UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the fiscal year ended
or
For the transition period from ___________ to ___________
Commission file number:
(Exact name of registrant as specified in its charter)
|
State or other jurisdiction of incorporation or organization |
(IRS. Employer Identification No.) |
www.stemtech.com
(Address of principal executive offices)
(
Registrant’s telephone number, including area code
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:
(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 ☐
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 ☐
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.
Indicate by check mark whether the registrant
has submitted every Interactive Data File required to be submitted 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 such files). Yes ☐
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 | ☐ |
| ☒ | 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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The 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 $
As of July 10, 2024, 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.
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PART I
Item 1: Description of Business
Stemtech 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”. Our corporate name was changed to Stemtech Corporation in the state of Nevada.in August 2021. We were listed on the OTCQB market under symbol “STEK” in April 2021. 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® and OraStem® (Oral Health Care). 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 Accounting Standards Codification topic 805, Business 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 (12) subsidiaries:
| 1. | Stemtech HealthSciences Corp (U.S.A.) (“Stemtech HealthSciences”) |
| 2. | Stemtech Canada, Inc. (“Canada”) |
| 3. | Stemtech Health Sciences S. de R.L. de C.V. (“Mexico”) |
| 4. | Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”) |
| 5. | Stemtech Malaysia Holdings Sdn. Bhd. (“Malaysia Holdings”) |
| 6. | Stemtech Malaysia Sdn. Bhd. (“Malaysia”) |
| 7. | Stemtech Taiwan Holding, Inc. (“Taiwan”) |
| 8. | Stemtech Taiwan Branch |
| 9. | Tecrecel S.A. (“Ecuador”) |
| 10. | Food & Health Tech Foodhealth SA (“FHT Ecuador”) |
| 11. | Life Factor Research (“LFR”) – 100% |
| 12. | Stemtech IP Holdings, LLC |
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.
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Item 1C. Cybersecurity.
We recognize the critical importance of developing, implementing, and maintaining robust cybersecurity measures to safeguard our information systems and protect the confidentiality, integrity, and availability of our data. We currently have security measures in place to protect our clients, customers, employees, and vendor information and prevent data loss and other security breaches. We also only use third party software for accounting, billing and payroll that have successful SOC 1 type 2 compliance. Both management and the Board are actively involved in the continuous assessment of risks from cybersecurity threats, including prevention, mitigation, detection, and remediation of cybersecurity incidents.
Our current cybersecurity risk assessment program consists of an annual review of our risks and policies. The program outlines governance, policies and procedures, and technology we use to oversee and identify risks from cybersecurity threats.
Our President & COO and CEO are responsible for overseeing our business operations and are responsible for day-to-day assessment and management of risks from cybersecurity threats, including the prevention, mitigation, detection, and remediation of cybersecurity incidents. We also use the services of an outside consulting firm to monitor activity and advise the company of cybersecurity protocols.
We routinely undertake activities to prevent, detect, and minimize the effects of cybersecurity incidents, including an annual risk review, policy reviews and revisions. In addition, we maintain business continuity, contingency, and recovery plans for use in the event of a cybersecurity incident by the administering of local and cloud based back up of files. and emails.
We engaged and used the advice of a third-party consultant to help us assess and identify risks from cybersecurity threats, including the threat of a cybersecurity incident, and manage our risk assessment program. Among other things, these providers have recommended periodic evaluations of the work stations.
We have multiple controls in place in order to prevent breaches, some of these controls include:
| a. | FMA/2FA, this is our first AND most important first line of defense, no one should have MFA bypassed or disabled, with no exceptions. | |
| b. | Email Banner for external emails. This banner assists us to identify any phishing / impersonation email and cannot be bypassed. | |
| c. | Conditional Access Policy (CAP): Rejects connections to Exchange Online from un-authorized countries. We are further enhancing this control by implementing ACL's (access lists) in our CRM and ERP systems and any other mission critical platform. ALL platforms should have MFA enforced, any platform not supporting MFA in 2024 is deemed high-risk and immediately replaced as it is obsolete and poses high-risk to the Company. |
As of the date of this report, no cybersecurity incident (or aggregation of incidents) or cybersecurity threat has materially affected our results of operations or financial condition. However, an actual or perceived breach of our security could damage our reputation and cause existing Independent Business Partners (IBPs or distributors) / customers to discontinue, as well as prevent us from attracting new clients / customers. and / or subject us to third-party lawsuits, regulatory fines or other actions or liabilities, any of which could adversely affect our business, operating results or financial condition. We currently do not carry a cyber liability insurance policy, but are evaluating whether to acquire one to mitigate any financial impact of a cybersecurity breach.
Item 2. Properties.
On August 16, 2021, the Company extended its office space lease with Sunbeam Properties Inc. to rent approximately 5,003 square feet of space in Miramar, Florida. The Company pays $9,027 per month in rent until the end of the extended lease September 30, 2024. Stemtech has sublet the space to a tenant who pays Stemtech $9,097 to occupy the space. The Company incurred lease expense for its operating leases of $73,309 and $85,629 for the years ended December 31, 2023 and 2022, respectively.
Item 3. Legal Proceedings.
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 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 liabilities in the consolidated balance sheets at December 31, 2023 and 2022. Mr. Carter’s request for Summary Judgment was dismissed by the Court on March 3, 2023.
Item 4. Mine Safety Disclosures.
Not Applicable.
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PART II
Item 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 “STEK” since 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, 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
The Company had 112 registered holders of its common stock as of April 12, 2024.
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
None.
Penny Stock Rules
Trading in Stemtech’s Common Stock is subject to the “penny stock” rules. The Securities 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.
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Item 6. Selected Financial Data.
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 Operations.
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.
Company Overview
Stemtech 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 SEC was declared effective on May 15, 2013. On August 19, 2021, the Company entered into a Merger Agreement with Stemtech Corporation by which the Company acquired one hundred percent of the shares of STEMTECH CORPORATION in exchange for the issuance of 37,060,000 shares of the Company, approximately 85% of the issued and outstanding shares of the Company.
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 products obviously create the cash flow, our real business model is not just “sales”, but lateral penetration. We do this through our IBPs - “Independent Business Partner” Sales Forces, and we invest much energy in growing our IBPs. Post 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. We have added two international licensing agreements for selling Stemtech products while not using the network marketing sales model. This is a new revenue stream.
We reinstituted 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 Corporate training calls, a personalized website, back-office tracking, oversight and management Tools, Reports, Training Materials and Social Sharing. Stemtech also launched the Stemtech AdvanceOffice Mobile App, in 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.
