Stemtech Corp 10-Q for FY2022 Q3
Stemtech Corp (STEK)
About this 10-Q
Stemtech Corp filed this 10-Q on November 23, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.05M
- up 15.3% from $907.85K a year earlier
- Net income
- $17.42M
- compared with a net loss of $5.31M a year earlier
- Diluted EPS
- $0.38
- compared with -$0.28 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
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| Emerging growth company |
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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 November 18, 2022.
STEMTECH CORPORATION
FORM 10-Q
SEPTEMBER 30, 2022
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, 2021 (filed on April 1, 2022) 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)
| September 30, 2022 | December 31, 2021 | |||||||
| 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 | $ | $ | ||||||
| Operating lease liabilities - current | ||||||||
| Notes payable, net of discount | ||||||||
| Financing Arrangement | ||||||||
| Derivative liability | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Notes payable - Long term | ||||||||
| Operating lease liabilities - noncurrent | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock - $ par value; shares authorized; and shares issued and outstanding as of September 30, 2022 and December 31, 2021, 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 | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 4 |
STEMTECH CORPORATION
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
| For The Three Months Ending | For The Nine Months Ending | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| 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 | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| OPERATING LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Change in fair value of derivative liability | ( | ) | ||||||||||||||
| Gain on forgiveness of PPP Loan | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and expenses, net | ( | ) | ||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ( | ) | ||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ||||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET INCOME (LOSS) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| NET INCOME (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 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
See accompanying notes to consolidated financial statements.
| 5 |
STEMTECH CORPORATION
Consolidated Statements of Stockholders’ Equity (Deficit)
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Non-controlling | Total Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Sub total | Interest | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||||||||||
| Stock issued as debt discount | ||||||||||||||||||||||||||||||||
| Effect of reverse merger transaction with Stemtech Corporation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||
| Stock issued as debt discount | ||||||||||||||||||||||||||||||||
| Effect of reverse merger transaction with Stemtech Corporation | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Non-controlling | Total Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Income (Loss) | Sub total | Interest | Equity | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Stock issued for loan extension | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | ||||||||||||||||||||||||||||||||
| Shares issued as debt issuance cost | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | $ | ||||||||||||||||||||||||||||||
| Stock issued for services | $ | |||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | $ | $ | ||||||||||||||||||||||||||||||
| Stock issued for loan extension | $ | $ | ||||||||||||||||||||||||||||||
| Shares issued as debt issuance cost | $ | $ | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net income | – | |||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
See accompanying notes to consolidated financial statements.
| 6 |
STEMTECH CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ending September 30, | ||||||||
| 2022 | 2021 | |||||||
| 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 | ||||||||
| Stock issued for services | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Non-cash interest expense from issuance on debt (derivative) | ||||||||
| Gain on forgiveness of PPP Loan | ( | ) | ||||||
| Gain 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 | ||||||||
| Accrued payroll | ||||||||
| Long term deposits | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Cash received in recapitalization transaction | ||||||||
| Net proceeds from financing arrangement | ||||||||
| Net cash provided by financing activities | ||||||||
| Effects of currency translation on cash | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Recognition of right of use asset - operating lease | $ | $ | ||||||
| Shares issued as debt discount | $ | $ | ||||||
See accompanying notes to 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 19th, 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 14th, 2022, FINRA gave final approval for said name change, as seen by the 8K 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 our 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 Companies subsidiaries and through independent distributors. The Company markets its products under the following brands: RCM System, stemrelease3™, Stemflo® MigraStem™, OraStem® (Oral Health Care), and D-Fuze™ (Electromagnetic Frequency Blocker).
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 (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 date from August 31 to December 31.
Basis of Presentation
The accompanying consolidated financial statements are unaudited. These unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible for their integrity and objectivity. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements include the accounts of Stemtech Corporation (Parent) and its nine (9) 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”)
6) Stemtech Malaysia Sdn. Bhd. (“Malaysia”)
7) Stemtech Taiwan Holding, Inc. (“U.S.A.”)
