and accumulated amortization of leasehold improvements in the aggregate amount of $1,576,374. We received cash back from the lessor in the amount of $59,598, as the net return of certain deposits, after $94,475 was retained by the lessor as payment of the lease for the month in which the lease was cancelled. We recognized a loss on the cancellation of this lease in the amount of $62,503.
Note 9 – Stockholders Equity
Common Stock
On August 29, 2018, in conjunction with the Richland Note, the Company issued Richland warrants to purchase 100,000 shares of the Company's common stock for $18,000. Richland exercised the warrants on October 3, 2018.
From approximately September 24, 2018 to October 16, 2018, the Company issued a total of 281,000 shares of its common stock for $42,150 resulting from the exercise of outstanding warrants with an exercise price of $0.15 per share. These shares were issued pursuant to Section 4(a)(2) of the Securities Act.
On October 15, 2018, the Company entered into an Exchange Agreement (the "Exchange Agreement") with Shawn Phillips ("Mr. Phillips"), pursuant to which the Company issued Mr. Phillips 2,012,539 shares of the Company's Common Stock in exchange for $322,006 of debt owed to Mr. Phillips (the "Exchange"). The Exchange agreement otherwise contains standard terms and conditions. During the first 12three and nine months ended October 31, 2018 the Company recognized an expense of $80,502 related to the conversion of these notes as a result of the lease, lease payments are scheduledstock being issued at a discount below the private offering price.
On or around October 18, 2018, the Company completed a private offering to be $23,984 foraccredited investors (the "Offering") in accordance with Regulation D under the first four months and 24,531 for the next eight months, and then are scheduled to be $24,647, $25,140, $31,221, $31,845, $32,483, $33,132, $33,794, $34,470, and $35,160 for the second through the tenth yearSecurities Act of 1933 ("Securities Act"). The Offering consisted of 3,416,000 shares of the lease, respectively. We are not required to provide any security deposits or firstCompany's Common Stock at a price per share of $0.20, for offering proceeds of $683,200. All securities sold in the Offering were sold in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and last month's rental amounts. We have an optionRegulation D promulgated thereunder.
Warrants
On October 15, 2018, the Company issued warrants to purchase 1,900,000 shares of its common stock to three individuals in exchange for services, respectively. The warrants all carry two-year terms and an exercise price of $0.16 per share. Forty percent of each warrant may be exercised pursuant to a cashless exercise formula. The warrants otherwise contain standard terms and conditions. During the building for $2,400,000 at any time duringthree and nine months ended October 31, 2018 the first 36 monthsCompany recognized $76,000 in expense related to the issuance of these warrants. These warrants were issued pursuant to Section 4(a)(2) of the lease, provided that we deliverSecurities Act.
On October 26, 2018 the Company issued a purchase option noticetotal of 25,000 shares to Tysadco Partners LLC as compensation for services.
The shares shall vest at a schedule of 10,000 shares at on November 1, 2018, 7,500 shares on the 120th day from November 1, 2018, and 7,500 shares on the 180th day from November 1, 2018, subject to the Lessor prior to the endinvestor relations agreement being in effect as of the 33rd month of the lease. We are responsible to provide all of the tenant improvements that will enable the continuous cultivation of marijuana plants under approximately 370 grow lights. We account for this lease as an operating lease rather than as a capital lease, because the lease does not transfer ownership to us at the end of the lease, there is no bargain purchase price for the cultivation facility as a component of the lease, the terms of the lease are less than 75% of the economic life of the cultivation facility, and the current present value of the minimum lease payments is less than 90% of the fair market value of the asset. We subleased this cultivation facility to a Regulated Entity under the terms of a Master Services Agreement up until June 30, 2015, at which time the Master Service Agreement with a Regulated Entity that operates the cultivation facility was terminated. The term of the Maser Service Agreement was for a period of 10 years in an amount equal to the sum of (i) the monthly lease payment, (ii) plus the cost of reimbursed operating expenses paid to the lessor each month, (iii) plus the amount of monthly amortization of tenant improvements, and (iv) a premium of forty percent. Revenue from the sublease of the Bryant Street cultivation facility was recognized on a monthly basis as the user was charged for the amount of the sublease. On July 1, 2015, upon the cancellation of the related Master Service Agreement, we entered into a sublease with a Regulated Entity that holds the license to operate the Bryant Street cultivation facility. The term of the sublease is for the period of July 1, 2015 terminating September 1, 2017, payable in monthly lease amounts of $42,993, on a triple net lease basis. At the end of the term of the sublease, the Company will negotiate an extension period at a monthly rate mutually acceptable to the Company and the subtenant.