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Stemtech announced two exciting programs in June 2023, with the enhancement of a Rank Advancement Bonus as well as a Caribbean cruise which took place in December 2023. Sales continue to come in from returning consumers who believe in the quality products. 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. Management conservatively believes that given the expected 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.
In the future, below this IBP level, we are contemplating our Direct To Consumer (“DTC”) network marketing distribution model. This integrative model allows us access to an immediate global presence and ability to operate in multiple countries on any continent. We are uniquely positioned, to implement this DTC model in areas not currently distributing Stemtech products, as this method requires no up-front or required buy-in of inventory, with monthly shipments available for known recurring sales. This platform will enable us to operate at the intersection of the ecommerce economy, social economy and gig economy. Recently, we have licensed the African nations of Kenya, Ghana, Nigeria, Uganda and the Democratic Republic of Congo for distribution of Stemtech products. In this distribution agreement, we are prepaid for the product by the distributor who is responsible for the registration and licensing plus shipping of the product where Stemtech does not have the network marketing model in place. The Company plans to look at opportunities in other global areas as well to expand our brand and distribution of Stemtech products.
The Company has been making great strides the past year, having obtained 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 have introduced a new stem cell skin care product. 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.
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 SEC certain modified executive compensation disclosure under Item 402 of Regulation S-K or selected financial data under Item 301 of Regulation S-K for any period before the earliest audited period presented in our initial registration statement; | |
| · | Compliance with new or revised accounting standards until those standards are applicable to private companies; | |
| · | The requirement under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, to provide auditor attestation of our internal controls and procedures; and | |
| · | Any Public Company Accounting Oversight Board, or “PCAOB”, rules regarding mandatory audit firm rotation or an expanded auditor report, and any other PCAOB rules subsequently adopted unless the Commission determines the new rules are necessary for protecting the public. |
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the Jumpstart Our Business Startups Act.
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We are also a smaller reporting company as defined in Rule 12b-2 of the Exchange Act. As a smaller reporting company, we are not required to provide selected financial data pursuant to Item 301 of Regulation S-K, nor are we required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002. We are also permitted to provide certain modified executive compensation disclosure under Item 402 of Regulation S-K.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. Such consolidated financial statements and accompanying notes are the representations of the Company’s management, which is responsible for their integrity and objectivity. All intercompany accounts and transactions have been eliminated in consolidation.
Critical Accounting Policies
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. In connection with the preparation of our consolidated financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
Our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included elsewhere in this report.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. Management believes that there are no critical accounting estimates in these consolidated financial statements.
New Accounting Pronouncements
We do not expect recent accounting pronouncements will have a material impact on our consolidated financial position, results of operations or cash flows. See Note 2 in the accompanying consolidated financial statements for additional information.
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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, 2023 Compared to the Year Ended December 31, 2022.
During the years ended December 31, 2023 and 2022, net sales were $4,921,531 and $4,559,399, respectively. The increase of $362,132 is primarily due to slight increases in the overall sales of the subsidiaries due to the increase in IBPs in 2023.
During the years ended December 31, 2023 and 2022, our total operating expenses were $8,144,437 and $8,418,761, respectively. The decrease of $274,324 is primarily attributable to cost cutting measures.
During the years ended December 31, 2023 and 2022, total non-operating expenses were $1,207,433 and $3,513,830, respectively, resulting in a decrease of $2,306,397. The difference is primarily due to the gain on settlement of derivative liabilities of $1,366,298 in 2023, the increase in interest expense of $795,190 and a decrease in gain on extinguishment of debt of $2,985,224 partially offset by the changes in fair value of derivative liabilities of $4,711,957 from a loss of $3,223,271 at December 31, 2022 to a gain of $1,488,686 at December 31, 2023 in connection with the note payable issued in September 2021. We also implemented a significant reduction of staff and realignment of their duties to existing staff.
Our net loss for the years ended December 31, 2023 and 2022, was $5,431,979 and $8,632,828, respectively. The decrease in net loss was caused by the factors described above.
Liquidity and Capital Resources
In spite of increasing revenues, we are not yet profitable, and we cannot provide any assurance of when we will be profitable. We incurred a net loss of $5,431,979 and $8,632,828 for the years ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, we met our short-term liquidity requirements from our existing cash reserves and proceeds from the issuance of notes payable of $2,236,000, offset by net payments of financing arrangements of $189,700 and note payable payments of $466,872.
As of December 31, 2023, our current assets were $400,710 compared to $612,370 in current assets at December 31, 2022. As of December 31, 2023, our current liabilities were $6,462,036 compared to $7,415,791 at December 31, 2022. Current liabilities at December 31, 2023 were comprised of $2,708,906 of accounts payable and accrued expenses, $1,596,960 in convertible notes, $1,889,321 of non-convertible notes payable, $143,944 of factoring liability, $66,866 in current operating lease liabilities and $56,039 in deferred revenues.
Stockholders’ deficit increase from $3,171,918 as of December 31, 2022 to $2,778,765 at December 31, 2023. This change was primarily caused by the conversion of convertible notes and accrued interest to common stock of $2,403,453, and reclassification of derivative liabilities to additional paid in capital of $1,011,451, offset by a net loss of $5,431,979 during the year ended December 31, 2023.
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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, 2023, net cash flows used in operating activities were $2,036,312, which is primarily due to the net loss of $5,431,979, partially offset by adjustments to reconcile the net loss used in operations of $2,304,613 and the changes in working capital including accounts payable and accrued expenses of $1,091,354. The adjustments to reconcile the net loss used in operations consisted of increase in amortization of debt discount of $2,797,403, non-cash interest expense from issuance on debt (derivative) of $1,623,579, non-cash charges of $1,098,832 (including: depreciation and amortization of $587,797, stock compensation expense of $439,054 and amortization of right of use asset of $71,981), stock issued for services of $434,025 and cancellation of shares returned by shareholders of $19,890, offset by gain on extinguishment of debt $814,132, gain from the change in fair value of derivative liabilities of $1,488,686 and gain on settlement of derivative liabilities of $1,366,298. Adjustments for changes in operating assets and liabilities were due to a decrease in inventories of $109,728, an increase in deferred revenues of $16,869, a decrease in prepaid expenses and other current assets of $110,338 and an increase in long term deposits of $643, a decrease in accounts payable and accrued expenses of $957,056, a decrease in operating lease liabilities of $75,267, and an decrease of in accounts receivable of $26,727. For the year ended December 31, 2022, net cash flows used in operating activities were $1,216,948.
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, 2023, we generated $1,579,428 cash from financing activities which consists of $2,236,000 from proceeds from notes payables, offset by $189,700 payments of factoring arrangement and payments on notes payable of $466,872. For the year ended December 31, 2022, net cash flows provided by financing activities were $338,734.
