STEK 10-Q
Stemtech Corp (STEK)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from to
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(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
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(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☐
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of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date shares of common stock, $0.001 par value, issued and outstanding as of August 20th, 2024.
STEMTECH CORPORATION
FORM 10-Q
June 30, 2024
INDEX
| 2 |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information set forth in this Quarterly Report on Form 10-Q, including in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein may address or relate to future events and expectations and as such constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Statements which are not historical reflect our current expectations and projections about our future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and their interpretation of what is believed to be significant factors affecting our business, including many assumptions regarding future events. Such forward-looking statements include statements regarding, among other things:
| · | the size and growth of the potential markets for our products and the ability to serve those markets; |
| · | our expectations regarding our expenses and revenue, the sufficiency of our cash resources and needs for additional financing; |
| · | the rate and degree of market acceptance of any of our products; |
| · | our expectations regarding competition; |
| · | our anticipated growth strategies; |
| · | our ability to attract or retain key personnel; |
| · | our ability to establish and maintain development partnerships; |
| · | regulatory developments in the U.S. and foreign countries, especially those related to change in, and enforcement of, cannabis laws; |
| · | our ability to obtain and maintain intellectual property protection for our products; and |
| · | the anticipated trends and challenges in our business and the market in which we operate. |
Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “would,” “could,” “scheduled,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these words or comparable terminology. Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially and perhaps substantially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors. These statements may be found under the section of our Annual Report on Form 10-K for the year ended December 31, 2023 (filed on July 10th, 2024) entitled “Risk Factors” as well as in our other public filings.
In light of these risks and uncertainties, and especially given the start-up nature of our business, there can be no assurance that the forward-looking statements contained herein will in fact occur. Readers should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
| 3 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Stemtech Corporation
Consolidated Balance Sheets
(Unaudited)
| June 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long term deposits | ||||||||
| Operating lease right-of-use assets - net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable | ||||||||
| Convertible debentures, net of discount | ||||||||
| Operating lease liabilities - current | ||||||||
| Deferred revenues | ||||||||
| Factoring liability | ||||||||
| Derivative liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock - $ par value; shares authorized; and shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stemtech Corporation shareholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest in subsidiaries | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS EQUITY | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Stemtech Corporation
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For The Three Months Ending | For The Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| NET SALES | $ | $ | $ | $ | ||||||||||||
| COST OF GOODS SOLD: | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Freight-in | ||||||||||||||||
| TOTAL COST OF GOODS SOLD | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Commissions | ||||||||||||||||
| Selling and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and expenses, net | ( | ) | ||||||||||||||
| Gain on settlement of derivative liabilities | ||||||||||||||||
| Gain (loss) on extinguishment of debt | ||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PROVISION FOR INCOME TAXES | ( | ) | ||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ( | ) | ( | ) | ||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Shares used to compute loss per share | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Comprehensive loss | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Change in foreign currency translation adjustments | ( | ) | ||||||||||||||
| Comprehensive loss available to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
Stemtech Corporation
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Common Stock | Accumulated | |||||||||||||||||||||||||||||||
| No. of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Other Comprehensive Income (Loss) | Sub total | Non-controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at December 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | ||||||||||||||||||||||||||||||||
| Stock issued for LFR Acquisition | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to APIC | – | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | |||||||||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | – | |||||||||||||||||||||||||||||||
| Settlement of accrued liabilities for common stock | – | |||||||||||||||||||||||||||||||
| Stock issued for LFR Acquisition | – | |||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to APIC | – | |||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | |||||||||||||||||||||||||||||||
| Non-controlling interest | – | |||||||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
Stemtech Corporation
Consolidated Statements of Cash Flows
(Unaudited)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Stock compensation expense | ||||||||
| Non-cash interest expense from issuance on debt (derivative) | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Gain (loss) on settlement of derivative liabilities | ( | ) | ||||||
| Stock issued for services | ||||||||
| (Gain) loss on extinguishment of debt | ( | ) | ||||||
| Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Long term deposits | ( | ) | ||||||
| Deferred revenues | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ||||||||
| Net cash used in investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | ||||||||
| Net proceeds from factoring arrangement | ( | ) | ||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net cash provided (used) by financing activities | ||||||||
| Effects of currency translation on cash | ( | ) | ||||||
| Net increase (decrease) in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental noncash transactions | ||||||||
| Stock issued for LFR Acquisition | $ | $ | ||||||
| Issuance of common stock for conversion of debt | $ | $ | ||||||
| Settlement of accrued liabilities for common stock | $ | $ | ||||||
| Reclassification of derivative liabilities to APIC | $ | $ | ||||||
| Recognition of right of use asset - operating lease | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements
| 7 |
STEMTECH CORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Basis of Presentation
Stemtech Corporation and its Subsidiaries (collectively, the “Company”) was incorporated in the State of Nevada, USA on September 4, 2009 under the previous name Globe Net Wireless Corp. On November 19, 2021, the Company adopted an Amendment to its Articles changing the name of the Corporation to Stemtech Corporation in the state of Nevada, and on April 14, 2022, FINRA gave final approval for said name change, as evidenced by the 8-K filed that date. Stemtech is a global network marketing company that develops science-based products that it believes supports wellness by helping the body maintain healthy stem cell physiology, also known as stem cell enhancers. Known as the Stem Cell Nutrition Company®, the Company is a pioneer in stem cell science, and believes it can demonstrate that adult stem cells function as the natural renewal system of the body. The Company believes its products enhance and support the work of the body’s stem cells by releasing more stem cells, helping to circulate them in the blood and migrate them into tissues, where they can perform their daily function of renewal for optimal health. Our mission is to enhance wellness and prosperity around the world. These products are marketed internationally by the Company’s subsidiaries and through independent distributors. The Company markets its products under the following brands: RCM System, stemrelease3™, Stemflo® MigraStem® and OraStem® (Oral Health Care), and Cellect One® Rapid Renew Stem Cell Peptide Night Cream.