For the twelve Months Ending April 30, | ||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | |||||||||||||||||
$ | 3,047,600 | $ | 3,178,700 | $ | 3,325000 | $ | 2,889,500 | $ | 427,500 | 1,510,200 |
Note 511 – Income Taxes:
GAAP requires an entity to disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued ("subsequent events") as well as the date through which an entity has evaluated subsequent events. There are two types of subsequent events. The first type consists of events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, ("recognized subsequent events"). The second type consists of events that provide evidence about conditions that did not exist at the date of the balance sheet but arose subsequent to that date ("non-recognized subsequent events").
Recognized Subsequent Events
None
Unrecognized Subsequent Events
The Company useswas named as a defendant in one civil suit filed with the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax basesDistrict Court of the City and County of Denver, Colorado. This matter has been resolved.
On October 15, 2018, the Company entered into an Executive Employment Agreement (the "Phillips Employment Agreement") with Erin Phillips ("Ms. Phillips"). Pursuant to the Phillips Employment Agreement, Ms. Phillips agreed to continue to serve as the Company's assetsCEO for a term commencing on October 15, 2018 and liabilities.continuing until terminated by either party. The Company acknowledged that Ms. Phillips had $165,000 deferred compensation as of July 31, 2018 and Ms. Phillips agreed to continue to defer payment until November 1, 2018. The deferred tax assetscompensation is recorded in accounts payable and liabilities are computed using enacted tax rates in effectaccrued expenses on the balance sheet. Ms. Phillips will receive a base salary of $180,000 per year. If the Agreement is terminated by Ms. Phillips with "good reason" or by the Company without "cause," Ms. Phillips will be entitled to severance pay equal to $500,000 plus her base salary for twelve months. The Phillips Employment Agreement otherwise contains standard terms and conditions.
On October 15, 2018, the year in whichCompany entered into an Employment Agreement (the "Kotzker Employment Agreement") with Jay Kotzker ("Mr. Kotzker"). Pursuant to the temporary differences are expectedEmployment Agreement, Mr. Kotzker agreed to reverse.
Three Months Ended April 30, | Year Ended January 31, | |||||||||||
2016 | 2015 | 2016 | ||||||||||
Income tax expense (benefit) | ||||||||||||
Current: | ||||||||||||
Federal | $ | (257,008 | ) | $ | (579,936 | ) | $ | (1,316,263 | ) | |||
State | (29,908 | ) | (70,106 | ) | (161,765 | ) | ||||||
Deferred income tax expense benefit | (286,916 | ) | (650,042 | ) | (1,478,028 | ) | ||||||
Valuation allowance | 286,916 | 650,042 | 1,478,028 | |||||||||
Provision | $ | - | $ | - | $ | - |
On October 18, 2018, the Company entered into an Employment Agreement (the "SPhillips Employment Agreement") with Shawn Phillips ("Mr. Phillips"). Pursuant to the Employment Agreement, Mr. Phillips agreed to serve as the Company's Senior Business Development Strategist for a term commencing on October 18, 2018 and continuing until terminated by either party. Mr. Phillips will receive a base salary of ASC 740, "Income Taxes" on July1, 2007. FASB ASC 740 provides detailed guidance for$96,000 per year. If the financial statement recognition, measurement and disclosure of uncertain tax positions recognized inAgreement is terminated by the financial statements. Tax positions must meet a "more-likely-than-not" recognition threshold atCompany without "cause," Mr. Phillips shall be entitled to severance pay equal to three months' salary. During the effective date to be recognized upon the adoption of FASB ASC 740 and in subsequent periods. The componentsterm of the income tax provision are
April 30, 2016 | January 31, 2016 | |||||||||||||||||||||||
Current | Long Term | Total | Current | Long Term | Total | |||||||||||||||||||
Convertible notes | $ | 2,465,000 | $ | - | $ | 2,465,000 | $ | 2,410,000 | $ | - | $ | 2,410,000 | ||||||||||||
Mortgage | 222,760 | 85,369 | 308,129 | 211,273 | 145,737 | 357,010 | ||||||||||||||||||