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. 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.
| 8 |
Stockholders’ Deficit
Authorized Shares
Effective May 5, 2023, the Company is authorized to issue up to 400,000,000 shares of common stock, $0.001 par value. Prior to May 5, 2023, the Company was authorized to issue up to 200,000,000 shares (see Note 9). Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.
Commitments and Contingencies
None.
Financing
On March 27, 2023, the Company and an institutional investor (the “Holder”) executed an investment agreement for up to $7,000,000 through a convertible promissory note, share purchase agreement and warrant agreement (the “2023 Note”). The 2023 Note has a principal amount of up to $7,000,000 with an original issue discount of 12% and is to be disbursed in four (4) disbursements as set forth as follows: (i) the first disbursement in the amount of $1,000,000 occurred on March 27, 2023; (ii) the second disbursement in the amount of $200,000 is due within three (3) days after the filing of an S-1 registration statement; (iii) the third disbursement in the amount of $500,000 is due forty-five (45) days after effectiveness of an S-1 registration statement; and (iv) $120,000 is due forty-five (45) days after the third disbursement. The 2023 Note carries an interest rate equal to seven percent (7%) per annum and is redeemable by the Company at any time at an amount equal to one hundred twenty-five percent (125%) of the then outstanding principal and interest accrued on the Note. All additional disbursements will be made at the Holder’s discretion, at any time, and if the Holder’s broker refuses to custody the securities issued in connection therewith, the Holder will have no obligation to make a disbursement under the disbursement schedule but will have the option to make such disbursement.
Future financing through equity investments is likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.
Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the nutraceutical industry, which could impact the availability or cost of future financing. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
We have no plans, arrangements or contingencies in place in the event that we cease operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
| 9 |
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Stemtech Corporation
Consolidated Financial Statements
December 31, 2023
| Page | |
| Financial Statements | |
| Report of Independent Registered Public Accounting Firm (PCAOB ID NO: |
F-1 |
| Consolidated Balance Sheets | F-3 |
| Consolidated Statements of Operations and Comprehensive Loss | F-4 |
| Consolidated Statements of Changes in Stockholders’ Deficit | F-5 |
| Consolidated Statements of Cash Flows | F-6 |
| Notes to Consolidated Financial Statements | F-7 |
| 10 |
Report of Independent Registered Public Accounting Firm
To the 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, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 consolidated financial statements, the Company has suffered recurring losses from operations since inception and has a significant working capital deficit and a significant accumulated deficit. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding 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 these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material 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’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.
/s/
We have served as the Company’s auditor since 2020.
July 10, 2024
| F-1 |
Stemtech Corporation
Consolidated Balance Sheets
| As of December 31, | ||||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long term deposits | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Notes payable | ||||||||
| Convertible debentures, net of discount | ||||||||
| Operating lease liabilities, current | ||||||||
| Deferred revenues | ||||||||
| Factoring liability | ||||||||
| Derivative liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Operating lease liabilities, long term | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (Note 12) | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Common stock - $ par value; shares authorized; and shares issued and outstanding as of December 31, 2023 and 2022, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stemtech Corporation stockholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interest in subsidiaries | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements
| F-2 |
Stemtech Corporation
Consolidated Statements of Operations and Comprehensive Loss
| For The Years Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| NET SALES | $ | $ | ||||||
| COST OF GOODS SOLD: | ||||||||
| Cost of goods sold | ||||||||
| Freight-in | ||||||||
| TOTAL COST OF GOODS SOLD | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES: | ||||||||
| Commissions | ||||||||
| Selling and marketing | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| TOTAL OPERATING EXPENSES | ||||||||
| OPERATING LOSS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE): | ||||||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Interest expense | ( | ) | ( | ) | ||||
| Other income and expenses, net | ||||||||
| Gain on settlement of derivative liabilities | ||||||||
| Gain on extinguishment of debt | ||||||||
| TOTAL OTHER EXPENSE, NET | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ||||
| NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ) | ( | ) | ||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Shares used to compute loss per share | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Comprehensive loss | ||||||||
| Net loss available to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Change in foreign currency translation adjustments | ||||||||
| Comprehensive loss available to common stockholders | $ | ( | ) | $ | ( | ) | ||
See accompanying Notes to Consolidated Financial Statements
| F-3 |
Stemtech Corporation
Consolidated Statements of Changes in Stockholders’ Deficit
For the Years Ended December 31, 2023 and 2022
| 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, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Stock issued for cash | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | ||||||||||||||||||||||||||||||||
| Stock issued for loan extension | ||||||||||||||||||||||||||||||||
| Shares issued as debt issuance cost | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | |||||||||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Stock based compensation | – | |||||||||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||||||||||
| Conversion of convertible notes and accrued interest to common stock | ||||||||||||||||||||||||||||||||
| Settlement of accrued liabilities for common stock | ||||||||||||||||||||||||||||||||
| Stock issued for LFR Acquisition | ||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to APIC | – | |||||||||||||||||||||||||||||||
| Stock issued for loan extension | ||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | – | |||||||||||||||||||||||||||||||
| Non-controlling interest | – | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
See accompanying Notes to Consolidated Financial Statements
| F-4 |
Stemtech Corporation
Consolidated Statements of Cash Flows
| For the Years Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of right of use asset | ||||||||
| Stock compensation expense | ||||||||
| Non-cash interest expense from issuance on debt (derivative) | ||||||||
| Amortization of debt discount | ||||||||
| Amortization due to conversion/redemptions | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Gain on settlement of derivative liabilities | ( | ) | ||||||
| Stock issued for loan extension | ||||||||
| Stock issued for services | ||||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Long term deposits | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Deferred revenues | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from notes payable | ||||||||
| Repayment of note payable | ( | ) | ( | ) | ||||
| Net (repayments) proceeds from factoring arrangement | ( | ) | ||||||
| Stock issued for cash | ||||||||
| Net cash provided by financing activities | ||||||||
| Effects of currency translation on cash | ||||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash, beginning of year | ||||||||
| Cash, end of year | $ | $ | ||||||
| Supplemental disclosure cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Stock issued for LFR Acquisition | $ | $ | ||||||
| Issuance of common stock for conversion of debt | $ | $ | ||||||
| Shares issued as debt discount | $ | $ | ||||||
| Settlement of accrued liabilities for common stock | $ | $ | ||||||
| Reclassification of derivative liabilities to APIC | $ | $ | ||||||
See accompanying Notes to Consolidated Financial Statements
| F-5 |
STEMTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023
Note 1 – Organization and Basis of Presentation
Stemtech Corporation and its Subsidiaries (collectively, the “Company”) was incorporated in the State of Nevada, USA on September 4, 2009 under the previous name Globe Net Wireless Corp. On November 19, 2021, the Company adopted an Amendment to its Articles changing the name of the Corporation to Stemtech Corporation in the state of Nevada, and on April 14, 2022, FINRA gave final approval for said name change, as evidenced by the 8-K filed that date. Stemtech is a global network marketing company that develops science-based products that it believes supports wellness by helping the body maintain healthy stem cell physiology, also known as stem cell enhancers. Known as the Stem Cell Nutrition Company®, the Company is a pioneer in stem cell science, and believes it can demonstrate that adult stem cells function as the natural renewal system of the body. The Company believes its products enhance and support the work of the body’s stem cells by releasing more stem cells, helping to circulate them in the blood and migrate them into tissues, where they can perform their daily function of renewal for optimal health. Our mission is to enhance wellness and prosperity around the world. These products are marketed internationally by the Company’s subsidiaries and through independent distributors. The Company markets its products under the following brands: RCM System, stemrelease3™, Stemflo® MigraStem™ and OraStem® (Oral Health Care), and Cellect One™ Rapid Renew Stem Cell Peptide Night Cream.
