HSTI 10-Q
High Sierra Technologies, Inc. (HSTI)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM
____________________
For the quarterly period ended
For the transition period from ____________ to____________
Commission File No.
(Exact name of Registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) |
(Address of Principal Executive Offices)
(Registrant’s telephone number, including area code)
_______________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value
Indicate by check mark whether the Registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
1
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company | |
| Emerging Growth company |
If an emerging growth company, indicate by check mark
if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No
Outstanding Shares
As of May 22, 2023, the Registrant had
2
FORWARD-LOOKING STATEMENTS
In this Quarterly Report on Form 10-Q, references to the “Company,” “we,” “us,” “our” and words of similar import refer to High Sierra Technologies, Inc., unless the context requires otherwise.
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this report. These factors include, among others:
| ● | our ability to raise capital; |
| ● | declines in general economic conditions in the markets where we may compete; |
| ● | unknown environmental liabilities associated with any companies or properties we may acquire; and |
| ● | significant competition in the markets where we may operate. |
You should read any other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. We cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. You should read this Quarterly Report completely. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.
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JUMPSTART OUR BUSINESS STARTUPS ACT DISCLOSURE
We qualify as an “emerging growth company,” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended (the “Securities Act”), as amended by the Jumpstart Our Business Startups Act (the “JOBS Act”). An issuer qualifies as an “emerging growth company” if it has total annual gross revenues of less than $1.0 billion during its most recently completed fiscal year, and will continue to be deemed an emerging growth company until the earliest of:
| • | the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1.0 billion or more; |
| • | the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective registration statement; |
| • | the date on which the issuer has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or |
| • | the date on which the issuer is deemed to be a “large accelerated filer,” as defined in Section 240.12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”). |
As an emerging growth company, we are exempt from various reporting requirements. Specifically, we are exempt from the following provisions:
| • | Section 404(b) of the Sarbanes-Oxley Act of 2002, which requires evaluations and reporting related to an issuer’s internal controls; |
| • | Section 14A(a) of the Exchange Act, which requires an issuer to seek shareholder approval of the compensation of its executives not less frequently than once every three years; and |
| • | Section 14A(b) of the Exchange Act, which requires an issuer to seek shareholder approval of its so-called “golden parachute” compensation, or compensation upon termination of an employee’s employment. |
Under the JOBS Act, emerging growth companies may delay adopting new or revised accounting standards that have different effective dates for public and private companies until such time as those standards apply to private companies. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
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PART I
Item 1. Financial Statements
The Financial Statements of the Registrant required to be filed with this 10-Q Quarterly Report were prepared by management together with related notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Registrant and include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Registrant’s Financial Statements. The results from operations for the three months ended March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The unaudited consolidated Financial Statements should be read in conjunction with the December 31, 2022 financial statements and footnotes thereto included in the Registrant’s Form 10-K Annual Report for the year ended December 31, 2022, filed with the Securities and Exchange Commission on April 17, 2023.
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HIGH SIERRA TECHNOLOGIES, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 2023 and December 31, 2022 and For the Three Months Ended March 31, 2023 and 2022
6
HIGH SIERRA TECHNOLOGIES, INC.
AND SUBSIDIARIES
(Unaudited)
CONTENTS
| PAGE | |
| CONDENSED CONSOLIDATED BALANCE SHEETS | 8 |
| CONSENSED CONSOLIDATED STATEMENTS OF OPERATIONS | 9 |
| CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ (DEFICIT) | 10 |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | 11 |
| NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | 12 |
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HIGH SIERRA TECHNOLOGIES, INC.