Settlement and Equipment Note | 100,100 | - | 100,100 | 50,000 | 50,000 | |||||||||||||||||||
$ | 2,787,860 | $ | 85,369 | $ | 2,873,229 | $ | 2,671,273 | $ | 145,737 | $ | 2,817,010 |
As of January 31, 2016, the Company was in default under the terms of the convertible notes in that it had not paid the full amount of the monthly accrued interest as it became due. As a result, all principal, plus accrued and unpaid interest owing under the terms of the convertible notes, are classified as current liabilities as of January 31, 2016. However, effective June 30, 2016, the Company entered into a debt modification agreement with the lenders. Pursuant to the agreement, the Company will pay the lenders $84,482 each month for ten months, with the first payment due on August 15, 2016. The $84,482 consists of past due interest of $32,482 plus current monthly interest of $52,000. Beginning June 15, 2017 only current monthly interest of $52,000 will be due the lenders. In addition to the above:
April 30, | ||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||||
Convertible notes - interest only | $ | 618,900 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Convertible notes - principal | 2,465,000 | - | - | - | - | |||||||||||||||
Mortgage – principal plus interest | 232,000 | 184,000 | - | - | - | |||||||||||||||
Settlement and Equipment advance | 100,100 | - | ||||||||||||||||||
$ | 3,416,000 | $ | 184,000 | $ | - | $ | - | $ | - |
Three Months Ended April 30, | Year Ended January 31, | |||||||||||
2016 | 2015 | 2016 | ||||||||||
Revenues | $ | - | $ | 475,912 | $ | 764,071 | ||||||
Expenses | - | (647,241 | (1,146,758 | ) | ||||||||
$ | - | $ | (171,329 | ) | $ | (382,687 |
Overview
We were established to provide sophisticated Fulfillment Services to medical and retail stores and cultivation facilities in the regulated cannabis industry throughout the United States. Such Fulfillment Services are only be provided to stores and facilities located in geographical areas where the governing state and local ordinances allow for the provision of fully implementing the Company's business plan, managementsuch services.
The Fulfillment Services that we currently are able to provide are summarized, as follows:
●Application Filing Assistance: Based upon our knowledge of the Company met with representativesvarious rules and regulations of the Colorado Marijuana Enforcement Division (the "MED") in August 2014respective state and presented the structure of the Companylocal jurisdictions, we will provide
turn-key application preparation and its business plan for providingsubmission services to the retail marijuana outlets and marijuana cultivation facilities (the "Regulated Entities") owned by Shawn Phillips, a former officer and director. Subsequent to the meeting, over 60 license applications for the cultivation and sale of marijuana were approved and licenses were granted to Shawn Phillips, while he was also serving as the Company's Chief Executive Officer, and while his wife, Erin Phillips, maintained her position as an officer and the principal shareholder of the Company.
●Branding, Marketing and Administrative Consulting Services: Customers may contract with us to use the 51st AvenueStrainwise® name, logo and affinity images in their retail store locations. A monthly fee will permit a branding customer to use the Strainwise® brand at a specific location. In addition, we will assist operators in marketing and managing their businesses, setting up new retail locations and general business planning and execution at an hourly rate. This includes services to establish an efficient, predictable production process, as well as, nutrient recipes for consistent and appealing marijuana strains.
●Accounting and Financial Services: For a monthly fee, we will provide customers with a fully implemented general ledger system, with an industry centric chart of accounts, which enables management to readily monitor and manage all facets of a marijuana medical dispensary and cultivation facilityfacility. We will provide bookkeeping, accounts payable processing, cash management, general ledger processing, financial statement preparation, state and municipal sales tax filings, and state and federal income tax compilation and filings.