On August 19, 2021, Stemtech Corporation (“Stemtech”), a Delaware corporation, entered into a Merger Agreement (the “Merger Agreement”) with Globe Net Wireless Corp. (“Globe Net” or “GNTW”). The merger was accounted for as a reverse acquisition and recapitalization in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. Management evaluated the guidance contained in ASC 805 with respect to the identification of the acquirer in the merger and concluded, based on a consideration of the pertinent facts and circumstances, that Stemtech acquired Globe Net for financial accounting purposes. On November 9, 2021, the Company changed its fiscal year end from a fiscal year end of August 31 to a calendar year-end of December 31.
The consolidated financial statements include the accounts of Stemtech (Parent) and its twelve (12) subsidiaries:
| 1. | Stemtech HealthSciences Corp (U.S.A.) (“Stemtech HealthSciences”) |
| 2. | Stemtech Canada, Inc. (“Canada”) |
| 3. | Stemtech Health Sciences S. de R.L. de C.V. (“Mexico”) |
| 4. | Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”) |
| 5. | Stemtech Malaysia Holdings Sdn. Bhd. (“Malaysia Holdings”) |
| 6. | Stemtech Malaysia Sdn. Bhd. (“Malaysia”) |
| 7. | Stemtech Taiwan Holding, Inc. (“Taiwan”) |
| 8. | Stemtech Taiwan Branch |
| 9. | Tecrecel S.A. (“Ecuador”) |
| 10. | Food & Health Tech Foodhealth SA (“FHT Ecuador”) |
| 11. | Life Factor Research (“LFR”) – 100% |
| 12. | Stemtech IP Holdings, LLC (U.S.A.) - 100% |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses during the year. On an ongoing basis, management evaluates its estimates and judgments, including those related to accrued expenses. Accordingly, actual results could differ from those estimates.
| 8 |
Note 2 — Summary of Significant Accounting Policies
Going Concern
As reflected in the accompanying
consolidated financial statements, the Company had a net loss of $
Basis of Presentation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and considering the requirements of the United States Securities and Exchange Commission (“SEC”). All intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include
investments in highly liquid financial instruments with original maturities of three months or less. The Company maintains accounts
at financial institutions that, from time to time, may exceed the federal depository insurance coverage limit. On June 30,
2024, the uninsured cash balance amounted to approximately $
Inventory
The Company values inventory, consisting of finished goods and raw materials, at the lower of cost and net realizable value. Cost is determined using an average cost method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its net realizable value. The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classifies inventory markdowns in the statement of operations as a component of cost of goods sold. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations. Currently there are no Markdowns identified. The Company continuously evaluates the levels of inventory held and any inventory held above the expected level of sales in the next twelve months, is classified as non- current inventory.
Intangible Assets and Goodwill
The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated fair values. Impairment is tested under ASC 350, Intangibles - Goodwill and Other.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value of the reporting unit is evaluated on qualitative factors to determine if the reported value may be impaired. If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors using the income approach. An impairment charge is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.
| 9 |
Notes Payable and Convertible Debentures
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable U.S. GAAP with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under ASC 480, Distinguishing Liabilities From Equity. See Note 6 – Notes Payable and Convertible Debentures
Factoring Liability
We have entered into factoring agreements with various financial institutions to receive cash for our future revenues. These transactions are treated as a debt instrument and are accounted for as a liability because the Company makes weekly payments towards the balance and fees. We utilize factoring arrangements as an integral part of our financing for working capital. Any change in the availability of these factoring arrangements could have a material adverse effect on our consolidated financial condition. See Note 6 – Notes Payable and Convertible Debentures.
