The accompanying footnotes are an integral part of these unaudited consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 1- Summary of History and Significant Accounting Policies
Nature of Operations
Gulf & Orient Steamship Company, LTD. (“Gulf” or the “Company”) was incorporated in the State of Colorado on May 9, 1996. Gulf originally intended to engage in the business of marine transportation.
On December 31, 2018, Gulf entered into a Share Exchange Agreement with High Sierra Technologies, Inc., a Nevada corporation (“High Sierra”), and all of its shareholders. The shareholders of High Sierra were issued shares of the Gulf’s common stock on a one for one share basis in exchange for their shares of High Sierra’s common stock. High Sierra became a wholly-owned subsidiary of Gulf in the business combination. The Share Exchange was treated as a reverse merger and recapitalization, and as a result, the consolidated financial statements are presented under successor entity reporting, with an inception date of August 6, 2018. Subsequently Gulf’s name was changed to High Sierra Technologies, Inc.
High Sierra Technologies, Inc., the wholly-owned subsidiary, was incorporated in the State of Nevada on August 6, 2018. It was formed with the intention that it would become the assignee, owner and licensor of certain Intellectual Property (the “Intellectual Property”) that was, prior to assignment, the property of Vincent C. Lombardi, Ph.D., who is an officer, director and co-founder of the subsidiary. The subsidiary 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.
Through its subsidiary, the Company is a start-up that develops patents and other products used in the processing of cannabis, including industrial hemp, and will license these technologies to companies in the industry. The Company will likely incur research and development expenses in the future and intends to develop a policy regarding the same.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America.
The Company consolidates its subsidiaries in accordance with ASC 810, and specifically ASC 810-10-15-8 which states, "[t]he usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, or over 50% of the outstanding voting shares of another entity is a condition pointing toward consolidation." All inter-company transactions have been eliminated during consolidation.
Concentration of Risk
The Company places its cash and temporary cash investments with established financial institutions. At times, such cash and investments may be in excess of the FDIC insurance limit.
11
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Compensation - Stock Based Compensation which requires the measurement and recognition of compensation expense based on grant date fair values for all share-based awards made to third parties, employees and directors, including stock options.
ASC 718 requires companies to estimate the fair value of share-based awards to employees and directors on the date of grant. The Company uses the Black-Scholes option-pricing model as its method of determining fair value. This model is affected by the Company's stock price as well as assumptions regarding a number of subjective variables. These subjective variables include but are not limited to the Company's expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the statement of operations over the requisite service period.
Long-lived Assets
Long-lived assets are stated at cost. Maintenance and repairs are expensed as incurred. Depreciation is determined using the straight-line method over the estimated useful lives of the assets, which is five years.
Where an impairment of a property’s value is determined to be other than temporary, impairment for the estimated potential loss is recorded to adjust the property to its net realizable value.
When items of building or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations. The Company does not have any long-lived tangible assets, which are considered impaired as of March 31, 2022.
The Company applies the provisions of ASC 360-10, Property, Plant and Equipment, where applicable to all long-lived assets. ASC 360-10 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360-10. ASC 360-10 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
12
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Intangible Assets
Goodwill and intangible assets are reviewed for potential impairment in accordance with ASC 350, Intangibles - Goodwill and Other, whenever events or circumstances indicate that their carrying amounts may not be recoverable. The Company had no such intangibles at March 31, 2022, and recorded no impairment losses during the three months ended March 31, 2022. The Company currently writes off all costs related to any intangible assets it has or is acquiring to current operating expenses.
Revenue Recognition
The Company applies ASC 606, Revenue from Contracts with Customers. Under ASC 606, the Company will recognize revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue as each performance obligation is satisfied.
Advertising
Advertising costs are expensed as incurred. Advertising expenses for the three months ended March 31, 2022 and 2021 were $0.
Fair Value of Financial Instruments
The Company adopted ASC 820, Fair Value Measurements and Disclosures, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets and liabilities in active markets;
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.
13
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
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 grown company, the Company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The Company has chosen to “opt out” of such extended transition period, and as a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Income Taxes
The Company accounts for income taxes under ASC 740-10-30, Income Taxes. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
The Company adopted ASC 740-10-25, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. ASC 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of ASC 740-10-25.