On August 19, 2021, Stemtech Corporation (“Stemtech”), a Delaware corporation, entered into a Merger Agreement (the “Merger Agreement”) with Globe Net Wireless Corp. (“Globe Net” or “GNTW”). The merger was accounted for as a reverse acquisition and recapitalization in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. Management evaluated the guidance contained in ASC 805 with respect to the identification of the acquirer in the merger and concluded, based on a consideration of the pertinent facts and circumstances, that Stemtech acquired Globe Net for financial accounting purposes. On November 9, 2021, the Company changed its fiscal year end from a fiscal year end of August 31 to a calendar year end of December 31.
The consolidated financial statements include the accounts of Stemtech (Parent) and its (12) subsidiaries:
| 1. | Stemtech HealthSciences Corp (U.S.A.) (“Stemtech HealthSciences”) – 100% |
| 2. | Stemtech Canada, Inc. (“Canada”) – 100% |
| 3. | Stemtech Health Sciences S. de R.L. de C.V. (“Mexico”) – 100% |
| 4. | Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”) – 100% |
| 5. | Stemtech Malaysia Holdings Sdn. Bhd. (“Malaysia Holdings”) – 100% |
| 6. | Stemtech Malaysia Sdn. Bhd. (“Malaysia”) – 70% |
| 7. | Stemtech Taiwan Holding, Inc. (“Taiwan”) – 100% |
| 8. | Stemtech Taiwan Branch – 100% |
| 9. | Tecrecel S.A. (“Ecuador”) – 100% |
| 10. | Food & Health Tech Foodhealth SA (“Ecuador FHTFH”) – 100% |
| 11. | Life Factor Research (“LFR”) – 100% |
| 12. | Stemtech IP Holdings, LLC – 100% |
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”). All intercompany accounts and transactions have been eliminated in consolidation.
| F-6 |
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 $27.1 million and a working capital
deficiency of approximately $
The Company’s ability to continue as a going concern for the next twelve months from the issuance of these consolidated financial statements depends on its ability to execute its business plan, increase revenue, and reduce expenditures. The Company has reduced its labor force, cut out significant overhead and increased sales in attempts to address the above.
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
Inventory
Inventory is comprised of finished goods and raw materials and 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 as at December 31, 2023 and 2022.
| F-7 |
Intangible Assets and Goodwill
The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated fair values. Impairment is tested under ASC 350, Intangibles - Goodwill and Other.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The fair value of the reporting unit is evaluated on qualitative factors to determine if the reported value may be impaired. If the qualitative factors indicate a likelihood of impairment, we then evaluate carrying value of the reporting unit based on quantitative factors using the income approach. An impairment charge is recognized for the excess of the carrying value of goodwill for the reporting unit over its implied fair value.
Notes Payable and Convertible Debentures
U.S. GAAP requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable U.S. GAAP with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. An exception to this rule is when the host instrument is deemed to be conventional, as that term is described under ASC 480, Distinguishing Liabilities From Equity. See Note 6 – Notes Payable and Convertible Debentures
Factoring Liability
We have entered into factoring agreements with various financial institutions to receive cash for our future revenues. These transactions are treated as a debt instrument and are accounted for as a liability because the Company makes weekly payments towards the balance and fees. We utilize factoring arrangements as an integral part of our financing for working capital. Any change in the availability of these factoring arrangements could have a material adverse effect on our consolidated financial condition. See Note 6 – Notes Payable and Convertible Debentures.
Derivative Liabilities
The Company classifies as equity any contracts that: (i) require physical settlement or net-share settlement; or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own stock. The Company classifies as assets or liabilities any contracts that: (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control); or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other freestanding derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.
The Company’s freestanding derivatives consisted of warrants to purchase common stock that were issued in connection with the issuance of debt and the sale of common shares, and of embedded conversion options within convertible notes. The Company evaluated these derivatives to assess their proper classification in the accompanying consolidated balance sheet as of December 31, 2023 and 2022 using the applicable classification criteria enumerated under ASC 815, Derivatives and Hedging. See Note 7 – Derivative Liabilities
Impairment of Long-Lived Assets
The Company assesses, on an annual basis, the recoverability of the carrying amount of intangible assets and long-lived assets used in continuing operations. A loss is recognized when expected future cash flows (undiscounted and without interest) are less than the carrying amount of the asset. The impairment loss is determined as the difference by which the carrying amount of the asset exceeds its fair value. The Company evaluated its long-lived assets for any indications of impairment. The Company concluded that there was no impairment, however there can be no assurance that market conditions will not change or demand for the Company’s products will continue which could result in impairment of long-lived assets in the future.
| F-8 |
Revenue Recognition
It is the Company’s policy that revenues from product sales is recognized in accordance with ASC 606 Revenues from Contracts with Customers. Five basic steps must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer; (3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations in the contract, which requires the Company to allocate the transaction price to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount allocated to the satisfied performance obligation.
Revenues from direct retail sales to consumers and revenues from independent distributors occur when title and risk of loss has passed, which generally occurs at the time the products are shipped. Revenues are recorded net of estimated sales returns and allowances.
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 one year following the original sale. As of both December 31, 2023 and 2022, the Company
had a reserve for sales returns of approximately $
Comprehensive Loss
The other comprehensive loss in the accompanying consolidated financial statements relates to the net loss of the Company for the respective period as well as unrealized foreign currency translation adjustments.