Derivative Liabilities
The Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that: (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
On May 1, 2023, the Company no longer had derivative liabilities associated with the warrants and their cumulative value of $1,011,451 was reclassified into additional paid in capital on the consolidated statement of stockholders’ deficit.
The Company’s freestanding derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of common shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their proper classification in the accompanying consolidated balance sheet as of June 30, 2024, and December 31, 2023 using the applicable classification criteria enumerated under ASC 815, Derivatives and Hedging. See Note 7 – Derivative Liabilities
Impairment of Long-Lived Assets
The Company assesses, on an annual basis, the recoverability of the carrying amount of intangible assets and long-lived assets used in continuing operations. A loss is recognized when expected future cash flows (undiscounted and without interest) are less than the carrying amount of the asset. The impairment loss is determined as the difference by which the carrying amount of the asset exceeds its fair value. The Company evaluated its long-lived assets for any indications of impairment. The Company concluded that there was no impairment, however there can be no assurance that market conditions will not change or demand for the Company’s products will continue which could result in impairment of long-lived assets in the future.
| 10 |
Revenue Recognition
It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 Revenues from Contracts with Customers. Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the Company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation.
Revenues from direct retail sales to consumers and revenues from independent distributors occur when title and risk of loss has passed, which generally occurs at the time the products are shipped. Revenues are recorded net of estimated sales returns and allowances.
Comprehensive Loss
The other comprehensive loss in the accompanying consolidated financial statements relates to the net loss of the Company for the respective period as well as unrealized foreign currency translation adjustments.
Foreign Currency Translation
A portion of the Company’s business operations occur outside the United States. The local currency of each of the Company’s subsidiaries is generally its functional currency. All assets and liabilities are translated into U.S. Dollars at exchange rates existing at the consolidated balance sheet dates, revenue and expenses are translated at weighted-average exchange rates and stockholders’ deficit is recorded at historical exchange rates. The resulting foreign currency translation adjustments are recorded as a separate component of stockholders’ deficit in the consolidated balance sheets and as a component of comprehensive loss. Transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss.
Leases
In February 2016, the FASB issued ASC 842, Leases, (“ASC 842”) to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases previously classified as operating leases. The Company adopted ASC 842 effective January 1, 2022 and recognized and measured operating leases existing at, or entered into after, January 1, 2021 (the beginning of the earliest comparative period presented) using a modified retrospective approach, with certain practical expedients available (see Note 5). The Company’s accounting for finance leases under ASC 842 remained substantially unchanged.
In accordance with ASC 842, the Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of future lease payments, the Company estimates the incremental borrowing rates corresponding to the reasonably certain lease term. If the estimate of the Company’s incremental borrowing rate was changed, the operating lease assets and liabilities could differ materially.
Finance lease assets and liabilities are recognized at the lease commencement date at the present value of the future lease payments not yet paid using the Company’s incremental borrowing rate, Assets acquired under finance lease are included in property and equipment, while finance lease obligations are included in other current liabilities and other long- term liabilities on the consolidated balance sheets.
| 11 |
Income Tax
The Company accounts for income taxes in accordance with ASC 74, Income Taxes. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances with respect to deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2023 and 2022 consolidated financial statements and did not recognize any liability with respect to unrecognized tax positions in its consolidated balance sheet.
Business Combinations
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired, net of liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Fair Value of the Acquired Assets
The Company accounted for the acquisitions discussed in Note 4 as business combinations using the acquisition method of accounting as prescribed in ASC 805 and ASC 820. In accordance with ASC 805 and ASC 820, the Company assigned fair value to the tangible and intangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.
Segment Information
The Company manages its operations in three geographic segments for the purpose of assessing performance and making operating decisions including North America (including its subsidiaries in United States and Canada), Latin America (including subsidiaries in Mexico and Ecuador) and Asia (including its subsidiaries in Malaysia and Taiwan).
Recent Accounting Pronouncements
In July 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-03, Presentation of Financial Statement (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718), to amend various SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 120, among other things. The ASU does not provide any new guidance so there is no transition or effective date associated with it. The Company is currently assessing the impact of adopting ASU 2023-03 on the consolidated financial statements and related disclosures.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.
| 12 |
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically relating to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted.
The Company is currently evaluating the potential effects that ASU 2023-07 and ASU 2023-09 will have on the consolidated financial statement disclosures.
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.
For the period ended June 30, 2024 and 2023, the dilutive effect of and , respectively, of common stock warrants have not been included in the average shares outstanding for the calculation of net loss per share as the effect would be anti-dilutive as a result of the Company’s net losses in these periods.
