GlobeStar Therapeutics Corp [GSTC] Filings

Note 1. General Organization and Business

GlobeStar Therapeutics Corporation (the “Company”) was incorporated on April 29, 2016. The Company’s year-end is September 30. On October 4, 2019, the Company filed Articles of Continuance with the Secretary of State of Wyoming to continue its business in the state of Wyoming. As part of these Articles of Continuance, effective October 4, 2019, the Company has no limit on the authorized shares of common stock that can be issued. The Company filed its Certificate of Dissolution with the Secretary of State of Nevada on October 21, 2019 because it is no longer a Nevada corporation.

The Company is developing an expanded platform of products that include addition of treatment for Multiple Sclerosis and other neurodegenerative diseases. The potential pharmaceutical products related to treatment for multiple sclerosis are licensed to the Company through the worldwide licensing agreement described in Note 6.

Note 2. Going Concern and Summary of Significant Accounting Policies

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the three months ended December 31, 2023, the Company had a net loss of $163,759 and cash flow used in operating activities of $42,800. As of December 31, 2023, the Company had negative working capital of $1,532,533. Management does not anticipate having positive cash flow from operations in the near future. The Company has minimal revenue. Without additional capital, the Company will not be able to remain in business.

These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

Management has plans to address the Company’s financial situation as follows:

In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company, which will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.

Note 3. Convertible Notes Payable and Advances

All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.

On May 10, 2023, the Company entered into a Securities Purchase Agreement (the “May 2023 Securities Purchase Agreement”) with 1800 Diagonal Lending LLC (“1800 Diagonal”). Pursuant to the terms of the May 2023 Securities Purchase Agreement, the Company issued a convertible promissory note (the “May 2023 Note”) to 1800 Diagonal in the aggregate principal amount of $21,300 with the Company receiving $15,000 in cash proceeds. Effective May 10, 2023, the Company issued the May 2023 Note to 1800 Diagonal consistent with the terms of the May 2023 Securities Purchase Agreement. The May 2023 Note bears interest at 12%, with a 22% rate in the event of default, with an Original Issue Discount of $1,050 and matures on May 10, 2024. Pursuant to the terms of the May 2023 Note, the outstanding principal and accrued interest on the note shall be convertible beginning six months from issuance into shares of the Company’s common stock at 61% of the lowest trading price of the Company’s common stock during the 20 days prior to conversion. The Company recognized $6,300 of discount and deferred finance costs and amortized $1,584 during the three months ended December 31, 2023. The conversion option on the note payable was not bifurcated as a derivative under ASC 815 due to sufficient authorized shares being available to settle the conversion feature.

On July 3, 2023, the Company entered into a Securities Purchase Agreement (the “July 2023 Securities Purchase Agreement”) with 1800 Diagonal Lending LLC (“1800 Diagonal”). Pursuant to the terms of the July 2023 Securities Purchase Agreement, the Company issued a convertible promissory note (the “July 2023 Note”) to 1800 Diagonal in the aggregate principal amount of $47,250 with the Company receiving $40,000 in cash proceeds. Effective July 3, 2023, the Company issued the July 2023 Note to 1800 Diagonal consistent with the terms of the July 2023 Securities Purchase Agreement. The July 2023 Note bears interest at 12%, with a 22% rate in the event of default, with an Original Issue Discount of $2,250 and matures on April. 15, 2024. Pursuant to the terms of the July 2023 Note, the outstanding principal and accrued interest on the note shall be convertible beginning six months from issuance into shares of the Company’s common stock at 61% of the lowest trading price of the Company’s common stock during the 20 days prior to conversion. The Company recognized $7,250 of discount and deferred finance costs and amortized $2,324 during the three months ended December 31, 2023. The conversion option on the note payable was not bifurcated as a derivative under ASC 815 due to sufficient authorized shares being available to settle the conversion feature.