●Compliance Services: The rules, regulations and state laws governing the production, distribution and retail sale of marijuana can be complex, and compliance may prove cumbersome. Thus, customers may contract with us to supply recreational marijuana. On June 11, 2015, the State Licensing Authority issuedimplement a "Notice of Grounds for Denial of Retail Marijuana License Application and Notice of Duty to Respond" ("Grounds for Denial").The Grounds for Denial werecompliance process, based upon the beliefnumber and type of licenses and permits for their specific business. We will provide this service on both an hourly rate and stipulated monthly fee.
●Lending: We will provide loans to individuals and businesses in the cannabis industry.
We do NOT grow marijuana plants, produce marijuana infused products, sell marijuana plants and/or sell marijuana infused products of any nature in any jurisdiction were such activity has not been legalized.
Prior to December 2017, we provided rental and operational support-related activities to regulated entities, that have been discontinued.
Comparison of the MED that the Company and persons other than Mr. Phillips have a direct or indirect ownership or financial interest in RMF, and such should have been included on the application.
For the Three Months Ended October 31, |
| Change | ||||||||||
2018 |
| 2017 |
|
| $ | % |
| |||||
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
| |||||
Consulting services | $ | 12,500 |
| $ | 20,000 |
| $ | (7,500) | (38) |
| ||
Cost of consulting services |
| (12,500) |
|
| (55,121) |
|
| 42,621 | (77) |
| ||
Gross profit |
| — |
|
| (35,121) |
|
| 35,121 | 100 |
| ||
Operating costs and expenses |
|
|
|
|
|
|
|
| ||||
Rents and other occupancy |
| 13,500 |
|
| 28,143 |
|
| (14,643) | (52) |
| ||
Compensation |
| 148,856 |
|
| 137,206 |
|
| 11,650 | 8 |
| ||
Professional, legal and consulting |
| 335,429 |
|
| 33,150 |
|
| 302,279 | 912 |
| ||
Depreciation and amortization |
| 435 |
|
| 183 |
|
| 252 | 137 |
| ||
General and administrative |
| 79,895 |
|
| 97,202 |
|
| (17,307) | (18) |
| ||
Total operating costs and expenses |
| 578,115 |
|
| 295,884 |
|
| 282,231 | 95 |
| ||
Loss from continuing operations |
| (578,115) |
|
| (331,005) |
|
| (247,110) | 75 |
| ||
Loss on equity investment in unconsolidated subsidiary |
| (10,129) |
|
| — |
|
| (10,129) | 100 |
| ||
Other |
| (114,986) |
|
| (115) |
|
| (114,871) | 100 |
| ||
Loss from continuing operations, before provision for taxes on income |
| (703,230) |
|
| (331,120) |
|
|
372,110 |
112 |
| ||
Provision for taxes on income |
| — |
|
| — |
|
| — | — |
| ||
Loss from continuing operations, net of tax |
| (703,230) |
|
| (331,120) |
|
| 372,110 | 112 |
| ||
Income (loss) from discontinued operations, net of tax |
| — |
|
| 1,974,363 |
|
| (1,974,363) | (100) |
| ||
Net income/(loss) | $ | (703,230) |
| $ | 1,643,243 |
| $ | (2,346,473) | (143) |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Comparison of the Regulated Entities, madenine months ended October 31, 2018 to the decision, with concurrence of the management of the Company, to cancel all of the above referenced Master Service Agreements. The cancellation was deem advisable by Mr. Phillips and management of the Company in light of the uncertainty of the right of the Company to supply such Fulfillment Services in Colorado. The uncertainty was created by allegations contained in the
For the Nine Months Ended October 31, |
| Change | ||||||||
2018 |
| 2017 |
|
| $ | % | ||||
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Consulting services | $ | 143,749 |
| $ | 173,500 |
| $ | (29,751) | (17) |
|
Cost of consulting services |
| (24,943) |
|
| (172,473) |
|
| 147,530 | (86) |
|
Gross profit |
| 118,806 |
|
| 1,027 |
|
| 117,779 | 11,468 |
|
Operating costs and expenses |
|
|
|
|
|
|
|
| ||
Rents and other occupancy |
| 39,516 |
|
| 56,445 |
|
| (16,929) | (30) |
|
Compensation |
| 433,341 |
|
| 389,734 |
|
| 43,607 | 11 |
|
Professional, legal and consulting |
| 420,518 |
|
| 84,283 |
|
| 336,235 | 399 |
