STEK Stemtech Corporation (PK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report.

FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other Federal securities laws and is subject to the safe-harbor created by such Act and laws. Forward-looking statements may include statements regarding our goals, beliefs, strategies, objectives, plans, including product and technology developments, future financial conditions, results or projections or current expectations These forward-looking statements involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties. Although we believe that the expectations reflected-in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results may differ materially from those anticipated in these forward-looking statements. These forward-looking statements are made as of the date of this report, and we assume no obligation to update these forward-looking statements whether as a result of new information, future events, or otherwise, other than as required by law. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this report might not occur and actual results and events may vary significantly from those discussed in the forward-looking statements.

Implications of Being an Emerging Growth Company

Emerging Growth Company - We are an emerging growth company as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act. We will continue to be an emerging growth company until: (i) the last day of our fiscal year during which we had total annual gross revenues of at least $1.07 billion; (ii) the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have, during the previous 3-year period, issued more than $1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a large accelerated filer, as defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30.

As an emerging growth company, we are exempt from:

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.

Company Overview

Globe Net Wireless Corp. was incorporated under the laws of the State of Nevada, U.S. on September 4, 2009. Our registration statement on Form S-1 was filed with the Securities and Exchange Commission was declared effective on May 15, 2013. On August 19^th, 2021, the Company entered into a Merger Agreement with Stemtech Corporation by which the Company acquired one hundred percent of the shares of STEMTECH CORPORATION in exchange for the issuance of 37,060,000 shares of the Company, approximately 85% of the issued and outstanding shares of the company.

Stemtech has pioneered and patented a whole new category of dietary supplements. Stemtech’s advanced Stem Cell Nutrition formulations are one-of-a-kind natural products designed to help support the three most important aspects of stem cell physiology: 1) Releasing more stem cells; 2) their circulation in the blood; and 3) Migration into tissues, where they can perform their daily function of renewal and rejuvenation for optimal health. We actually harness the incredible power of adult stem cells. How does this work? Adult stem cells are released from your bone marrow into the bloodstream, they then Circulate in the bloodstream and flow to the tissues most in need. As they arrive, the adult stem cells migrate into the tissues, reproduce and become new, healthy cells of those tissues. This process takes place every single day, even without tissue damage, as part of the natural renewal system of the body. It is important to understand that Stemtech’s products do not contain stem cells. They are composed of natural botanicals and other ingredients that have been clinically documented to support the performance of your own adult stem cells.

While sales of product obviously create the cash flow, our real business model is not just “sales”, but lateral penetration. We do this through our IBPs - “Independent Business Partner” Sales Forces, and we invest much energy in growing our IBPs. Post public listing and funding, Stemtech is projecting the addition of 30,000 new independent business partner reps over the next 12 to 24 months, adding to the existing IBPs. With an enhanced compensation plan, IBPs will be even more incentivized to build their network, attracting additional industry leaders. IBPs are a testimonial to our product and business model, lowering our customer acquisition costs.

In order to grow our company’s IBPs post pandemic, we are now reinstituting in-person meetings, contests such as a travel incentive which began August 1 for trip to Cancun in December, cruises, Business Academies for Training, regional conferences, our Annual Convention with new product launches. Our IBPs offer highly flexible yet steady income which is most adapted to todays “Laptop & Cellphone Lifestyle”, with structured and organized weekly corporate training calls, a personalized website, back-office tracking, oversight and management Tools, Reports, Training Materials and Social Media Sharing. Stemtech announced on July 25^th the partnering with industry leading VERB TECHNOLOGY in launching Interactive Video and Livestreaming Sales Enablement Apps to strengthen the direct sales channel. The new mobile app, “Stemtech Advance Office” is based on the VERB leading-edge platform which enables IBPs to share recruiting materials and track prospective members. This will launch early September, a few weeks from now.

Stemtech launched a new marketing program in January, 2022, and our sales continue to come from returning consumers who believe in the quality products, as well as new members. Until September 2021, the Company had operated on an extremely tight budget, with inadequate working capital and difficulties fulfilling orders. Since the cash infusions noted in “Financing” infra, the company now has the resources to contact and re-engage the over 200,000 former distributors. With this new cash infusion, the Company has engaged experienced marketing and social media professionals to initiate new marketing strategies which are expected to bring increased activity. Moreover, we are now better positioned to absorb significant new clientele either as product consumers or business builders, as the company has directed significant cash towards our inventory and marketing efforts. Management conservatively believes that given the cash on hand and working expenditures as describe above, we can reinvigorate sales to be more consistent with the company’s previous revenue historically, as we were recognized 4 separate years in the Inc 5000 Magazine’s list of fastest growing companies.

