See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
See accompanying notes to consolidated financial
statements.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Organization and Basis of Presentation
Stemtech Corporation and its Subsidiaries (collectively,
the “Company”) was incorporated in the State of Nevada, USA on September 4, 2009 under the previous name Globe Net
Wireless Corp. On November 19, 2021, the Company adopted an Amendment to its Articles changing the name of the Corporation to Stemtech
Corporation in the state of Nevada, and on April 14, 2022, FINRA gave final approval for said name change, as evidenced by the 8-K filed
that date. Stemtech is a global network marketing company that develops science-based products that it believes supports wellness by helping
the body maintain healthy stem cell physiology, also known as stem cell enhancers. Known as the Stem Cell Nutrition Company®, the
Company is a pioneer in stem cell science, and believes it can demonstrate that adult stem cells function as the natural renewal system
of the body. The Company believes our products enhance and support the work of the body’s stem cells by releasing more stem cells,
helping to circulate them in the blood and migrate them into tissues, where they can perform their daily function of renewal for optimal
health. Our mission is to enhance wellness and prosperity around the world. These products are marketed internationally by the Company’s
subsidiaries and through independent distributors. The Company markets its products under the following brands: RCM System, stemrelease3™,
Stemflo® MigraStem™, OraStem® (Oral Health Care), and D-Fuze™ (Electromagnetic Frequency Blocker). Cellect One™
Rapid Renew Stem Cell Peptide Night Cream.
On August 19, 2021, Stemtech Corporation (“Stemtech”),
a Delaware corporation, entered into a Merger Agreement (the “Merger Agreement”) with Globe Net Wireless Corp. (“Globe
Net” or “GNTW”). The merger was accounted for as a reverse acquisition and recapitalization in accordance
with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business
Combinations. Management evaluated the guidance contained in ASC 805 with respect to the identification of the acquirer in the merger
and concluded, based on a consideration of the pertinent facts and circumstances, that Stemtech acquired Globe Net for financial accounting
purposes. On November 9, 2021, the Company changed its fiscal year end from a fiscal year end of August 31 to a calendar year end of December
31.
The consolidated financial statements include
the accounts of Stemtech (Parent) and its ten (10) subsidiaries:
1) |
Stemtech HealthSciences Corp (U.S.A.) (“Stemtech HealthSciences”) – 100% |
2) |
Stemtech Canada, Inc. (“Canada”) – 100% |
3) |
Stemtech Health Sciences S. de R.L. de C.V. (“Mexico”) – 100% |
4) |
Stemtech Services SARL de C.V. (Mexico) (“Stemtech Mexico”) – 100% |
5) |
Stemtech Malaysia Holdings Sdn. Bhd. (“Malaysia Holdings”) – 100% |
6) |
Stemtech Malaysia Sdn. Bhd. (“Malaysia”) – 70% |
7) |
Stemtech Taiwan Holding, Inc. (“Taiwan”) – 100% |
8) |
Tecrecel S.A. (“Ecuador”) – 100% |
9) |
Food & Health Tech Foodhealth SA (“Ecuador FHTFH”) – 100% |
10) |
Life Factor
Research (“LFR”) – 100% |
Note 2 — Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited
consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included
in our Form 10-K for the year ended December 31, 2022, filed April 17, 2023. In the opinion of management, all adjustments (consisting
of normal recurring adjustments unless otherwise indicated) considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year as
a whole. All intercompany accounts and transactions have been eliminated in consolidation.
Going Concern
The accompanying consolidated financial statements
have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and classification
of liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any
adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities
that might result if the Company is unable to continue as a going concern.
The Company has experienced recurring net losses
and negative cash flows from operations since inception and has an accumulated deficit of approximately $23.9 million and a working capital
deficiency of approximately $8.5 million at March 31, 2023. The Company has funded its activities to date almost exclusively from debt
and equity financing. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company
will continue to require substantial funds to implement its new investment acquisition plans. Management’s plans in order to meet
its operating cash flow requirements include financing activities such as private placements of its common stock, preferred stock offerings,
and issuances of debt and convertible debt instruments.