8) Tecrecel S.A. (“Ecuador”)
9) Food & Health Tech Foodhealth SA (“Ecuador”)
The December 31, 2021 consolidated balance sheet included herein was derived from audited consolidated financial statements as of that date. Certain information and footnote disclosure normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the SEC. The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously filed in its Annual Report on Form 10-K for the year ended December 21, 2021.
| 8 |
Note 2 — Summary of Significant Accounting Policies
Going Concern
The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and classification of liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
The Company has experienced recurring net losses
and negative cash flows from operations since inception and has an accumulated deficit of approximately $ and a working capital
deficiency of approximately $
The Company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statements depends on its ability to execute its business plan, increase revenue, and reduce expenditures. Such conditions raise substantial doubts about the Company’s ability to continue as a going concern.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash
The Company considers all highly liquid temporary investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents. The Company has no cash equivalents as of September 30, 2022. The Company maintains certain cash balances at several institutions located outside the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.
Inventory
Inventory comprised of finished goods, work in process and raw materials are valued at the lower of cost or market, using the “first-in, first-out” method in determining cost. Management evaluates the allowance for inventory obsolescence on a regular basis and has determined that no allowance for slow moving or obsolete inventory is necessary as at September 30, 2022 and December 31, 2021.
Inventory consists of the following components:
| Schedule of inventory | ||||||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Total Inventory | $ | $ | ||||||
| 9 |
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.
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 occurs when title and risk of loss had passed, which generally occurs at the time the products are shipped. Revenues are recorded net of estimated sales returns and allowances.
Allowances for product returns are provided at
the time the sale is recorded. This liability is based upon historic return rates and the relevant return pattern, which reflects anticipated
returns to be received over a period of up to 12 months following the original sale. As of September 30, 2022, the Company had a reserve
for sales returns of approximately $
Comprehensive Loss
Other comprehensive loss in the accompanying consolidated financial statements relates to 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 balance sheet dates, revenue and expenses are translated at weighted-average exchange rates and stockholders’ equity is recorded at historical exchange rates. The resulting foreign currency translation adjustments are recorded as a separate component of stockholders’ equity in the consolidated balance sheets and as a component of comprehensive income. Transaction gains and losses are included in other expense, net in the consolidated statements of operations and comprehensive income.
The Company has adopted Accounting Standards Codification (“ASC”) subtopic 260-10, Earnings Per Share (“ASC 260-10”) specifying the computation, presentation and disclosure requirements of earnings per share (EPS) information. Basic earnings (loss) per share includes no dilution and is computed by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution of securities that could share in the earnings or losses of the entity.
| 10 |
Note 3 – Notes Payable
Schedule of Notes Payable as of:
| Schedule of Notes Payable | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Secured Royalty Participation Agreements (1) | $ | $ | ||||||
| Vehicle and equipment loans (2) | ||||||||
| Notes payable (3) (6) | ||||||||
| Convertible notes payable, net of discount (4) | ||||||||
| SBA loans (5) | ||||||||
| Total notes payable, net of discount | $ | $ | ||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
|
|
During the second quarter of 2022, one of
the nine-month notes was extended for an additional 60 days, until August 1, 2022. As consideration for the 60-day extension, the
Company agreed to pay
shares of common stock to the note holder, reduce the conversion price of the note, and reprice the associated warrants from $3.00
per share to $1.00 per share. The new conversion price shall be equal to the lower of (i) 50% of the lowest volume weighted average
prices for Common Stock as reported at the close of trading on the market reporting trade prices for the Common Stock during the 30
trading days ending on, and including, the date of the notice of conversion and (ii) Closing Price on the Closing Date, not to
exceed $2.25. On August 18, 2022, the note was further extended to September 30,
2022, in exchange for shares of common stock. During the quarter ended September 30, 2022, $
On July 13, 2022, one of the notes was extended
to September 1, 2022 in exchange for warrants to purchase common stock at $3.00 per share, shares of common stock and the principal amount of the note was increased by $
In August 2022 and September 2022, the
Company issued an aggregate of $ |
| 11 |
| (5) | |
| (6) |
Note 4 – Derivative Liabilities
The Company issued debts 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 815-15 Embedded Derivatives, 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.
