UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31st,2021, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 333-172172
Commission file number 333-172172STEMTECH CORPORATION
(Exact name of registrant as specified in its charter)
| Nevada | 87-2151440 | |
of incorporation or | ( Identification No.) |
10370 USA Today Way
Miramar, FL, 33025
www.stemtech.com
(Address of principal executive offices)
(954)715-6000
Registrant’s telephone number, including area code:(954) 715-6000code
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| None | N/A |
Securities registered pursuant to Section 12(g) of the Act:
| common shares - $0.001 par value |
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted and electronically posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As December 31, 2021, the registrant had 13,756,478 shares of voting common stock that were held by non-affiliates. Based on the last sales price of the registrant’s common stock of $2.37, these non-affiliate shares have anThe aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of the last business day of the registrants most recently completed second fiscal quarter, based on the price at which the common equity was last sold on the OTC Markets on June 30, 2022 was approximately $32,602,8541,683,169. For purposes of this computation only, all officers, directors and 5% or greater stockholders of the registrant are deemed to be “affiliates.”
As of March 28, 2022,April 13, 2023, the registrant had shares of common stock with par value $0.001 issued and outstanding.
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate to future events or our future financial performance. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
All dollar amounts refer to US dollars unless otherwise indicated.
PART I
Item 1: Description of Business
Stemtech Corp.Corporation and its Subsidiaries (collectively, the “Company”, or “Stemtech”) was incorporated in the State of Nevada, USA on September 4, 2009 under the name Globe Net Wireless Corp. with ticker symbol “GNTW”. While we have changed our corporate name to Stemtech Corp.Corporation in the state of Nevada, we are currently awaiting FINRA approval of said name change at the time of this filing. 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™, DermaStem®, DermaStem Lift, OraStem® (Oral Health Care), and D-Fuze™ (Electromagnetic Frequency blocker). Stemtech also introduced a new skincare product in December 2022: 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 is accounted for as a reverse acquisition and recapitalization in accordance with the Financial Accounting Standards Board (ASCCodification topic 805, Business Combinations)Combinations (“ASC 805”). 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 to December.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 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 the 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. |
| 3. | Stemtech Health Sciences S. de R.L. de C.V. |
| 4. | Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”) |
| 5. | Stemtech Malaysia Holdings Sdn. Bhd. |
| 6. | Stemtech Malaysia Sdn. Bhd. |
| 7. | Stemtech Taiwan Holding, Inc. |
8.
| Tecrecel S.A. |
| 9. | Food & Health Tech Foodhealth SA |
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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 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
On August 16, 2021, the Company extended its office space lease with Sunbeam Properties Inc. to rent approximately 5,000 square feet of space in Miramar, Florida. The extension provides a termCompany pays $8,925 per month in rent until the end of three years commencing upon October 1, 2021 and terminating onthe extended lease September 30, 2024. Based on ASC 842, the Company recognized a right-of-use asset amounting to $174,100 and a corresponding operating lease liability of $174,810 as of December 31, 2021.
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, which is determined using the average of borrowing rates explicitly stated in the Company’s convertible debt.
The Company’s weighted-average remaining lease term relating to its operating leases is 2.75 years, with a weighted-average discount rate of 10%.
The Company incurred lease expense for its operating leases of $105,673$85,629 and $140,130$105,673 for the years ended December 31, 2022 and 2021, and 2020, respectively.
Item 3. 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 as described in Note 7.$150,000. The Company has answered this suit and hasvigorously objected to the legality of the interest charged. It is the position of the Company that the plaintiff’s interest charges are usuriouscharged, and thus invalid asfiled a matter of law. This matter is still in litigation with no trial date yet set.dispositive Motion for Dismissal, which was granted on March 15, 2023. The case against Stemtech was dismissed on March 16, 2023.
On August 6, 2019, Ray Carter, 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 Bankruptcy.current management team taking control. 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 consolidated financial statements as of December 31, 20212022 and December 31, 2020.2021. Mr. Carter’s request for Summary Judgment was rejected by the Court on March 3, 2023.
On August 30, 2019, the former CFO, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences for non-payment for unpaid vacation. This matter is now settled, and the Company has agreed to pay $114,000. There is a payment plan in place with a balance of $49,800 remaining to be paid through August 2022.
On March 4, 2020, Canon Financial Services, Inc., filed a lawsuit against the companyCompany in a dispute over office machine leases. The Company settled this matter with Canon Financial Services out of Court for $32,000 in May 2021, and is making installment payments for the remaining $6,665 until paid off in May 2023.
Item 4. Mine Safety Disclosures.
Not Applicable.
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PART II
Item 5:5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Stemtech’s common shares have been quoted on the NASD OTC Bulletin Board under the symbol “GNTW”“STEK” since October 30, 2014.April 13, 2022. The table below gives the high and low bid information for each fiscal quarter of trading for the last two fiscal years. The bid information was obtained from Pink OTC Markets Inc. and reflects inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
The closing share prices presented below represent prices between broker-dealers and do not include retail mark-ups and mark-downs or any commission to the dealer.
| QUARTER ENDED | HIGH | LOW | ||||||
| December 31, 2020 | $ | 0.72 | $ | 0.59 | ||||
| March 31, 2021 | $ | 1.20 | $ | 1.00 | ||||
| June 30, 2021 | $ | 3.30 | $ | 4.58 | ||||
| September 30, 2021 | $ | 1.77 | $ | 1.25 | ||||
| December 31, 2021 | $ | 2.37 | $ | 2.00 | ||||
| QUARTER ENDED | HIGH | LOW | ||||||
| December 31, 2021 | $ | 2.20 | $ | 2.05 | ||||
| March 31, 2022 | $ | 2.55 | $ | 2.55 | ||||
| June 30, 2022 | $ | 5.00 | $ | 5.00 | ||||
| September 30, 2022 | $ | 0.72 | $ | 0.63 | ||||
| December 31, 2022 | $ | 0.10 | $ | 0.08 | ||||
Holders of Stemtech’s Common Stock
As of December 31st, 2021,2022, Stemtech had 45 registered holders of its common stock.
Dividends
Stemtech has declared no dividends on its common shares and is not subject to any restrictions that limit its ability to pay dividends on its common shares. Dividends are declared at the sole discretion of Stemtech’s Board of Directors.
Recent Sales of Unregistered Securities
On September 3,rd, 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 Leonite, Capital, LLC, the Company was tendered $410,000,
On September 3,rd, 2021, the Company finalized a Promissory Convertible Note, Securities Purchase Agreement and ancillary agreements (collectively, the “Agreements”“MCUS Agreements”) with MCUS LLC.LLC (“MCUS”). Per the terms of the MCUS Agreements with MCUS, LLC., the Company was tendered $500,000,$500,000.
On September 17th,17, 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,9, 2024. Should
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On September 19, 2022, the holder prefer to have its debt converted,Company, under the terms of the note, issued 329,670 common shares upon the conversion rate shall be basedof $148,870 in notes payable plus $1,250 in transaction fees.
On September 20, 2022, the Company, under the terms of the note, issued 250,438 common shares upon the conversion of $100,000 in notes payable.
On September 29, 2022, the Company, under the terms of the note, issued 1,355,222 common shares upon the conversion of $388,000 in notes payable.
On December 9, 2022, the Company, under the terms of the note, issued 256,410 common shares upon the conversion of $39,744 in notes payable.
On December 9, 2022, the Company, under the terms of the note, issued 1,923,077 common shares upon the conversion of $148,077 in notes payable.
During the year ended December 31, 2022, the Company issued 74,488 shares of common stock to a lender to cover the financing costs. The shares were valued on the 30-day VWAP from 8/20/21 to 9/20/21, which is $3.2431.day of issuance at $2.68 per share for a total value of $200,000.
Penny Stock Rules
Trading in Stemtech’s Common Stock is subject to the “penny stock” rules. The SECSecurities and Exchange Commission (“SEC”) has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions.
These rules require that any broker-dealer who recommends Stemtech’s Common Stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in Stemtech’s securities, which could severely limit their market price and liquidity of Stemtech’s securities. The application of the “penny stock” rules may affect your ability to resell Stemtech’s securities.
Item 6:6. Selected Financial DataData.
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Stemtech’s actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those discussed below and elsewhere in this annual report. Stemtech’s audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
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Company Overview
Stemtech Corp.Corporation 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 CommissionSEC was declared effective on May 15, 2013. On August 19,th, 2021, the Company entered into a Merger Agreement with Stemtech Corporation by which the Company acquired one hundred percent of the shares of Stemtech Corp.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.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. Stemtech also offers our all-natural OraStem toothpaste, which is a tooth whitener, breath freshener, anti-microbial, 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 productproducts 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, weWe are now looking at reinstituting contests, travel incentives, cruises, other trips, 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 corporateCorporate training calls, a personalized website, back-officeback office tracking, oversight and management Tools, Reports, Training Materials and Social Sharing. Stemtech also launched the Stemtech AdvanceOffice Mobile App, based on the Verb Technology platform in September 2022, improving communication, sharing of information, training videos and other content for recruiting, on-boarding, customer retention and measuring key performance indicators for the IBP business.
While there has actually been no activeStemtech launched a new marketing activity since 2017, ourprogram in January 2022, with sales continuedcontinuing to come in from returning consumers who believe in the quality products. 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 as the company has directed significant cash towards our inventory, and we now have enough inventory on hand to fulfill over $3 million dollars’ worth of new orders, an inventory level we have not had since going into bankruptcy in 2017. 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 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. We also have been fortunate to have Dr. Bankole Johnson join our Life Sciences Advisory Board in September, as well as the introduction of a whole new line of stem cell skin care products. Life Factor Research brings their expertise in research, development and product formulations enabling the Company to now organically develop whole new lines of Stemceuticals. This new arrangement enables Stemtech to offer more new, cutting-edge products to an ever-growing market interested in improved health and quality of life.
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.
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 | ||
| 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.
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.
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Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Such consolidated financial statements and accompanying notes are the representations of the Company’s management, whowhich is responsible for their integrity and objectivity. All intercompany accounts and transactions have been eliminated in consolidation.
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.
Year Ended December 31, 20212022 Compared to the Year Ended December 31, 2020.2021.
During the years ended December 31, 20212022 and 2020,2021, net sales were $4,321,245$4,559,399 and $4,384,507,$4,321,245, respectively. The decreaseincrease of $63,262$238,154 is primarily due to the lack of revenue from South Korea operations which generated approximately $160,000 in sales in 2020, partially offset by slight increases overall.in the overall sales of the subsidiaries due to the increase in IBPs in 2022.
During the years ended December 31, 20212022 and 2020,2021, our total operating expenses were $6,508,356$8,418,761 and $5,101,154,$6,508,356, respectively. The increase of $949,040$1,910,405 is primarily attributable to an increase in stock compensation granted to vendors and officers in 2021.2022.
During the years ended December 31, 20212022 and 2020,2021, total non-operating expenses were $3,900,838$3,513,830 and $295,924,$3,900,838, respectively, resulting in an increase of $3,604,914.$387,008. The difference is primarily due to $8,330,201the gain on extinguishment of debt of $3,799,356 in 2022, the decrease in interest expense on notes payable,of $4,232,358, partially offset by the $4,553,372 gain from the changechanges in fair value of derivative liabilities from a gain of $4,553,372 at December 31, 2021 to a loss of $3,223,271 at December 31, 2022 in connection with the note payable issued in September 2021.
Our net loss for the years ended December 31, 2022 and 2021, was $8,632,828 and 2020, was $7,111,109, and $1,727,658, respectively. The increase in net loss was caused by the factors described above.
Liquidity and Capital Resources
WeIn spite of increasing revenues, we are not currentlyyet profitable, and we cannot provide any assurance of when we will be profitable. We incurred a net loss of $7,111,109$8,632,828 and $1,727,658$7,111,109 for the years ended December 31, 20212022 and 2020,2021, respectively. During the year ended December 31, 2021,2022, we met our short-term liquidity requirements from our existing cash reserves and proceeds from the issuance of notes payable of $3,321,969.$611,266, net proceeds from financing arrangements of $214,249 and stock issued for cash of $100,002.
As of December 31, 2021,2022, our current assets were $1,600,039$612,370 compared to $573,100$1,600,039 in current assets at December 31, 2020.2021. As of December 31, 2021,2022, our current liabilities were $9,387,038$7,415,791 compared to $3,723,387$9,387,038 at December 31, 2020.2021. Current liabilities at December 31, 20212022 were comprised of $4,224,585 of derivative liabilities, $4,050,798$3,396,543 of accounts payable and accrued expenses, $1,055,910$2,717,633 of derivative liabilities, $482,885 in convertible notes, and $55,745$446,246 of nonconvertible notes payable, $214,249 of factoring liability, $119,065 in current operating lease liabilities.liabilities and $39,170 in deferred revenues.