The Company’s ability to continue as a going
concern for the next twelve months from the issuance of these financial statements depends on its ability to execute its business plan,
increase revenue, and reduce expenditures. Such conditions raise substantial doubt about the Company’s ability to continue as a
going concern.
Use of Estimates
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Cash
The Company considers all highly liquid temporary
investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents. The Company has no cash equivalents as of March 31, 2023 and December 31, 2022. The Company maintains certain cash balances at several institutions located
outside the United States. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant
credit risk.
Inventory
Inventory is comprised of finished goods and raw
materials and is valued at the lower of cost or market, using the “first-in, first-out” method in determining cost. Management
evaluates the allowance for inventory obsolescence on a regular basis and has determined that no allowance for slow moving or obsolete
inventory is necessary as at March 31, 2023 and December 31, 2022.
Impairment of Long-Lived Assets
The Company assesses, on an annual basis, the
recoverability of the carrying amount of intangible assets and long-lived assets used in continuing operations. A loss is recognized when
expected future cash flows (undiscounted and without interest) are less than the carrying amount of the asset. The impairment loss is
determined as the difference by which the carrying amount of the asset exceeds its fair value. The Company evaluated its long-lived assets
for any indications of impairment. The Company concluded that there was no impairment, however there can be no assurance that market conditions
will not change or demand for the Company’s products will continue which could result in impairment of long-lived assets in the
future.
Revenue Recognition
It is the Company’s policy that revenues
from product sales is recognized in accordance with ASC 606 “Revenues from Contracts with Customers.” Five basic steps
must be followed before revenue can be recognized; (1) Identifying the contract(s) with a customer that creates enforceable rights and
obligations; (2) Identifying the performance obligations in the contract, such as promising to transfer goods or services to a customer;
(3) Determining the transaction price, meaning the amount of consideration in a contract to which an entity expects to be entitled in
exchange for transferring promised goods or services to a customer; (4) Allocating the transaction price to the performance obligations
in the contract, which requires the Company to allocate the transaction price to each performance obligation on the basis of the relative
standalone selling prices of each distinct good or services promised in the contract; and (5) Recognizing revenue when (or as) the entity
satisfies a performance obligation by transferring a promised good or service to a customer. The amount of revenue recognized is the amount
allocated to the satisfied performance obligation.
Revenues from direct retail sales to consumers
and revenues from independent distributors occur when title and risk of loss had passed, which generally occurs at the time the products
are shipped. Revenues are recorded net of estimated sales returns and allowances.
Allowances for product returns are provided at
the time the sale is recorded. This liability is based upon historic return rates and the relevant return pattern, which reflects anticipated
returns to be received over a period of up to one year following the original sale. As at March 31, 2023, the Company had a reserve for
sales returns of approximately $6,100 (December 31, 2022 - $7,000), which is included in accrued liabilities in the accompanying consolidated
balance sheets.
Comprehensive Loss
Other comprehensive loss in the accompanying consolidated
financial statements relates to unrealized foreign currency translation adjustments.
Foreign Currency Translation
A portion of the Company’s business operations
occur outside the United States. The local currency of each of the Company’s subsidiaries is generally its functional currency.
All assets and liabilities are translated into U.S. Dollars at exchange rates existing at the balance sheet dates, revenue and expenses
are translated at weighted-average exchange rates and stockholders’ equity is recorded at historical exchange rates. The resulting
foreign currency translation adjustments are recorded as a separate component of stockholders’ equity in the consolidated balance
sheets and as a component of comprehensive loss. Transaction gains and losses are included in other expense, net in the consolidated statements
of operations and comprehensive loss.
Net Loss per Common Share, basic
Basic net loss per share is computed by
dividing net loss available to common shareholders by the weighted average number of common shares outstanding during the period.
Diluted loss per share includes potentially dilutive securities such as outstanding options and warrants, using various methods such
as the treasury stock or modified treasury stock method in the determination of dilutive shares outstanding during each reporting
period. For the three months ended March 31, 2023 and 2022, the dilutive effect of 11,275,341
and 3,836,000,
respectively, of common stock warrants have not been included in the average shares outstanding for the calculation of net loss per
share as the effect would be anti-dilutive as a result of our net losses in these periods.