On November 1, 2023, the Company entered into a Securities Purchase Agreement (the “November 2023 Securities Purchase Agreement”) with 1800 Diagonal Lending LLC (“1800 Diagonal”). Pursuant to the terms of the November 2023 Securities Purchase Agreement, the Company issued a convertible promissory note (the “November 2023 Note”) to 1800 Diagonal in the aggregate principal amount of $31,500 with the Company receiving $25,000 in cash proceeds. Effective November 1, 2023, the Company issued the November 2023 Note to 1800 Diagonal consistent with the terms of the November 2023 Securities Purchase Agreement. The November 2023 Note bears interest at 12%, with a 22% rate in the event of default, with an Original Issue Discount of $1,500 and matures on August 15, 2024. Pursuant to the terms of the November 2023 Note, the outstanding principal and accrued interest on the note shall be convertible beginning six months from issuance into shares of the Company’s common stock at 61% of the lowest trading price of the Company’s common stock during the 20 days prior to conversion. The Company recognized $6,500 of discount and deferred finance costs and amortized $1,354 during the three months ended December 31, 2023. The conversion option on the note payable was not bifurcated as a derivative under ASC 815 due to sufficient authorized shares being available to settle the conversion feature.

As of December 31, 2023 and September 30, 2023, accrued interest on convertible notes payable was $226,711 and $225,363, respectively.

Conversions to Common Stock

During the three months ended December 31, 2023, the holders of the May 2023 convertible note payable elected to convert principal of $21,300 and $1,278 of accrued interest into 30,297,790 shares of common stock. The conversion was in accordance with the terms of the agreement and no gain or loss was recognized. The shares issued for these conversions were issued below par value.

Advances

As of December 31, 2023 and September 30, 2023, the Company had non-interest bearing advances payable to third parties of $59,650. These advances are payable on demand.

Note 4. Related Party Transactions

As of December 31, 2023 and September 30, 2023, the Company owed $504,715 and $454,665 to officers of the Company for compensation which are recorded as accounts payable related party. Additionally, during the three months ended December 31, 2023 and 2022 the Company received short term, unsecured, non-interest bearing advances from the Company’s CEO totaling $300 and $500, respectively. As of December 31, 2023 and September 30, 2023, the Company owed $6,595 and $6,295 on these related party advances, respectively.

In February 2022, the Company entered into an amended and restatement employment agreement with Jim Katzaroff, the CEO. Mr. Katzaroff is entitled to an annual salary of $180,000 and a bonus as determined by the Board of Directors. Mr. Katzaroff may elect to receive payment in shares of stock based on the average of the three lowest trading prices for the 15 days prior to election of payment in stock. Further, in the event of a change of control of the Company, Mr. Katzaroff is entitled to a payment equal to 2.99 multiplied by the larger of the total compensation paid to Mr. Katzaroff over the prior 12-month period or the average compensation paid or payable to the Consultant over the prior three years.

The Company awarded Mr. Katzaroff a total of 35,000,000 common stock options with an exercise price of $0.009 per share, an exercise term of five years. The options vest 50% immediately, and the remainder on monthly basis over two years. Mr. Katzaroff is also entitled to additional options in the event of the Company issuing equity or equity equivalents in the future, with him receiving an amount of options equal to 3% of future options or warrants issued, excluding grants to officers. The exercise price of these additional options will be 110% of the price per equity equivalent issued after the agreement date. During the three months ended December 31, 2023, a total of 1,608,935 additional options were issued to Mr. Katzaroff pursuant to the agreement terms. The total fair value of these option grants at issuance was $2,554. During the three months ended December 31, 2023 and 2022, the Company recognized $22,454 and $17,803 of stock-based compensation, related to outstanding stock options under this agreement, respectively. At December 31, 2023, the Company had $22,329 of unrecognized expense related to options.