Condensed Consolidated Balance Sheets
March 31, 2023 and December 31, 2022
(Unaudited)
| March 31, 2023 | December 31, | ||||
2022 (Audited) | |||||
| ASSETS | |||||
| Current Assets | |||||
| Cash | $ |
$ | |||
| Prepaid rent | | ||||
| Deposits | |
| |||
| Total Current Assets | |
| |||
| Property, Plant and Equipment, net | |
| |||
| Total Assets | $ |
$ | |||
| LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |||||
| Current Liabilities | |||||
| Notes payable | $ |
$ | |||
| Notes payable-Related party | |
| |||
| Convertible notes payable | |
| |||
| Accounts payable and accrued expenses | |
| |||
| Accounts payable and accrued expenses-Related party | |
| |||
| Advances from Related Party | |
||||
| Total Current Liabilities | |
| |||
| Long Term Liabilities | |||||
| Convertible notes payable | |
| |||
| Total Long-Term Liabilities | |
| |||
| Total Liabilities | |
| |||
| Commitments and contingencies | |||||
| Stockholders’ (Deficit) | |||||
| Preferred stock, par value, non-voting, |
|||||
| Common stock, par value, |
|
| |||
| Accumulated (Deficit) | ( |
( | |||
| Noncontrolling interest | - | ||||
| Total Stockholders' (Deficit) | ( |
( | |||
| Total Liabilities and Stockholders' (Deficit) | $ |
$ | |||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
8
HIGH SIERRA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
| Three Months Ended | |||||
| March 31, | |||||
| 2023 | 2022 | ||||
| Revenues | |||||
| Total revenues | |||||
| Operating Expenses | |||||
| Depreciation | |
| |||
| General and administrative | |
| |||
| Total operating expenses | |
| |||
| (Loss) from operations | ( |
( | |||
| Other (expense) | |||||
| Amortization of debt discount | ( |
||||
| Interest (expense) | ( |
( | |||
| Interest (expense)-Related party | ( |
( | |||
| Total other (expense) | ( |
( | |||
| (Loss) before income taxes | ( |
( | |||
| Income taxes | |||||
| Consolidated net (loss) | ( |
( | |||
| Less: Net (loss) noncontrolling interest | ( |
- | |||
| Net (loss) attributable to High Sierra Technologies, Inc. | $ ( |
$ ( | |||
| $ ( |
$ ( | ||||
| Weighted average shares outstanding | |||||
| Basic and diluted | |
| |||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
9
HIGH SIERRA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Stockholders' (Deficit)
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
| Preferred Stock | Common Stock | Accumulated | Noncontrolling | Stockholders' | ||||||||||
| Shares | Amount | Shares | Amount | (Deficit) | Interest | (Deficit) | ||||||||
| Balance-January 1, 2022 | |
$ |
$( |
$ - | $ ( | |||||||||
| Proceeds from the sale of common stock | - | |
|
- | | |||||||||
| Net (loss) for the three months ended March 31, 2022 | - | - | ( |
- | ( | |||||||||
| Balance-March 31, 2022 | |
$ |
$( |
$ - | $ ( | |||||||||
| Preferred Stock | Common Stock | Accumulated | Noncontrolling | Stockholders' | ||||||||||
| Shares | Amount | Shares | Amount | (Deficit) | Interest | (Deficit) | ||||||||
| Balance-January 1, 2023 | - | $ - | |
$ |
$( |
$ - | $ ( | |||||||
| Contribution of noncontrolling interest | ||||||||||||||
| Warrant issuance cost | - | - | |
- | - | | ||||||||
| Net (loss) for the three months ended March 31, 2023 | - | - | - | - | ( |
( |
( | |||||||
| Balance-March 31, 2023 | - | $ - | |
$ |
$( |
$ |
$ ( | |||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
10
HIGH SIERRA TECHNOLOGIES, INC.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2023 and 2022
(Unaudited)
| Three Months Ended | |||
| March 31, | |||
| 2023 | 2022 | ||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||
| Consolidated net (loss) | $ ( |
$ ( | |
| Adjustments to reconcile net loss to net cash used | |||
| in operating activities: | |||
| Depreciation | |
| |
| Amortization of debt discount | |
||
| Changes in assets and liabilities: | |||
| Decrease/(increase) in prepaid rent | |
( | |
| Decrease in deposit | |
| |
| Increase in accounts payable and accrued expenses | |
| |
| Increase/(decrease) in accounts payable and accrued expenses-Related party | |
| |
| Increase in advances from related party | |
||
| Net cash (used) in operating activities | ( |
( | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||
| Contribution of noncontrolling interest | - | ||
| Purchase of property, plant and equipment | ( | ||
| Net cash provided by (used) in investing activities | |
( | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||
| Proceeds from sale of common stock | | ||
| Proceeds from notes payable | |
||
| Proceeds from convertible notes payable | | ||
| Net cash provided by financing activities | |
| |
| Net (decrease)/increase in cash | ( |
| |
| CASH AT BEGINNING PERIOD | |
| |
| CASH AT END OF PERIOD | $ |
$ | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | |||
| Cash paid for interest | $ |
$ | |
| Cash paid for income taxes | |||
| Debt discount | $ |
||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
11
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 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.