During the year ended December 31, 2021, the
Company issued an aggregate of $
Schedule of Derivative Liabilities
| Schedule of Derivative Liabilities | ||||||||||||
| Derivative Liability - Convertible Notes | Derivative Liability - Warrants | Total | ||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | |||||||||
| Change due to issuances | ||||||||||||
| Change due to redemptions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value | ( | ) | ||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | |||||||||
A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the fair value of derivative liabilities during the nine months ended September 30, 2022 is as follows:
| Schedule of assumptions | ||||
| Stock price | $ | – | ||
| Contractual term (in years) | 0.00 – |
|||
| Volatility (annual) | % | |||
| Risk-free rate | % |
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A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the fair value of derivative liabilities during the year ended December 31, 2021 is as follows:
| Schedule of assumptions | ||||
| Stock price | $ | – | ||
| Contractual term (in years) | ||||
| Volatility (annual) | % | |||
| Risk-free rate | % |
The foregoing assumptions were reviewed quarterly and were subject to change based primarily on management’s assessment of the probability of the events described occurring.
Note 5 – Financing Arrangement
During the period ending September 30, 2022, the
Company entered into three non-recourse agreements for the sale of future receipts receiving 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 September 30, 2022, there was an outstanding balance of $
Note 6 – Stockholders’ (Deficit) Equity
Stock issuances
On June 8, 2022, the Company issued shares
of stock to a vendor for services for a value of $
On June 8, 2022, the Company issued shares
of common stock valued at $
On July 13, 2022, the Company entered into an
Amendment of its original Promissory Convertible Note of September 1, 2021 with the note holder. The terms of the original Note were Amended
to increase the principal balance of the Note by $
On August 18, 2022, the Company entered into
an additional amendment of a previous amendment dated May 31, 2022, of its original Promissory Convertible Note executed on
September 3, 2021. Under the terms the new amendment dated, August 18, 2022, the note is extended until September 30, 2022 and in
exchange, the Company agreed to provide the note holder with
shares of common stock. In addition, the Note Holder also agreed to cancel
warrants previously issued to the Note Holder in exchange for an additional
shares of Company’s common stock. The Company recognized $
On August 26, 2022, the Company cancelled
warrants previously issued to a Note Holder in exchange for the
common shares valued at $
On September 7, 2022, the Company issued
common shares valued at $2.88, or $
On September 19, 2022, the Company, under
the terms of the note, issued
common shares upon the conversion of $
On September 20, 2022, the Company, under
the terms of the note, issued
common shares upon the conversion of $
On September 29, 2022, the Company, under
the terms of the note, issued
common shares upon the conversion of $
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During the three and nine-months ending September 30, 2022, the Company also recognized $ and $ of expense relating to the vesting common stock issued to one of its officers.
During the three and nine-months ending September
30, 2022, the Company issued and shares of common stock, respectively, to an officer and investors, with an aggregate
fair value of $
Note 7 – Legal Proceedings
Legal proceedings
In December 2018, PSIQ Inc. filed a lawsuit against
the Company alleging non-payment of a combined loan in the amount of $
On August 6, 2019, Ray Carter, the former CEO
of Stemtech International, Inc., the former parent company of the Company’s subsidiaries acquired out of the bankruptcy of Stemtech
International, Inc. 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. Mr. Carter’s claim is in the
amount of $
On August 30, 2019, the former CFO, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences for non-payment for unpaid vacation relating to a period prior to the new management team taking control in 2018. This matter is now settled, and the parties agreed to a payment plan with the final payment having been made in August, 2022.
On March 4, 2020, Canon Financial Services, Inc.,
filed a lawsuit against the company in a dispute over office machine leases relating to a period prior to the new management team taking
control in 2018. The Company settled this matter with Canon Financial Services out of Court for $
Note 8 – Income Taxes
Prior to 2018, when the Company was acquired by
the current management ownership group, the Mexican Tax Authorities completed an audit of Stemtech Mexico for the 2013 fiscal year and
have issued a preliminarily assessment of $
Note 9 – Subsequent Events
On October 24, 2022, the Company acquired 100% of issued and outstanding stock of Life Factor Research, a Wyoming corporation in exchange for 600,000 shares of the Company’s common stock. In addition, the Company will settle the debts of LFV for an additional shares of the Company’s common stock valued at $180,000.
