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 Corp. was incorporated under the laws of the State of Nevada, U.S. on
September 4, 2009. Our registration statement on Form S-1 was filed with the
Securities and Exchange Commission was declared effective on May 15, 2013. On
August 19th, 2021, the Company entered into a Merger Agreement with Stemtech
Corporation by which the Company acquired one hundred percent of the shares of
Stemtech Corp. in exchange for the issuance of 37,060,000 shares of the Company,
approximately 85% of the issued and outstanding shares of the company.
Stemtech has pioneered and patented a whole new category of dietary supplements.
Stemtech's advanced Stem Cell Nutrition formulations are one-of-a-kind natural
products designed to help support the three most important aspects of stem cell
physiology: 1) Releasing more stem cells; 2) their circulation in the blood; and
3) Migration into tissues, where they can perform their daily function of
renewal and rejuvenation for optimal health. We actually harness the incredible
power of adult stem cells. How does this work? Adult stem cells are released
from your bone marrow into the bloodstream, they then Circulate in the
bloodstream and flow to the tissues most in need. As they arrive, the adult stem
cells migrate into the tissues, reproduce and become new, healthy cells of those
tissues. This process takes place every single day, even without tissue damage,
as part of the natural renewal system of the body. It is important to understand
that Stemtech's products do not contain stem cells. They are composed of natural
botanicals and other ingredients that have been clinically documented to support
the performance of your own adult stem cells.
While sales of product obviously create the cash flow, our real business model
is not just "sales", but lateral penetration. We do this through our IBPs -
"Independent Business Partner" Sales Forces, and we invest much energy in
growing our IBPs. Post public listing and funding, Stemtech is projecting the
addition of 30,000 new independent business partner reps over the next 12 to 24
months, adding to the existing IBPs. With an enhanced compensation plan, IBPs
will be even more incentivized to build their network, attracting additional
industry leaders. IBPs are a testimonial to our product and business model,
lowering our customer acquisition costs.
In order to grow our company's IBPs post pandemic, we are now looking at
reinstituting contests, travel incentives, cruises, other trips, Business
Academies for Training, regional conferences, our Annual Convention with new
product launches. Our IBPs offer highly flexible yet steady income which is most
adapted to todays "Laptop & Cellphone Lifestyle", with structured and organized
weekly corporate training calls, a personalized website, back-office tracking,
oversight and management Tools, Reports, Training Materials and Social Sharing.
6
While there has actually been no active marketing activity since 2017, our sales
continued 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.
Implications of Being an Emerging Growth Company
Emerging Growth Company - We are an emerging growth company as defined in
Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities
Act. We will continue to be an emerging growth company until: (i) the last day
of our fiscal year during which we had total annual gross revenues of at least
$1.07 billion; (ii) the last day of our fiscal year following the fifth
anniversary of the date of the first sale of our common stock pursuant to an
effective registration statement under the Securities Act; (iii) the date on
which we have, during the previous 3-year period, issued more than $1.0 billion
in non-convertible debt; or (iv) the date on which we are deemed to be a large
accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of
1934, as amended, or the Exchange Act, which means the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the prior
June 30.
As an emerging growth company, we are exempt from:
? Sections 14A(a) and (b) of the Exchange Act, which require companies to hold
stockholder advisory votes on executive compensation and golden parachute
compensation;
? The requirement to provide, in any registration statement, periodic report or
other report to be filed with the Securities and Exchange Commission, or the
"Commission" or "SEC", certain modified executive compensation disclosure
under Item 402 of Regulation S-K or selected financial data under Item 301 of
Regulation S-K for any period before the earliest audited period presented in
our initial registration statement;
? Compliance with new or revised accounting standards until those standards are
applicable to private companies;
? The requirement under Section 404(b) of the Sarbanes-Oxley Act of 2002, or the
Sarbanes-Oxley Act, to provide auditor attestation of our internal controls
and procedures; and
? Any Public Company Accounting Oversight Board, or "PCAOB", rules regarding
mandatory audit firm rotation or an expanded auditor report, and any other
PCAOB rules subsequently adopted unless the Commission determines the new
rules are necessary for protecting the public.
We have elected to use the extended transition period for complying with new or
revised accounting standards under Section 102(b)(1) of the Jumpstart Our
Business Startups Act.
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.
7
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 Company's management, who 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, 2021 Compared to the Year Ended December 31, 2020.
During the years ended December 31, 2021 and 2020, net sales were $4,321,245 and
$4,384,507, respectively. The decrease of $63,262 is primarily due to the lack
of revenue from South Korea operations which generated approximately $160,000 in
sales in 2020, partially offset by slight increases overall.
During the years ended December 31, 2021 and 2020, our total operating expenses
were $6,508,356 and $5,101,154, respectively. The increase of $949,040 is
primarily attributable to an increase in stock compensation granted to vendors
and officers in 2021.