|
Depreciation and amortization |
| 1,304 |
|
| 1,874 |
|
| (570) | (30) |
|
General and administrative |
| 221,536 |
|
| 238,328 |
|
| (16,792) | (7) |
|
Total operating costs and expenses |
| 1,116,215 |
|
| 770,664 |
|
| 334,551 | 45 |
|
Loss from continuing operations |
| (997,409) |
|
| (769,637) |
|
| (227,772) | 30 |
|
Loss on equity investment in unconsolidated subsidiary |
| (10,129) |
|
| — |
|
| (10,129) | 100 |
|
Other |
| (116,726) |
|
| (1,016) |
|
| (115,710) | 11,389 |
|
Loss from continuing operations, before provision for taxes on income |
| (1,124,264) |
|
| (770,653) |
|
|
(353,611) |
(46) |
|
Provision for taxes on income |
| — |
| — |
|
| — | — |
| |
Loss from continuing operations, net of tax |
| (1,124,264) |
|
| (770,653) |
|
| (353,611) | (46) |
|
Income (loss) from discontinued operations, net of tax |
| — |
|
| 1,144,976 |
|
| 1,144,976 | (100) | |
Net income/(loss) | $ | (1,124,264) |
| $ | 374,323 |
| $ | (1,498,587) | (400) | |
|
|
|
|
|
|
|
|
|
|
Material changes in line items in our Statement of Operations for the three and nine months ended April 30, 2016October 31, 2018 as compared to the same period last year, are discussed below:
� ● Rent and other occupancy– During 2017 rent included various back charges that resulted in higher rent. As a result of not having similar charges during 2018, rent decreased for | ||||
� ● Compensation – Compensation increased as a result of the $11,809,267 billedadditional headcount for operations and to them between January 16, 2014expand our consulting services.
� ● Professional, legal, and April 30, 2016consulting, including $973,798 and $5,306,286 billed – Professional fees increased due to significantly higher fees during the three months ended April 30, 2016due to our efforts to bring our SEC filings into compliance and the year ended January 31, 2016, respectively. However, there is no assurance that the Regulated Entities will be ableissuance of stock-based compensation related to generate enough cashprofessional services provided to pay the $3,168,009 presently owedus.
� ● Other – Other includes costs related to financing, expense related to the Company at April 30, 2016,conversion of payables, and as a result, the receivable fromamortization of debt discount related to the Regulated Entities at April 30, 2016 ($3,168,009) has been fully reserved and charged to expense.
Liquidity and Capital Resources
Our net cash flows are as follows:
| For the Nine months Ended October 31, | |||||||
2018 | 2017 | |||||||
Consolidated Statements of Cash Flows Data: | ||||||||
Net cash used in operating activities | $ | (433,089 | ) | $ | (73,756) | |||
Net cash used in investing activities | (155,233 | ) | ( 4,024) | |||||
Net cash provided by financing activities | 590,640 |
| 9,863 | |||||
Net change in cash | $ | 2,318 |
| $ | (67,737) |
Operating Activities
Our cash used in operating activities is driven primarily by consulting revenue and August 19, 2014,vendor provided credit. Our primary uses of cash from operating activities have been for inventory purchases, compensation expenditures, professional fees, rent expense, and general and administrative expenses. Our cash flows from operating activities will continue to be affected principally by the Company sold 2,224,700 units, atresults of operations and the extent to which we increase spending on personnel expenditures and our working capital requirements.
Investing Activities
During the period we acquired a pricetrademark for $2,250 and made total cash investments of $1.00 per unit, to$152,983 into a groupequity investment in an unconsolidated subsidiary.
Our cash provided by financing was primarily the result of private investors. Each unit consistedadvances made on the Puerto Rico and Oklahoma notes receivable, proceeds from the Richland convertible promissory notes, borrowings from related parties, proceeds from the issuance of one share of the Company's common stock, and one warrant. Every twoconversion of warrants entitle the holder to purchase one sharecommon stock.