On November 17, 2022, the Company’s wholly owned subsidiary, High Sierra Technologies, Inc., a Nevada corporation, executed a Joint Venture Agreement (the “Joint Venture Agreement”) with Hempacco Co., Inc. (“Hempacco”) for the production, marketing, and sales of hemp smokables that will use the Company’s patented and patent-pending technologies, as well as certain patented and patent-pending technologies held by Hempacco. Pursuant to this Joint Venture Agreement, High Sierra and Hempacco formed a new Nevada corporation known as Organipure, Inc (“Organipure”). High Sierra and Hempacco each own one-half of the equity interests in Organipure.
In connection with the execution of the Joint Venture Agreement, Hempacco also entered a Hemp Smokables Manufacturing Agreement with Organipure (the “Manufacturing Agreement”), pursuant to which Hempacco will act as Organipure’s exclusive worldwide manufacturer and supplier of hemp smokables, subject to the terms and conditions of the Manufacturing Agreement. The hemp smokables will be manufactured according to product specifications and packaging described in the Manufacturing Agreement.
Also, in connection with the execution of the Joint
Venture Agreement, High Sierra entered into a Patent License Agreement with Organipure (the “HSTI Patent License Agreement”),
which granted Organipure a non-exclusive license of High Sierra’s patented and patent-pending technologies to be used in connection
with the hemp smokable products to be produced, marketed, and sold by Organipure. The annual license fee will be
Similarly, Hempacco entered into a Patent License
Agreement with Organipure (the “Hempacco Patent License Agreement”) which granted to Organipure a non-exclusive license of
Hempacco’s patented and patent pending technologies to be used in connection with the hemp smokable products. The annual license
fee will be
12
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
Hempacco is an industry leader in the hemp smokables
market space. Hempacco’s state-of-the-art production facility provides it with superior production capabilities that allow
it to be able to currently produce over
This is the first use of the patent technology developed by the Company’s wholly owned subsidiary.
The Company is currently looking for other opportunities in the hemp/CBD market and has signed certain Letters of Intent it is seeking to concurrently fund and close.
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, "the 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
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
13
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
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
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, 2023 and December 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.
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, 2023, and recorded no impairment losses during the quarters ended March 31, 2023 and 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, 2023 and 2022 were $
14
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
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.
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.
15
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
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 (
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, 2023, the Company had a total of
Recent Accounting Pronouncements
On December 31, 2022, the Company adopted ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s own equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. The adoption of ASU 2020-06 did not have a material impact on the Company’s financial statements.
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We adopted the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our financial statements. The Company has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on our financial statements.
16
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 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 – Offering Costs
The Company has incurred Offering Costs for a planned public offering of common stock in 2023 including legal, audit, tax and other professional fees. These costs will either be offset against the proceeds of the offering or written off if the offering is unsuccessful.
