Forward-looking Statements
Statements made in this Quarterly Report which are not purely historical are
forward-looking statements with respect to the goals, plan objectives,
intentions, expectations, financial condition, results of operations, future
performance and our business, including, without limitation, (i) our ability to
raise capital, and (ii) statements preceded by, followed by or that include the
words "may," "would," "could," "should," "expects," "projects," "anticipates,"
"believes," "estimates," "plans," "intends," "targets" or similar expressions.
Forward-looking statements involve inherent risks and uncertainties, and
important factors (many of which are beyond our control) that could cause actual
results to differ materially from those set forth in the forward-looking
statements, including the following, general economic or industry conditions,
nationally and/or in the communities in which we may conduct business, changes
in the interest rate environment, legislation or regulatory requirements,
conditions of the securities markets, our ability to raise capital, changes in
accounting principles, policies or guidelines, financial or political
instability, acts of war or terrorism, other economic, competitive,
governmental, regulatory and technical factors affecting our current or
potential business and related matters.
Accordingly, results actually achieved may differ materially from expected
results in these statements. Forward-looking statements speak only as of the
date they are made. We do not undertake, and specifically disclaim, any
obligation to update any forward-looking statements to reflect events or
circumstances occurring after the date of such statements.
Company Business - Intellectual Property
The Company's business is now focused on the business of its wholly-owned
subsidiary, High Sierra Technologies, Inc. ("High Sierra"). High Sierra was
incorporated in the State of Nevada in August of 2018. It was formed with the
intention that it would become the assignee, owner and licensor of certain
Intellectual Property that was, prior to assignment, the property of Vincent C.
Lombardi, Ph.D. (the "Intellectual Property") who is an officer, director and
co-founder of High Sierra. High Sierra was further formed with the goal that it
would continue to develop and expand its intellectual property portfolio with an
emphasis on the recreational cannabis industry as well as the industrial hemp
industry.
The current Intellectual Property portfolio consists of all of the rights, title
and interest that Dr. Lombardi had in certain two Provisional Patent
Applications (collectively, the "Applications"). Assignments of both of these
applications, which assign their ownership to High Sierra, have been filed with
the United States Patent & Trademark Office. The Applications have since been
incorporated into and converted into a single all-encompassing Utility Patent
Application which has been filed with numerous governmental agencies in the
United States, Canada and multiple other countries as is discussed below
(collectively the "Utility Patent Applications"). For important information
concerning the Company's Intellectual Property, please refer to the Company's
most recent Annual Report on Form 10-K.
On March 25, 2020, the Company received an International Preliminary Report of
Patentability for its Patent Cooperation Treaty Application Number
PCT/US2019/014778, CANNABIS PRODUCTS MODIFIED BY REMOVING VOLATILE ORGANIC
COMPOUNDS AND ADDING VOLATILE UNSATURATED HYDROCARBONS, in which Claims Numbered
1-84 were characterized as novel and Claims Numbered 1-17, 63-70, 83 and 84 were
characterized as inventive steps.
On June 5, 2020, the United States Patent and Trademark Office, by way of an
Office Action dated May 29, 2020, notified the Company that Claims Numbered
1-17, 63-70 and 83-84 of Patent Application Number 16/255,157, CANNABIS PRODUCTS
MODIFIED BY REMOVING VOLATILE ORGANIC COMPOUNDS AND ADDING VOLATILE UNSATURATED
HYDROCARBONS, were now allowed. These are four of the seven main claims in
Patent Application Number 16/255,157. In response to this, the Company's
outside Patent Counsel, Oliff PLC, has filed an Amendment to Patent Application
Number 16/255,157 so that these Claims can be issued a formal Notice of
Allowance which would then lead to the issuance of a Utility Patent for these
Claims. As a result of this action by our attorneys at Oliff PLC, on June 19,
2020, the United States Patent and Trademark Office issued a formal Notice of
Allowance and Fee(s) Due which will allow the Utility Patent to be issued once
the fees are paid. This Patent was issued as United States Patent Number
10,737,198 on August 11, 2020. The Company's attorneys at Oliff PLC also
prepared a Continuation Application for Claims Numbered 18-62 and 71-82 so that
the Company can continue to prosecute these Claims separately. This
Continuation Application has resulted in the issuance of United States Patent
Number 10,835,829 on November 17, 2020.