Foreign Currency Translation
A portion of the Company’s business operations occur outside the United States. The local currency of each of the Company’s subsidiaries is generally its functional currency. All assets and liabilities are translated into U.S. Dollars at exchange rates existing at the consolidated balance sheet dates, revenue and expenses are translated at weighted-average exchange rates and stockholders’ deficit is recorded at historical exchange rates. The resulting foreign currency translation adjustments are recorded as a separate component of stockholders’ deficit in the consolidated balance sheets and as a component of comprehensive loss. Transaction gains and losses are included in other income (expense), net in the consolidated statements of operations and comprehensive loss.
Leases
In February 2016, the FASB issued ASC 842, Leases, (“ASC 842”) to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet for leases previously classified as operating leases. The Company adopted ASC 842 effective January 1, 2022 and recognized and measured operating leases existing at, or entered into after, January 1, 2021 (the beginning of the earliest comparative period presented) using a modified retrospective approach, with certain practical expedients available (see Note 5). The Company’s accounting for finance leases under ASC 842 remained substantially unchanged,
| F-9 |
In accordance with ASC 842, the Company determines if an arrangement is a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of future lease payments, the Company estimates the incremental borrowing rates corresponding to the reasonably certain lease term. If the estimate of the Company’s incremental borrowing rate was changed, the operating lease assets and liabilities could differ materially.
Finance lease assets and liabilities are recognized at the lease commencement date at the present value of the future lease payments not yet paid using the Company’s incremental borrowing rate, Assets acquired under finance lease are included in property and equipment, while finance lease obligations are included in other current liabilities and other long- term liabilities on the consolidated balance sheets.
Income Tax
The Company accounts for income taxes in accordance with ASC 74, Income Taxes. Accordingly, deferred income taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and the tax bases of assets and liabilities under the applicable tax law. Deferred tax balances are computed using the enacted tax rates expected to be in effect when these differences reverse. Valuation allowances with respect to deferred tax assets are provided for, if necessary, to reduce deferred tax assets to amounts more likely than not to be realized.
The Company accounts for uncertain tax positions in accordance with ASC Topic 740-10, which prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. According to ASC Topic 740-10, tax positions must meet a more-likely-than-not recognition threshold. The Company’s accounting policy is to classify interest and penalties relating to uncertain tax positions under income taxes, however the Company did not recognize such items in its fiscal 2023 and 2022 consolidated financial statements and did not recognize any liability with respect to unrecognized tax positions in its consolidated balance sheet.
Business Combinations
The Company allocates the fair value of purchase consideration to the tangible and intangible assets acquired, net of liabilities assumed, based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired customer lists, acquired technology, and trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Fair Value of the Acquired Assets
The Company accounted for the acquisitions discussed in Note 4 as business combinations using the acquisition method of accounting as prescribed in ASC 805 and ASC 820. In accordance with ASC 805 and ASC 820, the Company assigned fair value to the tangible and intangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of tangible and identifiable intangible assets acquired and liabilities assumed.
| F-10 |
Segment Information
The Company manages its operations in three geographic segments for the purpose of assessing performance and making operating decisions including North America (including its subsidiaries in United States and Canada), Latin America (including subsidiaries in Mexico and Ecuador) and Asia (including its subsidiaries in Malaysia and Taiwan).
Reclassifications
Certain reclassifications have been made to prior year data to conform to the current year’s presentation. These reclassifications had no impact on reported income or losses.
Recent Accounting Pronouncements
In July 2023,
the FASB issued Accounting Standards Update ("ASU") 2023-03, Presentation of Financial Statement (Topic 205), Income Statement - Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation - Stock Compensation (Topic 718), to amend various SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 120, among other things. The ASU does not provide any new guidance so there is no transition or effective date associated with it. The Company is currently assessing the impact of adopting ASU 2023-03 on the consolidated financial statements and related disclosures.
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for the Company’s annual periods beginning January 1, 2024, and for interim periods beginning January 1, 2025, with early adoption permitted.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topics 740): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically relating to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for the Company’s annual periods beginning January 1, 2025, with early adoption permitted.
The Company is currently evaluating the potential effects that ASU 2023-07 and ASU 2023-09 will have on the consolidated financial statement disclosures.
Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting period.
For the years ended December 31, 2023 and 2022, the dilutive effect of and , respectively, of common stock warrants have not been included in the average shares outstanding for the calculation of net loss per share as the effect would be anti-dilutive as a result of the Company’s net losses in these periods.
| F-11 |
Fair Value Measurements
As defined in ASC 820 Fair Value Measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
The Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety, based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued interest, notes payable and, convertible debentures. The carrying amounts of these financial instruments are of approximate fair value due to either length of maturity or interest rates that approximate prevailing rates unless otherwise disclosed in these financial statements. The Company’s derivative liabilities are valued using option pricing models with Level 3 inputs.
Sequencing
Based upon ASC 815-15-25 Embedded Derivatives, the Company has adopted a sequencing approach regarding the application of ASC 815-40 Contracts in Entity's Own Equity to its outstanding convertible notes and warrants. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the earliest issuance date.
Note 3 – Inventory
Inventory consists of the following components:
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Finished goods | $ | $ | ||||||
| Raw materials | ||||||||
| Total Inventory | $ | $ | ||||||
Note 4 – Business Combinations, Intangible Assets and Goodwill
Original Acquisition
On May 7, 2018, the Company purchased the assets
of Stemtech International, Inc. (the “Former Parent Company”), out of a Chapter 7 Bankruptcy for $
| F-12 |
The excess purchase price has been recorded as
goodwill in the amount of $
LFR Acquisition
In March 2023, the Company acquired 100% of LFR, a research and development company with expertise in the formulation of products and the purchase has been accounted for as an asset acquisition.