During the years ended December 31, 2021 and 2020, total non-operating expenses
were $3,900,838 and $295,924, respectively, resulting in an increase of
$3,604,914. The difference is primarily due to $8,330,201 of interest expense on
notes payable, partially offset by the $4,553,372 gain from the change in fair
value of derivative liabilities in connection with the note payable issued in
September 2021.
Our net loss for the December 31, 2021 and 2020, was $7,111,109 and $1,727,658,
respectively. The increase in net loss was caused by the factors described
above.
Liquidity and Capital Resources
We are not currently profitable, and we cannot provide any assurance of when we
will be profitable. We incurred a net loss of $7,111,109 and $1,727,658 for the
years ended December 31, 2021 and 2020, respectively. During the year ended
December 31, 2021, we met our short-term liquidity requirements from our
existing cash reserves and proceeds from the issuance of notes payable of
$3,321,969.
As of December 31, 2021, our current assets were $1,600,039 compared to $573,100
in current assets at December 31, 2020. As of December 31, 2021, our current
liabilities were $9,387,038 compared to $3,723,387 at December 31, 2020. Current
liabilities at December 31, 2021 were comprised of $4,224,585 of derivative
liabilities, $4,050,798 of accounts payable and accrued expenses, $1,055,910 in
convertible notes and $55,745 in current operating lease liabilities.
Stockholders' equity decreased from positive $1,267,996 as of December 31, 2020
to a deficit of $4,005,446 at December 31, 2021. This change was primarily
caused by the $4,224,585 addition of derivative liabilities that were bifurcated
from the notes payable issued in September 2021.
8
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the
year ended December 31, 2021, net cash flows used in operating activities were
$1,914,093 which is primarily due the change in working capital accounts. The
net loss of $7,111,109 and $4,553,372 gain from the change in fair value of
derivative liabilities was offset by the $6,816,739 non-cash interest expense
and $1,031,173 of stock compensation expense. Adjustments for changes in
operating assets and liabilities were due to an increase in accounts payable and
accrued expenses of $1,217,831, an increase in operating lease liabilities of
$99,159, offset by decrease in inventories and prepaid expenses and other
current assets of $237,778 and $109,122, respectively. For the year ended
December 31, 2020, net cash flows used in operating activities were $266,716.
Cash Flows from Financing Activities
We have financed our operations primarily from either the issuance of our shares
of common stock or notes payable. For the year ended December 31, 2021, we
generated $2,628,739 cash from financing activities which consists of $3,321,969
from the issuance of convertible promissory notes, partially offset by payments
on notes payable of $693,230. For the year ended December 31, 2020, net cash
flows provided by financing activities were $159,402.
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.
Stockholders' Equity (Deficit)
Authorized Shares
The Company is authorized to issue up to 200,000,000 shares of common stock, par
value $0.001 par value. Each outstanding share of common stock entitles the
holder to one vote per share on all matters submitted to a stockholder vote. All
shares of common stock are non-assessable and non-cumulative, with no
pre-emptive rights.
Commitments and Contingencies
None.
9
Financing
On September 3rd, 2021, the Company executed a Convertible Promissory Note,
Securities Purchase Agreement and ancillary agreements (collectively, the
"Agreements") with Leonite Capital, LLC Per the terms of the Agreements with
Leonite Capital, LLC, the Company was tendered $410,000, which is open with
right of redemption for one year. Prior to the maturity date of the Note, the
Company at its option, has the right to redeem in cash in part or in whole, the
amounts outstanding. Should the Fund wish to convert this debt into equity, the
conversion price shall be sixty-five percent of the lowest Intraday price during
the previous 21 days. Pursuant to the Agreements, the Company has earmarked the
net proceeds for immediate cash infusion for normative working capital purposes
and capital expenditures. Leonite Capital. 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 3rd, 2021, the Company finalized a Promissory Convertible Note,
Securities Purchase Agreement and ancillary agreements (collectively, the
"Agreements") with MCUS LLC. Per the terms of the Agreements with MCUS LLC., 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 LLC has agreed that neither it nor any of its
affiliates shall engage in any short-selling or hedging of our Common Stock
during any time during the term of the Agreements. Pursuant to the Agreements,
the Company is required to register all shares which the Leonite Fund I LP may
acquire. The foregoing is a summary description of certain terms of the
Agreements. For a full description of all terms, please refer to the original
Agreements which were filed as an 8K with the SEC on September 10th, 2021.
On September 17th, 2021, the Company finalized a $1,400,000 investment into our
Company with Sharing Services Global Corporation, a publicly traded company
("SHRG") via a Convertible Promissory Note, a Share Purchase Agreement and
Warrant Agreement. Per the terms of the Agreements, the Company was tendered the
full $1,400,0000, which is open with right of redemption at 10% interest per
annum until September 9th, 2024.
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