Fair Value Measurements
As
defined in ASC 820 “Fair Value Measurements,” fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The
Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated,
or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
The
Company determines the level in the fair value hierarchy within which each fair value measurement falls in its entirety,
based on the lowest level input that is significant to the fair value measurement in its entirety. In determining the appropriate
levels, the Company performs an analysis of the assets and liabilities at each reporting period end.
The
Company’s financial instruments consist of cash, accounts receivable, accounts payable, accrued interest, notes payable and, convertible
debentures. The carrying amounts of these financial instruments are of approximate fair value due to either length of maturity or interest
rates that approximate prevailing rates unless otherwise disclosed in these financial statements. The Company’s derivative liabilities
are valued using option pricing models with Level 3 inputs.
Sequencing
Based upon
ASC 840-15-25, the Company has adopted a sequencing approach regarding the application
of ASC 815-40 to its outstanding convertible notes and warrants. Pursuant to the sequencing approach,
the Company evaluates its contracts based upon the earliest issuance date.
Note 3 – Inventory
Inventory consists of the following components:
Schedule of inventory | |
| | | |
| | |
| |
March 31, | | |
December 31, | |
| |
2023 | | |
2022 | |
Finished goods | |
$ | 72,985 | | |
$ | 103,297 | |
Raw materials | |
| 36,158 | | |
| 54,756 | |
Total Inventory | |
$ | 109,143 | | |
$ | 158,053 | |
Note 4 – Intangible Assets
On May 7, 2018, Stemtech Corporation purchased
the assets of Stemtech International, Inc. (the “Former Parent Company”), out of a Chapter 7 Bankruptcy for $400,000 and assumed
a $4,000,000 note from RBCD Holdings Inc (formerly RBCD Holdings LLC) (“RBCD Holdings”), a related party owned by the Company’s
Directors, purchased an outstanding note at its face value of $4,000,000 from the Opus Bank (the “Opus Note”) and subsequently
converted in 2019 into 2,000,000 shares of the Company’s common stock of which 250,000 shares of the Company’s stock was allocated
to Charles Arnold, an officer and director.
Pursuant to a bankruptcy decree, the Company paid
$400,000 in cash and assumed a note payable in the amount of $4,000,000 representing 100% percent of the issued and outstanding
capital stock of Stemtech Canada, Inc. (Canada), Stemtech Health Sciences S. de R.L. de C.V. (Mexico), Stemtech Services SARL de C.V.
(Mexico) (“Stemtech Mexico”), Ste, Stemtech New Zealand, Ltd. (“Stemtech New Zealand”), Stemtech Taiwan Holding,
Inc. (U.S.A.), PT Stemtech Indonesia (Indonesia Pty Ltd.), Stemtech Korea (Korea) and Tecrecel S.A. (Ecuador); and Stemtech Malaysia Holdings
S/B (Malaysian Parent) that owns two-thirds of its subsidiary Stemtech Malaysia Holding Sdn. Bhd. (Malaysia).
Fair Value of the Acquired Assets
The Company accounted for the acquisitions as
business combinations using the acquisition method of accounting as prescribed in ASC Topic 805 Business Combinations (“ASC
805”) and ASC Topic 820 – Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805
and ASC 820, the Company assigned fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as
of the acquisition dates. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value
of tangible and identifiable intangible assets acquired and liabilities assumed.
The excess purchase price has been recorded as
goodwill in the amount of $467,409 at March 31, 2023 and December 31, 2022. The estimated useful life of the identifiable intangible assets
is six to fourteen years. The goodwill is amortizable for tax purposes.
Fair Value of the LFR Acquisition
In March 2023, the Company acquired 100% of LFR,
a research and development company with expertise in the formulation of products. The Company accounted for this transaction as an asset
acquisition method of accounting as prescribed in ASC Topic 805 Business Combinations (“ASC 805”) and ASC Topic 820
– Fair Value Measurements and Disclosures (“ASC 820”). In accordance with ASC 805 and ASC 820, the Company assigned
fair value to the tangible assets acquired, identifiable intangible assets and liabilities assumed as of the acquisition dates.
The consideration paid for 100% of LFR was 2.4
million shares of the Company with a fair value of $271,920. At the time of purchase, LFR’s liability exceeded its assets by $15,205,
and the difference between the net tangible assets and the purchase price, being $287,125, was allocated to a non-compete agreement and
will be amortized over 18 months.