Stockholders’ equitydeficit decreased from positive $1,267,996$4,005,446 as of December 31, 20202021 to a deficit of $4,005,446$3,171,918 at December 31, 2021.2022. This change was primarily caused by the $4,224,585 additionissuance of derivative liabilities that were bifurcated fromcommon stock for the notes payable issued in September 2021.conversion of debt of $828,000 during the year ended December 31, 2022.
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Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the year ended December 31, 2021,2022, net cash flows used in operating activities were $1,914,093$1,216,948 which is primarily due the change in working capital accounts. The net loss of $7,111,109$8,632,828 and $4,553,372$3,799,356 gain on extinguishment of debt was offset by $3,223,271 loss from the change in fair value of derivative liabilities, was offset by the $6,816,739 non-cash interest expense$3,996,187 stock based compensation, and $1,031,173$2,428,539 amortization of stock compensation expense.debt discount. Adjustments for changes in operating assets and liabilities were due to a decrease in inventories of $278,352, an increase in deferred revenues of $39,170, a decrease in prepaid expenses and other current assets of $37,645 and an increase in long term deposits of $15,627 offset by an decrease in accounts payable and accrued expenses of $1,217,831,$683,058 and an increase in operating lease liabilitiesaccounts receivable of $99,159, offset by decrease in inventories and prepaid expenses and other current assets of $237,778 and $109,122, respectively.$24,047. For the year ended December 31, 2020,2021, net cash flows used in operating activities were $266,716.$1,914,093.
Cash Flows from Financing Activities
We have financed our operations primarily from either the issuance of our shares of common stock or notes payable. For the year ended December 31, 2021,2022, we generated $2,628,739$338,734 cash from financing activities which consists of $3,321,969$611,266 from the issuance of convertible promissory notes, $214,249 proceeds from factoring arrangement and $100,002 proceeds from issuance of stocks for cash, partially offset by payments on notes payable of $693,230.$586,783. For the year ended December 31, 2020,2021, net cash flows provided by financing activities were $159,402.$2,628,739.
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 equity securities and debt instruments.
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. 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.
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.
| 10 |
Stockholders’ Equity (Deficit)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.
None.
Financing
Financing
On September 3,rd, 2021, the Company executed a Convertible Promissory Note, Securities Purchase Agreement and ancillary agreements (collectively, the “Agreements”) with Leonite Capital, LLCLeonite. Per the terms of the Agreements with Leonite, Capital, LLC, the Company was tendered $410,000, which is open with right of redemption for one year. Prior to the maturity date of the Note,note, the Company at its option, has the right to redeem in cash in part or in whole, the amounts outstanding. Should the FundLeonite wish to convert this debt into equity, the conversion price shall be sixty-five percent of the lowest Intradayintraday 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 Capital.Leonite. has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our Common Stockcommon stock during any time.
On September 3,rd, 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 LLC.MCUS., the Company was tendered $500,000, which the Company utilizes for normative working capital purposes and capital expenditures. The Notenote is open with right of redemption for nine months. MCUS LLC has agreed that neither it nor any of its affiliates shall engage in any short-selling or hedging of our Common Stockcommon 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 Fund I LP 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,10, 2021.
On September 17th,17, 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,9, 2024.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not required.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.
| 11 |
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Stemtech Corp.Corporation
Consolidated Financial Statements
December 31, 20212022
| 12 |
ReportReport of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors and Stockholders of
Stemtech Corporation and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Stemtech Corporation and Subsidiaries (the “Company”) as of December 31, 20212022 and 20202021, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity (deficit)deficit, and cash flows for each of the two years thenin the period ended December 31, 2022, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position forof the Company as of December 31, 2022 and 2021, and 2020, and the consolidated results of its operations and its cash flows for each of the two years thenin the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 of the notes to the consolidated financial statements, the Company has suffered recurring losses from operations since inception and has insufficienta significant working capital to fund future operations both of whichdeficit and a significant accumulated deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard toregarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and auditing standards generally accepted in the United States of America.PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements,misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’sentity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the board of directors and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| F-1 |
Critical Audit Matter Description:
As discussed in Note 7 of the notes to consolidated financial statements, the Company had various debt instruments which included conversion features requiring bifurcation and separate accounting. Management evaluated the required accounting, significant estimates, and judgments around the valuation for these embedded derivatives. These embedded derivatives were initially measured at fair value and have subsequently been remeasured to fair value at each reporting period and at settlement.
There is no current observable market for these types of features and, as such, the Company determined the fair value of the embedded derivatives using a Monte Carlo model to measure the fair value of the bifurcated derivative. As a result, a high degree of auditor judgment and effort was required in performing audit procedures to evaluate the conclusions of management, as well as the inputs to the Company’s Monte Carlo mode.
How the Critical Audit Matter was Addressed in the Audit:
Our principal audit procedures performed to address the critical audit matter included the following:
| · | We obtained an understanding of the controls and processes surrounding the evaluation, initial measurement, and revaluation of the bifurcated derivatives. | |
| · | We verified the note amount, interest rate, and maturity date to the supporting documentation and debt agreement, and examined terms and conditions of the note and confirmed the ending balance to the note holder. | |
| · | We evaluated management’s assessment and the conclusions reached to ensure these instruments were recorded in accordance with the relevant accounting guidance. | |
| · | We evaluated the fair value of the bifurcated derivatives that included testing the valuation models and assumptions utilized by management. We reviewed and tested the fair value model used, significant assumptions, and underlying data used in the model. | |
| · | We considered the adequacy of the disclosures in the consolidated financial statements in relation to convertible debt. |
/s/ Turner, Stone & Company, LLP
Dallas, Texas
April 1, 2022
We have served as the Company’s auditor since 2020.
Dallas, Texas
April 17, 2023
| F-2 |
Stemtech Corporation
Stemtech Corporation
Consolidated Balance Sheets
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 828,206 | $ | 133,065 | ||||
| Accounts receivable, net | 10,720 | 25,822 | ||||||
| Inventory, net | 436,405 | 198,627 | ||||||
| Prepaid expenses and other current assets | 324,708 | 215,586 | ||||||
| Total current assets | 1,600,039 | 573,100 | ||||||
| Non-current assets: | ||||||||
| Property and equipment, net | 266,904 | 243,336 | ||||||
| Less: accumulated depreciation | (233,736 | ) | (189,112 | ) | ||||
| Furniture and fixtures, net | 33,168 | 54,224 | ||||||
| Intangible assets, net | 3,406,714 | 3,816,086 | ||||||
| Goodwill | 467,409 | 467,409 | ||||||
| Operating lease right-of-use assets – net | 174,100 | 71,775 | ||||||
| Long term deposits | 38,692 | 18,874 | ||||||
| Other long-term assets | - | 8,053 | ||||||
| Total other assets | 4,086,915 | 4,382,197 | ||||||
| Total assets | $ | 5,720,122 | $ | 5,009,521 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 4,050,798 | $ | 2,852,931 | ||||
| Notes payable, net of discount | 1,055,910 | 759,805 | ||||||
| Notes payable - related parties | - | 35,000 | ||||||
| Operating lease liabilities - current | 55,745 | 75,651 | ||||||
| Derivative liabilities | 4,224,585 | - | ||||||
| Total current liabilities | 9,387,038 | 3,723,387 | ||||||
| Non-current liabilities: | ||||||||
| Notes payable - noncurrent | 219,465 | 18,138 | ||||||
| Operating lease liabilities - noncurrent | 119,065 | - | ||||||
| Total non-current liabilities | 338,530 | 18,138 | ||||||
| Total liabilities | 9,725,568 | 3,741,525 | ||||||
| Commitments and contingencies (Note 10) | - | - | ||||||
| Stockholders’ (deficit) equity | ||||||||
| Common stock, $par value: shares authorized; and shares issued and outstanding as of December 31, 2021 and 2020, respectively | 44,685 | 34,246 | ||||||
| Additional paid in capital | 10,116,296 | 8,269,563 | ||||||
| Accumulated deficit | (13,086,318 | ) | (6,008,855 | ) | ||||
| Non-controlling interest | (649,854 | ) | (616,208 | ) | ||||
| Accumulated other comprehensive loss | (430,255 | ) | (410,750 | ) | ||||
| Total stockholders’ (deficit) equity | (4,005,446 | ) | 1,267,996 | |||||
| Total liabilities and stockholders’ equity | $ | 5,720,122 | $ | 5,009,521 | ||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 132,487 | $ | 828,206 | ||||
| Accounts receivable, net | 34,767 | 10,720 | ||||||
| Inventory, net | 158,053 | 436,405 | ||||||
| Prepaid expenses and other current assets | 287,063 | 324,708 | ||||||
| TOTAL CURRENT ASSETS | 612,370 | 1,600,039 | ||||||
| Property and equipment, net | 27,296 | 33,168 | ||||||
| Intangible assets, net | 2,994,000 | 3,406,714 | ||||||
| Long term deposits | 23,065 | 38,692 | ||||||
| Operating lease right-of-use assets, net | 142,801 | 174,100 | ||||||
| Goodwill | 467,409 | 467,409 | ||||||
| TOTAL ASSETS | $ | 4,266,941 | $ | 5,720,122 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 3,396,543 | $ | 4,050,798 | ||||
| Operating lease liabilities, current | 119,065 | 55,745 | ||||||
| Notes payable | 446,246 | 453,123 | ||||||
| Convertible debentures, net of discount | 482,885 | 602,787 | ||||||
| Deferred revenues | 39,170 | – | ||||||
| Factoring liability | 214,249 | – | ||||||
| Derivative liabilities | 2,717,633 | 4,224,585 | ||||||
| TOTAL CURRENT LIABILITIES | 7,415,791 | 9,387,038 | ||||||
| Notes payable, long term | – | 219,465 | ||||||
| Operating lease liabilities, long term | 23,068 | 119,065 | ||||||
| TOTAL LIABILITIES | 7,438,859 | 9,725,568 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 12) | – | – | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock - $ par value; shares authorized; and shares issued and outstanding as of December 31, 2022 and 2021, respectively | 53,442 | 44,685 | ||||||
| Additional paid in capital | 19,391,400 | 10,116,296 | ||||||
| Accumulated other comprehensive loss | (247,760 | ) | (430,255 | ) | ||||
| Accumulated deficit | (21,631,241 | ) | (13,086,318 | ) | ||||
| Stemtech Corporation stockholders’ deficit | (2,434,159 | ) | (3,355,592 | ) | ||||
| Non-controlling interest in subsidiaries | (737,759 | ) | (649,854 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (3,171,918 | ) | (4,005,446 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 4,266,941 | $ | 5,720,122 | ||||
See accompanying Notes to Consolidated Financial Statements.Statements
| F-3 |
Stemtech Corporation
Stemtech Corporation
Consolidated Statements of Operations and Comprehensive Loss
| For the Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net sales | $ | 4,321,245 | $ | 4,384,507 | ||||
| Cost of goods sold | 1,011,270 | 690,480 | ||||||
| Freight-in | 11,890 | 24,672 | ||||||
| Total cost of goods sold | 1,023,160 | 715,152 | ||||||
| Gross profit | 3,298,085 | 3,669,355 | ||||||
| Operating expenses: | ||||||||
| Commissions | 1,014,721 | 1,122,489 | ||||||
| Selling and marketing | 739,855 | 547,762 | ||||||
| General and administrative | 4,753,780 | 3,430,153 | ||||||
| Research and development | - | 750 | ||||||
| Total operating expenses | 6,508,356 | 5,101,154 | ||||||
| Loss from operations | (3,210,271 | ) | (1,431,799 | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | (8,330,201 | ) | (158,741 | ) | ||||
| Change in fair value of derivative liabilities | 4,553,372 | - | ||||||
| Other expenses, net | (124,009 | ) | (31,474 | ) | ||||
| Loss on disposal of assets | - | (105,709 | ) | |||||
| Total other expense | (3,900,838 | ) | (295,924 | ) | ||||
| Loss before income taxes | (7,111,109 | ) | (1,727,723 | ) | ||||
| Provision for income taxes | - | (65 | ) | |||||
| Net loss | $ | (7,111,109 | ) | $ | (1,727,658 | ) | ||
| Net loss attributable to noncontrolling interests | (33,646 | ) | (810,961 | ) | ||||