NOTE 4 – Property and Equipment
At March 31, 2023 and December 31, 2022, property and equipment consisted of the following:
| Useful Lives |
March 31, 2023 |
December 31, 2022 | ||
| Equipment | $ |
$ | ||
| Furniture and lab equipment | ||||
| Leasehold improvements | ||||
| Less: accumulated depreciation | ( |
( | ||
| $ |
$ |
Depreciation expense was $
17
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
NOTE 5 – Notes Payable
The Company’s debt consists of the following:
|
March 31, 2023 |
December 31, 2022 | |
| Notes payable, 12-16% interest, interest and principal due June 6, 2023 through October 27, 2023, unsecured. (1) | $ |
$ |
| Notes payable-Series 2 Senior Convertible Secured Promissory Notes, 8% interest, interest and principal due October 21, 2023 through May 27, 2024 (2), net of debt discount (3) | ||
| Total due | |
|
| Current Portion | |
|
| Long-term portion | $ |
$ |
| (1) |
| (2) |
(3)
| Holder Name | Unamortized Debt Discount as of December 31, 2022 | Additions | Amortization | Unamortized Debt Discount as of March 31, 2023 |
| The Kutler Dodd Family Trust | $ |
$ |
$ | |
| John Cathcart | |
|
| |
| Total | $ |
$ |
$ |
$ |
The Company has incurred an interest expense of $
18
HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
NOTE 6 – Notes Payable-Related Party
The Company’s related party debt consists of the following:
|
March 31, 2023 |
December 31, 2022 | |
| Notes payable, |
$ |
$ |
| Total due | |
|
| Current Portion | |
|
| Long-term portion |
The Company has incurred an interest expense of $
NOTE 7 – Capital Changes
Offering of Securities
Common stock
We are offering a maximum of2,
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
The Company sold
In the fourth quarter of 2022, an investor
converted $
Secured Convertible Notes
The Company sold $
An investor converted $
The principal balance of convertible notes payable
was $
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. The Company has decided not to extend this offering any further.
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
Warrants
Under an Investment Banking Agreement, the Company
issued
The Company issued
The Company issued
The Company issued
Common Stock Purchase Warrants
As of March 31, 2023, the following common stock purchase warrants were outstanding:
| Warrants | Exercise Price | ||||||||
| Outstanding – December 31, 2022 | |
$ | . |
||||||
| Granted | |||||||||
| Canceled/forfeited | |||||||||
| Exercised | - | ||||||||
| Outstanding – March 31, 2023 | $ | . |
|||||||
(1) The Company granted
| Name | Term | Grant | Vesting | Shares | Exercise | FV | Sum of | Grant End | Measurement | Remaining |
| Date | Date | Price | Date | Date | Life | |||||
| Kutler-Dodd Trust | |
|
||||||||
| John Cathcart | |
|
||||||||
| John Cathcart | |
|
||||||||
| Averill Staloff | |
|
|
|||||||
The Warrant Average Price Per Share as of March 31,
2023 was $
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):
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HIGH SIERRA TECHNOLOGIES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2023 and December 31, 2022
| Measurement date | ||||
| Dividend yield | ||||
| Expected volatility | ||||
| Risk-free interest rate | ||||
| Expected life (years) | ||||
| Stock Price | $ |
|||
| Exercise Price | $ |
|||
NOTE 8 – Contingencies, Commitments, Legal Matters and Consulting Agreements
The 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 terminated its Investment Banking Agreement on November 10, 2021.
The Company entered into an agreement to lease a small
commercial space in Reno to be used as a Research and Development Facility. It is
The Lease Agreement was amended and signed on January 30, 2023, and took effect on February 1, 2023 and the term was extended as per above to January 31, 2024.
The Company paid $
NOTE 9 – Subsequent Events
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2023 through the date these financial statements were issued and has determined that it has the following material subsequent events to disclose in these financial statements.
On October 17, 2022, High Sierra Technologies, Inc. executed an Agreement with Boustead Securities for a Proposed Pre-IPO Financing, Initial Public Offering and Corporate Transactions. This agreement and certain terms and conditions are still being worked out in 2023.
On April 27, 2023, the Company sold
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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
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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 10,835,839 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.
On May 24, 2022, the United States Patent and Trademark Office issued United States Patent Number 11,338,222 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, 10,835,839 and 11,338,222 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, 10,835,839 and 11,338,222, 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, 10,835,839 and 11,338,222 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, 10,835,839 and 11,338,222.”
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, 10,835,839 and 11,338,222 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 has received a third Office Action to this Amended Canadian Patent Application and, in concert with its attorneys, has 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, 10,835,839 and 11,338,222 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.