The network marketing industry companies are known for their potential explosive growth and with more network marketers looking for a new home, Stemtech is well positioned. With our legacy of being in business for over 16 years, industry experience, and scientific knowledge, with products in the expanding stem cell nutrition market, our strong and profitable compensation plan for our Field, we are set to enter the typically invigorated end of Q3 and Q4 period with much anticipated growth. Management believes that the highest growth is upcoming in the next two to three years. General economic conditions with inflation factoring largely in today’s market, people are looking for an income-earning opportunity. Being their own boss and working while enjoying a desired lifestyle. Quality of life issues are in the IBPs control. Combined with Stemtech’s patented anti-aging and longevity products, it is inevitable that a momentum phase will propel the company to achieve our projections.

Stemtech is working to add new products in the stem cell arena. Forecasts for the stem cell industry, whether stem cell therapy, stem cell pharma, stem cell technology or stem cell nutrition, are indicating explosive growth between 2022 and 2026, reaching estimated business volumes of USD $26 billion with a CAGR of 10.34 percent, according to “Research and Markets” a recognized industry publication and authority. As the pioneer in stem cell nutrition since 2005, Stemtech’s growth opportunities are significant.

Below this IBP level, we have our “DTC” (Direct To Consumer) network marketing Distribution model. This integrative model allows us an immediate global presence and ability to operate in multiple countries on any continent. We are uniquely positioned in this post pandemic economy beset by supply chain issues, as this method requires no up-front or required buy-in of inventory, with monthly shipments available for known recurring sales. This platform has us now operating at the intersection of the ecommerce economy, social economy and gig economy.

RESULTS OF OPERATIONS

Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

Three-Month Period Ended June 30, 2022 Compared to the Three-Month Period Ended June 30, 2021.

During the three months ending June 30, 2022 net sales were $1,276,424 versus $1,025,112, for a positive variance of $251,312 or 25%. This variance is due to increase IBPs and management anticipates net sales to increase further as it has recently implemented a price increase, however current economic risks of recession can influence this.

During the three months ending June 30, 2022, cost of goods sold was $393,213 versus $269,163, for a positive variance of $124,050 or 46%. This variance is line with the increase in sales during the three months ended June 30, 2022.

During the three months ended June 30, 2022 and 2021, our commissions expenses were $293,140 and $142,452, respectively, resulting in an increase of $150,688, or 106%. The variance is in line with increased sales during the three months ended June 30, 2022.

During the three months ended June 30, 2022 and 2021, our general and administrative expenses were $1,478,990 and $1,110,358, respectively, resulting in an increase of $368,632, or 33%. The increase is primarily due to hiring of consultants and increase in regulatory fees.

During the three months ended June 30, 2022 and 2021, our selling and marketing expenses were $139,275 and $81,355, respectively, resulting in an increase of $57,920, or 71%. The increase is primarily due approximately $25,000 business academy in Mexico and overall increase in marketing spend during the three months ended June 30, 2022.

During the three months ending June 30, 2022 and 2021, total non-operating expenses were $23,939,710 and $195,007, respectively, resulting in an increase of $23,744,703. The difference is primarily due to $22,538,626 loss from change in fair value of derivative liabilities, $878,806 loss on extinguishment of debt and $513,291 increase of interest expense on notes payable, partially offset by the $124,300 gain on forgiveness of PPP Loan.

The net loss attributable to Stemtech for the three months ended June 30, 2022 and 2021, was $24,948,239 and $762,565, respectively. The increase in net loss was caused by the factors described above.

Six-Month Period Ended June 30, 2022 Compared to the Six-Month Period Ended June 30, 2021.

During the six months ending June 30, 2022 and 2021, net sales were $2,432,732 and $2,100,873, respectively, resulting in an increase of $331,859, or 16%. This variance is due to increase IBPs and management anticipates net sales to increase further as it has recently implemented a price increase, however current economic risks of recession can influence this.

During the six months ending June 30, 2022, cost of goods sold was $655,810 versus $449,308, for a positive variance of $206,502 or 46%. This variance is line with the increase in sales during the six months ended June 30, 2022.

During the six months ended June 30, 2022 and 2021, our commissions expenses were $455,052 and $241,582, respectively, resulting in an increase of $213,470, or 88%. The variance is in line with increased sales during the six months ended June 30, 2022.

During the six months ended June 30, 2022 and 2021, our selling and marketing expenses were $279,584 and $210,960, respectively, resulting in an increase of $68,624, or 33%. The increase is primarily due approximately $25,000 business academy in Mexico and overall increase in marketing spend during the six months ended June 30, 2022.