Fair Value Measurements
As defined in ASC 820 Fair Value Measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued interest, notes payable and, convertible debentures. The carrying amounts of these financial instruments are of approximate fair value due to either length of maturity or interest rates that approximate prevailing rates unless otherwise disclosed in these financial statements. The Company’s derivative liabilities are valued using option pricing models with Level 3 inputs.
Sequencing
Based upon ASC 815-15-25 Embedded Derivatives, the Company has adopted a sequencing approach regarding the application of ASC 815-40 Contracts in Entity's Own Equity to its outstanding convertible notes and warrants. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the earliest issuance date.
Note 3 – Inventory
Inventory consists of the following components:
| June 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Total Inventory | $ | $ | ||||||
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Note 4 – Business Combinations, Intangible Assets and Goodwill
Original Acquisition
On May 7, 2018, the Company purchased the
assets of Stemtech International, Inc. (the “Former Parent Company”), out of a Chapter 7 Bankruptcy for $
The excess purchase price has been recorded
as goodwill in the amount of $
LFR Acquisition
In March 2023, the Company acquired 100% of LFR, a research and development company with expertise in the formulation of products.
The consideration paid was million shares
of the Company with a fair value of $
The following table summarizes the allocation of purchase price of the acquisition:
| Tangible Assets Acquired: | Allocation | |||
| Cash and cash equivalents | $ | |||
| Inventory | ||||
| Accounts payable and Accrued liabilities | ( | ) | ||
| Net Tangible Assets Acquired | $ | ( | ) | |
| Intangible Assets Acquired: | ||||
| Non-compete Agreement | ||||
| Total Fair Value of Assets Acquired | $ | |||
| Consideration: | ||||
| Common Stock | ||||
| Goodwill | $ | |||
The components of all acquired intangible assets were as follows at June 30, 2024 and December 31, 2023:
| June 30, 2024 | December 31, 2023 | Average Estimated Life (Years) | ||||||||
| Patent products | $ | $ | ||||||||
| Trade names and trademarks | ||||||||||
| Customer/distribution list | ||||||||||
| Non-compete agreement | ||||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||||
| Total | $ | $ | ||||||||
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Estimated future amortization as of June 30, 2024 is as follows:
| Year ending December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Intellectual Property
The Company has two current patents filed in the US and 3 filed internationally, and as our research and development progresses, plan on filing more patents. Our current patent portfolio includes:
| · | Patent US 9, 289, 375 – Skin Care Composition Containing Combinations of Natural Ingredients | |
| · | Patent AU 201127647 – Methods and Composition for Enhancing Stem Cell Mobilization | |
| · | Patent MX 344304 – Metodos y Composiciones para Mejorar las Celulas Madre | |
| · | Patent US 10,159,705 – Methods and Composition for Enhancing Stem Cell Mobilization | |
| · | Patent MX 358857 – Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX 358857 (part 1 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX 358857 (part 2 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX358857 (part 3 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales |
Note 5 – Operating Lease Commitments
On August 16, 2021, the Company extended its office
space lease with Sunbeam Properties Inc. to rent approximately
In June 2024, the Company entered into a lease for office space in Mexico which terminates on June 2026.
The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases as of June 30, 2024:
Maturity of operating lease liabilities for the following fiscal years:
| 2024 | $ | |||
| Total undiscounted operating lease payments | ||||
| Less: imputed interest | ||||
| Present value of operating lease liabilities | $ |
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate of 10%, which is determined using the average of borrowing rates explicitly stated in the Company’s convertible debt.
| 15 |
Note 6 – Notes Payable and Convertible Debentures
Schedule of notes payable as of:
| June 30, 2024 | December 31, 2023 | |||||||
| Notes payable (3) | ||||||||
| Total Notes payable | ||||||||
| Convertible notes payable, net of discount (4) | ||||||||
| Total notes payable, net of discount of as of June 30, 2024 and December 31, 2023, respectively | $ | $ | ||||||
| (1) | During June 2018, the Company entered into two (2) Secured Royalty Participation Agreements with Profile Solutions, Inc. (“PSI”) in exchange for working capital loans totaling $150,000. The loan amounts were due in June of 2019, plus an IRR of 18%. In consideration of these loan obligations, The Company agreed to pay a monthly royalty for one year being the greater of: x) 10% of the loan amount or y) 1.5% of the monthly gross revenues. PSI claims that these loans are in default, but the Company contends the loans reflected the terms of these agreements were usurious and contends that the loans are not legally enforceable obligations. This case was dismissed by the Court March 16, 2023 leaving a gain on extinguishment of $ |
| (2) |
In 2019, the Company engaged in agreements involving
promissory notes with three lenders, collectively amounting to a principal balance of $
On October 20, 2021, the Company issued a pair
of promissory notes to investors, totaling $
On July 21, 2023, the Company issued a promissory
note with an investor for $
On October 24, 2023 and November 20, 2023,
the Company entered into two notes with an investor for an aggregate principal balance of $
As of June 30, 2024 and December 31, 2023, the
outstanding balance for these notes stood at $ |
| 16 |
| (3) | During the fiscal year concluding on December 31, 2021, the Company issued a cumulative total of $ |
|
In the second quarter of 2022, one of the notes held by investor MCUS LLC (“MCUS”) was extended by 60 days, until August 1, 2022. As part of the extension agreement, the Company issued shares of common stock to the noteholder. Moreover, the conversion price of the note was reduced to the lower of (i) 50% of the lowest volume weighted average prices for common stock over the 30 trading days leading up to the conversion notice date and (ii) the Closing Price on the Closing Date, capped at $2.25. On August 18, 2022, this note was extended to September 30, 2022, in exchange for shares of common stock and in the fourth quarter of 2022, this note was once again extended, this time until May 31, 2023.