Additionally, Mr. Katzaroff will earn a fee related to any strategic transaction, as defined in the agreement, including but not limited to acquisitions, divestitures, partnerships or joint ventures, of at least 2% for any transactions not introduced by Mr. Katzaroff, or 4% for any introduced by Mr. Katzaroff of up to $20,000,000, and an additional 0.75% - 3.5% for amounts above that threshold. As of June 30, 2023, no amounts have been earned or paid.

Mr. Katzaroff will also receive an activity fee of 3% of gross revenues related to activities including securing a variety of vendor, sales or advertising relationships, or any new revenue generating activity. If such activity is a cost saving initiative instead of revenue generating, Mr. Katzaroff will receive 10% of the cost savings. As of December 31, 2023, no amounts have been earned or paid.

On September 26, 2023, the Company entered into an agreement with SMI HealthCare LLC (“SMIHC”) to manage an initial clinical trial, regulatory filings, intellectual property rights filings, manufacturing, sales and distribution in India, Southeast Asia, Africa, and the Middle East, excluding Israel and Iraq, and for government and private aid organizations, for the Company's patented Multiple Sclerosis treatment. The agreement with SMIHC was approved by the parties’ respective boards of directors. Implementation of the first phase is subject to the Company arranging financing. The first phase includes formation of the Company and SMIHC subsidiaries in India, the clinical trial, regulatory and intellectual property rights filings in India, identifying manufacturers, and planning for the commercial launch in India and countries in the region that accept Drug Controller General of India (“DCGI”) approvals. Implementation of the second phase is expected to commence approximately nine months later, and is subject to receipt of DCGI marketing approval and the Company arranging financing. The second phase may continue for the duration of patent validity, and consists initially of sales, marketing and distribution in India and thereafter, countries in SMIHC’s territory that will permit sales and distribution based upon DCGI approval. After proof of market in those countries, the intention is to seek regulatory approvals elsewhere in SMIHC’s territory in order to expand the sales and distribution of the Company’s MS products. Pursuant to with SMIHC, the Company will receive a 5% royalty on any sales under the agreement by the company formed in India under this agreement, and 50% of any sublicense revenue from the India company formed under the agreement. The Company will pay the following (i) initial fees of between $15,000 - $22,500, and monthly fees of between $5,000 and $12,500 per month for Phase A (ii) monthly fees of $12,500, increase after six months to $17,500 per month, and to $25,000 per month after one year. The fee will increase by 5% per year thereafter for Phase B (iii) an initial management fee of $15,000 upon certain milestones and monthly management fee of $5,000 per month thereafter.

SMIHC is an affiliate of SMI Group LLC, a privately-held Los Angeles-based company. Kevin Spivak, a shareholder of the Company and consultant is the chairman of SMI Group though he did not advise the Company on this transaction and has waived fees payable to an SMI company for introducing SMIHC to the Company.

On September 19, 2023, the Company entered into a supplement to employment agreement with Jim Katzaroff, the CEO. For Mr. Katzaroff’s contribution to the SMIHC transaction, he will be paid the following (i) during the term of the agreement with SMIHC, a fee of 3% of any SMIHC generated revenue and (ii) not less than ¼ of the participation in Pro Forma Profits Before Tax to be payable to the Company at its senior executive pursuant to the SMIHC translation. Additionally, for Mr. Katzaroff’s contribution to the AIP transaction, he will be paid the following (i) if the Company invests in AIP, or merges with AIP, Mr. Katzaroff will receive a fee ranging from 1.5% - 4% during on the aggregate consideration of the AIP transaction and (ii) if AIP generated any revenue for the Company by reason of introductions, sales agency, distribution or other similar activities, he will receive a 3% fee for the term of the AIP transaction.

Note 5. Stockholders’ deficit

Preferred Stock

Our authorized preferred stock consists of 20,000,000 shares of $0.001 par value preferred stock.