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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 non-convertible 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. |
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.
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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
Globe Net Wireless Corp. was incorporated under the laws of the State of Nevada, U.S. on September 4, 2009. Our registration statement on Form S-1 was filed with the Securities and Exchange Commission was declared effective on May 15, 2013. On August 19th, 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.
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.
While sales of product 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 public listing and 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.
In order to grow our company’s IBPs post pandemic, we are now reinstituting in-person meetings, contests such as a travel incentive which began August 1 for trip to Cancun in December, cruises, Business Academies 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 Media Sharing. Stemtech announced on July 25th the partnering with industry leading VERB TECHNOLOGY in launching Interactive Video and Livestreaming Sales Enablement Apps to strengthen the direct sales channel. The new mobile app, “Stemtech Advance Office” is based on the VERB leading-edge platform which enables IBPs to share recruiting materials and track prospective members. This was launch in launched in Q3.
Stemtech launched a new marketing program in January, 2022, and our sales continue to come from returning consumers who believe in the quality products, as well as new members. Until September 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. Moreover, we are now better positioned to absorb significant new clientele either as product consumers or business builders, as the company has directed significant cash towards our inventory and marketing efforts. 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 separate years in the Inc 5000 Magazine’s list of fastest growing companies.
The network marketing industry companies are known for their potential explosive growth and with more network marketers looking for a new home, Stemtech is well positioned. With our legacy of being in business for over 16 years, industry experience, and scientific knowledge, with products in the expanding stem cell nutrition market, our strong and profitable compensation plan for our Field, we are set to enter the typically invigorated end of Q3 and Q4 period with much anticipated growth. Management believes that the highest growth is upcoming in the next two to three years. General economic conditions with inflation factoring largely in today’s market, people are looking for an income-earning opportunity. Being their own boss and working while enjoying a desired lifestyle. Quality of life issues are in the IBPs control. Combined with Stemtech’s patented anti-aging and longevity products, it is inevitable that a momentum phase will propel the company to achieve our projections.
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Stemtech is working to add new products in the stem cell arena. Forecasts for the stem cell industry, whether stem cell therapy, stem cell pharma, stem cell technology or stem cell nutrition, are indicating explosive growth between 2022 and 2026, reaching estimated business volumes of USD $26 billion with a CAGR of 10.34 percent, according to “Research and Markets” a recognized industry publication and authority. As the pioneer in stem cell nutrition since 2005, Stemtech’s growth opportunities are significant.
Below this IBP level, we 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.
RESULTS OF OPERATIONS
Our 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.
Three-Month Period Ended September 30, 2022 Compared to the Three-Month Period Ended September 30, 2021.
During the three months ending September 30, 2022 net sales were $1,047,030 versus $907,854 the year earlier period, for a positive variance of $139,176 or 15.3%. This variance is due to increase IBPs and an increase in prices. Management anticipates revenues to continue to increase as the Company invests in new tools for its IBPs and seeks to increase the number of IBPs, however current economic risks of recession can influence this which is beyond the Company’s control.
During the three months ending September 30, 2022, cost of goods sold was $180,599 versus $126,432 the year earlier period, for a negative variance of $54,167 or 42.8%. This variance is line with the increase in sales during the period.
During the three months ended September 30, 2022, commissions expenses were $306,293 versus $133,492 the year earlier period, for a negative variance of $172,801, or 129.45%. The variance is in line with increased sales and that the Company has increased the global payout to its IBP channel.
During the three months ended September 30, 2022, general and administrative expenses were $3,822,131 versus $1,290,374 the year earlier, for a negative variance of $2,531,757, or 196.2%. The increase is primarily due to hiring of consultants, increase costs relating to meet regulatory reporting and fees as well as the issuance of Stock-based compensation estimated at $2,808,111.