The components of all acquired intangible assets
were as follows at March 31, 2023 and December 31, 2022:
Schedule of acquired intangible assets | |
| | |
|
|
|
| |
| | |
| |
March 31, 2023 | |
|
|
December 31, 2022 |
| |
Average
Estimated Life
(Years) | |
Patent products | |
$ | 2,344,900 | |
|
$ |
2,344,900 |
| |
| 14 | |
Trade names & trademarks | |
| 1,106,000 | |
|
|
1,106,000 |
| |
| Indefinite | |
Customer/distribution list | |
| 1,461,300 | |
|
|
1,461,300 |
| |
| 6 | |
Non-compete agreement | |
| 287,125 | |
|
|
– |
| |
| 18 months | |
Accumulated amortization | |
| (2,036,912 | ) |
|
|
(1,918,200 |
) | |
| | |
Total | |
$ | 3,162,413 | |
|
$ |
2,994,000 |
| |
| | |
Note 5 – Operating Lease Commitments
On August 16, 2021, the Company extended its office
space lease with Sunbeam Properties Inc. to rent approximately 5,000 square feet of space in Miramar, Florida. The Company pays $8,900.65
per month in rent until the end of the extended lease September 30, 2024. The Company, incurred lease expense for its operating leases
of $18,220 for the three months ended March 31, 2023 and 2022 and Company’s weighted-average remaining lease term relating to its
operating leases is 1.49 years, with a weighted-average discount rate of 10%.
In June 2022, the Company entered into a lease
for office space in Mexico which terminates on May 31, 2024.
The following table presents information about
the amount and timing of liabilities arising from the Company’s operating leases as of March 31, 2023:
Schedule of Operating Lease Liabilities | |
| | |
Maturity of operating lease liabilities for the following periods: | |
| |
April 1, 2023 to March 31, 2024 | |
$ | 109,639 | |
April 1, 2024 to September 30, 2024 | |
| 21,890 | |
Total undiscounted operating lease payments | |
| 131,529 | |
Less: imputed interest | |
| 9,318 | |
Present value of operating lease liabilities | |
$ | 122,211 | |
The Company’s operating leases do not provide
an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate,
which is determined using the average of borrowing rates explicitly stated in the Company’s convertible debt.
Note 6 – Notes Payable
Schedule of notes payable as of:
Schedule of Notes Payable | |
| | | |
| | |
| |
March 31, 2023 | | |
December 31, 2022 | |
Secured Royalty Participation Agreements (1) | |
$ | – | | |
$ | 150,000 | |
Vehicle and equipment loans (2) | |
| 9,949 | | |
| 11,246 | |
Notes payable (3) | |
| 280,000 | | |
| 285,000 | |
Convertible notes payable, net of discount (4) | |
| 739,315 | | |
| 482,885 | |
Total notes payable, net of discount | |
$ | 1,029,264 | | |
$ | 929,131 | |
(1) |
During June 2018, the Company entered into two (2) Secured Royalty Participation Agreements with Profile Solutions, Inc. (“PSI”) in exchange for working capital loans totaling $150,000. The loan amounts were due in June of 2019, plus an IRR of 18%. In consideration of these loan obligations, The Company agreed to pay a monthly royalty for one year being the greater of: x) 10% of the loan amount or y) 1.5% of the monthly gross revenues. PSI claims that these loans are in default, but the Company contends the loans reflected the terms of these agreements were usurious and contends that the loans are not legally enforceable obligations. This case was dismissed by the Court March 16, 2023. (See Legal Part I, 3.1) |
|
|
(2) |
In 2019, Malaysia borrowed $27,295 to purchase a car. The note accrues interest at 4.42% and matures in 5 years with a balance due as at March 31, 2023 of $9,949 (December 31, 2022 - $11,246). |
|
|
(3) |
In 2019, the Company entered into various promissory notes with lenders in the aggregate principal balance of $375,000. The effective interest rates of the notes are 10% and mature within one year. In addition, the Company issued 45,000 shares of common stock in the aggregate for the commitment of resulting in a charge of $22,500 to debt discount. In 2020, the Company entered into various promissory notes with lenders in the aggregate principal balance of $225,000 with effective interest rates between 8% and 10% per annum. Each of these notes was extended until May 31, 2023. On October 20, 2021, The Company issued two promissory notes to investors for a total of $10,000. One of these notes was paid in full on January 18, 2023. The other has been extended until May 20, 2023. The outstanding balance of these notes was $280,000 and $285,000 as of March, 31, 2023 and December 31, 2022, respectively. |
(4) |
During the year ended December 31, 2021, the Company
issued an aggregate of $2,423,738 of convertible promissory notes to investors. The notes had maturity dates between nine months and three
years and have interest rates between 8% and 12% per annum. The Company also issued 154,173 shares of common stock and granted warrants
to purchase 2,400,000 shares of common stock with exercise prices ranging between $2.685 and $3.00 per share. The value of the common
stock and warrants were recorded as a discount of the note at fair value.