Series A Preferred Stock – Our board of directors has designated up to 6,000,000 shares of Series A Preferred Stock. The Series A Preferred Stock has a liquidation value of $2.00 per share. The initial number issued is 5,000,000 with additional shares to be issued as a dividend not to exceed a total of 6,000,000 shares. The rank of the Series A is prior to all common and preferred shares. In addition, the Series A Preferred Stock retains protective provisions to maintain their seniority with respect to liquidation or dissolution. The Series A Preferred Stock holds no voting rights and earns an 8% per annum dividend, payable in additional shares of Series A Preferred Stock. At December 31, 2023 and September 30, 2023, there were no shares of our Series A Preferred Stock outstanding, respectively.

Series B Preferred Stock – Our board of directors has designated up to 1,000,000 shares of Series B Preferred Stock. The Series B Preferred Stock has a liquidation value of $1.00 per share. The holders of the Series B Preferred Stock are entitled to dividends of 8% per year payable quarterly in cash or in shares of common stock at the option of the Company. The holders of the Series B Preferred Stock have no voting rights. The Series B Preferred Stock is redeemable at the option of the Company at a price of $1.00 per share. At December 31, 2023 and September 30, 2023, there were no shares of our Series B Preferred Stock outstanding.

Series C Preferred Stock – On September 12, 2017, our board of directors designated up to 1,200,000 shares of Series C Preferred Stock with a liquidation value of $0.50 per share. The holders of the Series C Preferred Stock have no voting rights. The Series C Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of one share of common stock for each share of Series C Preferred Stock. The Series C Preferred Stock is redeemable at the option of the Company at a price of $0.50 per share. The Series C Preferred Stock has been canceled, and there are no shares of Series C Preferred Stock outstanding as of December 31, 2023 and September 30, 2023.

Series D Preferred Stock – On September 21, 2017, our board of directors designated up to 539,988 shares of Series D Preferred Stock with a liquidation value of $1.00 per share. The holders of the Series D Preferred Stock have no voting rights. The Series D Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of $0.01 per share of common stock. The Series D Preferred Stock is not redeemable. In July 2023, the Company issued 50,998,800 shares to the holder of the Series D Preferred Stock for Full conversion of 509,988 shares outstanding. At December 31, 2023 and September 30, 2023, there were no shares of Series D Preferred Stock outstanding.

Series E Preferred Stock – On August 3, 2015, our board of directors designated 1,000,000 shares of Series E Preferred stock. The Series E Preferred stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.

At December 31, 2023 and September 30, 2023, there were 1,000,000 shares of Series E Preferred stock outstanding. Dividends, when, as and if declared by the Board of Directors, shall be paid out of funds at the time legally available for such purposes.

Series F Preferred Stock – On September 21, 2017, our board of directors designated up to 501,975 shares of Series F Preferred Stock with a liquidation value of $1.00 per share. The holders of the Series F Preferred Stock have no voting rights. The Series F Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of $0.01 per share of common stock. The Series F Preferred Stock is not redeemable. At December 31, 2023 and September 30, 2023, 128,991 shares of the Series F Preferred Stock were issued and outstanding.

Common Stock

The Company is authorized to issue an unlimited number of shares of common stock, with a par value of $0.001.

Common Stock Warrants

In February 2022, the Company entered into a consulting agreement with Spivak Management, Inc. (the “Consultant”). Under the agreement, the Consultant will provide business strategy advice and introductions to the Company for a period of five years unless mutually terminated sooner. The Consultant is also entitled to additional warrants in the event of the Company issuing equity or equity equivalents in the future, with him receiving an number of warrants equal to 3% of future warrants issued, excluding grants to officers. During the three months ended December 31, 2023, a total of 1,608,935 additional warrants were issued to the Consultant pursuant to the agreement terms. The exercise price of these additional warrants will be 110% of the price per equity equivalent. The total fair value of these option grants at issuance was $2,554 using the follow range of assumptions in a Black-Scholes option price model volatility of 208.79 % - 213.91% ; 2) risk free rate of 4.00% - 4.80%; 3) dividend yield of 0% and 4) expected term of 5.0 years. During the three months ended December 31, 2023 the Company recognized $2,554, related to this agreement, respectively. 