Loss Per Share
Net loss per common share is computed pursuant to ASC 260-10-45, Earnings Per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period, unless their effect is anti-dilutive due to continuing losses. As of March 31, 2022, the Company had a total of 173,333 (40,000 from outstanding warrants and 133,333 from convertible notes payable) potentially dilutive shares outstanding. As of March 31, 2021, the Company had a total of 73,333 (40,000 from outstanding warrants and 33,333 from convertible notes payable) potentially dilutive shares outstanding.
Recent Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations or financial position.
14
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 2 – Financial Condition and 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 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 through equity and/or debt offerings. 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.
NOTE 3 – Property and Equipment
At March 31, 2022 and December 31, 2021, property and equipment consisted of the following:
| | | | | |
| | Useful Lives | March 31, 2022 | | December31, 2021 |
| | | | | |
| Equipment | 5 | $ 195,423 | | $ 176,750 |
|
Less: accumulated depreciation | |
(95,242) | |
(86,405) |
| | | $ 100,181 | | $ 90,345 |
Depreciation expense was $8,837 for the three months ended March 31, 2022 and 2021, respectively.
15
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 4 – Notes Payable
The Company’s debt consists of the following:
| | | |
| | March 31, 2022 | December 31, 2021 |
| Notes payable, 12-16% interest, interest and principal due June 6, 2022 through August 12, 2022, unsecured. (1) | $ 375,500 | $ 375,500 |
| | | |
| Notes payable-Series 2 Senior Convertible Secured Promissory Notes, 8% interest, interest and principal due October 21, 2023 through February 16, 2025(2) | 200,000 | 100,000 |
| | | |
| Total due | 575,500 | 475,500 |
| Current Portion | 375,500 | 375,500 |
| Long-term portion | $ 200,000 | $ 100,000 |
(1)
One note for $50,000 includes as an additional return on the debt a 3% interest in the Gross Crop Yield from the Company’s hemp crop in McDermitt, NV. No accrual has been made for this interest due to failure of crop and no proceeds received from a Gross Crop Yield. This note was purchased by another note holder and the additional return from a Gross Crop Yield was eliminated.
(2)
The Series 2 Notes contain certain automatic and voluntary conversion provisions. The Payee shall have the option to voluntarily convert this Note to shares of the common stock of the Company, at any time during the Term of this Note, or any extension of the note. The shares so converted shall be at the price of the securities being currently offered in the Offering, or $1.50. The Payee shall also be issued Warrants for the purchase of common stock in the Company with a value equal to fifty percent (50%) of the face amount of this Note and effective as of the date of any Conversion to shares of common stock in the Company. Such Warrants shall be priced at $1.50 per share during the three-year term of this Note or any extension of this Note.
The Company incurred interest expense of $15,730 and $13,801 during the three months ended March 31, 2022 and 2021. The Company had interest accrued on the above notes in the amount of $75,361 and $65,074 at March 31, 2022 and December 31, 2021, respectively. The Company has paid $5,442 and $5,250 of the accrued interest in the three months ended March 31, 2022 and 2021, respectively.
NOTE 5 – Notes Payable-Related Party
The Company’s related party debt consists of the following:
| | | |
| | March 31, 2022 | December 31, 2021 |
| Notes payable, 12% interest, interest and principal due December 31, 2022, unsecured | $ 13,306 | $ 13,306 |
| | | |
| Total due | 13,306 | 13,306 |
| Current Portion | 13,306 | 13,306 |
| Long-term portion | | |
16
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
During the year ended December 31, 2021, the Company paid back $10,000 of the loans with the President of the Company.
The Company incurred interest expense of $394 and $690 during the three months ended March 31, 2022 and 2021, respectively. The Company had interest accrued on the above notes in the amount of $7,760 and $7,366 at March 31, 2022 and December 31, 2021.
NOTE 6 – Capital Changes
Offering of Securities
Common stock
We are offering a maximum of 2,000,000 Shares of common stock (“Shares”) exclusively to “accredited investors”. There is no minimum number of Shares to be sold pursuant to this offering other than the minimum purchase requirement. The offering price is $1.50 per Share ($3,000,000). This offering became effective February 4, 2020 and was amended February 1, 2021 to extend the date of the offering through May 1, 2022. On January 14, 2022, the Company extended the date of the offering through October 1, 2022.