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On July 23, 2020, the Company received an Issue Notification from the United
States Patent and Trademark Office stating that, on August 11, 2020, the United
States Patent and Trademark Office will issue United States Patent Number
10,737,198 to the Company as assignee of Application Number 16/255.157, CANNABIS
PRODUCTS MODIFIED BY REMOVING VOLATILE ORGANIC COMPOUNDS AND ADDING VOLATILE
UNSATURATED HYDROCARBONS, filed by Vincent Lombardi, one of the founders of the
Company and its current President and Chief Executive Officer.
Now United States Patent Numbers 10,737,198 and 10,835,839 have been formally
issued, the Company intends to begin actively marketing and licensing its
patented technologies in both the cannabis and hemp market spaces as well as
pursuing its own uses of its patented technologies in relation to various end
user products that can benefit from its patented technologies. In regards to
the issuance of United States Patents Numbered 10,737,198 and 10.835,839,
Vincent C. Lombardi, President and Chief Executive Officer of the Company, has
stated that "we believe the effect of the issuance of Patents Numbered 10,737,
198 and 10, 835,839 is that it will allow the Company to be able to effectively
control the marketplace for low, or no, odor cannabis and hemp products in the
United States which will allow the Company to start generating licensing revenue
from the technology disclosed in United States Patents Numbered 10,737,198 and
10,835,839."
The Company has received a First Office Action on its Canadian Patent
Application Number 3,031,123, CANNABIS PRODUCTS MODIFIED BY REMOVING VOLATILE
ORGANIC COMPOUNDS AND ADDING VOLATILE UNSATURATED HYDROCARBONS, and that its
attorneys at Oliff PLC and Bereskin & Parr in Canada have responded to it. The
Company has also recently amended its Canadian Patent Application so that it
accurately reflects the claims embodied in United States Patents Numbered
10,737,198 and 10,835,839 as well as the Continuation Application Number
17,098/539 filed on November 16, 2020.
The Company's outside Patent Counsel, Oliff PLC has completed the Application
to the European Patent Office ("EPO") based on Patent Cooperation Treaty
Application Number PCT/US2019/014778, CANNABIS PRODUCTS MODIFIED BY REMOVING
VOLATILE ORGANIC COMPOUNDS AND ADDING VOLATILE UNSATURATED HYDROCARBONS. It has
been filed as European Patent Office Application Number 19743904.5. The Company
has also recently amended its EPO Application so that it accurately reflects the
claims embodied in United States Patents Numbered 10,737,198 and 10,835,839 as
well as the Continuation Application Number 17,098/539 filed on November 16,
2020. This EPO Application, as amended, will allow the Company to simultaneously
prosecute its PCT Application in a total of 38 different countries in Europe and
the surrounding areas as well as Hong Kong.
Marketing Plans to License the Intellectual Property
High Sierra is now marketing the licensing of its technology in states in the
U.S. where cannabis and/or hemp has been legalized both for medicinal and/or
recreational use. It also plans to use a similar marketing strategy in all
provinces in Canada which has legalized both the medicinal and recreational uses
of cannabis as of October 17, 2018. Hemp has long been legal in Canada. High
Sierra is targeting entities that are licensed to produce, process and/or
manufacture cannabis and/or hemp related products. High Sierra also believes
that its technology will be of interest to tobacco companies in the United
States, Canada and other places if those companies choose to enter the cannabis
and/or hemp marketplaces as the legalization of cannabis and/or hemp progresses.
On October 14, 2020, we entered into an exclusive Letter Agreement with Artemis
Holdings, LLC pursuant to which Artemis Holdings, LLC is to assist us in
maximizing the value of our patents and patents pending for odorless cannabis.
Artemis is to provide a detailed market analysis of the patents and to assist
with any licensing or sale of the patents. The agreement is for a period of
nine months, and then it automatically renews for additional one month periods
until either party terminates it. The Company will pay Artemis a fee of $5,000
per month during the term, and a transaction fee of 7.5% of the gross proceeds
of any transaction (sale, license, etc.) arranged by Artemis. A copy of the
Letter Agreement is attached to our Quarterly Report on Form 10-Q for the period
ended September 30, 2020 as Exhibit 10.22.
