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:
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Sections 14A(a) and (b) of the Exchange Act, which require companies to hold stockholder advisory votes on executive compensation and golden parachute compensation; |
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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; |
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Compliance with new or revised accounting standards until those standards are applicable to private companies; |
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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 |
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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.
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 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 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 25th 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 was launch in launched in Q3.
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 September 30, 2022
Compared to the Three-Month Period Ended September 30, 2021.
During the three months ending September 30, 2022
net sales were $1,047,030 versus $907,854 the year earlier period, for a positive variance of $139,176 or 15.3%. This variance is due
to increase IBPs and an increase in prices. Management anticipates revenues to continue to increase as the Company invests in new tools
for its IBPs and seeks to increase the number of IBPs, however current economic risks of recession can influence this which is beyond
the Company’s control.
During the three months ending September 30, 2022,
cost of goods sold was $180,599 versus $126,432 the year earlier period, for a negative variance of $54,167 or 42.8%. This variance is
line with the increase in sales during the period.
During the three months ended September 30, 2022,
commissions expenses were $306,293 versus $133,492 the year earlier period, for a negative variance of $172,801, or 129.45%. The variance
is in line with increased sales and that the Company has increased the global payout to its IBP channel.
During the three months ended September 30, 2022,
general and administrative expenses were $3,822,131 versus $1,290,374 the year earlier, for a negative variance of $2,531,757, or 196.2%.
The increase is primarily due to hiring of consultants, increase costs relating to meet regulatory reporting and fees as well as the issuance
of Stock-based compensation estimated at $2,808,111.
During the three months ended September 30, 2022,
selling and marketing expenses were $120,434 versus $93,316 the year earlier, for a negative variance of $27,118, or 29.1%. The increase
is primarily due to an overall increase in marketing spend as the Company seeks to continue to increase in its business channel to grow
revenues.
During the three months ended September 30, 2022,
total operating expenses were $4,248,858 versus $1,517,182 a year earlier, for a negative variance of $2,731,676, or 180.1%. The increase
in operating expenses was caused by the factors described above.
During the three months ending September 30, 2022,
total non-operating activities was a gain of $20,768,637 versus an expense of $4,583,892 a year earlier, for a positive variance $25,352,529
or 553.1%. The difference is primarily due to $18,229,093 gain from change in fair value of derivative liabilities, $4,237,647gain on
extinguishment of debt offset by $1,833,912 in interest expense on notes payable.
The net gain attributable to Stemtech for the
three months ended September 30, 2022 and 2021, was $17,416,917 versus a loss of $5,309,768 the prior period. The positive variance was
caused by the factors described above.
Nine-Month Period Ended September 30, 2022
Compared to the Nine-Month Period Ended September 30, 2021.
During the nine months ending September 30, 2022,
net sales were $3,472,762 versus 3,008,727 a year early, for a positive variance of $471,035, or 15.7%. This variance is due to increase
IBPs and increase in prices due to costs increases related to inflation, however current economic risks of recession can influence this.
During the nine months ending September 30, 2022,
cost of goods sold was $836,409 versus $575,740, for a negative variance of $260,669 or 45.3%. This variance is line with the increase
in sales during the period.
During the nine months ended September 30, 2022,
commissions expenses was $761,345 versus $375,074 a year earlier, for a negative variance of $386,271, or 103.0%. The variance is in line
with increased sales and that the Company has increased the global payout to its IBP channel.
During the nine months ended September 30, 2022,
general and administrative expenses was $6,073,133 versus $3,142,700 a year earlier, for a negative variance of $2,930,433, or 93.3%.
The increase is primarily due to hiring of consultants, increase costs relating to meet regulatory reporting and fees as well as the issuance
of Stock-based compensation estimated at $2,836,111.
During the nine months ended September 30, 2022,
selling and marketing expenses were $400,018 and $304,276 a year earlier, for a negative variance of $95,742, or 31.47%. The increase
is primarily due to an overall increase in marketing spend as the Company seeks to continue to increase in its business channel to grow
revenues.
During the nine months ended September 30, 2022,
total operating expenses were $7,234,496 versus $3,822,050 a year earlier, for a negative variance of $3,412,446, or 89.3%. The increase
in operating expenses was caused by the factors described above.
During the nine months ended September 30, 2022,
total non-operating expenses were $3,499,953 versus $4,873,891 a year earlier, for a positive variance of $1,373,938, or 28.2%. The difference
is primarily due to a loss of $4,112,023 from change in fair value of derivative liabilities, and $3,004,928 in interest expense offset
by a gain on the extinguishment of debt in the amount of $3,358,841 and approximately $250,000 gain on forgiveness of PPP Loan.
It should be noted that the significant movement
in the derivative liability and gain on extinguishment of debt is due to the fact that the convertible notes payable and the warrants
is greatly affected by the change in the stock price and are generally does not affect the cash position of the Company as the greater
this amount is the more likely the lenders will convert their convertible notes payable and exercise their warrants and thus provide a
cash infusion.
The net loss attributable to Stemtech for the
nine months ended September 30, 2022, was $8,026,062 versus $6,237,957 a year earlier. 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 $8,091,096 for the nine months ended September 30, 2022
versus $6,237,957 a year earlier. During the nine months ended September 30, 2022, we met our short-term liquidity requirements from the
issuance of notes payable, stock issuances and our existing cash reserves.
As of September 30, 2022, our current assets
were $599,693 compared to $1,600,039 in current assets at December 31, 2021. As of September 30, 2022, our current liabilities were
$8,995,077 compared to $9,387,038 at December 31, 2021. Current liabilities at September 30, 2022 were comprised of $3,433,405 of
derivative liabilities, $3,868,164 of accounts payable and accrued expenses, $1,391,506 in notes payable, net of discount, $239,986
in factoring liability and $62,018 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 stock price. If the warrants are exercised and the notes are converted,
it would cause the Company to record a gain on extinguishment of debt and Shareholders’ Equity would increase accordingly.
Cash Flows from Operating Activities
We have not generated positive cash flows from
operating activities. For the nine-months ending September 30, 2022, net cash flows used in operating activities were $976,150 which is
primarily due the net loss of $8,091,096 offset by approximately $6,444,000 of noncash items as well as the changes in working capital
accounts. The noncash items primarily consist of a $4,112,025 loss from the change in fair value of derivative liabilities, $2,400,670
amortization of debt discount, $2,836,111 of stock based compensation, $330,169 of depreciation and amortization, and a partial offset
by the $3,358,842 of gain on extinguishment of debt and $250,825 gain on forgiveness of the PPP Loan. Adjustments for changes in operating
assets and liabilities were due to an increase in inventories of $254,608 and accounts payable and accrued expenses of $406,600.
Cash Flows from Financing Activities
We have financed our operations primarily from
the issuance of notes payable. For the nine-month period ended September 30, 2022, $514,697 cash provided from financing activities consist
of $341,939 of issuance of notes payable and net proceeds from financing arrangements of $239,986. For the nine months ended June 30,
2021, net cash flows provided by financing activities were $2,104,410 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 3rd, 2021, the Company
executed a Convertible Promissory Note, Securities Purchase Agreement and ancillary agreements (collectively, the “Agreements”)
with Leonite Capital, LLC (“Leonite”). Per the terms of the Agreements with, 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 has agreed that neither it nor any
of its affiliates shall engage in any short-selling or hedging of our Common Stock at 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. (“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 the 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 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.