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 have legalized both the medicinal and recreational uses of cannabis as of October 17, 2018. Hemp has long
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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.
High Sierra considers every manufacturer of cannabis and/or hemp products a potential customer. Because each is registered with its respective State and are of public record, High Sierra has begun to identify each manufacturer for a direct marketing campaign. High Sierra plans to aggressively exploit what it believes to be niche areas of the cannabis and/or hemp markets that are not currently being addressed.
Presently, manufacturers of cannabis and/or hemp products are limited to selling low-odor cannabis and/or hemp for smoking, as an extract, and are limited to selling flavored product either as an extract for smoking or edibles. While it is possible to produce a flavored dried plant form without first removing the natural complement of terpenes, High Sierra believes that the strong natural smell and flavor makes it impractical to add additional flavoring other than additional terpenes.
Because low odor or no odor cannabis and/or hemp plant material products for smoking are novel and currently do not exist, it is High Sierra’s goal to create a market for such products by demonstrating their utility and desirability. Low-odor cannabis and/or hemp plant material allows one to smoke cannabis and/or hemp without its use being apparent due to the residual smell on the user. It also allows the user the convenience of smoking cannabis and/or hemp in the form of a rolled cigarette or a pipe. Because low-odor and flavored cannabis and/or hemp plant material can be conveniently made into cigarettes, it is High Sierra’s belief that as cannabis and/or hemp gain acceptance according to local and Federal laws, that the large tobacco companies will want to enter the cannabis and/or hemp market spaces and will rely on their present business model of selling cigarettes that are pre-packaged. These companies are all potential clients to license High Sierra’s technology.
Agreement with Boustead Securities
On November 9, 2022, the Company executed an Agreement with Boustead Securities for a Proposed Pre-IPO Financing, Initial Public Offering and Corporate Transactions (The “Agreement”). The Agreement contemplates that Boustead Securities could act as the underwriter of a future public offering of the Company’s securities based on certain terms and conditions described in the Agreement. The Agreement describes, among other things, the success fees or compensation that the Company will be obligated to pay to Boustead Securities in the event that the Company engages in certain transactions described in the Agreement such as a private placement offering, a public offering, merger, acquisition, joint venture, license, etc., during the term of the agreement or during a tail period (12 months following termination of the Agreement) thereafter. The Agreement terminates upon the later of: (a) eighteen months from the date of the Agreement; (b) twelve months from the closing date of a public offering of the Company’s securities (if one is engaged in); or (c) the mutual agreement of the parties. The Agreement does not contain any obligation on the part of the Company to engage in any such transactions or for Boustead Securities to participate in any such transactions with the Company. In the Agreement, the Company grants to Boustead Securities an irrevocable right of first refusal for approximately two years following the termination of the Agreement to act as the sole investment banker, sole book-runner, sole financial advisor and/or sole placement agent, at Boustead’s sole discretion, for each transaction described in the Agreement. A copy of the agreement is attached to the Company’s Current Report on Form 8-K as Exhibit 10.1 filed on November 14, 2022.
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
25
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 terminated the Agreement effective as of November 10, 2021, but the outstanding warrants are still in effect.
Vestech Securities. Inc. Finders Fee Agreement
On February 24, 2022, the Company entered into a non-exclusive Finders Fee Agreement (the “Agreement”) with Vestech Securities, Inc. (“Vestech”) under which Vestech will work to introduce parties to the Company who may be interested in purchasing common stock in the Company, providing capital financing and/or purchasing or licensing some, or all, of the Company’s Patented and Patent Pending technologies. The Agreement is for the period of six months and provides for a Finders Fee of 8% for capital raising transactions and a Finders Fee of 4% for Merger and Acquisitions transactions. This Agreement expired in August of 2022. A copy of this Agreement is attached hereto as Exhibit 10.17.
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 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.