| Net loss available to common stockholders | $ | (7,077,463 | ) | $ | (916,697 | ) | ||
| Net loss per common share | ||||||||
| Basic | $ | (0.19 | ) | $ | (0.10 | ) | ||
| Diluted | $ | (0.19 | ) | $ | (0.10 | ) | ||
| Shares used to compute loss per share | ||||||||
| Basic | $ | 37,616,052 | $ | 9,315,185 | ||||
| Diluted | $ | 37,616,052 | $ | 9,315,185 | ||||
| Comprehensive loss | ||||||||
| Net loss | $ | (7,077,463 | ) | $ | (916,697 | ) | ||
| Change in foreign currency translation adjustments | (19,505 | ) | 1,723 | |||||
| Comprehensive loss available to common stockholders | $ | (7,096,968 | ) | $ | (914,974 | ) | ||
| For The Years Ended | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| NET SALES | $ | 4,559,399 | $ | 4,321,245 | ||||
| COST OF GOODS SOLD: | ||||||||
| Cost of goods sold | 1,100,903 | 1,011,270 | ||||||
| Freight-in | 63,115 | 11,890 | ||||||
| TOTAL COST OF GOODS SOLD | 1,164,018 | 1,023,160 | ||||||
| GROSS PROFIT | 3,395,381 | 3,298,085 | ||||||
| OPERATING EXPENSES: | ||||||||
| Commissions | 1,047,400 | 1,014,721 | ||||||
| Selling and marketing | 533,397 | 739,855 | ||||||
| General and administrative | 6,837,964 | 4,753,780 | ||||||
| TOTAL OPERATING EXPENSES | 8,418,761 | 6,508,356 | ||||||
| OPERATING LOSS | (5,023,380 | ) | (3,210,271 | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Change in fair value of derivative liability | (3,223,271 | ) | 4,553,372 | |||||
| Interest expense | (4,097,843 | ) | (8,330,201 | ) | ||||
| Other income and expenses, net | 7,928 | (124,009 | ) | |||||
| Gain on extinguishment of debt | 3,799,356 | – | ||||||
| TOTAL OTHER EXPENSE, NET | (3,513,830 | ) | (3,900,838 | ) | ||||
| LOSS BEFORE INCOME TAXES | (8,537,210 | ) | (7,111,109 | ) | ||||
| PROVISION FOR INCOME TAXES | (95,618 | ) | – | |||||
| NET LOSS | (8,632,828 | ) | (7,111,109 | ) | ||||
| NET (LOSS) INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (87,905 | ) | (33,646 | ) | ||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | (8,544,923 | ) | $ | (7,077,463 | ) | ||
| Net loss per common share | ||||||||
| Basic | $ | (0.19 | ) | $ | (0.20 | ) | ||
| Diluted | $ | (0.19 | ) | $ | (0.20 | ) | ||
| Shares used to compute loss per share | ||||||||
| Basic | $ | 46,014,138 | $ | 35,311,381 | ||||
| Diluted | $ | 46,014,138 | $ | 35,311,381 | ||||
| Comprehensive loss | ||||||||
| Net loss available to common stockholders | $ | (8,544,923 | ) | $ | (7,077,463 | ) | ||
| Change in foreign currency translation adjustments | 182,495 | (19,505 | ) | |||||
| Comprehensive loss available to common stockholders | $ | (8,362,428 | ) | $ | (7,096,968 | ) | ||
See accompanying Notes to Consolidated Financial Statements.Statements
| F-4 |
Stemtech Corporation
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)Deficit
| Common Stock | Additional | Other | Total | |||||||||||||||||||||||||||||
No. of Shares | Amount | Paid-in Capital | Accumulated Deficit | Comprehensive Income (Loss) | Sub total | Non-controlling Interest | Stockholders’ Equity | |||||||||||||||||||||||||
| Balance at December 31, 2019 | 540,000 | 540 | 102,366 | (300,882 | ) | - | (197,976 | ) | - | (197,976 | ) | |||||||||||||||||||||
| Effect of reverse merger transaction with Stemtech Corporation | 30,630,085 | 30,630 | 7,719,771 | (4,791,276 | ) | (412,473 | ) | 2,546,652 | 194,753 | 2,741,405 | ||||||||||||||||||||||
| Stock based compensation | 1,860,872 | 1,861 | 270,641 | - | - | 272,502 | - | 272,502 | ||||||||||||||||||||||||
| Stock issued for services | 1,953,062 | 1,953 | 284,047 | - | - | 286,000 | - | 286,000 | ||||||||||||||||||||||||
| Cancellation of shares | (737,520 | ) | (738 | ) | (107,262 | ) | - | - | (108,000 | ) | - | (108,000 | ) | |||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (810,961 | ) | (810,961 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 1,723 | 1,723 | - | 1,723 | ||||||||||||||||||||||||
| Net loss | - | - | - | (916,697 | ) | - | (916,697 | ) | - | (916,697 | ) | |||||||||||||||||||||
| Balance at December 31, 2020 | 34,246,498 | 34,246 | 8,269,563 | (6,008,855 | ) | (410,750 | ) | 1,884,204 | (616,208 | ) | 1,267,996 | |||||||||||||||||||||
| Effect of reverse merger transaction with Stemtech Corporation | 540,000 | 539 | (539 | ) | - | - | - | - | - | |||||||||||||||||||||||
| Stock based compensation | 2,030,744 | 2,031 | 787,143 | - | - | 789,173 | - | 789,173 | ||||||||||||||||||||||||
| Stock issued for services | 1,652,591 | 1,653 | 240,347 | - | - | 242,000 | - | 242,000 | ||||||||||||||||||||||||
| Stock issued as debt discount | 154,173 | 154 | 462,365 | - | - | 462,519 | - | 462,519 | ||||||||||||||||||||||||
| Stock issued upon acquisition of Globe Net | 6,061,667 | 6,062 | 357,417 | - | - | 363,479 | - | 363,479 | ||||||||||||||||||||||||
| Non-controlling interest | - | - | - | - | - | - | (33,646 | ) | (33,646 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (19,505 | ) | (19,505 | ) | - | (19,505 | ) | |||||||||||||||||||||
| Net loss | - | - | - | (7,077,463 | ) | - | (7,077,463 | ) | - | (7,077,463 | ) | |||||||||||||||||||||
| Balance at December 30, 2021 | 44,685,673 | 44,685 | 10,116,296 | (13,086,318 | ) | (430,255 | ) | (3,355,592 | ) | (649,854 | ) | (4,005,446 | ) | |||||||||||||||||||
| Common Stock | Additional | Accumulated Other Compre- hensive | Non- | Total | ||||||||||||||||||||||||||||
| No. of Shares | Amount | Paid-in Capital | Accumulated Deficit | Income (Loss) | Sub total | controlling Interest | Stockholders’ Deficit | |||||||||||||||||||||||||
| Balance at December 31, 2020 | 34,246,498 | $ | 34,246 | $ | 8,269,563 | $ | (6,008,855 | ) | $ | (410,750 | ) | $ | 1,884,204 | $ | (616,208 | ) | $ | 1,267,996 | ||||||||||||||
| Effect of reverse merger transaction with Stemtech Corporation | 540,000 | 539 | (539 | ) | – | – | – | – | – | |||||||||||||||||||||||
| Stock based compensation | 2,030,744 | 2,031 | 787,143 | – | – | 789,173 | – | 789,173 | ||||||||||||||||||||||||
| Stock issued for services | 1,652,591 | 1,653 | 240,347 | – | – | 242,000 | – | 242,000 | ||||||||||||||||||||||||
| Stock issued as debt discount | 154,173 | 154 | 462,365 | – | – | 462,519 | – | 462,519 | ||||||||||||||||||||||||
| Stock issued upon acquisition of Globe Net | 6,061,667 | 6,062 | 357,417 | – | – | 363,479 | – | 363,479 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | (19,505 | ) | (19,505 | ) | – | (19,505 | ) | |||||||||||||||||||||
| Non-controlling interest | – | – | – | – | – | – | (33,646 | ) | (33,646 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | (7,077,463 | ) | – | (7,077,463 | ) | – | (7,077,463 | ) | |||||||||||||||||||||
| Balance at December 30, 2021 | 44,685,673 | $ | 44,685 | $ | 10,116,296 | $ | (13,086,318 | ) | $ | (430,255 | ) | $ | (3,355,592 | ) | $ | (649,854 | ) | $ | (4,005,446 | ) | ||||||||||||
| Balance at December 30, 2021 | 44,685,673 | $ | 44,685 | $ | 10,116,296 | $ | (13,086,318 | ) | $ | (430,255 | ) | $ | (3,355,592 | ) | $ | (649,854 | ) | $ | (4,005,446 | ) | ||||||||||||
| Stock based compensation | – | – | 439,053 | – | – | 439,053 | – | 439,053 | ||||||||||||||||||||||||
| Stock issued for services | 3,584,344 | 3,586 | 3,553,546 | – | – | 3,557,132 | – | 3,557,132 | ||||||||||||||||||||||||
| Stock issued for cash | 37,314 | 37 | 99,965 | – | – | 100,002 | – | 100,002 | ||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | 4,114,816 | 4,114 | 823,886 | – | – | 828,000 | – | 828,000 | ||||||||||||||||||||||||
| Stock issued for loan extension | 945,512 | 946 | 4,158,728 | – | – | 4,159,674 | – | 4,159,674 | ||||||||||||||||||||||||
| Shares issued as debt issuance cost | 74,488 | 74 | 199,926 | – | – | 200,000 | – | 200,000 | ||||||||||||||||||||||||
| Foreign currency translation adjustment | – | – | – | – | 182,495 | 182,495 | – | 182,495 | ||||||||||||||||||||||||
| Non-controlling interest | – | – | – | – | – | – | (87,905 | ) | (87,905 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | (8,544,923 | ) | – | (8,544,923 | ) | – | (8,544,923 | ) | |||||||||||||||||||||
| Balance at December 31, 2022 | 53,442,147 | $ | 53,442 | $ | 19,391,400 | $ | (21,631,241 | ) | $ | (247,760 | ) | $ | (2,434,159 | ) | $ | (737,759 | ) | $ | (3,171,918 | ) | ||||||||||||
See accompanying Notes to Consolidated Financial Statements.Statements
| F-5 |
Stemtech Corporation
Stemtech Corporation
Consolidated Statements of Cash Flows
| For the Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (7,111,109 | ) | $ | (1,727,658 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 428,586 | 430,280 | ||||||
| Stock compensation expense | 1,031,173 | 450,500 | ||||||
| Amortization of debt discount | 602,787 | 11,000 | ||||||
| Amortization of right of use asset | (102,325 | ) | 126,123 | |||||
| Change in fair value of derivative liabilities | (4,553,372 | ) | - | |||||
| Non-cash interest expense from issuance on debt (derivative) | 6,816,739 | - | ||||||
| Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
| Accounts receivable | 15,102 | 43,092 | ||||||
| Inventory | (237,778 | ) | 132,707 | |||||
| Prepaid expenses and other current assets | (109,122 | ) | 1,598 | |||||
| Accounts payable and accrued expenses | 1,217,831 | 406,423 | ||||||
| Accrued payroll | - | (43,056 | ) | |||||
| Other assets, net | 8,053 | - | ||||||
| Long term deposits | (19,818 | ) | (8,075 | ) | ||||
| Operating lease liabilities | 99,159 | (118,668 | ) | |||||
| Other liabilities | - | 29,018 | ||||||
| Net cash used in operating activities | (1,914,093 | ) | (266,716 | ) | ||||
| Investing activities: | ||||||||
| Purchase of property and equipment | - | (11,599 | ) | |||||
| Net cash used in investing activities | - | (11,599 | ) | |||||
| Financing activities: | ||||||||
| Proceeds from note payable | 3,321,969 | 528,500 | ||||||
| Proceeds from note payable - related parties | (35,000 | ) | 35,000 | |||||
| Repayment of note payable | (658,230 | ) | (404,098 | ) | ||||
| Cash received in recapitalization transaction | - | - | ||||||
| Proceeds from the issuance of common stock | - | - | ||||||
| Net cash provided by financing activities | 2,628,739 | 159,402 | ||||||
| Effects of currency translation on cash | (19,505 | ) | 1,723 | |||||
| Net increase (decrease) in cash | 695,141 | (117,190 | ) | |||||
| Cash, beginning of period | 133,065 | 250,255 | ||||||
| Cash and cash equivalents, end of period | $ | 828,206 | $ | 133,065 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Shares issued as debt discount | $ | 462,519 | $ | - | ||||
| For the Years Ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (8,632,828 | ) | $ | (7,111,109 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 447,386 | 428,586 | ||||||
| Operating leases | (1,378 | ) | (102,325 | ) | ||||
| Stock compensation expense | 3,996,187 | 1,031,173 | ||||||
| Amortization of debt discount | 2,428,539 | 602,787 | ||||||
| Amortization Due to Conversion/Redemptions | 1,457,542 | – | ||||||
| Change in fair value of derivative liabilities | 3,223,271 | (4,553,372 | ) | |||||
| Gain on extinguishment of debt | (3,799,356 | ) | – | |||||
| Non-cash interest expense from issuance on debt (derivative) | – | 6,816,739 | ||||||
| Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
| Accounts receivable | (24,047 | ) | 15,102 | |||||
| Inventory | 278,352 | (237,778 | ) | |||||
| Prepaid expenses and other current assets | 37,645 | (109,122 | ) | |||||
| Other assets | – | 8,053 | ||||||
| Accounts payable and accrued expenses | (683,058 | ) | 1,217,832 | |||||
| Long term deposits | 15,627 | (19,818 | ) | |||||
| Deferred revenues | 39,170 | – | ||||||
| Net cash used in operating activities | (1,216,948 | ) | (1,914,093 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | 611,266 | 3,321,969 | ||||||
| Repayment of note payable | (586,783 | ) | (658,230 | ) | ||||
| Net proceeds from factoring arrangement | 214,249 | – | ||||||
| Stock issued for cash | 100,002 | – | ||||||
| Proceeds from note payable - related parties | – | (35,000 | ) | |||||
| Net cash provided by financing activities | 338,734 | 2,628,739 | ||||||
| Effects of currency translation on cash | 182,495 | (19,505 | ) | |||||
| Net increase (decrease) in cash | (695,719 | ) | 695,141 | |||||
| Cash, beginning of year | 828,206 | 133,065 | ||||||
| Cash, end of year | $ | 132,487 | $ | 828,206 | ||||
| Supplemental disclosure cash flow information: | ||||||||
| Cash paid for interest | $ | 36,205 | $ | 11,389 | ||||
| Cash paid for income taxes | $ | – | $ | – | ||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Operating leases | $ | – | $ | 187,734 | ||||
| Issuance of common stock for conversion of debt | $ | 828,000 | $ | – | ||||
| Shares issued as debt discount | $ | 200,000 | $ | 462,519 | ||||
See accompanying Notes to Consolidated Financial Statements.Statements
| F-6 |
STEMTECH CORP.CORPORATION
NOTES TO THECONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20212022
Note 1 –Organization and Basis of Presentation
Globe Net Wireless Corp.Stemtech Corporation and its Subsidiaries (collectively, the “Company”“Company”) was incorporated in the State of Nevada, USA on September 4, 2009 under the previous name Globe Net Wireless Corp. (“Globe Net” or “GNTW”).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 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 Missionmission is to enhance wellness and prosperity around the world. These products are marketed internationally by the CompaniesCompany’s subsidiaries and through independent distributors. The Company markets its products under the following brands: RCM System, stemrelease3™, Stemflo® MigraStem™, DermaStem®, DermaStem Lift, OraStem® (Oral Health Care), and D-Fuze™ (Electromagnetic Frequency Blocker). Cellect One™ Rapid Renew Stem Cell Peptide Night Cream.