On July 13, 2022, another note held by investor
Leonite Fund 1, LP (”Leonite”), was extended to September 1, 2022, in exchange for warrants, common stock shares,
and an increased principal amount of $ | |
| Throughout the third and fourth quarters of 2022, the Company issued a collective sum of $ | |
| During the year ended December 31, 2022, a sum of $ | |
| In January 2023, the Company issued upon the conversion of $ | |
| On February 28, 2023, the Company entered into a comprehensive settlement and exchange agreement concerning a Senior Secured Convertible Promissory Note with Leonite. Under this agreement, Leonite agreed to settle its outstanding liability and cancel its warrants in exchange for common stock shares of the Company to purchase common stock at $0.05 per share. As the debt was settled, the Company recognized a loss on extinguishment worth $ | |
| On March 27, 2023, the Company executed an investment agreement with an institutional investor (“Holder”) for up to $ |
| 17 |
| On April 11, 2023, the Company amended its Promissory Note with MCUS, resulting in the conversion price being fixed at $ | |
| Similarly, on May 1, 2023, the Company amended its convertible promissory note with SHRG, wherein SHRG capitalized $222,556 of accrued interest and waived its conversion rights as per the original agreement. However, this amendment was contingent upon the Company making a payment of $ | |
| As of December 31, 2023, the outstanding gross principal balance for the three convertible notes, net of discounts was $ | |
| As of June 30, 2024, the outstanding gross principal balance for the two remaining convertible notes was $ | |
| The aggregate balance of
convertible notes payable, net of discount, as of June 30, 2024 and December 31, 2023 was $ |
Note 7 – Derivative Liabilities
The Company issued debt instruments that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock, which gives rise to a derivative liability which is a non-cash liability. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC Subtopic 815-15 Embedded Derivatives (“ASC 815-15”), the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period. Based upon ASC 840-15-25, the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes and warrants. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the earliest issuance date.
| Derivative Liability - Convertible Notes | Derivative Liability - Warrants | Total | ||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | |||||||||
| Change due to issuances | ||||||||||||
| Change due to redemptions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value | ||||||||||||
| Balance as of December 31, 2022 | ||||||||||||
| Change due to issuances | ||||||||||||
| Change due to redemptions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of December 31, 2023 | $ | $ | $ | |||||||||
| Balance as of June 30, 2024 | $ | $ | $ | |||||||||
| 18 |
The Company used a Monte Carlo model to estimate the fair value of its derivatives. A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the fair value of derivative liabilities during the following periods:
| December 31, | ||||
| 2023 | 2022 | |||
| Stock price | N/A | $ | ||
| Contractual term (in years) | N/A | |||
| Volatility (annual) | N/A | |||
| Risk-free rate | N/A | |||
On May 1, 2023, the Company no longer had derivative liabilities associated with the warrants and their cumulative value of $1,011,451 was reclassified into additional paid in capital on the consolidated statement of stockholders’ deficit.
Note 8 – Financing Arrangement - Factoring Liability
During the year ended December 31, 2023, the Company
entered into various non-recourse agreements for the sale of future receipts for gross proceeds of $
During the six months ended June 30, 2024, the Company entered into various non-recourse agreements for the sale of future receipts for gross proceeds of $
The Company accounts for these agreements as
a financing arrangement, with the purchase price recorded as a liability and daily repayments made are a reduction of the liability.
As of June 30, 2024, there was an outstanding balance net of discount of $
Note 9 – Stockholders’ Deficit
On May 5, 2023, the Company amended its articles of incorporation to increase the number of authorized shares of common stock of the Company to .
Stock issuance for services and stock based compensation
During the year ended December 31, 2023, the Company
issued shares of common stock, to officers, employees and vendors for services valued at $
During the year ended December 31, 2023, the Company also recognized $ of expense relating to the vesting of common stock issued to the Company’s Chairman and CEO.