On November 17, 2022, the Company’s wholly-owned subsidiary, High Sierra executed a Joint Venture Agreement (the “Joint Venture Agreement”) with Hempacco Co., Inc. (“Hempacco”) for the production, marketing, and sales of hemp smokables that will use the Company’s patented and patent-pending technologies, as well as certain patented and patent-pending technologies held by Hempacco. Pursuant to this Joint Venture Agreement, High Sierra and Hempacco formed a new Nevada corporation known as Organipure, Inc (“Organipure”). High Sierra and Hempacco each own one-half of the equity interests in Organipure.
In connection with the execution of the Joint Venture Agreement, Hempacco also entered a Hemp Smokables Manufacturing Agreement with Organipure (the “Manufacturing Agreement”), pursuant to which Hempacco will act as Organipure’s exclusive worldwide manufacturer and supplier of hemp smokables, subject to the terms and conditions of the Manufacturing Agreement. The hemp smokables will be manufactured according to product specifications and packaging described in the Manufacturing Agreement.
Also, in connection with the execution of the Joint Venture Agreement, High Sierra entered into a Patent License Agreement with Organipure (the “HSTI Patent License Agreement”), which granted Organipure a non-exclusive license of High Sierra’s patented and patent-pending technologies to be used in connection with the hemp smokable products to be produced, marketed, and sold by Organipure. The annual license fee will be 5% of Organipure’s gross receipts from the use of the High Sierra patents by Organipure. The term of the license expires December 31, 2033, unless terminated earlier for reasons specified in the HSTI Patent License Agreement.
Similarly, Hempacco entered into a Patent License Agreement with Organipure (the “Hempacco Patent License Agreement”) which granted to Organipure a non-exclusive license of Hempacco’s patented and patent pending technologies to be used in connection with the hemp smokable products. The annual license fee will be 5% of
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Organipure’s gross receipts from the use of the Hempacco patents by Organipure. The term of the license expires December 31, 2033, unless terminated earlier for reasons specified in the Hempacco Patent License Agreement.
Hempacco is an industry leader in the hemp smokables market space. Hempacco’s state-of-the-art production facility provides it with superior production capabilities that allow it to be able to currently produce over 30 million hemp cigarettes per month with the ability to quickly expand its production capabilities with very short notice.
This is the first use of the patent technology developed by the Company’s wholly owned subsidiary.
The Company is currently looking for other opportunities in the hemp/CBD market and has signed certain Letters of Intent and verbal agreements that it is seeking to concurrently fund and close.
Lease Agreements
The Company has two places of business. The corporate office is located at 1495 Ridgeview Drive, Suite 230A, Reno, Nevada 89519. At this time the Company is occupying this space at no charge for rent or utilities. The Company is also leasing a research and development and warehousing facility located at 229 East 5th Street in Reno, Nevada 89512.
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 independent options for two (2) additional periods of one (1) year each. The initial monthly rent was $1,253.75 plus $203.50 in estimated CAM charges. On February 1, 2023, the Company executed a Second Amendment to that Lease that extended the term to January 31, 2024 at a monthly rent of $1,291.36 plus $203.50 in estimated CAM charges. A copy of the Lease Agreement was attached to our Quarterly Report for the period ended September 30, 2021 as Exhibit 10.15, a copy of the First Lease Amendment was attached to the 2021 Annual Report as Exhibit 10.16 and a copy of the Second Amendment was attached to our Annual Report as Exhibit 10.17.
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 marijuana and/or hemp has been legalized both for medicinal and/or recreational use, and in the Canadian provinces; (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; and (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 operating the joint venture with Hempacco Co, Inc. to produce, market and (iv) distribute hemp cigarettes and hemp-based products in the United States, Canada and Mexico using the Company’s Patented and Patent Pending Technologies. 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 either San Diego, California or Northern Nevada; the payment of our SEC reporting and 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 no assurance that we will be able to raise additional funds on terms acceptable to the Company.
Results of Operations – Three Months Ended March 31, 2023 and Three Months Ended March 31, 2022
We have generated no revenues since inception. We hope to start earning revenues during the fiscal year ending December 31, 2023.