On August 19, 2021, Stemtech Corporation (“Stemtech”Stemtech”), a (Delaware corporation),Delaware corporation, entered into a Merger Agreement (the “Merger Agreement”“Merger Agreement”) with Globe Net Wireless Corp. (“Globe Net”Net” or “GNTW”“GNTW”). The merger iswas accounted for as a reverse acquisition and recapitalization in accordance with the Financial Accounting Standards Board (ASC(“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations)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 a fiscal year end of August 31 to December.a calendar year end of December 31.
The consolidated financial statements include the accounts of Stemtech Corporation (Parent) and its eight (8)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 Holdings”)
6) Stemtech Malaysia Sdn. Bhd. (“Malaysia”)
7) Stemtech Taiwan Holding, Inc. (“Taiwan”)
8) Tecrecel S.A. (“Ecuador”)
9) Food & Health Tech Foodhealth SA (“Ecuador FHTFH”)
Note 2 –— Summary of Significant Accounting Policies
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”). The Company has a fiscal year with a December 31 year end. All intercompany accounts and transactions have been eliminated in consolidation.
| F-7 |
Going Concern
The accompanying consolidated 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 consolidated 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 $13$21.6 million and a working capital deficiency of approximately $7.8 6.8 millionmillion at December 31, 2021.2022. The Company has funded its activities to date almost exclusively from debt and equity financings.financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will continue to require substantial funds to implement its new investment acquisition plans. Management’s plans in order to meet its operating cash flow requirements include financing activities such as private placements of its common stock, preferred stock offerings, and issuances of debt and convertible debt instruments.
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 doubtsdoubt 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 December 31, 2022 and 2021. 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 is comprised of finished goods work in process and raw materials areand is 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 onas at December 31, 20212022 and 2020.2021.
Property and Equipment, net
Property and equipment, net including any major improvements, are recorded at historical cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally as follows:
Schedule of Property, Plant and Equipment
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.
| F-8 |
Revenue Recognition
It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 “Revenues“Revenues from Contracts with Customers.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 companyCompany 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 (See note 9 for disaggregated revenues).obligation.
Revenues from direct retail sales to consumers and revenues from independent distributors occursoccur 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 monthsone year following the original sale. As of both December 31, 20212022 and 2020,2021, the Company had a reserve for sales returns of approximately $23,000 and $21,0007,000, respectively, which is included in accrued liabilities in the accompanying consolidated balance sheet.sheets.
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.loss. Transaction gains and losses are included in other expense, net in the consolidated statements of operations and comprehensive income.loss.
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 years ended December 31, 20212022 and 2020,2021, the dilutive effect of common stock options and, respectively, of common stock warrants hashave 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 our net losses in these periods.
Fair Value Measurements
NoteAs 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 – Inventorymeasurement).
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.
| F-9 |
Note 3 – Inventory
Inventory consists of the following components:
Schedule of inventory
| December 31, | December 31, | |||||||
| 2020 | 2020 | |||||||
| Finished goods | $ | 249,659 | $ | 123,957 | ||||
| Work in process | - | 29,027 | ||||||
| Raw materials | 186,746 | 45,643 | ||||||
| Total Inventory | $ | 436,405 | $ | 198,627 | ||||
| Schedule of inventory | ||||||||
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Finished goods | $ | 103,297 | $ | 249,659 | ||||
| Raw materials | 54,756 | 186,746 | ||||||
| Total Inventory | $ | 158,053 | $ | 436,405 | ||||
Note 4 – Intangible Assets
On May 7, 2018, Stemtech Corporation purchased the assets of Stemtech International, Inc. (the “Former Parent Company”), out of a Chapter 7 Bankruptcy for $400,000and assumed a $4,000,000note from RBCD Holdings Inc (formerly RBCD HoldingHoldings LLC) (“RBCD Holdings”), a related party owned by the Company’s Directors, purchased an outstanding note at its face value of $4,000,000from the Opus Bank (the “Opus Note”) and subsequently converted in 2019 into shares of the Company’s common stock of which shares of the Company’s stock was allocated to Charles Arnold, an officer and director.
Pursuant to a bankruptcy decree, the Company paid $400,000 in cash and assumed a note payable in the amount of $4,000,000 representing 100% percent of the issued and outstanding capital stock of Stemtech Canada, Inc. (Canada), Stemtech Health Sciences S. de R.L. de C.V. (Mexico), Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”), Ste, Stemtech New Zealand, Ltd. (“Stemtech New Zealand”), Stemtech Taiwan Holding, Inc. (U.S.A.), PT Stemtech Indonesia (Indonesia Pty Ltd.), Stemtech Korea (Korea) and Tecrecel S.A. (Ecuador); and Stemtech Malaysia Holdings S/B (Malaysian Parent) that owns two-thirds of its subsidiary Stemtech Malaysia Holding Sdn. Bhd. (Malaysia).
Fair Value of the Acquired Assets
The Company accounted for the acquisitions as business combinations using the purchaseacquisition method of accounting as prescribed in Accounting Standards CodificationASC Topic 805 Business Combinations (“ASC 805”) and ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company used its best estimates and assumptions to accurately assignassigned fair value to the tangible 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.
The following table summarizes the allocation of purchase price of the acquisition:
Schedule of Purchase Price of The Acquistion
| Tangible Assets Acquired: | Allocation | |||
| Cash and cash equivalents | $ | 160,149 | ||
| Inventory | 480,783 | |||
| Prepaid Expenses | 71,160 | |||
| Other Current Assets | 421,068 | |||
| Property and equipment, net | 97,268 | |||
| Other Non-Current Assets | 497,511 | |||
| Accounts payable and Accrued liabilities | (2,274,875 | ) | ||
| Notes payable | (126,498 | ) | ||
| Net Tangible Assets Acquired | $ | (673,434 | ) | |
| Non-Controlling interest, net of proceeds: | ||||
| Non-controlling interest | (306,175 | ) | ||
| Intangible Assets Acquired: | ||||
| Licenses & Trademarks | 1,106,000 | |||
| Patent Products | 2,344,900 | |||
| Customer/Distribution List | 1,461,300 | |||
| Total Fair Value of Assets Acquired | $ | 3,932,591 | ||
| Consideration: | ||||
| Cash | 400,000 | |||
| Assumption of Note Payable | 4,000,000 | |||
| Goodwill | $ | 467,409 | ||
The excess purchase price has been recorded as goodwill in the amount of $467,409. at December 31, 2022 and 2021. The estimated useful life of the identifiable intangible assets is six to fourteen years. The goodwill is amortizable for tax purposes.
The components of the acquired intangible assets were as follows:
| Schedule of Acquired Intangible Assets | ||||||||
| Fair | Average | |||||||
| Value | Estimated Life | |||||||
| Patent products | $ | 2,344,900 | 14 | |||||
| Trade names & trademarks | 1,106,000 | Indefinite | ||||||
| Customer/distribution list | 1,461,300 | 6 | ||||||
| Accumulated amortization | (1,918,200 | ) | ||||||
| Total | $ | 2,994,000 | ||||||
Schedule of Acquired Intangible Assets
| Fair | Average | |||||||
| Value | Estimated Life | |||||||
| Patent Products | $ | 2,344,900 | 14 | |||||
| Licenses & Trademarks | 1,106,000 | Indefinite | ||||||
| Customer/Distribution List | 1,461,300 | 6 | ||||||
| Total | $ | 4,912,200 | ||||||
| F-10 |
Note 5 – Operating Lease Commitments
On August 16, 2021, the Company extended its office space lease with Sunbeam Properties Inc. to rent approximately 5,000 square feet of space in Miramar, FL.Florida. The extension provides a termCompany pays $8,900.65 per month in rent until the end of three years commencing upon October 1, 2021 and terminating onthe extended lease September 30, 2024. The Company incurred lease expense for its operating leases of $85,629 and $105,673 for the years ended December 31, 2022 and 2021, respectively. The Company classified this lease as an operating lease and accordingly, recognized a lease liability and right of use asset of $187,734 at inception.
In June 2022, the Company entered into a lease for office space in Mexico which terminates on May 31, 2024.
The following table presents information about the amount and timing of liabilities arising from the Company’s operating leaseleases as of December 31, 2021:2022:
Schedule of Operating Lease Liabilities
| Maturity of operating lease liabilities for the following fiscal years: | ||||
| 2022 | 70,743 | |||
| 2023 | 73,572 | |||
| 2024 | 56,818 | |||
| 2025 | - | |||
| Thereafter | - | |||
| Total undiscounted finance lease payments | $ | 201,133 | ||
| Less: Imputed interest | 26,323 | |||
| Present value of finance lease liabilities | 174,810 | |||
| Schedule of Operating Lease Liabilities | ||||
| Maturity of operating lease liabilities for the following fiscal years: | ||||
| 2023 | $ | 90,450 | ||
| 2024 | 63,851 | |||
| Total undiscounted operating lease payments | 154,301 | |||
| Less: imputed interest | 12,168 | |||
| Present value of operating lease liabilities | $ | 142,133 | ||
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, which is determined using the average of borrowing rates explicitly stated in the Company’s convertible debt.
The Company’s weighted-average remaining lease term relating to its operating leases is 2.751.75 years, with a weighted-average discount rate of 10%.
The Company incurred lease expense for its operating leases of $105,67385,629 and $140,130105,673 for the years ended December 31, 2022 and 2021, and 2020, respectively.