During the six months ended June 30, 2022 and 2021, our general and administrative expenses were $2,251,002 and $1,852,326, respectively, resulting in an increase of $398,676, or 22%. The increase is primarily due to hiring of consultants and increase in regulatory fees.

During the six months ended June 30, 2022 and 2021, our total operating expenses were $2,985,638 and $2,304,868, respectively, resulting in an increase of $680,770, or 30%. The increase in operating expenses was caused by the factors described above.

During the six months ending June 30, 2022 and 2021, total non-operating expenses were $24,268,590 and $289,999, respectively, resulting in an increase of $23,978,591. The difference is primarily due to $23,341,116 loss from change in fair value of derivative liabilities, $878,806 loss on extinguishment of debt and $948,427 increase of interest expense on notes payable, partially offset by the $124,30 gain on forgiveness of PPP Loan.

It should be noted that the large increase in the derivative liability is due to the fact that the convertible notes payable and the warrants have significant intrinsic value due to our rising stock price. If the warrants are exercised and the notes are converted, the liability amount will be absorbed to Shareholders’ Equity.

The net loss attributable to Stemtech for the six months ended June 30, 2022 and 2021, was $25,442,979 and $928,567, 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 $25,477,306 and $943,302 for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2022, we met our short-term liquidity requirements from the issuance of notes payable and our existing cash reserves.

As of June 30, 2022, our current assets were $845,445 compared to $1,600,039 in current assets at December 31, 2021. As of June 30, 2022, our current liabilities were $33,330,979 compared to $9,387,038 at December 31, 2021. Current liabilities at June 30, 2022 were comprised of $27,612,689 of derivative liabilities, $3,865,725 of accounts payable and accrued expenses, $1,569,299 in notes payable, net of discount, $217,907 in factoring liability and $65,359 in current operating lease liabilities.

The derivative liability and associated loss from its change in fair value are noncash items and fluctuate due to our rising stock price. If the warrants are exercised and the notes are converted, the liability amount will be absorbed to Shareholders’ Equity.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For the six-months ending June 30, 2022, net cash flows used in operating activities were $744,764 which is primarily due the net loss of $25,477,306 offset by approximately $24,615,000 of noncash items as well as the changes in working capital accounts. The noncash items primarily consist of a $22,341,116 loss from the change in fair value of derivative liabilities, $1,028,375 amortization of debt discount, $217,723 of stock based compensation, $217,717 of depreciation and amortization, $878,806 of loss on extinguishment of debt, and a partial offset by the $124,300 gain on forgiveness of the PPP Loan. Adjustments for changes in operating assets and liabilities were due to an increase in inventories of $235,278 and prepaid expenses of $104,191, partially offset by decrease in accounts payable and accrued expenses of $192,096.

Cash Flows from Financing Activities

We have financed our operations primarily from the issuance of notes payable. For the six-month period ended June 30, 2022, $153,580 cash provided from financing activities mainly consists of proceeds of factoring liability of $241,000. For the six months ended June 30, 2021, net cash flows provided by financing activities were $117,581 from proceeds of notes payable.

Plan of Operation and Funding

We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities and director loans. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have and will continue to seek to obtain short-term loans from our directors, although no future arrangement for additional loans has been made. We do not have any agreements with our directors concerning these loans. We do not have any arrangements in place for any future equity financing.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited condensed financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.

Off-Balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Stockholders’ Equity (Deficit)

Authorized Shares

The Company is authorized to issue up to 200,000,000 shares of common stock, par value $0.001 par value. Each outstanding share of common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock are non-assessable and non-cumulative, with no pre-emptive rights.

Commitments and Contingencies

None.

Financing

On September 3^rd, 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 3^rd, 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. Should the holder prefer to have its debt converted, the conversion rate shall be based on the 30-day VWAP from 8/20/21 to 9/20/21, which is $3.2431.

We will require additional financing to implement our business plan, which may include joint venture projects and debt or equity financings. The nature of this enterprise and constraint of positive cash flow places debt financing beyond the credit-worthiness required by most banks or typical investors of corporate debt until such time as an economically viable profits and losses can be demonstrated. Therefore, any debt financing of our activities may be costly and result in substantial dilution to our stockholders.

Future financing through equity investments is likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and financing, including investment banking fees, legal fees, accounting fees, and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition.

Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the nutraceutical industry, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

There is no assurance that we will be able to obtain financing on terms satisfactory to us, or at all. We do not have any arrangements in place for any future financing. If we are unable to secure additional funding, we may cease or suspend operations. We have no plans, arrangements or contingencies in place in the event that we cease operations.