|
|
During the second quarter of 2022, one of the
nine-month notes was extended for an additional 60 days, until August 1, 2022. As consideration for the 60-day extension, the Company
agreed to pay 100,000 shares of common stock to the note holder, reduce the conversion price of the note, and reprice the associated warrants
from $3.00 per share to $1.00 per share. The new conversion price shall be equal to the lower of (i) 50% of the lowest volume weighted
average prices for common stock as reported at the close of trading on the market reporting trade prices for the common stock during the
30 trading days ending on, and including, the date of the notice of conversion and (ii) Closing Price on the Closing Date, not to exceed
$2.25. On July 13, 2022, one of the notes was extended to September 1, 2022 in exchange for 183,780 warrants to purchase common stock
at $3.00 per share, 75,512 shares of common stock and the principal amount of the note was increased by $70,833. On September 8, 2022,
the note was further extended to May 26, 2023 and the interest rate increased from 10% to 18% per annum. The Company recognized $252,429
loss on extinguishment from the amendment of the note. On August 18, 2022, another note was further extended to September 30, 2022, in
exchange for 200,000 shares of common stock. During the fourth quarter of 2022, the note was extended until May 31, 2023.
During the third and fourth quarters of 2022,
the Company issued an aggregate of $400,000 of convertible notes payable net of discount, in various tranches. The notes accrue interest
ranging between 10% and prime plus 8% per annum and mature nine months from the date of each issuance. In addition, the lenders received
95,115 warrants with an exercise price of the lowest of $2.685 or 65% of lowest traded price in preceding 30 days and 81,760 warrants
with an exercise price of lowest of $2.685 or 50% of VWAP for the preceding 30 days, with all warrants having an expiry of 5 years from
the date of issuance.
During the year ended December 31, 2022, $798,526
of principal and $25,473 of accrued interest was converted into 4,114,816 common shares leaving a balance, net of discount, of $482,885
and accrued interest of $381,259 as of December 31, 2022.
On February 28, 2023, the Company entered
into a Global Settlement and Exchange of Senior Secured Convertible Promissory Note with Leonite Fund 1, LP (“Leonite), whereby
Leonite agreed to settle all of its outstanding liability and the cancellation of their warrants in exchange for 10,538,152
common stock of the Company and 110,000
warrants to purchase common stock of the Company at $0.05 per share. The agreement is contingent upon all other holders executing
agreements to convert their balances.
On March 27, 2023, the Company and an
institutional investor (the “Holder”) executed an investment agreement for up to $7,000,000
through a convertible promissory note, share purchase agreement and warrant agreement (the “2023 Note"). The 2023 Note has
a principal amount of up to $7,000,000
with an original issue discount of 12%
and is to be disbursed in four (4) disbursements as set forth as follows: (i)
the first disbursement in the amount of $1,000,000 occurred on March 27, 2023; (ii) the second disbursement in the amount of
$200,000 is due within three (3) days after the filing of an S-1 registration statement; (iii) the third disbursement in the amount
of $500,000 is due forty-five (45) days after effectiveness of an S-1 registration statement; and (iv) $120,000 is due forty-five
(45) days after the third disbursement. The S-1 Registration Statement was filed on May 9, 2023. The 2023 Note carries an
interest rate equal to seven percent (7%) per annum and is redeemable by the Company at any time at an amount equal to one hundred
twenty-five percent (125%) of the then outstanding principal and interest accrued on the Note. All additional disbursements will be
made at the Holder’s discretion, at any time, and if the Holder’s broker refuses to custody the securities issued in
connection therewith, the Holder will have no obligation to make a disbursement under the disbursement schedule but will have the
option to make such disbursement.