Note 6 – Notes Payable
Schedule of Notes Payablenotes payable as of:
| As of December 31, | ||||||||||||||||
| Schedule of Notes Payable | ||||||||||||||||
| 2021 | 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Secured Royalty Participation Agreements (1) | $ | 150,000 | $ | 150,000 | $ | 150,000 | $ | 150,000 | ||||||||
| Vehicle and equipment loans (2) | 18,123 | 23,467 | 11,246 | 18,123 | ||||||||||||
| Notes payable, net of discount (3)(4)(5)(6) | 1,107,252 | 500,000 | ||||||||||||||
| Notes payable - related party (7) | - | 35,000 | ||||||||||||||
| Non-recourse payable agreements (8) | - | 104,476 | ||||||||||||||
| Notes payable (3) (6) | 285,000 | 285,000 | ||||||||||||||
| Convertible notes payable, net of discount (4) | 482,885 | 602,787 | ||||||||||||||
| SBA loans (5) | – | 219,465 | ||||||||||||||
| Total notes payable, net of discount | $ | 1,275,375 | $ | 812,943 | $ | 929,131 | $ | 1,275,375 | ||||||||
| (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 |
| (2) | In 2019, |
| (3) | In 2019, the Company entered into various promissory notes with lenders in the aggregate principal balance of $ |
| F-11 |
| (4) | During the year ended December 31, 2021, the Company issued an aggregate of |
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 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 $70,833. On September 8, 2022, the note was further extended to May 26, 2023 and the interest rate increased from 10% to 18% per annum. The Company recognized $252,429 loss on extinguishment from the amendment of the note. On August 18, 2022, another note was further extended to September 30, 2022, in exchange for shares of common stock. During the fourth quarter, the note was extended until May 31, 2023. During the third and fourth quarters of 2022, the Company issued an aggregate of $400,000 of convertible notes payable net of discount, in various tranches. The notes accrue interest ranging between 10% and prime plus 8% per annum and mature nine months from the date of each issuance. In addition, the lenders received warrants with an exercise price of the lowest of $2.685 or 65% of lowest traded price in preceding 30 days and warrants with an exercise price of lowest of $2.685 or 50% of VWAP for the preceding 30 days, with all warrants having an expiry of 5 years from the date of issuance. During the year ended December 31, 2022, $798,526 of principal and $25,473 of accrued interest was converted into common shares leaving a balance, net of discount, of $482,885 and accrued interest of $381,259. as of December 31, 2022. The balance of the for convertible notes payable, net of discount, as of December 31, 2022 and 2021 was $482,885 and $602,787, respectively. |
| (5) | During the year ended December 31, 2021, the Company was granted loans (the “PPP Loans”) from the Small Business Administration in the aggregate amount of $250,535, pursuant to the and Paycheck Protection Program (the “PPP”) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Securities (“CARES”) Act, which was enacted March 27, 2020. The PPP Loans, which was in the form of a note that was granted in May 2020 and April 2021, matures in two years and accrues interest at a rate of |
| (6) | |
Note 7 – 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.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 Sub Topic 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.
| F-12 |
Schedule of DerivativesDerivative Liabilities
| Derivative Liability - Convertible Notes | Derivative Liability - Warrants | Total | ||||||||||
| Balance as of December 31, 2020 | $ | — | $ | — | $ | — | ||||||
| Change Due to Issuances | 4,114,227 | 4,663,730 | 8,777,957 | |||||||||
| Change in fair value | (2,861,830 | ) | (1,691,542 | ) | (4,553,372 | ) | ||||||
| Balance as of December 31, 2021 | $ | 1,252,397 | $ | 2,97,188 | $ | 4,224,585 | ||||||
| Schedule of Derivative Liabilities | ||||||||||||
| Derivative Liability - Convertible Notes | Derivative Liability - Warrants | Total | ||||||||||
| Balance as of December 31, 2020 | $ | – | $ | – | $ | – | ||||||
| Change due to issuances | 4,114,227 | 4,663,730 | 8,777,957 | |||||||||
| Change in fair value | (2,861,830 | ) | (1,691,542 | ) | (4,553,372 | ) | ||||||
| Balance as of December 31, 2021 | 1,252,397 | 2,972,188 | 4,224,585 | |||||||||
| Change due to issuances | 3,401,528 | 1,964,761 | 5,366,289 | |||||||||
| Change due to redemptions | (2,850,311 | ) | (7,246,201 | ) | (10,096,512 | ) | ||||||
| Change in fair value | 840,180 | 2,383,091 | 3,223,271 | |||||||||
| Balance as of December 31, 2022 | $ | 2,643,794 | $ | 73,839 | $ | 2,717,633 | ||||||
The Company used a Monte Carlo Modelmodel to estimate the fair value of the embedded derivatives above.its derivatives. A summary of the quantitative information with respect to valuation methodology and significant unobservable inputs used for the fair value of derivative liabilities during the yearyears ended December 31, 2022 and 2021 is as follows:
Schedule of Fair Value of Derivative Liabilities
The foregoing assumptions are reviewed quarterly and subject to change based primarily on management’s assessment of the probability of the events described occurring.
| Schedule of assumptions | ||||||||
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Stock price | ||||||||
| Contractual term (in years) | 0.00 - 5.00 | 0.58 - 3.00 | ||||||
| Volatility (annual) | 47.4% - 236% | 48.8% - 61.3% | ||||||
| Risk-free rate | 0.19% - 4.38% | 0.19% - 0.47% | ||||||
Note 8 – Stockholders’ (Deficit) EquityFinancing Arrangement
Stock based compensation and stock issued for services
The Company issued shares of common stock to officers, employees and vendors during the year ended December 31, 2021 with an aggregate fair value of $1,031,174.
During the year ended December 31, 2020,2022, the Company issued sharesentered into five non-recourse agreements for the sale of common stock to officers and vendors with an aggregate fair valuefuture receipts receiving gross proceeds of $558,502528,984.
Shares issued as debt issuance costs
During the year ended December 31, 2021, which provides the Company issuedwith the ability to convert our account receivables into cash. Under the terms of the agreements, the Company must pay a specified amount each day until the financed receivables are fully paid. The agreements have an effective interest rate within the range of approximately 154,173 36% and 40shares%, which includes a discount of common stock to$143,446. The outstanding balance is secured by an interest in virtually all assets of the Company, with a lender to coverfirst security interest in accounts receivable.
The Company accounts for these agreements as a financing arrangement, with the financing costs. The shares were valued on the day of issuance which was $per share for a total value of $462,519. This amount was treated as financing costs andpurchase price recorded as a liability and daily repayments made are a reduction of the liability. As of December 31, 2022, there was an outstanding balance of $292,636 which is presented net of a discount to notes payable.of $78,387. There was no outstanding balance as of December 31, 2021.
Note 9 – Stockholders’ (Deficit) Equity
Stock issued upon acquisition of Globe Net
Pursuant to the Merger Agreement between Stemtech and Globe Net, the Company agreed to issue common stock to settle all outstanding notes payable of Globe Net. In October 2021 and November 2021, the Company issued an aggregate of 6,061,667 shares of common stock which settled $363,479 of notes payable.
Cancellation of shares
| F-13 |
Shares issued as debt issuance costs
During the year ended December 31, 2021, the Company issued shares of common stock to a lender to cover the financing costs. The shares were valued on the day of issuance at $ per share for a total value of $462,519. This amount was treated as financing costs and recorded as a discount to notes payable.
During the year ended December 31, 2022, the Company issued shares of common stock to a lender to cover the financing costs. The shares were valued on the day of issuance at $ per share for a total value of $200,000. This amount was treated as financing costs and recorded as a discount to notes payable.
Stock issuance for services and stock based compensation
During the years ended December 31, 2022 and 2021, the Company issued and shares of common stock respectively, to officers, employees and vendors for services valued at $3,216,111 and 242,000, respectively. The Company also recognized $ of expense relating to the vesting of common stock issued to Chairman and CEO during the year ended December 31, 2022.
Stock issued for loan extension
On June 8, 2022, the Company issued shares of common stock valued at $300,000 to one of its note holders per the loan extension agreement (see Note 3). The Company recognized $878,806 loss on extinguishment of the note.
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 was amended to increase the principal balance of the note by $70,833; as well as granting warrants and common shares as consideration for a 90-day extension of the note. The common shares were issued to the lender as well as the original common shares that were to be issued upon entering into the original loan agreement dated September 1, 2021. The Company recognized $955,658 loss on extinguishment of the note.
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 of 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 $423,176 loss on extinguishment of the note and a $1,183,544 gain on extinguishment upon cancellation of the warrants and derivative liabilities associated with the warrants.
On August 26, 2022, the Company cancelled warrants previously issued to a note holder in exchange for the common shares valued at $1,213,710. The Company recognized a $4,106,707 gain on extinguishment upon cancellation of the warrants and derivative liabilities associated with the warrants that was partially offset by a loss on extinguishment of $77,960.
Conversion of convertible notes and accrued interest to common stock
On September 19, 2022, the Company, under the terms of the note, issued common shares upon the conversion of $148,870 in notes payable plus $1,250 in transaction fees. Upon conversion and settlement of the derivative liability, the Company recognized a $214,655 gain on extinguishment.
On September 20, 2022, the Company, under the terms of the note, issued common shares upon the conversion of $100,000 in notes payable. Upon conversion and settlement of the derivative liability, the Company recognized a $100,808 gain on extinguishment.
On September 29, 2022, the Company, under the terms of the note, issued common shares upon the conversion of $388,000 in notes payable. Upon conversion and settlement of the derivative liability, the Company recognized a $341,156 gain on extinguishment.
On December 9, 2022, the Company, under the terms of the note, issued common shares upon the conversion of $39,744 in notes payable. Upon conversion and settlement of the derivative liability, the Company recognized a $41,435 gain on extinguishment.
On December 9, 2022, the Company, under the terms of the note, issued common shares upon the conversion of $148,077 in notes payable. Upon conversion and settlement of the derivative liability, the Company recognized a $148,254 gain on extinguishment.
| F-14 |
Note 10 – Related Parties
Notes Payable and Accrued Interest – Related Parties
On May 15, 2020, the Company received a $10,000 loan from John W. Meyer, a related party. A promissory note was issued in the amount of $10,000 with a maturity date of August 15, 2020 (the “Meyer Note”). Interest on the Meyer Note accrued on the principal amount at the rate of eight and one-half percent (8.5%) per annum, payable in full including any accrued interest and late fees on August 15, 2020 and shall continue to accrue until paid in full. As of December 31, 2020, the Company cancelled sharesowed $10,000 principal amount of unvestedthe Meyer Note, plus $543 in interest. On June 29, 2021, John Meyer extended the Meyer Note until December 31, 2021. This note was paid in full in September 2021.
In addition, on December 10, 2020, the Company commonreceived a $25,000 loan from Charles Arnold, a related party. A promissory note was issued in the amount of $25,000 with a maturity date of December 10, 2021 (the “Arnold Note”). Interest on the Arnold Note accrued on the principal amount at the rate of eight percent (8%) per annum, payable in full including any accrued interest and late fees on December 10, 2021 and shall continue to accrue until paid in full. As of December 31, 2020, the Company owed $25,000 principal amount of the Arnold Note, plus $117 in interest. On June 29, 2021, Charles Arnold extended the Arnold Note until December 31, 2021. This note was paid in full in September 2021.
During the year ended December 31, 2022, the Company entered into the following related party transactions:
| · | It recognized $250,000 in accrued salary for its Chairman and CEO in addition to the Company amortized $ ($ in 2021) of previous stock compensation granted to its Chairman and CEO that is being amortized over 10 years; | |
| · | On September 7, 2022, the Company granted common shares of the Company to past and current directors for past services with a fair value of $2,806,111. | |
| · | On December 29, 2022, the Company granted common shares of the Company to current directors for current services with a fair value of $150,000. | |
| · | A current director previous advanced $100,000 with an interest rate of 5% for which the Company accrued $7,604 ($7,538 in 2021) as interest expense and included in Accounts payable and accrued liabilities.. | |
| · | On December 29, 2022, the Company granted its Corporate Secretary common shares of the Company for past services with a fair value of $60,000 in addition to $8,000 in cash that was paid during the year. | |
| · | A company with a common director advanced the Company $1,400,000 at 10% on September 1, 2021 for which the Company accrued $140,000 ($35,000 in 2021) in interest for the year and included in accounts payable and accrued liabilities. This note is also described in Note 6. | |
| · | The Company paid its CFO $7,500 in fees during the year. |
In addition, as at December 31, 2022, the Company owes Officers $179,509 that was initially granted to consultants for services.is included in Accounts payable and accrued liabilities.
| F-15 |
Note 9 11 – Segment and Geographic Information
Operating segments are identified as components of an enterprise about which separate discreet financial information is available for evaluation by the chief operating officer, or chief executive officer, in making decisions on how to allocate resources and assess performance.
The Company is operated and managed geographically, and management evaluates performance and allocates the Company’s resources on a geographic basis. Operating segments’ measure of profitability is based on incomeloss from operations. The accounting policies for the reportable operating segments are the same as for the Company taken as a whole. The Company has three reportable operating segments: 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, Taiwan Indonesia, South Korea and New Zealand)Indonesia).