General and administrative expenses were $64,082 for the three month period ended March 31, 2023, a decrease of $25,011 from the $89,093 of general and administrative expenses incurred during the three months ended March 31, 2022. Most of the general and administrative expenses incurred in this period were to pay for contract services and consultants. We incurred depreciation of $11,137 in the three months ended March 31, 2023, which is an increase of $2,300 from the $8,837 of depreciation incurred in the three month period ended March 31, 2022.
We incurred interest expense of 15,244 in the three months ended March 31, 2023, a decrease of $486 from the $16,124 of interest expense incurred in the three months ended March 31, 2022. We incurred interest expense-related party of $394 in
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the three months ended March 31, 2023, which is the same as the interest expense–related party of $394 incurred in the three months ended March 31, 2022.
We incurred a net loss of $95,144 during the three months ended March 31, 2023, a decrease of $18,910 from the $114,054 net loss incurred during the three months ended March 31, 2022. The Company’s decrease in net loss in the current period is largely due to the decrease in general and administrative expenses in the current period partially offset by a modest increase in depreciation in the current period.
Liquidity and Capital Resources
At March 31, 2023, we had total current assets of $15,654 consisting of $8,543 in cash and $7,111 in deposits. We had $633,036 in total current liabilities as of March 31, 2023. Our total current liabilities consisted of notes payable-current maturities of $393,101, notes payable-related party of $13,306, convertible notes payable of $36,630, accounts payable and accrued expenses of $155,642, accounts payable and accrued expenses-related party of $9,357 and advance from a related party of $25,000. We had property, plant and equipment, net of $66,249 as of March 31, 2023. We had long term liabilities consisting of convertible notes payable of $50,000 as of March 31, 2023. 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, 2023, we had an increase in accounts payable and accrued expenses of $34,864 an increase in accounts payable and accrued expenses-related party of $394, depreciation expense of $11,137 and a decrease in deposit of $3,290 When this is combined with our net loss of $95,144 for the three months ended March 31, 2023, it results in net cash used in operating activities of $14,715.
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 the amount of prepaid rent of $1,457 and a decrease in deposits 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, 2023, we received proceeds from a contribution from a noncontrolling interest of $1,000, which resulted in net cash provided by investing activities of $1,000.
In the three months ended March 31, 2023, we received proceeds from notes payable of $10,000 which resulted in net cash provided by financing activities of $10,000.
In the three months ended March 31, 2022, we received proceeds from the sale of common stock of $50,000 and proceeds from convertible notes payable of $100,000 which resulted in net cash provided by financing activities of $150,000 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.
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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, 2023.
Potential Impact of COVID-19
The Company is now less 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. This concern has eased significantly as vaccinations to protect against the virus have increased, and business has generally recovered from the effects of Covid-19 throughout the country.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer concluded that our disclosure controls and procedures were not effective. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.
Changes in internal control over financial reporting
Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has concluded there were no significant changes in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None; not applicable.
Item 1A. Risk Factors.
Not required.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the three months ended March 31, 2023, the Company sold no shares of its common stock.
For information concerning sales of unregistered equity securities in the three year period prior to the period covered by this report, see the Company’s Annual and Quarterly Reports on Form 10-K and Form 10-Q filed since December 31, 2018.
Item 3. Defaults Upon Senior Securities.
None; not applicable.
Item 4. Mine Safety Disclosures.
None; not applicable.
Item 5. Other Information.
None; not applicable.
Item 6. Exhibits.