During the three months ended September 30, 2022, selling and marketing expenses were $120,434 versus $93,316 the year earlier, for a negative variance of $27,118, or 29.1%. The increase is primarily due to an overall increase in marketing spend as the Company seeks to continue to increase in its business channel to grow revenues.
During the three months ended September 30, 2022, total operating expenses were $4,248,858 versus $1,517,182 a year earlier, for a negative variance of $2,731,676, or 180.1%. The increase in operating expenses was caused by the factors described above.
During the three months ending September 30, 2022, total non-operating activities was a gain of $20,768,637 versus an expense of $4,583,892 a year earlier, for a positive variance $25,352,529 or 553.1%. The difference is primarily due to $18,229,093 gain from change in fair value of derivative liabilities, $4,237,647gain on extinguishment of debt offset by $1,833,912 in interest expense on notes payable.
The net gain attributable to Stemtech for the three months ended September 30, 2022 and 2021, was $17,416,917 versus a loss of $5,309,768 the prior period. The positive variance was caused by the factors described above.
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Nine-Month Period Ended September 30, 2022 Compared to the Nine-Month Period Ended September 30, 2021.
During the nine months ending September 30, 2022, net sales were $3,472,762 versus 3,008,727 a year early, for a positive variance of $471,035, or 15.7%. This variance is due to increase IBPs and increase in prices due to costs increases related to inflation, however current economic risks of recession can influence this.
During the nine months ending September 30, 2022, cost of goods sold was $836,409 versus $575,740, for a negative variance of $260,669 or 45.3%. This variance is line with the increase in sales during the period.
During the nine months ended September 30, 2022, commissions expenses was $761,345 versus $375,074 a year earlier, for a negative variance of $386,271, or 103.0%. The variance is in line with increased sales and that the Company has increased the global payout to its IBP channel.
During the nine months ended September 30, 2022, general and administrative expenses was $6,073,133 versus $3,142,700 a year earlier, for a negative variance of $2,930,433, or 93.3%. The increase is primarily due to hiring of consultants, increase costs relating to meet regulatory reporting and fees as well as the issuance of Stock-based compensation estimated at $2,836,111.
During the nine months ended September 30, 2022, selling and marketing expenses were $400,018 and $304,276 a year earlier, for a negative variance of $95,742, or 31.47%. The increase is primarily due to an overall increase in marketing spend as the Company seeks to continue to increase in its business channel to grow revenues.
During the nine months ended September 30, 2022, total operating expenses were $7,234,496 versus $3,822,050 a year earlier, for a negative variance of $3,412,446, or 89.3%. The increase in operating expenses was caused by the factors described above.
During the nine months ended September 30, 2022, total non-operating expenses were $3,499,953 versus $4,873,891 a year earlier, for a positive variance of $1,373,938, or 28.2%. The difference is primarily due to a loss of $4,112,023 from change in fair value of derivative liabilities, and $3,004,928 in interest expense offset by a gain on the extinguishment of debt in the amount of $3,358,841 and approximately $250,000 gain on forgiveness of PPP Loan.
It should be noted that the significant movement in the derivative liability and gain on extinguishment of debt is due to the fact that the convertible notes payable and the warrants is greatly affected by the change in the stock price and are generally does not affect the cash position of the Company as the greater this amount is the more likely the lenders will convert their convertible notes payable and exercise their warrants and thus provide a cash infusion.
The net loss attributable to Stemtech for the nine months ended September 30, 2022, was $8,026,062 versus $6,237,957 a year earlier. The increase in net loss was caused by the factors described above.
Liquidity and Capital Resources
We are not currently profitable, and we cannot provide any assurance of when we will be profitable. We incurred a net loss of $8,091,096 for the nine months ended September 30, 2022 versus $6,237,957 a year earlier. During the nine months ended September 30, 2022, we met our short-term liquidity requirements from the issuance of notes payable, stock issuances and our existing cash reserves.