Information about operating segments is as follows:
Schedule of segment Reporting Information
| 2021 | 2020 | |||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| Information about operating segments | Year Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2022 | 2021 | |||||||||||||
| Geographic Net Sales: | ||||||||||||||||
| Americas | $ | 1,866,154 | $ | 1,796,348 | $ | 1,547,056 | $ | 1,866,154 | ||||||||
| Latin America | 1,668,252 | 1,618,582 | 2,501,416 | 1,668,252 | ||||||||||||
| Asia | 786,839 | 969,577 | 510,927 | 786,839 | ||||||||||||
| Total Net Sales | $ | 4,321,245 | $ | 4,384,507 | $ | 4,559,399 | $ | 4,321,245 | ||||||||
| Cost of Goods Sold: | ||||||||||||||||
| Americas | $ | 304,615 | $ | 273,089 | $ | 279,246 | $ | 304,615 | ||||||||
| Latin America | 443,191 | 248,938 | 723,544 | 443,191 | ||||||||||||
| Asia | 275,354 | 193,125 | 161,228 | 275,354 | ||||||||||||
| Total Cost of Goods Sold: | $ | 1,023,160 | $ | 715,152 | $ | 1,164,018 | $ | 1,023,160 | ||||||||
| Operating Expenses: | ||||||||||||||||
| Americas | $ | 3,748,307 | $ | 2,487,975 | $ | 6,057,305 | $ | 3,748,307 | ||||||||
| Latin America | 2,059,381 | 1,617,899 | 1,823,365 | 2,059,381 | ||||||||||||
| Asia | 700,668 | 995,280 | 538,091 | 700,668 | ||||||||||||
| Total Operating Expenses | $ | 6,508,356 | $ | 5,101,154 | $ | 8,418,761 | $ | 6,508,356 | ||||||||
| Income (loss) from operations: | ||||||||||||||||
| Loss from operations: | ||||||||||||||||
| Americas | $ | (2,186,768 | ) | $ | (964,716 | ) | $ | (4,789,494 | ) | $ | (2,186,768 | ) | ||||
| Latin America | (834,320 | ) | (248,255 | ) | (45,493 | ) | (834,320 | ) | ||||||||
| Asia | (189,183 | ) | (218,828 | ) | (188,393 | ) | (189,183 | ) | ||||||||
| Total loss from operations | (3,210,271 | ) | (1,431,799 | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | $ | (8,330,201 | ) | (158,741 | ) | |||||||||||
| Change in fair value of derivative liabilities | 4,553,372 | - | ||||||||||||||
| Other expenses, net | (124,009 | ) | (31,474 | ) | ||||||||||||
| Loss on disposal of assets | - | (105,709 | ) | |||||||||||||
| Total other expense | $ | (3,900,838 | ) | (295,924 | ) | |||||||||||
| Total Loss from Operations | $ | (5,023,380 | ) | $ | (3,210,271 | ) | ||||||||||
| Total Assets by Geographic Location | ||||||||||||||||
| Americas | $ | 5,211,878 | $ | 4,551,372 | $ | 3,986,976 | $ | 5,211,878 | ||||||||
| Latin America | 284,788 | 200,419 | 198,609 | 284,788 | ||||||||||||
| Asia | 223,456 | 257,730 | 81,356 | 223,456 | ||||||||||||
| Total Assets | $ | 5,720,122 | $ | 5,009,521 | $ | 4,266,941 | $ | 5,720,122 | ||||||||
| F-16 |
Note 1012 – Commitments and Contingencies
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 hasvigorously objected to the legality of the interest charged. It is the position of the Company that the plaintiff’s interest charges are usuriouscharged, and thus invalid asfiled a matter of law. This matter is still in litigation with no trial date yet set.dispositive Motion for Dismissal, which was granted on March 15, 2023. The case against Stemtech was dismissed on March 16, 2023.
On August 6, 2019, Ray Carter, 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.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 which is included in accounts payable and accrued expenses in the accompanying consolidated financial statements as of December 31, 20212022 and December 31, 2020.2021. Mr. Carter’s request for Summary Judgment was dismissed by the Court on March 3, 2023.
On August 30, 2019, the former CFO, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences for non-payment for unpaid vacation. This matter is now settled, and the Company agreed to pay $114,000 in full accord and satisfaction. While no specified payment program is in place, this settlement was accrued and has a balance of $49,000 as of December 31, 2021 after several payments were made. Final payment is expected to be tendered in August 2022.
On March 4, 2020, Canon Financial Services, Inc., filed a lawsuit against the companyCompany in a dispute over office machine leases. The Company settled this matter with Canon Financial Services out of Court for $32,000in May 2021, and is making installment payments for the remaining $6,665until paid off in May 2023. The Company accrued the same amount and has a balance of $20,000 as of December 31, 2021.2023.
In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s consolidated financial position or consolidated results of operations.
Note 11 – Related Parties
Notes Payable and Accrued Interest – Related Parties
On May 15, 2020, the Company received a $10,000 loan from John W. Meyer, a related party. A promissory note was issued in the amount of $10,000 with a maturity date of August 15, 2020 (the “Meyer Note”). Interest on the Meyer Note accrued on the principal amount at the rate of eight and one-half percent (8.5%) per annum, payable in full including any accrued interest and late fees on August 15, 2020 and shall continue to accrue until paid in full. As of December 31, 2020, the Company owed $10,000 principal amount of the Meyer Note, plus $543 in interest. On June 29, 2021, John Meyer extended the Meyer Note until December 31, 2021. This note was paid in full in September 2021.
In addition, on December 10, 2020, the Company received a $25,000 loan from Charles Arnold, a related party. A promissory note was issued in the amount of $25,000 with a maturity date of December 10, 2021 (the “Arnold Note”). Interest on the Arnold Note accrued on the principal amount at the rate of eight percent (8%) per annum, payable in full including any accrued interest and late fees on December 10, 2021 and shall continue to accrue until paid in full. As of December 31, 2020, the Company owed $25,000 principal amount of the Arnold Note, plus $117 in interest. On June 29, 2021, Charles Arnold extended the Arnold Note until December 31, 2021. This note was paid in full in September 2021.
Note 12 – Disposition of Subsidiaries
During the year ended December 31, 2020, the Company sold or closed three of its subsidiaries in South Korea and Indonesia resulting in losses on the disposition or closing totaling $105,709.
Note 13 – Income Taxes
Income taxes are accounted for under the assetliability method of accounting for income taxes. Under the liability method, future tax liabilities and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferredbases. Future tax assets and liabilities are measured using statutoryenacted or substantially enacted income tax rates expected to apply to taxable income inwhen the years in which those temporary differences are expected to be recoveredasset is realized or settled, updated for new corporate tax rates.the liability settled. The effect on deferred tax assets and liabilities fromof a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that includes the effective date ofchange occurs. Future income tax assets are recognized to the change. extent that they are considered more likely than not to be realized.
The Company recognizes tax liabilities or benefits fromFASB has issued ASC 740 “Income Taxes”. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an uncertain position only ifenterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that thea tax position will be sustained upon examination by taxing authorities based onupon the technical merits of the issue. Theposition.
If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount recognized would beto recognize in the largest liability or benefitfinancial statements.
As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740 and concluded that the tax position of the Company believes has greater than a 50% likelihood of being realized upon settlement. Asnot met the more-likely-than-not threshold as of December 2021, and 2020 management determined that it is not 50% likely that a tax asset will be realized, as such, a full valuation has been recorded. As of December 2020, (“NOL”) carry-forwards amounted to approximately $2,119,506. All tax returns are still open and subject to audit the Internal Revenue Service.31, 2022.
| F-17 |
The domestic and foreign components of loss before (benefit) provision for income taxes were as follows:
Schedule of Domestic and Foreign Components of Loss Before Provision for Income Tax
| 2021 | 2020 | |||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| Domestic and foreign components of income | Year Ended | Year Ended | ||||||||||||||
| 2021 | 2020 | December 31, 2022 | December 31, 2021 | |||||||||||||
| Domestic | $ | (6,083,667 | ) | $ | (1,128,818 | ) | $ | (8,551,252 | ) | $ | (6,083,667 | ) | ||||
| Foreign | (1,027,442 | ) | (598,906 | ) | 14,042 | (1,027,442 | ) | |||||||||
| Total | $ | (7,111,109 | ) | $ | (1,727,723 | ) | ||||||||||
| Loss before provision for income taxes | $ | (8,537,210 | ) | $ | (7,111,109 | ) | ||||||||||
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 20212022 and 20202021 is as follows:
Schedule of Reconciliation of Income Tax
| US | 2021 | 2020 | ||||||
| Year Ended December 31, | ||||||||
| US | 2021 | 2020 | ||||||
| Loss before Income taxes | $ | (7,110,109 | ) | $ | (1,727,723 | ) | ||
| Taxes under statutory US tax rates | (1,493,333 | ) | (362,822 | ) | ||||
| Increase (decrease) in taxes resulting from: | ||||||||
| Increase in valuation allowance | 2,984,299 | 464,547 | ||||||
| Foreign tax rate differential | (73,413 | ) | (43,875 | ) | ||||
| Permanent differences | (955,027 | ) | (31,917 | ) | ||||
| Rate Change | - | 2,765 | ||||||
| State Taxes | (462,526 | ) | (28,699 | ) | ||||
| Income tax (expense) benefit | $ | - | $ | - | ||||
| Reconciliation of income tax expense | Year Ended | Year Ended | ||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Loss before income taxes | $ | (8,537,210 | ) | $ | (7,111,109 | ) | ||
| Taxes benefits under statutory US tax rates | (1,792,814 | ) | (1,493,333 | ) | ||||
| Increase (decrease) in taxes resulting from: | ||||||||
| Increase in valuation allowance | 2,697,747 | 2,984,299 | ||||||
| Foreign tax rate differential | 110,120 | (73,413 | ) | |||||
| Permanent differences | (495,637 | ) | (955,027 | ) | ||||
| State taxes | (423,798 | ) | (462,526 | ) | ||||
| Provision for income taxes | $ | 95,618 | $ | – | ||||
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’sCompany's deferred tax assets and liabilities consist of the following:
Schedule of Deferred Tax Assets and Liabilities
| December 31, 2021 | December 31, 2020 | |||||||||||||||
| Schedule of deferred taxes | December 31, 2022 | December 31, 2021 | ||||||||||||||
| Deferred tax assets | ||||||||||||||||
| Net Operating Loss Carryforwards | $ | 4,369,537 | $ | 1,625,829 | ||||||||||||
| Net operating loss carryforwards | $ | 6,132,841 | $ | 4,369,537 | ||||||||||||
| Stock based compensation | 732,868 | 468,873 | 1,664,597 | 732,868 | ||||||||||||
| Intangibles | (88,159 | ) | (64,116 | ) | (83,111 | ) | (88,159 | ) | ||||||||
| Depreciation | (1,986 | ) | – | |||||||||||||
| Other | 140 | - | (209 | ) | 140 | |||||||||||
| Total Deferred tax assets | $ | 5,014,385 | 2,030,086 | |||||||||||||
| Total deferred tax assets | 7,712,132 | 5,014,385 | ||||||||||||||
| Valuation allowance | (5,014,385 | ) | (2,030,086 | ) | (7,712,132 | ) | (5,014,385 | ) | ||||||||
| Net deferred tax assets (liabilities) | $ | - | $ | - | $ | – | $ | – | ||||||||
At December 31, 2021,2022, the Company had net operating loss (“NOL”) carryforwards of approximately $16,999,600 24.4 millionthat may be offset against future taxable income. Of the $17.0 $24.4 million of net operating losses, U.S. Federal and state net operating losses accounted for $12.8 20.6 millionmillion which and are subject to limitation under IRC Section 382. The U.S. net operating losses are limited to utilization of 80% of taxable income but do not have an expiration. At December 31, 2021,2022, the Company had $4.2 3.8 millionmillion of non-US NOL carryforwards.
The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2022 and 2021, and 2020, respectively.
On December 22, 2017,Prior to 2018, when the President ofCompany was acquired by the United States of America signed tax reform legislation (the “2017 Tax Act”), which includes a broad range of tax reform affecting businesses, including corporate tax rates, business deductions, and international tax regulations. Among these changes,current management, the 2017 Tax Act reduces the corporate tax rate from 35% to 21% effective December 31, 2017. The Company has incorporated all other changes resulting from the 2017 Tax Act in its tax related accounts for the fiscal years ended December 31, 2021 and 2020.
The Mexican Tax Authorities have completed an Auditaudit of Stemtech Mexico for the 2013 fiscal year and haveissued a preliminarily assessed a $2.5 assessment of $2.5 million tax liability including interest and penalties. The Company believeshad argued to date that this assessment to bewas unfounded and has hired local tax attorneys to beginon June 3, 2022, the process of going toMexican Tax Court and potentially trial to minimize any potential tax and may take an additional 2 to 3 years to be resolved.dismissed the claim asserted by the Mexican Tax Authorities. The Company, estimatedrelated to this assessment, owes no taxes whatsoever to the final assessment to approximately $250,000, but the Company believes it is not probable than the Company will be liable for these amounts and therefore no amount has been accrued for this action.Mexican government.
The Company accrued approximately $250,000 as of December 31, 2018 and remains accrued and due to Mexico as of December 31, 2021. Currently, 2015 through 2020 tax returns are still open for possible audit.
| F-18 |
Note 14 – Subsequent Events
Management of the Company has performed a review of all events and transactions occurring after the consolidated balance sheet date to determine if there were any such events or transaction requiring adjustment to or disclosure in the accompanying consolidated financial statements, noting that no such events or transactions occurred other than the following items:
On January 13, 2023, the Company, under the terms of one of its note agreements, issued 2,600,000 shares of common stock of the Company at $0.05 per share for the conversion of $130,000 of notes payable.