On April 11, 2023, the Company entered into an
Amendment of Promissory Note with MCUS LLC (“MCUS”), whereby MCUS agreed to convert its conversion price to $0.05.
The balance of the four convertible notes payable,
net of discount, as of March 31, 2023 and December 31, 2022 was $739,315 and $482,885, respectively. |
Note 7 – Derivative Liabilities
The Company issued debts that consist of the issuance
of convertible notes with variable conversion provisions. The conversion terms of the convertible notes are variable based on certain
factors, such as the future price of the Company’s common stock, which gives rise to a derivative liability which is a non-cash
liability. The number of shares of common stock to be issued is based on the future price of the Company’s common stock. The number
of shares of common stock issuable upon conversion of the promissory note is indeterminate. Pursuant to ASC Subtopic 815-15 Embedded
Derivatives (“ASC 815-15”), the fair values of the variable conversion options and warrants and shares to be issued were
recorded as derivative liabilities on the issuance date and revalued at each reporting period. Based
upon ASC 840-15-25, the Company has adopted a sequencing approach regarding the application
of ASC 815-40 to its outstanding convertible notes and warrants. Pursuant to the sequencing approach,
the Company evaluates its contracts based upon the earliest issuance date.
Schedule of Derivative Liabilities
Schedule of Derivative Liabilities | |
| | | |
| | | |
| | |
| |
Derivative Liability - Convertible Notes | | |
Derivative Liability - Warrants | | |
Total | |
Balance as of January 1, 2022 | |
$ | 1,252,397 | | |
$ | 2,972,188 | | |
$ | 4,224,585 | |
Change due to issuances | |
| 3,401,528 | | |
| 1,964,761 | | |
| 5,366,289 | |
Change due to redemptions | |
| (2,850,311 | ) | |
| (7,246,201 | ) | |
| (10,096,512 | ) |
Change in fair value | |
| 840,180 | | |
| 2,383,091 | | |
| 3,223,271 | |
Balance as of December 31, 2022 | |
| 2,643,794 | | |
| 73,839 | | |
| 2,717,633 | |
Change due to issuances | |
| 1,279,735 | | |
| 1,233,201 | | |
| 2,512,936 | |
Change due to redemptions | |
| (318,678 | ) | |
| – | | |
| (318,678 | ) |
Change in fair value | |
| (332,500 | ) | |
| (59,855 | ) | |
| (392,355 | ) |
Balance as of March 31, 2023 | |
$ | 3,272,351 | | |
$ | 1,247,185 | | |
$ | 4,519,536 | |
The Company used a Monte Carlo model to estimate
the fair value of its derivatives. A summary of quantitative information with respect to valuation methodology and significant unobservable
inputs used for the fair value of derivative liabilities during the following periods:
Schedule of assumptions | |
| | | |
| | |
| |
| March 31, 2023 | | |
| December 31, 2022 | |
Stock price | |
| $0.09 - $10.85 | | |
| $0.09 - $10.85 | |
Contractual term (in years) | |
| 0.00 - 5.00 | | |
| 0.00 - 5.00 | |
Volatility (annual) | |
| 49.4% - 238.6% | | |
| 47.4% - 236% | |
Risk-free rate | |
| 0.19% - 4.43% | | |
| 0.19% - 4.38% | |
Note 8 – Financing Arrangement
During the year ended December 31, 2022, the Company
entered into five non-recourse agreements for the sale of future receipts receiving gross proceeds of $528,984 which provided the Company
with the ability to convert its account receivables into cash. Under the terms of the agreements, the Company must pay a specified amount
each day until the financed receivables are fully paid. The agreements have an effective interest rate within the range of approximately
36% and 40%, which includes a discount of $143,446. The outstanding balance is secured by an interest in virtually all assets of the Company,
with a first security interest on accounts receivable.