As of September 30, 2022, our current assets were $599,693 compared to $1,600,039 in current assets at December 31, 2021. As of September 30, 2022, our current liabilities were $8,995,077 compared to $9,387,038 at December 31, 2021. Current liabilities at September 30, 2022 were comprised of $3,433,405 of derivative liabilities, $3,868,164 of accounts payable and accrued expenses, $1,391,506 in notes payable, net of discount, $239,986 in factoring liability and $62,018 in current operating lease liabilities.
The derivative liability and associated loss from its change in fair value are noncash items and fluctuate due to our stock price. If the warrants are exercised and the notes are converted, it would cause the Company to record a gain on extinguishment of debt and Shareholders’ Equity would increase accordingly.
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Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the nine-months ending September 30, 2022, net cash flows used in operating activities were $976,150 which is primarily due the net loss of $8,091,096 offset by approximately $6,444,000 of noncash items as well as the changes in working capital accounts. The noncash items primarily consist of a $4,112,025 loss from the change in fair value of derivative liabilities, $2,400,670 amortization of debt discount, $2,836,111 of stock based compensation, $330,169 of depreciation and amortization, and a partial offset by the $3,358,842 of gain on extinguishment of debt and $250,825 gain on forgiveness of the PPP Loan. Adjustments for changes in operating assets and liabilities were due to an increase in inventories of $254,608 and accounts payable and accrued expenses of $406,600.
Cash Flows from Financing Activities
We have financed our operations primarily from the issuance of notes payable. For the nine-month period ended September 30, 2022, $514,697 cash provided from financing activities consist of $341,939 of issuance of notes payable and net proceeds from financing arrangements of $239,986. For the nine months ended June 30, 2021, net cash flows provided by financing activities were $2,104,410 from proceeds of notes payable.
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 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; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities and director 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. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have and will continue to seek to obtain short-term loans from our directors, although no future arrangement for additional loans has been made. We do not have any agreements with our directors concerning these loans. We do not have any arrangements in place for any future equity financing.
Basis of Presentation
The accompanying unaudited condensed 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 condensed 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.
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.
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Stockholders’ Equity (Deficit)
Authorized Shares
The Company is authorized to issue up to 200,000,000 shares of common stock, par value $0.001 par value. 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 September 3rd, 2021, the Company executed a Convertible Promissory Note, Securities Purchase Agreement and ancillary agreements (collectively, the “Agreements”) with Leonite Capital, LLC (“Leonite”). Per the terms of the Agreements with, the Company was tendered $410,000, which is open with right of redemption for one year. Prior to the maturity date of the Note, the Company at its option, has the right to redeem in cash in part or in whole, the amounts outstanding. Should the Fund wish to convert this debt into equity, the conversion price shall be sixty-five percent of the lowest Intraday price during the previous 21 days. Pursuant to the Agreements, the Company has earmarked the net proceeds for immediate cash infusion for normative working capital purposes and capital expenditures. Leonite has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our Common Stock at any time.
On September 3rd, 2021, the Company finalized a Promissory Convertible Note, Securities Purchase Agreement and ancillary agreements (collectively, the “Agreements”) with MCUS LLC. (“MCUS”). Per the terms of the Agreements with MCUS, the Company was tendered $500,000, which the Company utilizes for normative working capital purposes and capital expenditures. The Note is open with right of redemption for nine months. MCUS has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our Common Stock during any time during the term of the Agreements. Pursuant to the Agreements, the Company is required to register all shares which the Leonite may acquire. The foregoing is a summary description of certain terms of the Agreements. For a full description of all terms, please refer to the original Agreements which were filed as an 8K with the SEC on September 10th, 2021.
On September 17th, 2021, the Company finalized a $1,400,000 investment into our Company with Sharing Services Global Corporation, a publicly traded company (“SHRG”) via a Convertible Promissory Note, a Share Purchase Agreement and Warrant Agreement. Per the terms of the Agreements, the Company was tendered the full $1,400,0000, which is open with right of redemption at 10% interest per annum until September 9th, 2024. Should the holder prefer to have its debt converted, the conversion rate shall be based on the 30-day VWAP from 8/20/21 to 9/20/21, which is $3.2431.
