Form 10-Q CQENS Technologies Inc. For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended | |
or
| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ___________ to _____________ | |
| Commission
file number | |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | not applicable | not applicable |
Indicate
by check mark whether the registrant (1) has 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| 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 Act). Yes☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. shares of common stock are issued and outstanding as of August 15, 2022.
TABLE OF CONTENTS
| Page No. | ||
| PART 1 – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (Unaudited). | 1 |
| Item 2. | Management Discussion and Analysis of Financial Condition and Results of Operations. | 7 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 13 |
| Item 4. | Controls and Procedures. | 13 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 13 |
| Item 1A. | Risk Factors. | 13 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 14 |
| Item 3. | Defaults upon Senior Securities. | 14 |
| Item 4. | Mine Safety Disclosures. | 14 |
| Item 5. | Other Information. | 14 |
| Item 6. | Exhibits. | 14 |
| i |
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about:
| ● | financial risks, including: |
| ● | our history of losses, lack of revenues and insufficient working capital; | |
| ● | our ability to continue as a going concern; | |
| ● | our ability to raise capital; |
| ● | business risks, including: |
| ● | our limited operating history and lack of products; | |
| ● | the lack of operating history of Leap Technology LLC; | |
| ● | the joint venture with the Barker Group/Firebird Manufactures remains to be finalized; | |
| ● | potential conflicts of interest of our management; | |
| ● | reliance on third parties; | |
| ● | potential FDA oversight; | |
| ● | lack of marketing and distributing experience; | |
| ● | possible inability to establish and maintain strategic partnerships; | |
| ● | possible dependence on licensing or collaboration agreements; |
| ● | risks relating to our common stock, including: |
| ● | the lack of a public market for our common stock; and | |
| ● | possible impact of Delaware’s anti-takeover statutes on our shareholders. |
You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements, Part 1. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed on April 14, 2022 (the “2021 10-K”) and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
OTHER PERTINENT INFORMATION
Unless specifically set forth to the contrary, when used in this report the terms “CQENS,” “we,” “our,” “us,” and similar terms refer to CQENS Technologies Inc., a Delaware corporation. In addition, “second quarter of 2022” refers to the three months ended June 30, 2022, “second quarter of 2021” refers to the three months ended June 30, 2021, “2021” refers to the year ended December 31, 2021, and “2022” refers to the year ending December 31, 2022. The information which appears on our web site at www.cqens.com is not part of this report.
| ii |
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.
CQENS Technologies Inc.
Balance Sheets
| June 30, 2022 | December 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment, net | ||||||||
| Intellectual property, net | ||||||||
| Right-of-use asset - lease | ||||||||
| Leasehold improvement, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of lease liability | ||||||||
| Total Current Liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock: $ par value: shares authorized shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Common Stock: $ par value; shares authorized: shares issued and outstanding at June 30, 2022 and at December 31, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to unaudited financial statements
| 1 |
CQENS Technologies Inc.
Statements of Operations
(Unaudited)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| Other (Expense) | ||||||||||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted loss per common share | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic and diluted weighted average shares outstanding | ||||||||||||||||
See accompanying notes to unaudited financial statements
| 2 |
CQENS Technologies Inc.
Statements of Changes in Stockholders’ Equity
For the three and six months ended June 30, 2022 and 2021
(Unaudited)
| Common Stock | Additional | |||||||||||||||||||
| Number of Shares | $0.0001 Par Value | Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance, March 31, 2022 | $ | ( | ) | $ | ||||||||||||||||
| Stock options expense | - | $ | ||||||||||||||||||
| Net Loss | - | ( | ) | $ | ( | ) | ||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional | |||||||||||||||||||
| Number of Shares | $0.0001 Par Value | Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance, December 31, 2021 | $ | ( | ) | $ | ||||||||||||||||
| Stock options expense | - | $ | ||||||||||||||||||
| Net Loss | - | ( | ) | $ | ( | ) | ||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional | |||||||||||||||||||
| Number of Shares | $0.0001 Par Value | Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance, March 31, 2021 | $ | ( | ) | $ | ||||||||||||||||
| Common stock for cash | $ | |||||||||||||||||||
| Common stock issued for consulting services | $ | |||||||||||||||||||
| Stock options expense | - | $ | ||||||||||||||||||
| Net Loss | - | ( | ) | $ | ( | ) | ||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common Stock | Additional | |||||||||||||||||||
| Number of Shares | $0.0001 Par Value | Paid in Capital | Accumulated Deficit | Total | ||||||||||||||||
| Balance, December 31, 2020 | $ | ( | ) | $ | ||||||||||||||||
| Common stock for cash | $ | |||||||||||||||||||
| Common stock issued for consulting services | $ | |||||||||||||||||||
| Stock options expense | - | $ | ||||||||||||||||||
| Net Loss | - | ( | ) | $ | ( | ) | ||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
See accompanying notes to unaudited financial statements
| 3 |
CQENS Technologies Inc.
Statements of Cash Flows
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||
| Amortization expense | ||||||||
| Lease expense | ||||||||
| Depreciation expense | ||||||||
| Stock options expense | ||||||||
| Common stock issued for consulting services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows used in investing activities | ||||||||
| Additions to intellectual property | ( | ) | ( | ) | ||||
| Additions to furniture and equipment | ( | ) | ||||||
| Leasehold improvements | ( | ) | ||||||
| Net cash flows used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Net Cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplementary disclosure for non-cash activities: | ||||||||
| Right-of-use asset in exchange for lease liability | $ | $ | ||||||
See accompanying notes to unaudited financial statements
| 4 |
CQENS Technologies Inc.