On January 23, 2023, the Company, under the terms of one of its note agreements, issued 2,666,763 shares of common stock of the Company at $0.05 per share for the conversion of $133,338 of notes payable.
One February 9, 2023, the Company issued 27,898 shares of common stock of the Company valued at $40,694 to consultants for services.
On March 7, 2023, the Company acquired 100% of the issued and outstanding stock of Life Factor Research (“LFR”), a Wyoming corporation, in exchange for 2,4000,000 shares of common stock of the Company valued at $272,400.
On March 27, 2023, the Company and an institutional investor executed an investment agreement for up to $7,000,000 through a convertible promissory note, share purchase agreement and warrant agreement. Per the terms of the agreement, the Company was tendered an initial $1,000,000, with further disbursements to follow. The agreement has a 12% original issue discount and carries interest at 7% per annum. The Company has evaluated subsequent events after the balance sheet date through the datean open right of this filing and found that there were no material events to disclose during this time.redemption at 125% of face value.
| F-19 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial DisclosureDisclosure.
NoneNone.
Item 9A(T):. Controls and ProceduresProcedures.
A. Disclosure Controls and Procedures
As required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934, Stemtech’s principal executive officer and principal financial officer evaluated its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) for the period covered by this annual report as of its fiscal year end, December 31,st, 2021. 2022. Based on this evaluation, this officer concluded that as of the end of the period, these disclosure controls and procedures were adequate to ensure that the information required to be disclosed by Stemtech in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange CommissionSEC and include controls and procedures designed to ensure that such information is accumulated and communicated to management, including Stemtech’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of management of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31st, 2021.2022. Based on that evaluation, management concluded that Stemtech’s disclosure controls and procedures were adequate as of such date to ensure that information required to be disclosed in the reports that Stemtech files or submits 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 Stemtech’s internal control over financial reporting during the fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
B. Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over Stemtech’s financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in the Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Stemtech’s system of internal control over financial reporting is designed 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.
Based on Stemtech’s evaluation, its Chief Executive Officer and Chief Financial Officer concluded that Stemtech’s internal controls over financial reporting were not effective as of December 31, 20212022 and were subject to material weaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses in Stemtech’s internal control over financial reporting using the criteria established in the COSO:
1. Failing to have an audit committee or other independent committee that is independent of management to assess internal control over financial reporting; and
2. Failing to have a director that qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
3. Lack of segregation of duties consistent with control objectives.
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4. Insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and applications of US GAAP and SEC disclosure requirements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.
This annual report does not include an attestation report of Stemtech’s independent registered public accounting firm regarding internal control over financial reporting. Stemtech’s internal control over financial reporting was not subject to attestation by Stemtech’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit Stemtech to provide only management’s report in this annual report.
C. Changes in Internal Control over Financial Reporting.
During the year ended December 31, 2021,2022, Stemtech’s internal control over financial reporting was not subject to changes.
Item 9B. Other InformationInformation.
None.
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PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the Exchange ActAct.
The following individuals serves as Directors and Executive Officers of the Company as of the date of this Annual Report. Directors of the Company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. Executive officers of the Company are appointed by our board of directors and hold office until their death, resignation or removal from office.
| Name | Position | Age | Held Position Since | ||||
| John W. Meyer | Director, President & COO | 69 | August 19, 2021 | ||||
| Charles S. Arnold | Director, CEO | 72 | August 19, 2021 | ||||
| John Thatch | Director | 59 | September 17, 2021 | ||||
| Benjamin Kaplan | Director | 56 | September 17, 2021 | ||||
| Darryl V. Green | Director | 58 | September 17, 2021 | ||||
| James Cardell | CFO | 63 | September 5, 2021 |
Mr. Charles Arnold, Mr. Arnold’s ability to integrate marketing concepts and financial strategies play a pivotal role in the development of his clients’ businesses. In addition to developing start-up companies, he is responsible for placing more than $1 Billion into public and private companies with as much as $400 Million in a single transaction. Significant mergers and acquisitions have been accomplished through his network of financial specialists and professionals throughout the world. In 1993, Mr. Arnold was one of the original investors in pre-paid legal “PPD” (now Legal Shield). In 2001 he was engaged by National Health “LEXXUS”, and the company grew from under $1.00 to over $40 and traded on the American stock exchange. Mr. Arnold feels that the direct sales marketing industry is an underserved market that deserves investors’ attention. Mr. Arnold believes that Stemtech has exceptional growth potential and sees this company’s bright future with innovative stem cell nutrition products and the business opportunity for our Independent Business Partners.
Mr. John W. Meyer. With over 40 years’ business experience in logistics and management of projects, supply chain and staff, Mr. Meyer oversees operations for Stemtech’s global company. In fifteen years with Stemtech, he has supported openings of 51 national markets, serving as VP of Global Operations prior to his positionas COO in 2016 and as President and COO since October 2021. Mr. Meyer is responsible for global management of the Company, including operations, inventory management, purchasing, transportation, as well as for global Human Resources, Partner Services, Training, Information Technology, global facilities and for global manufacturing of nutraceuticals, cosmetics, oral healthcare, ECO products and any new product development and quality assurance. He also is the executive sponsor and leader of the Life Sciences Advisory Board, the Field Advisory Board and the Business Advisory Board. Mr. Meyer graduated from the University of San Francisco with B.A. and M.A. degrees. He previously worked at Shaklee, Arbonne, and third-party logistics provider Menlo Worldwide – now a part of XPO Logistics.
John “JT” Thatch, serves as Chief Executive Officer and Vice Chairman of Sharing Services Global Corporation a publicly traded company with over $100M in annual revenues.revenues. Mr. Thatch is an accomplished executive who has successfully started and operated businesses in various industries that include service companies, retail, wholesale, on-line learning, finance, real estate management and technology. From 2009 to 2016, Mr. Thatch served as Chief Executive Officer of Universal Education Group, in 2016 Mr. Thatch created Superior Wine and Spirits, LLC, a Florida-based wholesale distributor of wine and spirits. Prior to 2005, Mr. Thatch served as CEO of Orbital Energy Group, Inc. (“OEG”), a NASDAQ-listed company formerly known as OnScreen Technologies, Inc. Mr. Thatch currently serves on the board of directors of several other companies and is the lead independent director of Document Security Systems, Inc. (“DSS”), a NYSE listed company and is a current member of NACD.
Benjamin Kaplan has been a successful entrepreneur and investor for over 20 years, with a particular focus on health, wellness and pharmaceutical companies. He currently serves as the CEO of Ehave, Inc., a leader in digital therapeutics delivering evidence-based therapeutic interventions to patients.
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Darryl V. Green is Founder and President of DVG Ventures & DVG Nutrition since 2014. He specializes in health and nutrition businesses and is a franchise strategist. For over 30 years, from 1983 – 2014, Mr. Green was with GNC Nutrition which included 20 years of corporate and franchise executive positions and over 10 years of various field positions encompassing all facets of retail operations across the United States.
All directors serve for terms of one year each, and are subject to re-election at Annual Meeting of Shareholders, unless they earlier resign.
There are no material proceedings to which any of our directors, officers or affiliates, any owner of record or beneficially of more than five percent of any class of our voting securities, or any associate of any such director, officer, affiliate, or security holder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.
We have attempted and will continue to attempt to ensure that any transactions between we and our officers, directors, principal shareholders, or other affiliates have been and will be on terms no less favorable to us than could be obtained from unaffiliated third parties on an arm’s length basis.
Involvement in Certain Legal Proceedings
Except as noted herein or below, during the last ten (10) years none of our directors or officers have:
(1) had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
(2) been convicted in a criminal proceeding or subject to a pending criminal proceeding;
(3) been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
(4) been found by a court of competent jurisdiction in a civil action, the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
All of these filing requirements were satisfied by the Company’s officers, directors, and ten-percent holders.
In making these statements, we have relied on the written representation of our Directors and Officers or copies of the reports that they have filed with the Commission.
(b) Identify Significant Employees
Stemtech has no significant employees other than Mr. John W. Meyer is Stemtech’s President and Chief Operating Officer. Mr. Meyer devotes his full time to our business.
(c) Family Relationships
There are no family relationships among the directors, executive officers or persons nominated or chosen by our company to become directors or executive officers.
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(d) Involvement in Certain Legal Proceedings
During the past 10 years, no of the director,Director, officer, or promoter of Stemtech has been:
| a general partner or executive officer of any business against which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time; | ||
| convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); | ||
| subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; | ||
| subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity, or to be associated with persons engaged in any such activity; | ||
| found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; | ||
| found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; | ||
| the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: |
| any Federal or State securities or commodities law or regulation; or |
| any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or | ||
| any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
| the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
(f) Nomination Procedure for Directors
Stemtech does not have a standing nominating committee; recommendations for candidates to stand for election as directors are made by the board of directors. Stemtech has not adopted a policy that permits shareholders to recommend candidates for election as directors or a process for shareholders to send communications to the board of directors.
(g) Audit Committee Financial Expert
Stemtech has no financial expert. Management believes the cost related to retaining a financial expert at this time is prohibitive. Stemtech’s Board of Directors has determined that it does not presently need an audit committee financial expert on the Board of Directors to carry out the duties of the Audit Committee. Stemtech’s Board of Directors has determined that the cost of hiring a financial expert to act as a director of Stemtech and to be a member of the Audit Committee or otherwise perform Audit Committee functions outweighs the benefits of having a financial expert on the Audit Committee.
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(h) Identification of Audit Committee
Stemtech does not have a separately designated standing audit committee. Rather, Stemtech’s entire board of directors perform the required functions of an audit committee. Currently, John W. Meyer orour President and COO and Charles S. Arnold, our CEO are the only members of Stemtech’s audit committee, but he does not meet Stemtech’s independent requirements for an audit committee member. See “Item 13. (c) Director independence” below for more information on independence.
(i) Code of Ethics
Stemtech has adopted a financial code of ethics that applies to all its executive officers and employees, including its CEO and CFO. See Exhibit 14 – Code of Ethics for more information. Stemtech undertakes to provide any person with a copy of its financial code of ethics free of charge. Please contact Stemtech at (954) 715-6000 to request a copy of Stemtech’s financial code of ethics. Management believes Stemtech’s financial code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Item 11. Executive Compensation
The following table sets forth the compensation paid to our officers for the years ended December 31, 20212022 and 2020.2021. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to named executive officers.
Summary Compensation Table
| Stock | All Other | |||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Awards | Compensation | Total | ||||||||||||||||||
| Charles Arnold, Director, CEO | 2021 | $ | – | $ | – | 268,904 | $ | – | $ | 268,904 | ||||||||||||||
| 2020 | $ | – | $ | – | 245,000 | $ | – | $ | 245,000 | |||||||||||||||
| John Meyer, President & COO | 2021 | $ | 120,000 | $ | – | 109,526 | $ | – | $ | 229,526 | ||||||||||||||
| 2020 | $ | 120,000 | $ | – | – | $ | – | $ | 120,000 | |||||||||||||||
| James Cardwell, CFO | 2021 | $ | 7,500 | $ | – | – | $ | – | $ | 7,500 | ||||||||||||||
| 2020 | $ | – | $ | – | – | $ | – | $ | – | |||||||||||||||
| Stock | All Other | ||||||||||||||||||||||
| Name and Principal Position | Year | Salary | Bonus | Awards | Compensation | Total | |||||||||||||||||
| Charles S. Arnold, Director, CEO | 2021 | $ | – | $ | – | 268,904 | $ | – | $ | 268,904 | |||||||||||||
| 2022 | $ | – | $ | – | 268,904 | $ | – | $ | 268,904 | ||||||||||||||
| John W. Meyer, President & COO | 2021 | $ | 120,000 | $ | – | 109,526 | $ | – | $ | 229,526 | |||||||||||||
| 2022 | $ | 120,000 | $ | – | 109,526 | $ | – | $ | 229,526 | ||||||||||||||
| James S. Cardwell, CFO | 2021 | $ | 7,500 | $ | – | – | $ | – | $ | 7,500 | |||||||||||||
| 2022 | $ | 7,500 | $ | – | – | $ | – | $ | 7,500 | ||||||||||||||
There are no stock option plans, retirement, pension, or profit-sharing plans for the benefit of Stemtech’s officers and directors.
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The table below sets forth information regarding the beneficial ownership of our common stock by (i) our directors and named executive officers (including persons who served as principal executive officer and principal financial officer during a portion of the fiscal year ended December 31, 2021)2022) and all the named executives and directors as a group and (ii) any other person or group that to our knowledge beneficially owns more than five percent of our outstanding shares of common stock.
The information contained in this table is as of March 28, 2021.2023. At that date, we had 44,685,67361,136,808 shares of common stock outstanding.