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We will require additional financing to implement our business plan, which may include joint venture projects and debt or equity financings. The nature of this enterprise and constraint of positive cash flow places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable profits and losses can be demonstrated. Therefore, any debt financing of our activities may be costly and result in substantial dilution to our stockholders.
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 financings. 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.
There is no assurance that we will be able to obtain financing on terms satisfactory to us, or at all. We do not have any arrangements in place for any future financing. If we are unable to secure additional funding, we may cease or suspend 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.
No report required.
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, 2022. 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, 2022 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
In December 2018, PSIQ Inc. filed a lawsuit against the Company alleging non-payment of a combined loan in the amount of $150,000. The Company has answered this suit and has objected to the legality of the interest charged. It is the position of the Company that the plaintiff’s interest charges are usurious and thus invalid as a matter of law. This matter is still in litigation with no trial date yet set.
On August 6, 2019, Ray Carter, the former CEO of Stemtech International, Inc., the former parent company of the Company’s subsidiaries acquired out of the bankruptcy of Stemtech International, Inc., 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. Mr. Carter’s claim is in the amount of $267,000. The Company has counter-sued Ray Carter personally and deems this matter non-meritorious. At the same time, the Company has accrued $267,000 in the accompanying financial statements as of September 30, 2022 and December 31, 2021.
On August 30, 2019, the former CFO, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences for non-payment for unpaid vacation relating to a period prior to the new management team taking control in 2018. This matter is now settled, and the parties agreed to a payment plan with the final payment having been made in August, 2022.
On March 4, 2020, Canon Financial Services, Inc., filed a lawsuit against the company in a dispute over office machine leases relating to a period prior to the new management team taking control in 2018. The Company settled this matter with Canon Financial Services out of Court for $10,664 in May 2021, and is making installment payments until paid off in May 2023.
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.
| 22 |
Item 6. Exhibits
__________________
| * | Filed herewith. |
| ** | Furnished herewith. |
| 23 |
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: November 23, 2022 | By: | /s/ Charles Arnold |
| Charles Arnold | ||
| Title: |
Chief Executive Officer (Principal Executive Officer) | |
| Date: November 23, 2022 | By: | /s/James Cardwell |
| James Cardwell | ||
| Title: |
Chief Financial Officer (Principal Financial Officer) | |
| 24 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Charles Arnold, certify that:
| 1. | I have reviewed this Form 10-Q of STEMTECH CORPORATION (formerly Globe Net Wireless Corp.); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: November 23, 2022 | By: | /s/ Charles Arnold |
| Charles Arnold | ||
|
Director, Chief Executive Officer STEMTECH CORPORATION |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, James Cardwell, certify that:
| 1. | I have reviewed this Form 10-Q of STEMTECH CORPORATION (formerly Globe Net Wireless Corp.) ; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: November 23, 2022 | By: | /s/ James Cardwell |
| James Cardwell | ||
|
Chief Financial Officer STEMTECH CORPORATION |
Exhibit 32.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of STEMTECH CORPORATION (formerly Globe Net Wireless Corp.) (the “Company”) on Form 10-Q for the quarter ending September 30, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Charles Arnold, Director and Chief Executive Officer (Principal Executive Officer) of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | Such Quarterly Report on Form 10-Q for the quarter ending September 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in such Quarterly Report on Form 10-Q for the quarter ending September 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 23, 2022 | By: | /s/ Charles Arnold |
| Charles Arnold | ||
|
Director, Chief Executive Officer STEMTECH CORPORATION |
Exhibit 32.2
CERTIFICATION OF
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report of STEMTECH CORPORATION (formerly Globe Net Wireless Corp.) (the “Company”) on Form 10-Q for the quarter ending September 30, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, James Cardwell, Chief Financial Officer (Principal Financial Officer) of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | Such Quarterly Report on Form 10-Q for the quarter ending September 30, 2022, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in such Quarterly Report on Form 10-Q for the quarter ending September 30, 2022, fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 23, 2022 | By: | /s/ James Cardwell |
| James Cardwell | ||
|
Chief Financial Officer STEMTECH CORPORATION |