Consulting Agreement
On August 14, 2020, we entered into a non-exclusive Consulting Agreement with
Stanley Berk/Steven Leatherman ("SBSL Consultants") and Jeff Baclet/Tom Prutzman
("Consultants") pursuant to which the SBSL Consultants and other Consultants
agreed to review short term and long term business forecasts for the Company,
review documents for due diligence purposes, seek out private and public funding
for the Company, and seek out potential licensing partners and potential buyers
of the Company's intellectual property. They referred the Company to Artemis
Holdings, LLC. See above. The term of the Agreement was for six months. The
Company agreed to pay a consulting fee of $7,500 per month
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(to be deferred until the Company has raised at least $500,000), and 5.0% of
funds raised from any source brought to the Company by the Consultants. The
Consultants were also granted warrants to purchase 5.0% of the securities sold
in such fundraising at the same price, which is exercisable for a period of 5
years. This August 14, 2020 Consulting Agreement was amended on December 28,
2020 to now be effective as of January 1, 2021. Under the terms of this
amendment the term of the Agreement became one year ending on December 31, 2021.
The consulting fees were reduced to $1,200.00 per month, a potential bonus of
$45,000 was incorporated, the referral fees were reduced to 2% and the warrants
to be issued were set at to 2.5% of the value of certain transactions caused by
Admiral Investment Banking and 2% of the value of certain transactions caused by
Artemis Holdings Group, LLC. A copy of the Amended Consulting Agreement is
attached to our Annual Report for the year ended December 31, 2020 as Exhibit
10.8.
Admiral Investment Banking Agreement
On December 28, 2020 the Company entered into an Agreement with Admiral
Investment Banking ("Admiral") to market our Private Placement Offering of
2,000,000 shares of common stock to accredited investors. The Agreement is for
the period of one year and has certain renewal provisions. The Agreement
provides for commissions of 8% of monies generated by Admiral to be paid to
Admiral. It also provides for an override of 2% to be payable to Admiral in the
event of the inclusion of another broker/dealer in a transaction. The Agreement
also provides for the issuance of warrants to Admiral or its principals in
certain instances if so designated by Admiral. The warrants are exercisable at
$0.01 per share for a period of five (5) years after the issuance date and cover
a total of 50,000 shares.
Plan of Operation
Our plan of operation for the next 12 months is to: (i) market the licensing of
the Company's technology in states in the U.S. where cannabis and/or hemp has
been legalized for medicinal and/or recreational use, and in the Canadian
provinces; and (ii) seek to raise additional equity funding so that the Company
may pursue the construction and operation of a facility to produce and market
hemp cigarettes to be located in Northern Nevada. During the next 12 months,
our cash requirements include expenses to market our technology; expenses to
construct and operate a facility to produce and market hemp cigarettes to be
located in Northern Nevada; the payment of our SEC reporting filing expenses,
including associated legal and accounting fees; and costs incident to
maintaining our good standing as a corporation in our state of organization. We
anticipate that we will need to raise additional equity funds to successfully
commence and operate a facility to produce and market hemp cigarettes. We have
no commitments to raise any additional funds at the present time, and we can
offer to assurances that we will be able to raise additional funds on terms
acceptable to the Company.
Results of Operations - Three Months Ended March 31, 2021 and Three Months Ended
March 31, 2020
We have generated no revenues since inception. We hope to start earning revenues
during the present fiscal year ending December 31, 2021.
General and administrative expenses were $61,419 for the three month period
ended March 31, 2021, an increase of $52,817 from the $8,602 of general and
administrative expenses incurred during the three months ended March 31, 2020.
Most of the increase in general and administrative expenses incurred in the
later period were for the issuance of shares for services and for legal fees for
the prosecution of its various patent applications in the United States, Canada
and Europe. We incurred depreciation of $8,837 in the three months ended March
31, 2021, an increase of $48 from the $8,789 of depreciation incurred in the
three month period ended March 31, 2020.
We incurred interest expense of $13,801 in the three months ended March 31, 2021
compared to $9,764 of interest expense incurred in the three months ended March
31, 2020. This is due to the fact that the Company increased its borrowing from
unrelated parties after the period ended March 31, 2020. We incurred interest
expense-related party of $690 in the three months ended March 31, 2021 and we
incurred interest expense-related party of $1,058 in the three months ended
March 31, 2020. This is due to the fact that the Company repaid some of its
notes payable-related party after March 31, 2020.