On March 19, 2024, the Company issued 1,000,000 shares to five directors for a total of shares at a fair value of $ per share or a total of $.
On March 19, 2024, the Company issued shares to various consultants and employees as stock compensation at a fair value of $ per share or a total of $.
On March 19, 2024, the Company issued shares to the Chief Financial Officer as stock compensation in lieu of cash for services for a fair value of $ per share for a total of $.
On April 2, 2024, the Company issued shares for consultant services as stock for services in lieu of cash for services for a fair value of $0.0645 per share or a total of $.
| 19 |
Settlement of accrued liabilities for common stock
During the year ended December 31, 2023, the Company
issued shares of common stock to officers, employees and vendors for accumulated past services of $
Stock issued for LFR Acquisition
During the year ended December 31, 2023, the Company
issued shares of common stock for the acquisition of LFR with a fair value of $
Conversion of convertible notes and accrued interest to common stock
On January 13, 2023, the Company, under the terms
of the note, issued common shares upon the conversion of $
On January 23, 2023, the Company, under the terms
of the note, issued common shares upon the conversion of $
On April 26, 2023 and June 7, 2023, the Company
issued common shares valued at $
On May 1, 2023 and June 21, 2023, the Company
issued common shares valued at $
On June 12, 2023, the Company issued
common shares upon the conversion of $
On August 8, 2023 and August 11, 2023, the Company
issued common shares valued at $
On September 21, 2023, the Company issued
common shares upon the conversion of $
Note 10 – Related Parties
Notes Payable and Accrued Interest – Related Parties
During the period ended December 31, 2023, the Company entered into the following related party transactions:
| · | Issued shares of common stock at $0.05 per share for $ in accrued salary for its Chairman and CEO and in addition the Company amortized $ of previous stock compensation granted to its Chairman and CEO that is being amortized over 82 months; | |
| · | The Company paid $ | |
| · | The Company accrued $ | |
| · | The Company paid $ | |
| · | The Company issued shares of common stock to one of its board members to settle notes payable of $ | |
| · |
A company with a common director advanced the
Company $
|
| 20 |
During the Period ended June 30, 2024, the Company entered into the following related party transactions:
| · | On February 15, 2024, John W. Meyer, President & COO of the Company,
made a loan of $ |
| · | On March 19, 2024, the Company issued shares to the Chief Financial Officer as stock compensation in lieu of cash for services for a fair value of $per share for a total of $. |
| · | On March 19, 2024, the Company issued 1,000,000 shares to five directors for a total of shares at a fair value of $per share or a total of $. |
| · | the Company amortized $of previous stock compensation granted to its Chairman and CEO that is being amortized over 82 months. |
The company had the following transaction
Note 11 – Commitments and Contingencies
Legal proceedings
On August 6, 2019, Plaintiff, the former CEO prior
to the Company’s Bankruptcy, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences, alleging unpaid salary
and vacation time dating to a period predating the Company’s current management team taking control in 2018. Plaintiff’s claim
is in the amount of $267,000. The Company has counter-sued Plaintiff personally and deems this matter non-meritorious. At the same time,
the Company has accrued $
In the opinion of management, the resolution of this matter, if any, will not have a material adverse impact on the Company’s consolidated financial position or consolidated results of operations.
Note 12 – Subsequent Events
Management of the Company has performed a review of events and transactions occurring after the consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying consolidated financial statements, noting none other than the following:
On August 15, 2024, the Company replaced its Auditor.
On August 14, Director Darryl V. Green loaned the Company $25,000
On August 14, President & COO John W. Meyer loaned the Company $6,000
On August 16, President & COO John W. Meyer loaned the Company $25,000.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results may differ materially from those anticipated in these forward-looking statements. These forward-looking statements are made as of the date of this report, and we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements.
Implications of Being an Emerging Growth Company
Emerging Growth Company - We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act. We will continue to be an emerging growth company until: (i) the last day of our fiscal year during which we had total annual gross revenues of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have, during the previous 3-year period, issued more than $1.0 billion in nonconvertible debt; or (iv) the date on which we are deemed to be a large accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30.
As an emerging growth company, we are exempt from:
- Sections 14A(a) and (b) of the Exchange Act, which require companies to hold stockholder advisory votes on executive compensation and golden parachute compensation;
- The requirement to provide, in any registration statement, periodic report or other report to be filed with the Securities and Exchange Commission, or the “Commission” or “SEC”, certain modified executive compensation disclosure under Item 402 of Regulation S-K or selected financial data under Item 301 of Regulation S-K for any period before the earliest audited period presented in our initial registration statement;
- Compliance with new or revised accounting standards until those standards are applicable to private companies;
- The requirement under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to provide auditor attestation of our internal controls and procedures; and
- Any Public Company Accounting Oversight Board, or “PCAOB”, rules regarding mandatory audit firm rotation or an expanded auditor report, and any other PCAOB rules subsequently adopted unless the Commission determines the new rules are necessary for protecting the public.
| 22 |
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Startups Act. We are also a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are not required to provide selected financial data pursuant to Item 301 of Regulation S-K, nor are we required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We are also permitted to provide certain modified executive compensation disclosure under Item 402 of Regulation S-K.