The common shares issued under the warrant exercises above were issued below par value. As of December 31, 2023, the outstanding warrants had an expected remaining life of 1.32 years and have an intrinsic value of $11,400.

Common Stock Options

As discussed in Note 4, The Company awarded common stock options to Mr. Katzaroff in connection with his amended and restated employment agreement. During the three months ended December 31, 2023, the Company estimated the fair value of the options to be $2,554, using the following assumptions range: 1) volatility of 208.79 % - 213.91% ; 2) risk free rate of 4.00% - 4.80%; 3) dividend yield of 0% and 4) expected term of 5.0 years. The Company recognized $22,454 of expense related to the fair value of options vesting during the three months ended December 31, 2023. The Company expects to recognize an additional $42,229 of expense related to these options assuming all vest.  

The weighted average grant date fair value of the common stock options granted during the period was $0.0016 per share. As of December 31, 2023, the aggregate intrinsic value of options vested and outstanding were $0. As of December 31, 2023, the outstanding options had a weighted average remaining term of 2.71 years.

Note 7. Commitments and Contingent Liabilities

In February 2022, the Company entered into a consulting agreement with Spivak Management, Inc. (the “Consultant”). Under the agreement, the Consultant will provide business strategy advice and introductions to the Company for a period of five years unless mutually terminated sooner. Concurrently, Kenin Spivak, who controls Spivak Management, Inc., entered into a stock purchase agreement with the Company to purchase 6,000,000 shares of common stock for $25,000 cash. The purchase and issuance of the shares was to be completed by June 30, 2022. The consultant will receive a fee of between 1% and 7% of any consideration from a strategic transaction the Company enters into, defined as any acquisition, divestiture, partnership, licensing arrangement or joint venture (“Strategic Transaction Fee”). Financing transactions are not considered strategic transactions for purposes of this agreement. The consultant will also be entitled to 5% of revenue from any business activity that the Company undertakes that is introduced by the Consultant.

The Consultant will be paid a signing bonus of $25,000 upon receipt by the Company of the $25,000 cash under the stock purchase agreement described above. The Consultant will also receive the larger of $12,500 per month, or 50% of the CEO’s fixed cash compensation under the amended employment agreement described in Note 4. The Consultant may elect to receive this payment in stock.

In July 2022, the consultant agreement and the stock purchase agreement were amended to reduce the subscription amount to $17,500. In August 2022, $17,500 was placed in escrow by Mr. Spivak for the Company’s Benefit, and the Company paid $17,500 to the Consultant from the escrow account. The 6,000,000 shares owed to Mr. Spivak were not issued by June 30, 2023, and were issued in August 2023.

The Consultant may also receive a bonus in each calendar year of the agreement equal to the larger of any bonus awarded by the Board of Directors to the Consultant or 50% of the largest bonus payable by the Company to anyone other than the Consultant. If the agreement is terminated with one year of a change of control of the Company, the Consultant will be entitled to receive a payment equal to 2.99 times the larger of the total compensation paid to the Consultant over the prior 12 month period or the average compensation paid or payable to the Consultant over the prior three years. On September 19, 2023, the Company entered into a second supplement to consulting agreement. Pursuant to the agreement, in In lieu of Base Fees accrued through September 2023 and interest on late payment thereof, the Company shall pay to the Consultant, the sum of $300,000 in installments on and from the first to occur of either a financing or cumulative revenue of at least $1,000,000, the Company shall 15% of the financing or revenue to the Consultant, or if the Company pays its CEO compensation, the Company shall pay an equal amount to the Consultant. until the full $300,000 is paid in full. If the Company receives financing or cumulative revenue of at least $2,000,000, the Company shall pay 15% of that amount to the consultant, or if the Company pays compensation to its CEO of at least $150,000, the Company shall pay consultant an amount equal to 60% of such compensation. If a financing of at least $5,000,000 is received by the Company, the full $300,000 will be due and payable. The Company will continue to pay the Consultant a fee of $12,500 per month. The Company reclassified $250,000 of fee accrued in accounts payable owed to the Consultant and interest expense of $50,000 to a note payable. As of December 31, 2023 and September 30, 2023, the Company owed the consultant $375,000 and $337,500, which included accounts payable and accrued liabilities of $75,000 and $37,500 and notes payable of $300,000, respectively. In the event the Company invests in, mergers with or acquires AIP (as disclosed in Note 8), the Company will owe a Strategic Transaction Fee to the Consultant for that transaction. The Consultant is also entitled to 3.5% of any revenues generated by the Company from the AIP relationship.