During the period ended March 31, 2023, the Company
entered into two non-recourse agreements for the sale of future receipts for net proceeds of $571,500, receiving $449,000 in cash, which
provided the Company with the ability to convert its account receivables into cash. These two loans were fully reimbursed prior to March
31, 2023.
The Company accounts for these agreements as a
financing arrangement, with the purchase price recorded as a liability and daily repayments made are a reduction of the liability. As
of March 31, 2023, there was an outstanding balance of $113,515 (December 31, 2022 - $292,636) which is presented net of a discount of
$35,268 (December 31, 2022 - $78,387).
Note 9 – Stockholders’ (Deficit)
Equity
Shares issued as debt issuance costs
During the year ended December 31, 2022, the
Company issued 74,488
shares of common stock to a lender to cover the financing costs. The shares were valued on the day of issuance at $2.68
per share for a total value of $200,000.
This amount was treated as financing costs and recorded as a discount to notes payable.
Stock issuance for services and stock based
compensation
During the three months ended March 31, 2023,
the Company issued 27,898 shares of common stock, to officers, employees and vendors for services valued at $65,354, respectively.
During the three months ended March 31, 2023
and 2022, the Company also recognized $108,260
of expense relating to the vesting of common stock issued to the Company’s Chairman and CEO.
Stock issued for LFR Acquisition
During the period ended March 31, 2022, the Company
issued 2,400,000 shares of common stock for the acquisition of LFR with a fair value of $271,920 (see Note 4).
Stock issued for loan extension
On June 8, 2022, the Company issued 100,000
shares of common stock valued at $300,000
to one of its note holders per the loan extension agreement (see Note 3). The Company recognized $878,806 loss on extinguishment of the note.
On July 13, 2022, the Company entered into an
amendment of its original promissory convertible note of September 1, 2021 with the note holder. The terms of the original note was amended
to increase the principal balance of the note by $70,833; as well as granting 186,220 warrants and 75,512 common shares as consideration
for a 90-day extension of the note. The common shares were issued to the lender as well as the original 74,488 common shares that were
to be issued upon entering into the original loan agreement dated September 1, 2021. The Company recognized $955,658 loss on extinguishment
of the note.
On August 18, 2022, the Company entered into
an additional amendment of a previous amendment dated May 31, 2022, of its original promissory convertible note executed on
September 3, 2021. Under the terms of the new amendment dated, August 18, 2022, the note is extended until September 30, 2022 and in
exchange, the Company agreed to provide the note holder with 200,000
shares of common stock. In addition, the note holder also agreed to cancel 500,000
warrants previously issued to the note holder in exchange for an additional 200,000
shares of Company’s common stock. The Company recognized $423,176
loss on extinguishment of the note and a $1,183,544
gain on extinguishment upon cancellation of the warrants and derivative liabilities associated with the warrants.
On August 26, 2022, the Company cancelled 370,000
warrants previously issued to a note holder in exchange for the 370,000
common shares valued at $1,213,710.
The Company recognized a $4,106,707
gain on extinguishment upon cancellation of the warrants and derivative liabilities associated with the warrants that was partially
offset by a loss on extinguishment of $77,960.
Conversion of convertible notes and accrued
interest to common stock
On September 19, 2022, the Company, under the
terms of the note, issued 329,670 common shares upon the conversion of $148,870 in notes payable plus $1,250 in transaction fees. Upon
conversion and settlement of the derivative liability, the Company recognized a $214,655 gain on extinguishment.
On September 20, 2022, the Company, under the
terms of the note, issued 250,438 common shares upon the conversion of $100,000 in notes payable. Upon conversion and settlement of the
derivative liability, the Company recognized a $100,808 gain on extinguishment.
On September 29, 2022, the Company, under the
terms of the note, issued 1,355,222 common shares upon the conversion of $388,000 in notes payable. Upon conversion and settlement of
the derivative liability, the Company recognized a $341,156 gain on extinguishment.
On December 9, 2022, the Company, under the terms
of the note, issued 256,410 common shares upon the conversion of $39,744 in notes payable. Upon conversion and settlement of the derivative
liability, the Company recognized a $41,435 gain on extinguishment.