Company Overview
Stemtech Corporation was incorporated under the laws of the State of Nevada, U.S. on March 4, 2009. Our registration statement on Form S-1 was filed with the SEC was declared effective on May 15, 2013. On August 19, 2021, the Company entered into a Merger Agreement with Stemtech Corporation by which the Company acquired one hundred percent of the shares of STEMTECH CORPORATION in exchange for the issuance of 37,060,000 shares of the Company, approximately 85% of the issued and outstanding shares of the Company. On November 19, 2021, the Company adopted an Amendment to its Articles changing the name of the Corporation to Stemtech Corporation in the state of Nevada, and on April 14, 2022, FINRA gave final approval for said name change. Stemtech has pioneered and patented a whole new category of dietary supplements. Stemtech’s advanced Stem Cell Nutrition formulations are one-of-a-kind natural products designed to help support the three most important aspects of stem cell physiology: 1) Releasing more stem cells; 2) their circulation in the blood; and 3) Migration into tissues, where they can perform their daily function of renewal and rejuvenation for optimal health. We actually harness the incredible power of adult stem cells. How does this work? Adult stem cells are released from your bone marrow into the bloodstream, they then Circulate in the bloodstream and flow to the tissues most in need. As they arrive, the adult stem cells migrate into the tissues, reproduce and become new, healthy cells of those tissues. This process takes place every single day, even without tissue damage, as part of the natural renewal system of the body. It is important to understand that Stemtech’s products do not contain stem cells. They are composed of natural botanicals and other ingredients that have been clinically documented to support the performance of your own adult stem cells. Stemtech also offers our all-natural OraStem toothpaste, which is a tooth whitener, breath freshener, antimicrobial, stem cell attracting and promotes good gum health. In December 2022, our new Cellect One™ Rapid Renew Stem Cell Peptide Night Cream. Cellect One is a Stemtech proprietary formula containing an FDA patented ingredient, Red Oak Bark, which enables deep penetration to promote good skin health. While sales of products obviously create the cash flow, our real business model is not just “sales”, but lateral penetration. We do this through our IBPs - “Independent Business Partner” Sales Forces, and we invest much energy in growing our IBPs. Post funding, Stemtech is projecting the addition of 30,000 new independent business partner reps over the next 12 to 24 months, adding to the existing IBPs. With an enhanced compensation plan, IBPs will be even more incentivized to build their network, attracting additional industry leaders. IBPs are a testimonial to our product and business model, lowering our customer acquisition costs. We have reinstituting contests, travel incentives, cruises, other trips, Business Academies (Aguas Calientes, Mexico in May 2023; Las Vegas, U.S. in June, 2023) for Training, regional conferences, our Annual Convention with new product launches. Our IBPs offer highly flexible yet steady income which is most adapted to todays “Laptop & Cellphone Lifestyle”, with structured and organized weekly Corporate training calls, a personalized website, back-office tracking, oversight and management Tools, Reports, Training Materials and Social Sharing. Stemtech also launched the Stemtech AdvanceOffice Mobile App, in March 2022, improving communication, sharing of information, training videos and other content for recruiting, onboarding, customer retention and measuring key performance indicators for the IBP business. Stemtech launched a new marketing program in January 2022, with sales continuing to come in from returning consumers who believe in the quality products. Until March 2021, the Company had operated on an extremely tight budget, with inadequate working capital and difficulties fulfilling orders. Since the cash infusions noted in “Financing” infra, the company now has the resources to contact and re-engage the over 200,000 former distributors. With this new cash infusion, the Company has engaged experienced marketing and social media professionals to initiate new marketing strategies which are expected to bring increased activity. Management conservatively believes that given the cash on hand and working expenditures as describe above, we can reinvigorate sales to be more consistent with the company’s previous revenue historically, as we were recognized 4 times in the Inc 5000 Magazine’s list of fastest growing companies. Below this IBP level, we plan to have our “DTC” (Direct To Consumer) network marketing Distribution model. This integrative model allows us an immediate global presence and ability to operate in multiple countries on any continent. We are uniquely positioned in this post pandemic economy beset by supply chain issues, as this method requires no up-front or required buy-in of inventory, with monthly shipments available for known recurring sales. This platform has us now operating at the intersection of the ecommerce economy, social economy and gig economy.