We incurred a net loss of $84,747 during the three months ended March 31, 2021,
an increase of $56,534 from the $28,213 net loss incurred during the three
months ended March 31,2020. The Company's increase in net loss in the current
period is largely due to the increase in administrative expenses in the later
period.
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Liquidity and Capital Resources
We had total current assets of $6,889 consisting entirely of cash, and $480,822
in total current liabilities as of March 31, 2021. Our total current liabilities
consisted of notes payable $375,500, notes payable-related party of $23,306,
accounts payable and accrued expenses of $76,112 and accounts payable and
accrued expenses-related party of $5,904. We had property, plant and equipment,
net of $116,858 as of March 31, 2021. See our Plan of Operation above for
information about our cash requirements for the next 12 months.
The cash flows from operating activities consisted of the following: During the
three months ended March 31, 2021, we had an increase in accounts payable and
accrued expenses of $17,739, a decrease in accounts payable and accrued
expenses-related party of $6,810, depreciation expense of $8,837 and issuance of
common stock for services of $30,000. When this is combined with our net loss
of $84,747 for the three months ended March 31, 2021, it results in net cash
used in operating activities of $34,981.
During the three months ended March 31, 2020, we had an increase in accounts
payable and accrued expenses of $10,832, we had an increase in accounts payable
and accrued expenses - related party of $1,058 and had depreciation of $8,789.
When this is subtracted from our net loss of $28,213 for the three months ended
March 31 2020, it results in net cash used in operating activities of $7,534.
In the three months ended March 31, 2021, we received proceeds from the exercise
of warrants of $100 which resulted in net cash provided by financing activities
of $100 in the same three month period. When combined with the $34,981 net cash
used in operating activities, it results in a net decrease in cash of $34,881 in
the three months ended March 31, 2021.
We received proceeds from an increase in notes payable of $2,600 during the
three months ended March 31, 2020 which increased our net cash provided by
financing activities by $2,600. When combined with the $7,534 net cash used in
operating activities during the three months ended March 31, 2020, it results in
a net decrease in cash during the three months ended March 31, 2020 of $4,934.
Going Concern
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has sustained
operating losses during the current year-to-date and may not achieve the level
of profitable operations to sustain its activities. These factors raise
substantial doubt as to its ability to obtain debt and/or equity financing and
achieve profitable operations.
Management intends to raise additional operating funds from the planned sale of
our hemp farming equipment, and from raising funds through equity and/or debt
offerings to fund operations for the next 12 months. However, there can be no
assurance management will be successful in its endeavors. Ultimately, the
Company will need to achieve profitable operations in order to continue as a
going concern.
There are no assurances that the Company will be able to either (1) achieve a
level of revenues adequate to generate sufficient cash flow from operations; or
(2) obtain additional financing through either private placement, public
offerings and/or bank financing necessary to support its working capital
requirements. To the extent that funds generated from operations and any
private placements, public offerings and/or bank financing are insufficient, the
Company will have to raise additional working capital. No assurance can be
given that additional financing will be available, or if available, will be on
terms acceptable to the Company. If adequate working capital is not available
to the Company it may be required to curtail its operations.
Emerging Growth Company Critical Accounting Policy Disclosure
The Company qualifies as an "emerging growth company" under the 2012 JOBS Act.
Section 107 of the JOBS Act provides that an emerging growth company can take
advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. As
an emerging growth company, the Company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private
companies. The Company may elect to take advantage of the benefits of this
extended transition period in the future.
Off-Balance Sheet Arrangements
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We had no off-balance sheet arrangements of any kind for the three month period
ended March 31, 2021.
Potential Impact of COVID-19
The Company is concerned that the COVID-19 virus may impact the Company's
ability to raise additional equity capital due to the uncertainty of the virus'
effects on the economy and capital markets, which may make potential investors
less likely to invest during the pandemic. This may affect the Company's ability
to raise equity capital to meet its financial obligations, implement its
business plan and continue as a going concern.
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HIGH SIERRA TECHNOLOGIES, INC. 