The Company sold 33,334 shares of its common stock for gross proceeds of $50,000 under this offering during the three months ended March 31, 2022 The Company did not sell any securities under this offering during the three months ended March 31, 2021. The Company issued 20,000 shares of its common stock for services valued at $30,000 during the three months ended March 31, 2021..
Secured Convertible Notes
Additionally, we are offering up to $1,000,000 in Series 2 Senior Convertible Secured Promissory Notes exclusively to “accredited investors”. The Notes will be in a minimum face amount/increment of $10,000 for a term of three years and shall bear interest at a rate at eight Percent (8%) per annum. The Notes will automatically convert to Common Stock of the Company if the Company has received $1,000,000 from its offering or any other source or sources at a conversion price of $1.50 per share. The Notes can also be voluntarily converted by the holder. The Payee shall also be issued Warrants for the purchase of common stock in the Company with a value equal to fifty percent (50%) of the face amount of the Note and effective as of the date of any Conversion to shares of common stock in the Company. Such Warrants shall be priced at $1.50 per share during the three-year term of the Note or any extension of the Note.
The Company sold $100,000 of these Notes during the three months ended March 31, 2022. The principal balance of convertible notes payable was $200,000 and $100,000 as of March 31, 2022 and December 31, 2021, respectively.
These securities have not been registered with the United States Securities and Exchange Commission or with any state securities agency. These securities are being offered pursuant to exemptions from the registration requirements of the Securities Act of 1933, as amended pursuant to Rule 506 of Regulation D, and from the registration requirements of the securities laws of the states in which the securities will be offered. The securities are subject to certain restrictions on resale and may be resold only as permitted under applicable federal and state securities laws. The date of this offering was extended on January 14, 2022 to July 31, 2022.
Warrants
Under an Investment Banking Agreement, the Company issued 50,000 warrants. The exercise price per share of the Common Stock under this Warrant is $.01 and is fully vested on the Issue Date and is non-cancellable nor non-redeemable.
17
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Common Stock Purchase Warrants
As of March 31, 2022, the following common stock purchase warrants were outstanding:
| | | | | | | | | | |
| | | Warrants | | | | Weighted Average Exercise Price | |
| Outstanding – December 31, 2021 | | | 40,000 | | | | $ | .01 | |
| Granted | | | | | | | | | |
| Canceled/forfeited | | | | | | | | | |
| Exercised | | | | | | | | .01 | |
| Outstanding – March 31, 2022 | | | 40,000 | | | | $ | .01 | |
| | | | | | | | | | |
(1) The Company granted 50,000 common stock purchase warrants in December 2020 to exercise at a purchase price of $.01. During the year ended December 31, 2021, 10,000 of the purchase warrants were exercised.
The fair value of the outstanding common stock purchase warrants was calculated using the Black-Scholes option-pricing model with the following assumptions at the measurement date(s):
| | | | | |
| | | Measurement date | |
| Dividend yield | | | 0% | |
| Expected volatility | | 97.90~172.75% | |
| Risk-free interest rate | | 0.16~1.72% | |
| Expected life (years) | | 2.71~5.00 | |
| Stock Price | | | $1.50 | |
| Exercise Price | | | $0.01 | |
NOTE 7 – Contingencies, Commitments, Legal Matters and Consulting Agreements
Management of the Company has conducted a diligent search and concluded that there were no commitments, contingencies, or legal matters pending at the balance sheet dates, other than what has been disclosed below. The Company has cancelled one Consulting Agreements for the marketing of its securities. Additionally, the Company has terminated its Investment Banking Agreement on November 10, 2021.
The Company has entered into an agreement to lease a small commercial space in Reno to be used as a Research and Development Facility. It is 1,475 square feet and the monthly rent is $1,254 plus $203 in estimated CAM charges. The lease is for one year and has options for two additional years. The Company elected to exclude from its balance sheet recognition of right of use assets and lease liabilities on leases having a term of 12 months or less (“short-term leases”). Lease expense is recognized on a straight-line basis over the lease term.