Exhibit No. Exhibit Description
| 3.1* | Articles of Incorporation filed May 9, 1996 |
| 3.2* | Amended and Restated Articles of Incorporation |
| 3.3* | By-Laws |
| 10.1* | Promissory Note with Larry Mamey dated June 6, 2019 |
| 10.2* | Promissory Note with Biored N.V., a Belgian corporation, dated July 30, 2019 |
| 10.3** | Promissory Note with Kenny L. DeMeirleir dated August 12, 2020 |
| 10.4*** | Promissory Note with Michael Vardakis dated December 31, 2020 |
| 10.5*** | Promissory Note with Vincent C. Lombardi dated December 31, 2020 |
| 10.6*** | Promissory Note with Michael Vardakis dated December 31, 2020 |
| 10.7*** | Amended Consulting Agreement with Stanley Berk/Steven Leatherman (SBSL Consultants) and Jeff Baclet/Tom Prutzman (Consultants) dated December 28, 2020 |
| 10.8*** | Form of Series 2 Senior Convertible Secured Promissory Note |
| 10.9****** | Tenth Amendment to Promissory Note with Larry Mamey dated February 11, 2022 |
| 10.10**** | Third Amendment to Promissory Note with Biored, N.V. dated July 29, 2021 |
| 10.11**** | First Amendment to Promissory Note with Kenny L. DeMeirleir dated August 6, 2021 |
| 10.12****** | Second Amendment to Promissory Note with Michael Vardakis dated June 22, 2021 |
| 10.13****** | Second Amendment to Promissory Note with Vincent C. Lombardi dated June 18, 2021 |
| 10.14****** | Second Amendment to Promissory Note with Michael Vardakis dated June 22, 2021 |
| 10.15***** | Lease Agreement with 3 Squirrels, LLC dated November 9, 2021 |
| 10.16****** | First Amendment to Lease Agreement with 3 Squirrels, LLC dated January 30, 2022 |
| 10.17****** | Finders Fee Agreement between the Company and Vestech Securities, Inc. dated February 24, 2022 |
| 10.18******* | Agreement with Boustead Securities dated November 9, 2022 |
| 10.19******** | Promissory Note with John Cathcart dated October 27, 2022 |
| 10.20******** | Joint Venture Agreement with Hempacco Co., Inc. dated November 17, 2022 |
| 10.21******** | Hemp Smokables Production Agreement with Hempacco Co., Inc. dated November 17, 2022 |
| 10.22******** | License Agreement between the Company and Organipure dated November 17, 2022 |
| 10.23******** | License Agreement between Hempacco Co. Inc. and Organipure dated November 17, 2022 |
| 10.24******** | Series Promissory Note for $500,000 between the Company and Organipure dated November 17, 2022 |
| 10.25******** | Series Promissory Note for $500,000 between Hempacco Co., Inc. and Organipure dated November 17, 2022 |
| 10.26********* | Second Amendment to Lease Agreement with 3 Squirrels, LLC dated January 30, 2023 |
| 10.27********* | Promissory Note with John Cathcart dated February 10, 2023 |
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| 14* | Code of Ethics |
| 21********* | Subsidiaries |
| 31.1 | Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 |
| 32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 |
101 INS XBRL Instance Document
101 PRE XBRL Taxonomy Extension Presentation Linkbase Document
101 LAB XBRL Taxonomy Extension Label Linkbase Document
101 DEF XBRL Taxonomy Extension Definition Linkbase Document
101 CAL XBRL Taxonomy Extension Calculation Linkbase Document
101 SCH XBRL Taxonomy Extension Schema Document
* Incorporated by reference from the Company’s Amendment No. 2 to its Registration Statement on Form S-1 filed with the Securities and Exchange Commission on August 7, 2019.
** Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2020 filed with the Securities and Exchange Commission on November 20, 2020.
*** Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on April 14, 2021.
**** Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2021 filed with the Securities and Exchange Commission on August 16, 2021.
***** Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2021 filed with the Securities and Exchange Commission on November 15, 2021.
****** Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ended December 31, 2021 filed with the Securities and Exchange Commission on March 28, 2022.
****** Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022 filed with the Securities and Exchange Commission on August 15, 2022.
******* Incorporated by Reference from the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 14, 2022.
******** Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022 filed with the Securities and Exchange Commission on November 18, 2022.
********* Incorporated by reference from the Company’s Annual Report on Form 10-K for the period ended December 31, 2022 filed with the Securities and Exchange Commission on April 17, 2023.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
High Sierra Technologies, Inc.
| Date: | May 22, 2023 | By: | /s/ Vincent C. Lombardi | |
| Vincent C. Lombardi, Chief Executive Officer, President and Director |
| Date: | May 22, 2023 | By: | /s/ Gregg W. Koechlein | |
| Gregg W. Koechlein, Chief Financial Officer, Chief Operating Officer, Secretary, Treasurer and Director |
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