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.
6
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 are now reinstituting contests, travel incentives, cruises, other trips,
Business Academies for Training, regional conferences, our Annual Convention
with new product launches. Our IBPs offer highly flexible yet steady income
which is most adapted to todays "Laptop & Cellphone Lifestyle", with structured
and organized weekly 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,
based on the Verb Technology platform in September 2022, improving
communication, sharing of information, training videos and other content for
recruiting, on-boarding, customer retention and measuring key performance
indicators for the IBP business.
Stemtech launched a new marketing program in January 2022, with sales continuing
to come in from returning consumers who believe in the quality products. Until
September 2021, the Company had operated on an extremely tight budget, with
inadequate working capital and difficulties fulfilling orders. Since the cash
infusions noted in "Financing" infra, the company now has the resources to
contact and re-engage the over 200,000 former distributors. With this new cash
infusion, the Company has engaged experienced marketing and social media
professionals to initiate new marketing strategies which are expected to bring
increased activity. Moreover, we are now better positioned to absorb significant
new clientele as the company has directed significant cash towards our
inventory, and we now have enough inventory on hand to fulfill over $3 million
dollars' worth of new orders, an inventory level we have not had since going
into bankruptcy in 2017. Management conservatively believes that given the cash
on hand and working expenditures as describe above, we can reinvigorate sales to
be more consistent with the company's previous revenue historically, as we were
recognized 4 times in the Inc 5000 Magazine's list of fastest growing companies.
Below this IBP level, we have our "DTC" (Direct To Consumer) network marketing
Distribution model. This integrative model allows us an immediate global
presence and ability to operate in multiple countries on any continent. We are
uniquely positioned in this post pandemic economy beset by supply chain issues,
as this method requires no up-front or required buy-in of inventory, with
monthly shipments available for known recurring sales. This platform has us now
operating at the intersection of the ecommerce economy, social economy and gig
economy.
7
The Company has been making great strides the past year, having filed our
"Orastem" trademark registration in Mexico as noted in our press release of
August 23, 2022. In addition, Stemtech filed our new 'stemceuticals' trademark
registration. We also have been fortunate to have Dr. Bankole Johnson join our
Life Sciences Advisory Board in September, as well as the introduction of a
whole new line of stem cell skin care products. Life Factor Research brings
their expertise in research, development and product formulations enabling the
Company to now organically develop whole new lines of Stemceuticals. This new
arrangement enables Stemtech to offer more new, cutting-edge products to an
ever-growing market interested in improved health and quality of life.
Below this IBP level, we have our "DTC" (Direct To Consumer) network marketing
Distribution model. This integrative model allows us an immediate global
presence and ability to operate in multiple countries on any continent. We are
uniquely positioned in this post pandemic economy beset by supply chain issues,
as this method requires no up-front or required buy-in of inventory, with
monthly shipments available for known recurring sales. This platform has us now
operating at the intersection of the ecommerce economy, social economy and gig
economy.
Implications of Being an Emerging Growth Company
Emerging Growth Company - We are an emerging growth company as defined in
Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities
Act. We will continue to be an emerging growth company until: (i) the last day
of our fiscal year during which we had total annual gross revenues of at least
$1.07 billion; (ii) the last day of our fiscal year following the fifth
anniversary of the date of the first sale of our common stock pursuant to an
effective registration statement under the Securities Act; (iii) the date on
which we have, during the previous 3-year period, issued more than $1.0 billion
in non-convertible debt; or (iv) the date on which we are deemed to be a large
accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of
1934, as amended, or the Exchange Act, which means the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the prior
June 30.
As an emerging growth company, we are exempt from:
· Sections 14A(a) and (b) of the Exchange Act, which require companies to hold
stockholder advisory votes on executive compensation and golden parachute
compensation;
· The requirement to provide, in any registration statement, periodic report
or other report to be filed with the 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.
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.
8
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("U.S. GAAP"). Such consolidated financial statements and accompanying
notes are the representations of the Company's management, which is responsible
for their integrity and objectivity. All intercompany accounts and transactions
have been eliminated in consolidation.
Results of Operations
Our consolidated financial statements have been prepared assuming that we will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should we be unable to continue in
operation. We expect we will require additional capital to meet our long-term
operating requirements. We expect to raise additional capital through, among
other things, the sale of equity or debt securities.
Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021.
During the years ended December 31, 2022 and 2021, net sales were $4,559,399 and
$4,321,245, respectively. The increase of $238,154 is primarily due to slight
increases in the overall sales of the subsidiaries due to the increase in IBPs
in 2022.
During the years ended December 31, 2022 and 2021, our total operating expenses
were $8,418,761 and $6,508,356, respectively. The increase of $1,910,405 is
primarily attributable to an increase in stock compensation granted to vendors
and officers in 2022.
During the years ended December 31, 2022 and 2021, total non-operating expenses
were $3,513,830 and $3,900,838, respectively, resulting in an increase of
$387,008. The difference is primarily due to the gain on extinguishment of debt
of $3,799,356 in 2022, the decrease in interest expense of $4,232,358, partially
offset by the changes in fair value of derivative liabilities from a gain of
$4,553,372 at December 31, 2021 to a loss of $3,223,271 at December 31, 2022 in
connection with the note payable issued in September 2021.
Our net loss for the years ended December 31, 2022 and 2021, was $8,632,828 and
$7,111,109, respectively. The increase 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
$8,632,828 and $7,111,109 for the years ended December 31, 2022 and 2021,
respectively. During the year ended December 31, 2022, we met our short-term
liquidity requirements from our existing cash reserves and proceeds from the
issuance of notes payable of $611,266, net proceeds from financing arrangements
of $214,249 and stock issued for cash of $100,002.