The Lease Agreement was amended and signed on January 30, 2022 and took effect on February 1, 2022.
The Company paid $2,914 of rent expense during the quarter ended March 31, 2022.
NOTE 8 – Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2022 through the date these financial statements were issued and has determined that there are no material subsequent events to disclose in these financial statements.
18
Item 2. Management’s Discussions and Analysis of Financial Condition and Results of Operations.
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 two all-encompassing Utility Patent Applications which have been filed with numerous governmental agencies in the United States, Canada and multiple other countries as is discussed below (collectively the “Utility Patent Applications”). As of the date hereof, there have been two United States Patents issued based on the Utility Patent Application as is also discussed below. As of the date hereof, the Company also has several ongoing Utility Patent Applications in the United States, Europe and Canada. 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
19
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.
On August 11, 2020, the United States Patent and Trademark Office issued 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.
On November 17, 2020, the United States Patent and Trademark Office issued United States Patent Number 10,835,839 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 has received a second Office Action to this Amended Canadian Patent Application and, in concert with its attorneys, has recently responded to it.
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 44 different countries in Europe and the surrounding areas as well as Hong Kong. The Company has received a First Office Action to its European Patent Office Application Number 19743904.5. The Company and its attorneys at Oliff PLC and Astrum Element One Limited in the United Kingdom are in the process of preparing a response to it.
The Company has prepared and filed, on April 22, 2022, a Continuation-in-Part of Application Number 17/098,539 based on further changes to the processes referred to in Application Number 17/098,539 which should result in the Company receiving a fourth United States Patent in due time. The Company believes that the Continuation-in-Part will provide the Company additional protection of its current intellectual property portfolio.
On May 5, 2022, the Company received a Notice of Issuance for its Patent Application No 17/098,539. The Patent Issuance Fees have been paid and the Company will receive United States Patent Number 11,338,222 on May 24, 2022.
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.
20
On October 14, 2020, we entered into an exclusive Letter Agreement with Artemis Holdings, LLC pursuant to which Artemis Holdings, LLC was to assist us in maximizing the value of our patents and patents pending for odorless cannabis. Artemis was to provide a detailed market analysis of the patents and to assist with any licensing or sale of the patents. The agreement was for a period of nine months, and then it was to automatically renew for additional one month periods until either party terminates it. The Company agreed to 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. The parties mutually agreed to terminate the agreement effective April 1, 2021, and neither party owes any obligations to the other following the termination.
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 (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 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 10.7. This Agreement terminated on its own terms on December 31, 2021 and the parties have no further obligations to each other.
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 provided for commissions of 8% of monies generated by Admiral to be paid to Admiral. It also provided 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 provided 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. The Company gave notice to Admiral on October 8, 2021 that the Company is terminating the Agreement effective as of November 10, 2021, but the outstanding warrants are still in effect.
Possible Hemp Cigarette Business
High Sierra has identified a growing market place for hemp cigarettes especially those that can benefit from High Sierra’s patented and patent pending technologies. It is the intention of High Sierra to enter into this market place as soon as possible after it receives sufficient funding from its Private Placement Offerings. To that effect, the Company is now negotiating with one of the largest hemp cigarette manufacturers in the country to enter into a joint venture to produce and market a new brand of low odor hemp cigarettes. The negotiations have resulted in the execution of a non-binding Letter of Intent dated February 18, 2022, by the parties to enter into a Joint Venture to manufacture, market and distribute hemp cigarettes and hemp-based products in the United States, Canada and Mexico using its Patented and Patent Pending Technologies. The Company can offer no assurance that it will successfully raise the funds needed to enter into this market place. The Company is in the process of negotiating definitive agreements related to this Letter of Intent
Lease Agreement
The Company has two places of business. The corporate office is located at 1495 Ridgeview Drive, Suite 230A, Reno, Nevada 89519. The space at that location rented by the Company consists of office space with a fixed monthly payment for rent and utilities. The Company is also leasing a research and development and warehousing facility located at 229 East 5th Street in Reno, Nevada 89512.