On December 9, 2022, the Company, under the terms
of the note, issued 1,923,077 common shares upon the conversion of $148,077 in notes payable. Upon conversion and settlement of the derivative
liability, the Company recognized a $148,254 gain on extinguishment.
On January 13, 2023, the Company, under the terms
of the note, issued 2,600,000 common shares upon the conversion of $130,000 in notes payable. Upon conversion and settlement of the derivative
liability, the Company recognized a $155,870 gain on extinguishment.
On January 23, 2023, the Company, under the terms
of the note, issued 2,666,763 common shares upon the conversion of $133,000 in notes payable. Upon conversion and settlement of the derivative
liability, the Company recognized a $162,808 gain on extinguishment.
Note 10 – Related Parties
Notes Payable and Accrued Interest –
Related Parties
During the period ended March 31, 2022, the Company
entered into the following related party transactions:
|
· |
It recognized $62,500 in accrued salary for its Chairman and CEO in addition to the Company amortized $108,260 of previous stock compensation granted to its Chairman and CEO that is being amortized over 10 years; |
|
· |
A company with a common director advanced the Company $1,400,000 at 10% on September 1, 2021 for which the Company accrued $35,000 in interest for the year and included in accounts payable and accrued liabilities. This note is also described in Note 6. |
|
· |
The Company paid its CFO $4,500 in fees during the year. |
During the period ended March 31, 2023, the Company
entered into the following related party transactions:
|
· |
It recognized
$145,833
in accrued salary for its Chairman and CEO in
addition to the Company amortized $108,260
of previous stock compensation granted to its
Chairman and CEO that is being amortized over 10 years; |
|
· |
The Company paid $30,000 in salary to its President and COO. |
|
· |
The Company accrued $3,500 in fees payable to its Corporate Secretary. |
|
· |
The Company accrued $4,500 in fees payable to its CFO. |
|
· |
A company with a common director advanced the Company $40,736 at 10% on September 1, 2021 for which the Company accrued $140,000 ($35,000 in 2021) in interest for the year and included in accounts payable and accrued liabilities. This note is also described in Note 6. |
In addition, as at March 31, 2023, the Company
owes Officers $179,509 (December 31, 2022 - $179,509) that is included in Accounts payable and accrued liabilities.
Note 11 – Commitments and Contingencies
Legal proceedings
In December 2018, PSIQ Inc. filed a lawsuit against
the Company alleging non-payment of a combined loan in the amount of $150,000. The Company vigorously objected to the legality of the
interest charged, and filed a dispositive Motion for Dismissal, which was granted on March 15, 2023. The case against Stemtech was dismissed
on March 16, 2023.
On August 6, 2019, Ray Carter, the former CEO
prior to the Company’s Bankruptcy, filed a lawsuit against the Company’s subsidiary Stemtech HealthSciences, alleging unpaid
salary and vacation time dating to a period predating the Company’s current management team taking control in 2018. Mr. Carter’s
claim is in the amount of $267,000. The Company has counter-sued Ray Carter personally and deems this matter non-meritorious. At the same
time, the Company has accrued $267,000 which is included in accounts payable and accrued liabilities in the Financial Statements as at
March 31, 2023 and December 31, 2022. Mr. Carter’s request for Summary Judgment was dismissed by the Court on March 3, 2023.
On March 4, 2020, Canon Financial Services, Inc.,
filed a lawsuit against the Company in a dispute over office machine leases. The Company settled this matter with Canon Financial Services
out of Court for $32,000 in May 2021, and is making installment payments for the remaining $2,666 and were made subsequent to March 31,
2023 the Company received confirmation of settlement May 9, 2023.
In the opinion of management, the resolution of
these matters, if any, will not have a material adverse impact on the Company’s consolidated financial position or consolidated
results of operations.
Note 12 –
Subsequent Events
On April 11, 2023, the Company entered into an
Amendment of Promissory Note with MCUS LLC (“MCUS”), whereby MCUS agreed to convert its conversion price to $0.05.
On May 5, 2023, the Company increased the number
of authorized Common Stock of the Company to 400,000,000.
On May 9, 2023, the Company filed an S-1 Registration
Statement to register 189,121,101 Common Stock of the Company.