As of December 31, 2022, our current assets were $612,370 compared to $1,600,039
in current assets at December 31, 2021. As of December 31, 2022, our current
liabilities were $7,415,791 compared to $9,387,038 at December 31, 2021. Current
liabilities at December 31, 2022 were comprised of $3,396,543 of accounts
payable and accrued expenses, $2,717,633 of derivative liabilities, $482,885 in
convertible notes, $446,246 of nonconvertible notes payable, $214,249 of
factoring liability, $119,065 in current operating lease liabilities and $39,170
in deferred revenues.
Stockholders' deficit decreased from $4,005,446 as of December 31, 2021 to
$3,171,918 at December 31, 2022. This change was primarily caused by the
issuance of common stock for the conversion of debt of $828,000 during the year
ended December 31, 2022.
9
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the
year ended December 31, 2022, net cash flows used in operating activities were
$1,216,948 which is primarily due the change in working capital accounts. The
net loss of $8,632,828 and $3,799,356 gain on extinguishment of debt was offset
by $3,223,271 loss from the change in fair value of derivative liabilities,
$3,996,187 stock based compensation, and $2,428,539 amortization of debt
discount. Adjustments for changes in operating assets and liabilities were due
to a decrease in inventories of $278,352, an increase in deferred revenues of
$39,170, a decrease in prepaid expenses and other current assets of $37,645 and
an increase in long term deposits of $15,627 offset by an decrease in accounts
payable and accrued expenses of $683,058 and an increase in accounts receivable
of $24,047. For the year ended December 31, 2021, net cash flows used in
operating activities were $1,914,093.
Cash Flows from Financing Activities
We have financed our operations primarily from either the issuance of our shares
of common stock or notes payable. For the year ended December 31, 2022, we
generated $338,734 cash from financing activities which consists of $611,266
from the issuance of convertible promissory notes, $214,249 proceeds from
factoring arrangement and $100,002 proceeds from issuance of stocks for cash,
partially offset by payments on notes payable of $586,783. For the year ended
December 31, 2021, net cash flows provided by financing activities were
$2,628,739.
Plan of Operation and Funding
We expect that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of equity securities and
debt instruments.
Existing working capital, further advances and debt instruments, and anticipated
cash flow are expected to be adequate to fund our operations over the next three
months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: (i) acquisition of inventory; (ii)
developmental expenses associated with a start-up business; and (iii) marketing
expenses. We intend to finance these expenses with further issuances of
securities and director loans. Thereafter, we expect we will need to raise
additional capital and generate revenues to meet long-term operating
requirements. Additional issuances of equity or convertible debt securities will
result in dilution to our current shareholders. Additional financing may not be
available upon acceptable terms, or at all. If adequate funds are not available
or are not available on acceptable terms, we may not be able to take advantage
of prospective new business endeavors or opportunities, which could
significantly and materially restrict our business operations. We will have to
raise additional funds in the next twelve months in order to sustain and expand
our operations. We currently do not have a specific plan of how we will obtain
such funding; however, we anticipate that additional funding will be in the form
of equity financing from the sale of our common stock. We have and will continue
to seek to obtain short-term loans from our directors, although no future
arrangement for additional loans has been made. We do not have any agreements
with our directors concerning these loans. We do not have any arrangements in
place for any future equity financing.
Off-Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors.
10
Stockholders' Deficit
Authorized Shares
The Company is authorized to issue up to 200,000,000 shares of common stock, par
value $0.001 par value. Each outstanding share of common stock entitles the
holder to one vote per share on all matters submitted to a stockholder vote. All
shares of common stock are non-assessable and non-cumulative, with no
pre-emptive rights.
Commitments and Contingencies
None.
Financing
On September 3, 2021, the Company executed a Convertible Promissory Note,
Securities Purchase Agreement and ancillary agreements with Leonite. Per the
terms of the Agreements with Leonite, the Company was tendered $410,000, which
is open with right of redemption for one year. Prior to the maturity date of the
note, the Company at its option, has the right to redeem in cash in part or in
whole, the amounts outstanding. Should Leonite wish to convert this debt into
equity, the conversion price shall be sixty-five percent of the lowest intraday
price during the previous 21 days. Pursuant to the Agreements, the Company has
earmarked the net proceeds for immediate cash infusion for normative working
capital purposes and capital expenditures. Leonite. has agreed that neither it
nor any of its affiliates shall engage in any short-selling or hedging of our
common stock during any time.
On September 3, 2021, the Company finalized a Promissory Convertible Note,
Securities Purchase Agreement and ancillary agreements with MCUS. Per the terms
of the Agreements with MCUS., the Company was tendered $500,000, which the
Company utilizes for normative working capital purposes and capital
expenditures. The note is open with right of redemption for nine months. MCUS
has agreed that neither it nor any of its affiliates shall engage in any
short-selling or hedging of our common stock during any time during the term of
the Agreements. Pursuant to the Agreements, the Company is required to register
all shares which Leonite may acquire. The foregoing is a summary description of
certain terms of the Agreements. For a full description of all terms, please
refer to the original Agreements which were filed as an 8K with the SEC on
September 10, 2021.
On September 17, 2021, the Company finalized a $1,400,000 investment into our
Company with Sharing Services Global Corporation, a publicly traded company
("SHRG") via a Convertible Promissory Note, a Share Purchase Agreement and
Warrant Agreement. Per the terms of the Agreements, the Company was tendered the
full $1,400,0000, which is open with right of redemption at 10% interest per
annum until September 9, 2024.
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