The consideration paid was
million shares of the Company with a fair value of $
The following table summarizes the allocation of purchase price of the acquisition:
| Allocation of purchase price | ||||
| Tangible Assets Acquired: | Allocation | |||
| Cash and cash equivalents | $ | |||
| Inventory | ||||
| Accounts payable and accrued liabilities | ( | ) | ||
| Net Tangible Assets Acquired | $ | ( | ) | |
| Intangible Assets Acquired: | ||||
| Non-compete agreement | ||||
| Total Fair Value of Assets Acquired | $ | |||
| Consideration: | ||||
| Common stock | ||||
| Goodwill | $ | |||
The components of all acquired intangible assets were as follows at December 31, 2023 and December 31, 2022:
| December 31, 2023 | December 31, 2022 | Average Estimated Life (Years) | ||||||||||
| Patent products | $ | $ | ||||||||||
| Trade names and trademarks | ||||||||||||
| Customer/distribution list | ||||||||||||
| Non-compete agreement | ||||||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||||||
| Total | $ | $ | ||||||||||
| F-13 |
Estimated future amortization as of December 31, 2023 is as follows:
| Schedule of future amortization | ||||
| Year ending December 31, | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
Intellectual Property
The Company has two current patents filed in the US and 3 filed internationally, and as our research and development progresses, plan on filing more patents. Our current patent portfolio includes:
| · | Patent US 9, 289, 375 – Skin Care Composition Containing Combinations of Natural Ingredients | |
| · | Patent AU 201127647 – Methods and Composition for Enhancing Stem Cell Mobilization | |
| · | Patent MX 344304 – Metodos y Composiciones para Mejorar las Celulas Madre | |
| · | Patent US 10,159,705 – Methods and Composition for Enhancing Stem Cell Mobilization | |
| · | Patent MX 358857 – Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX 358857 (part 1 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX 358857 (part 2 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales | |
| · | Patent MX358857 (part 3 of 3) - Composiciones para el Cuidado de la Piel que Contienen Combinaciones de Ingredientes Naturales |
Note 5 – Operating Lease Commitments
On August 16, 2021, the Company extended its office
space lease with Sunbeam Properties Inc. to rent approximately
| F-14 |
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 leases as of December 31, 2023:
| Maturity of operating lease liabilities for the following fiscal years: | ||||
| 2024 | $ | |||
| Total undiscounted operating lease payments | ||||
| Less: imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate of 10%, which is determined using the average of borrowing rates explicitly stated in the Company’s convertible debt.
Note 6 – Notes Payable and Convertible Debentures
Schedule of notes payable as of:
| December 31, 2023 | December 31, 2022 | |||||||
| Secured Royalty Participation Agreements (1) | $ | $ | ||||||
| Vehicle and equipment loans (2) | ||||||||
| Notes payable (3) | ||||||||
| Total Notes payable | ||||||||
| Convertible notes payable, net of discount (4) | ||||||||
| Total notes payable, net of discount of $ | $ | $ | ||||||
| (1) | |
| (2) |
| F-15 |
| (3) |
On October 20, 2021, the Company issued a pair
of promissory notes to investors, totaling $
On July 21, 2023, the Company issued a promissory
note with an investor for $
On October 24, 2023 and November 20, 2023, the
Company entered into two notes with an investor for an aggregate principal balance of $
As of December 31, 2023 and 2022, the outstanding
balance for these notes stood at $ |
| (4) | |
|
In the second quarter of 2022, one of the notes held by investor MCUS LLC (“MCUS”) was extended by 60 days, until August 1, 2022. As part of the extension agreement, the Company issued shares of common stock to the noteholder. Moreover, the conversion price of the note was reduced to the lower of (i) 50% of the lowest volume weighted average prices for common stock over the 30 trading days leading up to the conversion notice date and (ii) the Closing Price on the Closing Date, capped at $2.25. On August 18, 2022, this note was extended to September 30, 2022, in exchange for shares of common stock and in the fourth quarter of 2022, this note was once again extended, this time until May 31, 2023.
On July 13, 2022, another note held by investor
Leonite Fund 1, LP (”Leonite”), was extended to September 1, 2022, in exchange for warrants, common stock shares, and an increased principal amount of $ |
| F-16 |
| Throughout the third and fourth quarters of 2022, the Company issued a collective sum of $ | |
| During the year ended December 31, 2022, a sum of $ | |
| In January 2023, the Company issued upon the conversion of $ | |
| On February 28, 2023, the Company entered into a comprehensive settlement and exchange agreement concerning a Senior Secured Convertible Promissory Note with Leonite. Under this agreement, Leonite agreed to settle its outstanding liability and cancel its warrants in exchange for common stock shares of the Company to purchase common stock at $0.05 per share. As the debt was settled, the Company recognized a loss on extinguishment worth $ | |
| On March 27, 2023, the Company executed an investment agreement with an institutional investor (“Holder”) for up to $ | |
| On April 11, 2023, the Company amended its Promissory Note with MCUS, resulting in the conversion price being fixed at $ | |
| Similarly, on May 1, 2023, the Company amended its convertible promissory note with SHRG, wherein
SHRG capitalized $ | |
| As of December 31, 2023, the outstanding gross principal balance for the three convertible notes,
net of discounts was $ |
| F-17 |
| As of December 31, 2022, the outstanding gross principal balance for the three convertible notes was $ | |
| The aggregate balance of convertible notes payable, net of discount, as of December 31, 2023 and 2022 was $ |
Note 7 – Derivative Liabilities
The Company issued debt instruments that consist of the issuance of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain factors, such as the future price of the Company’s common stock, which gives rise to a derivative liability which is a non-cash liability. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC Subtopic 815-15 Embedded Derivatives (“ASC 815-15”), the fair values of the variable conversion options and warrants and shares to be issued were recorded as derivative liabilities on the issuance date and revalued at each reporting period. Based upon ASC 840-15-25, the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes and warrants. Pursuant to the sequencing approach, the Company evaluates its contracts based upon the earliest issuance date.
Schedule of Derivative Liabilities
| Derivative Liability - Convertible Notes | Derivative Liability - Warrants | Total | ||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | |||||||||
| Change due to issuances | ||||||||||||
| Change due to redemptions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value | ||||||||||||
| Balance as of December 31, 2022 | ||||||||||||
| Change due to issuances | ||||||||||||
| Change due to redemptions | ( | ) | ( | ) | ( | ) | ||||||
| Change in fair value | ( | ) | ( | ) | ( | ) | ||||||
| Balance as of December 31, 2023 | $ | $ | $ | |||||||||
The Company used a Monte Carlo model to estimate the fair value of its derivatives. A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the fair value of derivative liabilities during the following periods:
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Stock price | N/A | |||||||
| Contractual term (in years) | N/A | |||||||
| Volatility (annual) | N/A | |||||||
| Risk-free rate | N/A | |||||||
| F-18 |
Note 8 – Financing Arrangement - Factoring Liability
During the year ended December 31, 2022, the Company
entered into five non-recourse agreements for the sale of future receipts receiving gross proceeds of $
During the year ended December 31, 2023, the Company
entered into various non-recourse agreements for the sale of future receipts for gross proceeds of $
The Company accounts for these agreements as a
financing arrangement, with the purchase price recorded as a liability and daily repayments made are a reduction of the liability. As
of December 31, 2023, there was an outstanding balance of $
Note 9 – Stockholders’ Deficit
On May 5, 2023, the Company amended its articles of incorporation to increase the number of authorized shares of common stock of the Company to .