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The Company has been making great strides the past year, having filed our “Orastem” trademark registration in Mexico as noted in our press release of August 23, 2022. In addition, Stemtech filed our new ‘stemceuticals’ trademark registration. Stemtech has worked to reduce overhead costs by outsourcing U.S. order fulfillment services to a third-party partner who will also be responsible for inventory planning and production scheduling, since August 7, 2023. Further, beginning August 1, 2023, the customer service function for the U.S. was transitioned to our Mexico offices in Guadalajara at a cost savings and improved synergistic benefits by expanding service hours from 8 to 12 hours in the U.S. Also, U.S. health insurance coverage ended with the release of employees. With the new inventory process, the cost of insurance coverage will be reduced to lower rates.
RESULTS OF OPERATIONS
Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of notes payable. For the six-month period ended June 30, 2024, net cash provided from financing activities of $51,724 mainly consisted of proceeds from factoring agreements of $154,956 partially offset by payments on notes payable of $103,232. For the six-month period ended June 30, 2024, $798,600 cash provided from financing activities mainly consisted of proceeds from notes payable of $1,000,000 partially offset by payments on factoring agreements of $194,954.
Plan of Operation and Funding
We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; (iii) marketing expenses; and (iv) IT website development. We intend to finance these expenses with further issuances of securities and loans. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
Stemtech has experienced continued growth and with more awareness of the benefits of stem cells for improving health naturally. Demand is expected to continue to rise. During the past year, we experienced several out-of-stock situations. With additional capital, the Company will be able to sustain uninterrupted growth, increasing sales revenue and profitability. The overall stem cell global market, including stem cell therapy and pharma are projected to be $30 billion by 2030 per “Research and Marketing”, an independent publication. As the pioneer in stem cell nutrition, Stemtech is well positioned for growth as awareness increases.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
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Off-Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Stockholders’ Deficit
Authorized Shares
Effective May 5, 2023, the Company is authorized to issue up to 400,000,000 shares of common stock, $0.001 par value. Prior to May 5, 2023, the Company was authorized to issue up to 200,000,000 shares (see Note 9). Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.
Commitments and Contingencies
None.
Financing
On March 27, 2023, the Company and an institutional investor (the “Holder”) executed an investment agreement for up to $7,000,000 through a convertible promissory note, share purchase agreement and warrant agreement (the “2023 Note"). The 2023 Note has a principal amount of up to $7,000,000 with an original issue discount of 12% and is to be disbursed in four (4) disbursements as set forth as follows: (i) the first disbursement in the amount of $1,000,000 occurred on March 27, 2023; (ii) the second disbursement in the amount of $200,000 is due within three (3) days after the filing of an S-1 registration statement; (iii) the third disbursement in the amount of $500,000 is due forty-five (45) days after effectiveness of an S-1 registration statement; and (iv) $120,000 is due forty-five (45) days after the third disbursement. The 2023 Note carries an interest rate equal to seven percent (7%) per annum and is redeemable by the Company at any time at an amount equal to one hundred twenty-five percent (125%) of the then outstanding principal and interest accrued on the Note. All additional disbursements will be made at the Holder’s discretion, at any time, and if the Holder’s broker refuses to custody the securities issued in connection therewith, the Holder will have no obligation to make a disbursement under the disbursement schedule but will have the option to make such disbursement. Future financing through equity investments is likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition. Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the nutraceutical industry, which could impact the availability or cost of future financing. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations. We have no plans, arrangements or contingencies in place in the event that we cease operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
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Item 4. Controls and Procedures
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the six-month period ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 6, 2019, the former CEO prior to the Company’s Bankruptcy, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences, alleging unpaid salary and vacation time dating to a period predating the Company’s current management team taking control in 2018. Plaintiff’s claim is in the amount of $267,000. The Company has counter-sued the plaintiff personally and deems this matter non-meritorious. At the same time, the Company has accrued $267,000 which is included in accounts payable and accrued liabilities in the consolidated balance sheets at June 30, 2024, and December 31, 2023. Plaintiff’s request for Summary Judgment was dismissed by the Court on March 3, 2023.
In the opinion of management, the resolution of this matter, if any, will not have a material adverse impact on the Company’s consolidated financial position or consolidated results of operations.
Item 1A. Risk Factors
We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Recent Sale of Unregistered Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the quarter ended June 30, 2024, no director or
officer of the Company
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Item 6. Exhibits
___________________
| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Stemtech Corporation | ||
| Date: August 26, 2024 | By: | /s/ Charles S. Arnold |
| Charles S. Arnold | ||
| Title: |
Chief Executive Officer (Principal Executive Officer) | |
| Date: August 26, 2024 | By: | /s/ James S. Cardwell |
| James S. Cardwell | ||
| Title: |
Chief Financial Officer (Principal Financial Officer) | |
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