Indebtedness Agreements
On August 29, 2018, we entered into a Note Purchase and Security Agreement (the "Purchase Agreement") with Richland Fund, LLC., a Delaware limited liability company ("Richland"). Pursuant to the Agreement, Richland agreed to purchase our Convertible Promissory Notes (collectively, the "Notes"), in the aggregate principal amount of $225,000, funded in three tranches, (i) $100,000.00 (the "First Note"), (ii) $67,000.00 (the "Second Note"), and (iii) the Company's common stock at a pricebalance of $5.00$58,000.00 (the "Third Note"). The Notes bear 12% interest per share at any time priorannum, with the last payment under the Notes due January 15, 2020. The Notes are secured by all of our assets and guarantees from Shawn and Erin Phillips. The Notes may be prepaid without penalty with 30 days' advance notice to January 31, 2019. WhenRichland. In conjunction with the Company acquired the remaining shares of Strainwise, the Company exchanged itsRichland Note, we issued Richland warrants for the outstanding Strainwise warrants. The warrants issued by the Company had the same terms as the Strainwise warrants.
2016 | 2015 | |||||||
Cash used by operations | $ | (82,082 | ) | (1,338,128 | ) | |||
Tenant improvements and equipment purchases | - | (235,579 | ) | |||||
Proceeds from convertible notes | 55,000 | 1,250,000 | ||||||
Loan payments | (48,881 | ) | (79,057 | ) | ||||
Settlement on termination of lease | (50,000 | ) | - |
For additional information see our Current Report on Form 8-K filed with the Company by the Regulated Entities ($3,168,009 as of April 30, 2016).
21
See Note 12 to the financial statements included as part of this report for a description of the Company's significant accounting policies.
ITEM 4.CONTROLS AND PROCEDURES
Under the direction and with the participation of the Company's management, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures as of April 30, 2016.October 31, 2018. The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in its periodic reports with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and regulations, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching its desired disclosure control objectives. Based upon this evaluation, management concluded that the Company's disclosure controls and procedures were not effective as of April 30, 2016 primarilyOctober 31, 2018, primarily based on these criteria, due to material weaknesses resulting from our failure to 1) provide correct responsibilities to adequately segregate activity in the area of cash receipts and cash disbursements, 2) effectively implement comprehensive entity level internal controls, and 3) adequately segregate duties within the accounting department due to an insufficient number of staff.
Changes in Internal Controls
There were no changes in the Company's internal control over financial reporting during the quarter ended April 30, 2016,October 31, 2018, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the Risk Factors as disclosed in our 2018 Form 10-K for the year ended January 31, 2018 filed with the Securities and Exchange Commission on October 9, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On or around October 18, 2018, 23 completed a private offering to accredited investors (the "Offering") in accordance with Regulation D under the Securities Act of 1933 ("Securities Act"). The Offering consisted of 3,416,000 shares of the Company's Common Stock at a price per share of $0.20, for offering proceeds of $683,200. All securities sold in the Offering were sold in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.
From approximately September 24, 2018 to October 16, 2018, we issued a total of 281,000 shares of its common stock for $42,150 resulting from the exercise of outstanding warrants with an exercise price of $0.15 per share. These shares were issued pursuant to Section 4(a)(2) of the Securities Act.
Use of Proceeds
We utilized these funds for an equity investment in Volume 2, LLC, loans to fund joint ventures in Oklahoma and Puerto Rico, and to fund day to day operations.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information.
None.
Item 6. Exhibits
Incorporated by Reference | ||||||||||
Exhibit | Description | Form | Number | Exhibit | Filing Date | |||||
31.1** | Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||||
31.2** | ||||||||||
32.1*** | Certification of the Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||||
101** | The following materials from STWC Holdings, Inc.'s quarterly report on Form 10-Q for the three months ended October 31, 2018 formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iii) the Condensed Consolidated Statement of Changes in Stockholders' Deficit; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) related notes to these financial statements. | |||||||||
* | Indicates management contract or compensatory plan or arrangement. |
** | Filed herewith |
*** | Furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
STWC HOLDINGS, INC.