21
On November 9, 2021, the Company entered into a Lease Agreement with 3 Squirrels, LLC to rent approximately 1,475 square feet of commercial space which the Company plans to use for research and development purposes. Due to the inability of the Landlord to deliver the Premises as called for in the Lease Agreement on time, a First Amendment to that Lease was signed on January 30, 2022 which changed some terms in the original Lease. The Lease is now for a period of one (1) year commencing February 1, 2022, and contains options for two (2) additional years. The monthly rent is $1,253.75 plus $203.50 in estimated CAM charges. A copy of the Lease Agreement is attached to our Quarterly Report for the period ended September 30, 2021 as Exhibit 10.15 and a copy of the First Lease Amendment is attached to our Annual Report for the year ended December 31, 2021 as Exhibit 10.16.
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; (iii) complete the transactions which are the subjects of the two letters of intent signed by the Company which include acquiring an Oregon company which specializes in hemp-related products and forming a joint venture to produce, market and distribute hemp cigarettes and hemp-based products in the United States, Canada and Mexico using the Company’s Patented and Patent Pending Technologies and (iv) begin the production and distribution of hemp cigarettes in accordance with the Letter of Intent that the Company entered into on February 18, 2022. 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, 2022 and Three Months Ended March 31, 2021
We have generated no revenues since inception. We hope to start earning revenues during the fiscal year ending December 31, 2022.
General and administrative expenses were $89,093 for the three month period ended March 31, 2022, an increase of $27,674 from the $61,419 of general and administrative expenses incurred during the three months ended March 31, 2021. Most of the increase in general and administrative expenses incurred in the later period were for an increase in facilities lease expenses of $12,000 and market listing fees and other professional fees relating to up listing to the OTC Bulletin Board of approximately $15,000. The Company expects to incur additional facility expenses in 2022 that are attributed to the new lease. We incurred depreciation of $8,837 in the three months ended March 31, 2022, the same as the $8,837 of depreciation incurred in the three month period ended March 31, 2021.
We incurred interest expense of $15,730 in the three months ended March 31, 2022, an increase of $1,929 from the $13,801 of interest expense incurred in the three months ended March 31, 2021. This is due to the fact that the Company increased its borrowing from unrelated parties through issuing an additional $100,000 in its Notes Payable-Series 2 Senior Convertible Secured Promissory Notes after the period ended March 31, 2021. We incurred interest expense-related party of $394 in the three months ended March 31, 2022, a decrease of $296 from the interest expense–related party of $690 in the three months ended March 31, 2021. This is due to the fact that the Company repaid $10,000 of its notes payable-related party during the year ended December 31, 2021.
We incurred a net loss of $114,054 during the three months ended March 31, 2022, an increase of $29,307 from the $84,747 net loss incurred during the three months ended March 31, 2021. The Company’s increase in net loss in the current period is largely due to the increase in general and administrative expenses as explained above.
Liquidity and Capital Resources
At March 31, 2022, we had total current assets of $96,200 consisting of $93,489 in cash, $1,457 in prepaid rent and $1,254 in a deposit. We had $496,700 in total current liabilities as of March 31, 2022. Our total current liabilities consisted of notes payable of $375,500, notes payable-related party of $13,306, accounts payable and accrued expenses of $100,134 and accounts payable and accrued expenses-related party of $7,760. We had property, plant and equipment, net of $100,181 as
22
of March 31, 2022. We had long term liabilities consisting of convertible notes payable of $200,000 as of March 31, 2022. 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, 2022, we had an increase in accounts payable and accrued expenses of $11,634, an increase in accounts payable and accrued expenses-related party of $394, depreciation expense of $8,837, an increase in prepaid rent of $1,457and a decrease in deposit of 1,457. When this is combined with our net loss of $114,054 for the three months ended March 31, 2022, it results in net cash used in operating activities of $93,189.
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.
In the three months ended March 31, 2022, we received proceeds from convertible notes payable of $100,000 and proceeds from the sale of common stock of $50,000 which resulted in net cash provided by financing activities of $150,000. During the same three month period we paid $18,673 for property, plant and equipment.
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.
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
We had no off-balance sheet arrangements of any kind for the three month period ended March 31, 2022.
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
23
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. This concern is beginning to ease as vaccinations to protect against the virus have increased, and business is generally recovering throughout the country.