On August 10, 2023, the Company entered into a consulting agreement with Valerian Capital, LLC ( “Valerian”). Under the agreement, Valerian will provide management consulting, business advisory, shareholder information and public relations to the Company for a period of six months unless mutually terminated sooner. Upon execution of the agreement, Valerian will purchase 33,333,333 shares of the Company’s stock for a total purchase price of $25,000 and have the option to purchase an additional 33,333,333 shares for $25,000 during the first 45 days of the agreement. Lastly, Valerian will have the right to purchase 66,000,000 warrants with an exercise price of $0.00075 for up to one year following the agreement. On October 30, 2023, the Company agreed to extend the exercise period of the 33,333,333 warrants to 150 days from the agreement date. As a result of this amendment to the warrant, the Company recognized a deemed dividend of $32,341 for the estimated incremental fair value of the warrants under the new terms. During the three months ended December 31, 2023, the Company received $17,500 in cash proceeds for the exercise of 23,333,333 warrants previously issued to Valerian. As of December 31, 2023, the Company received $42,500 and issued 46,666,666 shares of common stock to Valerian.

Litigation

From time to time, the Company may be subject to routine litigation, claims, or disputes in the ordinary course of business. In the opinion of management, no pending or known threatened claims, actions or proceedings against the Company are expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company cannot predict with certainty, however, the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation or claims. There can be no assurance as to the ultimate outcome of any lawsuits and investigations.

Note 8. License Agreement

Effective August 23, 2020 the Company’s wholly-owned subsidiary, SomaCeuticals, Inc. entered into an exclusive global license agreement with 7 to Stand, Inc. for the rights to U.S. patent 10,610,592 issued to Fabrizio de Silvestri, Terni, Italy, as inventor, April 7, 2020 for treatment of Multiple Sclerosis. In consideration for the license agreement, SomaCeuticals agreed to pay 7 to Stand a royalty of 7.1% of the net sales of any product developed under the patent on a worldwide basis. Additionally, the Company will issue shares of common stock to 7 to Stand upon completion of the following milestones:

The Company owed $30,000 of royalties and late fees under this agreement as of December 31, 2023 and $20,000 as of September 30, 2023.

 On November 2, 2023, the Company entered into a consulting agreement with Advanced Innovate Partners (“AIP”) under which AIP will provide advice to GlobeStar and SMIHC on the global design, strategy and execution of clinical trials. Pursuant to the agreement, the Company will pay the following (i) AIP $5,000 per month during Phase A period, if the Company receives regulatory approval to manufacture, sell and distribute products in India or the United States within 60 days of the agreement (ii) AIP $6,000 per month during Phase B period (iii) AIP a sales commission of between 10% and 15% related to any customers, distributors or sales agents introduced to the Company by AIP and (iv) a commission of 4% of any proceeds from equity investments to the Company introduced by AIP, or 2% of any loan proceeds from lenders introduced by AIP. In

Note 9. Subsequent Events

Subsequent to December 31, 2023, the holder of the July 31, 2023 convertible note was issued 103,170,448 shares of common stock upon conversion of all $47,250 of principal and $2,835 of accrued interest.

On February 8, 2024, the Company received $7,500 in cash proceeds for the exercise of 10,000,000 warrants issued to Valerian Capital, LLC, related to August 10, 2023 consulting agreement.