Stock issuance for services and stock based compensation
During the year ended December 31, 2023, the
Company issued
shares of common stock, to officers, employees and vendors for services valued at $
During the years ended December 31, 2023 and 2022, the Company also recognized $ and $, respectively, of expense relating to the vesting of common stock issued to the Company’s Chairman and CEO.
Settlement of accrued liabilities for common stock
During the year ended December 31, 2023, the
Company issued shares of common stock to officers, employees and vendors for accumulated past services of $
Stock issued for LFR Acquisition
During the year ended December 31, 2023, the Company
issued shares of common stock for the acquisition of LFR with a fair value of $
Stock issued for loan extension
On June 8, 2022, the Company issued shares
of common stock valued at $
| F-19 |
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 $
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 noteholder with shares of common stock. In addition, the noteholder also agreed to cancel warrants
previously issued to the noteholder in exchange for an additional shares of Company’s common stock. The Company recognized
$
On August 26, 2022, the Company cancelled
warrants previously issued to a note holder in exchange for the common shares valued at $
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 $
On September 20, 2022, the Company, under the
terms of the note, issued common shares upon the conversion of $
On September 29, 2022, the Company, under the
terms of the note, issued common shares upon the conversion of $
On December 9, 2022, the Company, under the terms
of the note, issued common shares upon the conversion of $
On December 9, 2022, the Company, under the terms
of the note, issued common shares upon the conversion of $
On January 13, 2023, the Company, under the terms
of the note, issued common shares upon the conversion of $
On January 23, 2023, the Company, under the terms
of the note, issued common shares upon the conversion of $
On April 26, 2023 and June 7, 2023, the Company
issued common shares valued at $
On May 1, 2023 and June 21, 2023, the Company
issued common shares valued at $
| F-20 |
On June 12, 2023, the Company issued
common shares upon the conversion of $
On August 8, 2023 and August 11, 2023, the Company
issued common shares valued at $
On September 21, 2023, the Company issued common shares upon the conversion of $
Reclassification of derivative liabilities to APIC
On May 1, 2023, the Company no longer had derivative liabilities associated with the warrants and their cumulative value of $1,011,451 was reclassified into additional paid in capital on the consolidated statement of stockholders’ deficit.
Note 10 – Related Parties
Notes Payable and Accrued Interest – Related Parties
During the period ended December 31, 2023, the Company entered into the following related party transactions:
| · | Issued shares of common stock at $0.05 per share for $ in accrued salary for its Chairman and CEO and in addition the Company amortized $ of previous stock compensation granted to its Chairman and CEO that is being amortized over 82 months; | |
| · | The Company paid $ | |
| · | The Company accrued $ | |
| · | The Company paid $ | |
| · | The Company issued shares of common stock to one of its board members to settle notes payable of $ | |
| · | A company with a common director advanced the Company $ |
During the year ended December 31, 2022, the Company entered into the following related party transactions:
| · | It recognized $ | |
| · | 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 $ | |
| · | On December 29, 2022, the Company granted common shares of the Company to current directors
for current services with a fair value of $ | |
| · | A current director previously advanced $ | |
| · | On December 29, 2022, the Company granted its Corporate Secretary common shares of the Company
for past services with a fair value of $ | |
| · | A company with a common director advanced the Company $ | |
| · | The Company paid its CFO $ |
In addition, as at December 31, 2022, the Company
owes Officers $
| F-21 |
Note 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 loss 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 and Taiwan.).
Information about operating segments is as follows:
| Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Geographic Net Sales: | ||||||||
| Americas | $ | $ | ||||||
| Latin America | ||||||||
| Asia | ||||||||
| Total Net Sales | $ | $ | ||||||
| Cost of Goods Sold: | ||||||||
| Americas | $ | $ | ||||||
| Latin America | ||||||||
| Asia | ||||||||
| Total Cost of Goods Sold: | $ | $ | ||||||
| Operating Expenses: | ||||||||
| Americas | $ | $ | ||||||
| Latin America | ||||||||
| Asia | ||||||||
| Total Operating Expenses | $ | $ | ||||||
| Loss from operations: | ||||||||
| Americas | $ | ( | ) | $ | ( | ) | ||
| Latin America | ( | ) | ( | ) | ||||
| Asia | ( | ) | ( | ) | ||||
| Total Loss from Operations | $ | ( | ) | $ | ( | ) | ||
| Total Assets by Geographic Location | ||||||||
| Americas | $ | $ | ||||||
| Latin America | ||||||||
| Asia | ||||||||
| Total Assets | $ | $ | ||||||
| F-22 |
Note 12 – Commitments and Contingencies
Legal proceedings
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 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 $
In the opinion of management, the resolution of this matter, if any, will not have a material adverse impact on the Company’s consolidated financial position or consolidated results of operations.
Note 13 – Income Taxes
Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
The FASB has issued ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position.
If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial 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 has not met the more-likely-than-not threshold as of December 31, 2023.
The domestic and foreign components of loss before provision for income taxes were as follows:
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Domestic | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ||||||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| F-23 |
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, 2023 and 2022 is as follows:
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Tax expense (benefit) under statutory US tax rates | ( | ) | ( | ) | ||||
| Increase (decrease) in taxes resulting from: | ||||||||
| Increase in valuation allowance | ||||||||
| Foreign tax rate differential | ||||||||
| Permanent differences | ( | ) | ||||||
| State taxes | ( | ) | ( | ) | ||||
| Provision (benefit) for income taxes | $ | $ | ||||||
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's deferred tax assets and liabilities consist of the following:
| December 31, 2023 | December 31, 2022 | |||||||
| Deferred tax assets (liabilities) | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Intangibles | ( | ) | ( | ) | ||||
| Depreciation | ( | ) | ( | ) | ||||
| Other | ( | ) | ( | ) | ||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
At December 31, 2023, the Company had net operating
loss (“NOL”) carryforwards of approximately $
Note 14 – Subsequent Events
Management of the Company has performed a review of events and transactions occurring after the consolidated balance sheet date to determine if there were any such events or transactions requiring adjustment to or disclosure in the accompanying consolidated financial statements, noting none other than the following:
On March 19, 2024, the Company issued 1,000,000 shares to five directors for a total of 5,000,000 shares at a fair value of $0.03 per share or a total of $150,000.
On March 19, 2024, the Company issued 5,168,354 shares to various consultants and employees as stock compensation at a fair value of $0.03 per share or a total of $155,051.
On March 19, 2024, the Company issued 900,000 shares to the Chief Financial Officer as stock compensation in lieu of cash for services for a fair value of $0.03 per share for a total of $27,000.