A person is deemed to be a beneficial owner of shares if he has the power to vote or dispose of the shares. This power can be exclusive or shared, direct or indirect. In addition, a person is considered by SEC rules to beneficially own shares underlying options or warrants that are presently exercisable or that will become exercisable within sixty (60) days.
| Name of Beneficial Owner and address (1) | Amount and Nature of Beneficial Ownership | Percent of Ownership | ||||||
| Named Executives and Directors | ||||||||
| Charles Arnold (2) | 8,906,683 | 14.6% | ||||||
| John W. Meyer | 644,302 | * | ||||||
| James Cardwell | – | – | ||||||
| John Thatch (3) | 1,854,173 | 3% | ||||||
| Darryl V Green | 3,941,937 | 6.5% | ||||||
| Benjamin Kaplan (4) | 3,678,680 | 6.1% | ||||||
| All directors and Named Executive Officers as a group (6 persons) | 19,025,776 | 30.5% | ||||||
| Over 5% Shareholders | ||||||||
| Daniel Kaplan (5) | 3,880,578 | 6.4% | ||||||
| Javad Abbasi (6) | 6,538,748 | 10.7% | ||||||
| Joshua Rosenbaum (7) | 5,872,842 | 9.1% | ||||||
| Robert Grinberg (8) | 3,400,037 | 5.6% | ||||||
| Leonite Capital, LLC (9) | 5,872,842 | 9.5% | ||||||
| MCUS LLC (10) | 3,156,451 | 7.9% | ||||||
| Over 5% Shareholders | 18,705,034 | 29.6% | ||||||
| Name of Beneficial Owner and address (1) | Amount and Nature of Beneficial Ownership | Percent of Ownership | ||||||
| Named Executives and Directors | ||||||||
| Charles Arnold (2) | 8,363,097 | 18.8 | % | |||||
| John W. Meyer | 344,302 | * | ||||||
| James Cardwell | - | - | ||||||
| John Thatch (3) | 1,554,173 | 3.4 | % | |||||
| Darryl V Green | 3,641,937 | 8.2 | % | |||||
| Benjamin Kaplan (4) | 3,135,094 | 7.1 | % | |||||
| All directors and Named Executive Officers as a group (6 persons) | 17,038,604 | 27.7 | % | |||||
| Over 5% Shareholders | ||||||||
| Daniel Kaplan (5) | 3,136,992 | 7.1 | % | |||||
| Javad Abbasi (6) | 6,538,748 | 14.7 | % | |||||
| Joshua Rosenbaum (7) | 5,872,842 | 12.3 | % | |||||
| Robert Grinberg (8) | 3,156,451 | 7.1 | % | |||||
| Over 5% Shareholders | 18,705,034 | 29.6 | % | |||||
* Less than 1%.
(1) Addresses for all officers and directors are 10370 USA Today Way, Miramar, FL 33025.
(2) Includes 1,765,090 indirect shares owned through a related party held by Crest Ventures LLC.
(3) Includes shares underlying vested warrants of 1,400,00 issued by the Company and 154,173 indirect shares owned through a related party held by Sharing Services Global Corp.
(4) Includes shares 2,198,905 indirect shares owned through a related party held by Long Side Ventures LLC.
(5) Includes shares 2,304,998 indirect shares owned through a related party held by R&T Sports Marketing, Inc.
(6) Includes shares 2,219,477 indirect shares owned through a related party held by Empereur Limited Partnership and 4,319,271 shares held by Veken, LLC.
(7) Includes shares underlying vested warrants of 3,414,443 issued by the Company and 2,458,399 indirect shares owned through a related party held by Mindshare Holdings, Inc.
(8) Includes shares 2,324,447 indirect shares owned through a related party held by Taconic Group LLC.
(9) Includes shares underlying vested warrants of 81,760 issued by the Company.
(10) Includes shares underlying vested warrants of 93,115 issued by the Company
Changes in Control
None.
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Item 13. Certain Relationships and Related TransactionsTransactions.
Pre-Merger Promissory Notes
Through the period ended August 19, 2021, the following group of lenders of Stemtech Corporation (formerly Globe Net Wireless Corp), a Nevada corporation, collectively settled $363,479 of notes payable were repaid in full in connection with the closing of the Merger with the issuance of 6,061,667 shares in the aggregate
| Debt Holder | Debt Settled | Shares Issued | ||||||
| Rima Hamdan | $ | 126,349 | 2,000,000 | |||||
| Edward Johnson | 163,763 | 1,041,667 | ||||||
| Shiloah Anstalt | 7,220 | 10,000 | ||||||
| Clipper Explorations Ltd | 42,491 | 10,000 | ||||||
| Csilla Gabriella Balla | 7,221 | 2,000,000 | ||||||
| Mikhail Churkin | 16,435 | 1,000,000 | ||||||
| Total | $ | 363,479 | 6,061,667 | |||||
Pre-Merger Stock Compensation
During the year endingended December 31, 2020 and for the period January 1, 2021 through August 19, 2021, Charles Arnold, an officer and director converted $250,000 and $187,500, respectfullyrespectively into 500,000 and 375,000, respectfully,respectively, shares of common stock of Stemtech Corporation, a Delaware Corporation prior to the closing of the Merger with Stemtech Corporation (formerly Globe Net Wireless Corp), a Nevada Corporation (the “Company”) which was exchanged into 1,280,417 shares of common stock of the Company upon closing of the Merger.
During the year endingended December 31, 2020 and for the period January 1, 2021 through August 19, 2021, Joshua Rosenbaum as a beneficial owner through Mindshare Holdings, Inc. and related party, converted $165,000 and $195,000, respectively into 330,000 and 390,000, respectively, shares of common stock shares of Stemtech Corporation, a Delaware Corporation prior to the closing of the Merger with the Company which was exchanged into 1,280,417 shares of common stock of the Company upon closing of the Merger.
During the year ended December 31, 2021, John W. Meyer, an officer and director received 45,000 shares of common stock of Stemtech Corporation, a Delaware Corporation with a fair value of $22,500 of prior to the closing of the Merger with the Company which was exchanged into 153,650 shares of common stock of the Company upon closing of the Merger.
During the year ending December 31, 2020 and for the period January 1, 2021 through August 19, 2021, Joshua Rosenbaum as a beneficial owner through Mindshare Holdings, Inc. and related party, converted $165,000 and $195,000, respectfully into 330,000 and 390,000, respectfully, shares of common stock shares of Stemtech Corporation, a Delaware Corporation prior to the closing of the Merger with the Company which was exchanged into 1,280,417 shares of common stock of the Company upon closing of the Merger.
Conversion of Shares upon Closing of Merger
The following officers, directors and/or related parties held common stock in Stemtech Corporation, a Delaware Corporation prior the Merger (“Pre-Merger Shares”) and upon the Merger on August 19, 2021 received common stock in the Company (“Shares Issued upon Merger”).
| Related Parties | Beneficial Owner | Pre-Merger Shares | Shares Issued upon Merger | ||||||
| Crest Ventures LLC | Charles Arnold* | 516,948 | 1,765,090 | ||||||
| Charles Arnold* | 1,639,508 | 5,598,008 | |||||||
| Long Side Ventures LLC | Benjamin Kaplan* | 644,001 | 2,198,905 | ||||||
| Benjamin Kaplan* | 243,672 | 832,004 | |||||||
| R&T Sports Marketing Inc | Daniel Kaplan** | 675,070 | 2,304,988 | ||||||
| Daniel Kaplan*** | (former director) ** | 243,672 | 832,004 | ||||||
| Empereur Limited Partnership | Javad Abbasi** | 650,026 | 2,219,477 | ||||||
| Veken, LLC | Javad Abbasi** | 1,265,000 | 4,319,271 | ||||||
| Taconic Group LLC | Robert Grinberg*** | 680,769 | 2,324,447 | ||||||
| Robert Grinberg*** | (former director) ** | 243,672 | 832,004 | ||||||
| Mindshare Holdings, Inc. | Joshua Rosenbaum*** | 720,000 | 2,458,399 | ||||||
| John W. Meyer* | 90,000 | 307,300 | |||||||
| Total | 7,612,338 | 25,991,897 | |||||||
* Officer and Director of the Company
** Former Director of the Stemtech Corporation, a Delaware Corporation
*** Related party, or beneficial owner of over 5% of the common stock of the Company
Post-Merger Promissory Notes
On September 10, 2021, John Thatch, a director of the Company and beneficial owner through an affiliated company Sharing Services Global Corp. of which Mr. Thatch is the CEO entered into a Convertible Promissory Notes in the amount of $1,400,000 and received no Throughpayments through the period ended August 19, 2021, and also received 154,173 shares of common stock of the Company reported as debt issuance costs.
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Post-Merger Stock Compensation
On September 1, 2021, Charles Arnold, an officer and director received 1,000,000 shares of restricted stock of the Company’s common stock as additional compensation vesting 62,500 shares quarterly beginning October 1, 2024 with a fair value of $3,000,000 at the time of issuance.
On December 3, 2021, John W. Meyer, an officer and director received 37,002 shares of restricted stock of the Company’s common stock as additional compensation vesting on December 3, 2022 with a fair value of 109,489 at the time of issuance.
Director independence
Stemtech’s board of directors currently consists of John W. Meyer our President and COO, Charles S. Arnold, our CEO, John Thatch, Benjamin Kaplan and Darryl V. Green. Pursuant to Item 407(a)(1)(ii) of Regulation S-K of the Securities Act, Stemtech’s board of directors has adopted the definition of “independent director” as set forth in Rule 4200(a)(15) of the NASDAQ Manual. In summary, an “independent director” means a person other than an executive officer or employee of Stemtech or any other individual having a relationship which, in the opinion of Stemtech’s board of directors, would interfere with the exercise of independent judgement in carrying out the responsibilities of a director, and includes any director who accepted any compensation from Stemtech in excess of $200,000 during any period of 12 consecutive months with the three past fiscal years. Also, the ownership of Stemtech’s stock will not preclude a director from being independent.
In applying this definition, Stemtech’s board of directors has determined that neither Messrs. Meyer nor Arnold qualifies as an “independent director” pursuant to the same rule.
As of the date of the report, Stemtech did not maintain a separately designated compensation or nominating committee.
Stemtech has also adopted this definition for the independence of the members of its audit committee. John Meyer our COO and Charles Arnold, our CEO are the sole members of Stemtech’s audit committee as a result of being the sole director. Stemtech’s board of directors has determined that neither Messrs. Meyer nor Arnold qualifies “independent” for purposes of Rule 4200(a)(15) of the NASDAQ Manual, applicable to audit, compensation and nominating committee members, and is “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act.
Item 14. Principal Accountant Fees and ServicesServices.
Audit Fees
For the years ended December 31, 20212022 and 2020,2021, the aggregate fees billed by KR Margetson Ltd., Chartered Professional Accountant for professional services rendered for the audit of our annual consolidated financial statements were $800 and $6,000. The aggregate fees billed by Turner, Stone & CoCompany, L.L.P in 2022 and 2021 and 2020 waswere $35,000 and $33,000,$35,000, respectively, plus any out-of-pocket costs.
We do not use Turner, Stone & Company, L.L.PL.L.P. for financial information system design and implementation. These services, which include designing or implementing a system that aggregates source data underlying the consolidated financial statements or generates information that is significant to our consolidated financial statements, are provided internally or by other service providers. We do not engage Turner, Stone & Company, L.L.PL.L.P. to provide compliance outsourcing services.
Effective May 6, 2003, the Securities and Exchange CommissionSEC adopted rules thatwhich require that before Turner, Stone & Company, L.L.PL.L.P. is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
| approved by our board of directors who are capable of analyzing and evaluating financial information; or | ||
| entered into pursuant to pre-approval policies and procedures established by the board of directors, provided the policies and procedures are detailed as to the particular service, the board of directors is informed of each service, and such policies and procedures do not include delegation of the board of directors’ responsibilities to management. |
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
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PART IV
Item 15. Exhibits, Financial Statement Schedules.
| 1. | Financial Statements |
| 2. | Financial Statement Schedules |
| All schedules for which provision is made in Regulation S-X are either not required to be included herein under the related instructions or are inapplicable or the related information is included in the footnotes to the applicable financial statement and, therefore, have been omitted from this Item 15. | |
| 3. | Exhibits |
| All Exhibits required to be filed with the Form 10-K are included in this annual report or incorporated by reference to Stemtech’s previous filings with the SEC, which can be found in their entirety at the SEC website at www.sec.gov under SEC File Number 333-172172. |
* In accordance with Rule 402 of Regulation S-T, the XBRL (“Extensible Business Reporting Language”) related information is furnished and not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
______________
| * | 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 | ||
| Date: April | By: | /s/ Charles Arnold |
| Charles S. Arnold | ||
| Title: | Chief Executive Officer (Principal Executive Officer) | |
| Date: April | By: | /s/James Cardwell |
| James S. Cardwell | ||
| Title: | Chief Financial Officer (Principal Financial Officer) | |
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