On April 1, 2024, the Company issued a promissory note with an investor for $80,000, net of original issue discount of $15,200. The note accrues interest at 13% per annum and will be paid in four payments through December 30, 2024.
On April 1, 2024, the Company issued a convertible promissory note with a lender for $25,000. The note accrues interest at 12% per annum and will be paid in quarterly payments through October 1, 2025 convertible in the Company’s Common Stock at the rate of to the same price per share paid by the other investors that purchase the Company’s Common Stock in the financing in excess of $500,000 (a “Qualified Equity Financing”). The lender was issued 25,000 of warrants of the Company’s Common Stock with an exercise price of $0.10 per share with a term of three (3) years.
On April 2, 2024, the Company issued 712,500 shares common stock to settle for a stock payable owed as of December 31, 2023.
On May 14, 2024, the Company issued a promissory note with a lender for $107,000, net of original issue discount of $17,120. The note accrues interest at 13% per annum and will be paid in ten payments of $14,026 due monthly through March 30, 2025 and in the event of a default, the lender has the right to convert of any amounts due to Common Stock at a conversion price of $0.01/share of Common Stock.
| F-24 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T). Controls and Procedures.
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, 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 SEC 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 31, 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, 2022 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.
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3. Lack of segregation of duties consistent with control objectives.
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, 2023, Stemtech’s internal control over financial reporting was not subject to changes.
Item 9B. Other Information.
During
the quarter ended December 31, 2023, no director or officer
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PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(A) of the Exchange Act.
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 | 70 | August 19, 2021 | |||
| Charles S. Arnold | Director, CEO | 73 | August 19, 2021 | |||
| John Thatch | Director | 60 | September 17, 2021 | |||
| Benjamin Kaplan | Director | 57 | September 17, 2021 | |||
| Darryl V. Green | Director | 59 | September 17, 2021 | |||
| James Cardwell | CFO | 64 | 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 45 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 position as 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. 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
Mr. Charles S. Arnold, CEO, is dedicated full-time to Stemtech. He also serves on other company Boards. Mr. Arnold draws no salary however his compensation is taken in shares of stock or debt.
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 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.
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(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.
(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 our President and COO and Charles S. Arnold, our CEO are the only members of Stemtech’s audit committee, but they do 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, 2023 and 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 S. Arnold, Director, CEO | 2023 | $ | 250,000 | $ | – | 1,255,837 | $ | – | $ | 1,505,837 | ||||||||||||
| 2022 | $ | 250,000 | $ | – | 439,054 | $ | – | $ | 689,054 | |||||||||||||
| John W. Meyer, President & COO | 2023 | $ | 120,000 | $ | – | – | $ | – | $ | 120,000 | ||||||||||||
| 2022 | $ | 120,000 | $ | – | 109,526 | $ | – | $ | 229,526 | |||||||||||||
| James S. Cardwell, CFO | 2023 | $ | 22,500 | $ | – | – | $ | – | $ | 22,500 | ||||||||||||
| 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, 2023) 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 May 15, 2024. At that date, we had 116,769,707 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) | 18,240,016 | 15.7% | ||||||
| John W. Meyer | 1,644,302 | 1.5% | ||||||
| James Cardwell | 900,000 | * | ||||||
| Helmut Forero | 500,000 | * | ||||||
| John Thatch (3) | 2,854,173 | 2.5% | ||||||
| Darryl V Green | 8,605,573 | 7.4% | ||||||
| Benjamin Kaplan (4) | 4,678,680 | 4.1% | ||||||
| All directors and Named Executive Officers as a group (8 persons) | 37,422,745 | 31.7% | ||||||
| Over 5% Shareholders | ||||||||
| Javad Abbasi (5) | 6,538,748 | 5.6% | ||||||
| Leviston Resources, LLC (6) | 12,875,748 | 9.9% | ||||||
| Over 5% Shareholders | 19,414,496 | 15.5% | ||||||
* Less than 1%.
(1) Addresses for all officers and directors are 4851 Tamiami Traill North, Suite 200, Naples, FL 34103.
(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 American Pacific Bancorp (DSS).
(4) Includes shares 2,198,905 indirect shares owned through a related party held by Long Side Ventures LLC and 104,185 indirect shares owned by Triple Crown Consulting Inc.
(5) 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.
(6) Includes shares underlying vested warrants of 12,875,748 issued by the Company.
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Changes in Control
None.
Item 13. Certain Relationships and Related Transactions.
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 W. Meyer our President &COO and Charles S. 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 Services.
Audit Fees
For the years ended December 31, 2023 and 2022, the aggregate fees billed by Turner, Stone & Company, L.L.P in 2023 and 2022 were $55,000 and $35,000, respectively, plus any out-of-pocket costs.
We do not use Turner, Stone & Company, L.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.P. to provide compliance outsourcing services.
Effective May 6, 2003, the SEC adopted rules which require that before Turner, Stone & Company, L.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 |
| Consolidated financial statements of Stemtech have been included in Item 8 above. | |
| 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. |
| Exhibit | Description | Status | ||
| 3.1 | Articles of Incorporation and Certificate of Amendment, filed as an exhibit to Globe Net’s registration statement on Form S-1 filed on February 11, 2011, and incorporated herein by reference. | Filed | ||
| 3.2 | By-Laws, filed as an exhibit to Globe Net’s registration statement on Form S-1 filed on February 11, 2011, and incorporated herein by reference. | Filed | ||
| 10.1* | MCUS Amended Promissory Note dated April 11, 2023. | Included | ||
| 10.2* | Securities Purchase Agreement dated August 29, 2022. | Included | ||
| 14 | Code of Ethics, filed as an exhibit to Globe Net’s 2010 registration statement on Form S-1 filed on February 11, 2011, and incorporated herein by reference. | Filed | ||
| 21 | List of subsidiaries | Included | ||
| 31 | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | Included | ||
| 32 | Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | Included | ||
| 101 * | Financial statements from the annual report on Form 10-K of Stemtech for the fiscal year ended December 31, 2023, formatted in XBRL: (i) the Audited Balance Sheets, (ii) the Audited Statements of Operations; (iii) the Audited Statements of Stockholders’ Deficit and Comprehensive Income, and (iv) the Audited Statements of Cash Flows. | Included |
* 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 Corporation | ||
| Date: July 10, 2024 | By: | /s/ Charles S. Arnold |
| Charles S. Arnold | ||
| Title: |
Chief Executive Officer (Principal Executive Officer) | |
| Date: July 10, 2024 | By: | /s/James S. Cardwell |
| James S. Cardwell | ||
| Title: |
Chief Financial Officer (Principal Financial Officer) | |
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