Notes to Unaudited Financial Statements
June 30, 2022
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF BASIS OF PRESENTATION
Nature of Business
CQENS Technologies, Inc. (“we”, “our”, the “Company”, “CQENS”) is a technology company with a proprietary method of heating plant-based consumable formulations that produce an aerosol that lead to the effective and efficient inhalation of the plant’s constituents. This is accomplished at a high temperature but without the accompanying constituents of combustion. Our system of heating is a high temperature, non-combustion system. Our Heat-not-Burn Tobacco Product (HTP) system is a patent-pending method of heating plant-based consumables for inhalation that is superior to other methods of ingestion, smoking, vaping, swallowing or via topical application.
In the six months ended June 30, 2022 the effects of the COVID-19 pandemic were felt by the Company. While the duration and full impact of the pandemic is unknown at this time, we expect that the pandemic will continue to adversely impact CQENS in several ways. Our business model is dependent upon our ability to enter into strategic partnerships in the future, including alliances with consumer product companies, to enhance and accelerate the development and commercialization of our proposed products. We will also be dependent upon third party manufacturers to produce our proposed products, as well as third party marketing and distribution companies. We believe that our business opportunities are international in nature and include potential partnerships in the UK, the EU and Asia, including the People’s Republic of China. The worldwide pandemic caused by COVID-19 have caused certain of these opportunities to be delayed. Although the pandemic continues in 2022 and while certain of these opportunities might be limited or lost, we are optimistic that in the second half of this year we can raise a limited amount of working capital. We will need to raise additional working capital to provide sufficient funding to bring our proposed products to market. The impact of COVID-19 on the capital markets will make it more difficult for small, pre-revenue companies such as ours to access capital. We will continue to assess the impact of the COVID-19 pandemic on our Company, however, at this time we are unable to predict all possible impacts on our company, our operations and our prospects.
Basis of Presentation
Basis of Presentation - The accompanying financial statements have been prepared by the Company without audit. In the opinion of the management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of June 30, 2022 have been made.
Certain information and footnote disclosures included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and footnotes thereto in the Company’s December 31, 2021 audited financial statements. The results of operations for the period ended June 30, 2022 are not necessarily indicative of the operating results for the full year.
Recent Accounting Pronouncements
The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.
NOTE 2 – GOING CONCERN
The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company has recurring losses, and although has cash and cash equivalents in excess of five hundred thousand dollars, with renewed research and development efforts and with no source of revenue sufficient to cover its operations costs over the next 12 months these may not allow it to continue as a going concern. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company will be dependent upon the raising of additional capital. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
| 5 |
NOTE 3 – STOCKHOLDERS’ EQUITY
There was sale of our common stock during the six months ended June 30, 2022.
On April 21, 2022, we granted options under the Company’s 2014 Equity Compensation Plan to two consultants. Each of the consultants was granted options, fully vested upon grant, to purchase shares at an exercise price of $ per share. The fair market value of the options at the grant date using the Black Sholes option pricing model was determined to be $.
On June 24, 2022 we granted options under the Company’s 2014 Equity Compensation Plan to a consultant. The options granted are fully vested upon grant and allow consultant to purchase shares of the Company’s stock at an exercise price of $ per share. The fair market value of the options at the grant date using the Black Sholes option pricing model was determined to be $.
On
February 15, 2021, we granted options under the Company’s 2019 Equity Compensation Plan to two consulting engineers involved
in our research and development. Each of the consultants was granted options to purchase shares at $ per share. of
the grants are exercisable immediately, with the balance vesting over the next in equal installments and subject to certain
terms and conditions, including continuing in their consulting roles through the vesting periods. The fair market value of the options
at the grant date was determined to be $ of which $
On
March 15, 2021, we sold a total of shares of our common stock for $
On
April 21, 2021, we sold a total of shares of our common stock to two non-U.S. Persons each paying $
On May 1, 2021, we entered into a consulting engagement memorandum with an unrelated third party for the consultant’s guidance and expertise in identifying business opportunities, partners and other skilled consultants in the People’s Republic of China and/or other territories of Asia. As compensation for the services, we issued this individual shares of our common stock valued at $. The recipient was a non-U.S. person and the issuance was exempt from registration under the Securities Act in reliance on an exemption provided by Regulation S promulgated thereunder.
On May 16, 2021, we entered into a consulting engagement memorandum with an unrelated third party pursuant to which we engaged this party to identify key Asian resources for our company. As compensation for the services, we issued this individual shares of our common stock valued at $. The recipient was a non-U.S. person and the issuance was exempt from registration under the Securities Act in reliance on an exemption provided by Regulation S promulgated thereunder.
On
May 17, 2021, we sold a total of shares of our common stock for $
NOTE 4 – RELATED PARTY TRANSACTIONS
We
maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease the premises on a month-to-month basis from 5550
Nicollet, LLC, a company owned by Mr. Chong. Rent for each of the second quarters of 2022 and 2021 was $
| 6 |
Note 5 – LEASES
We account for our leases under ASC 842, Leases, which requires all leases to be reported on the balance sheet as right-of-use assets and lease obligations. We elected the expedients permitted under the transition guidance that retained lease classification and initial direct costs for any leases that existed prior to adoption of the standard.
We categorized leases with terms longer than twelve months as either operating or finance. Finance leases are generally those leases that would allow us to substantially utilize or pay for the entire asset of its estimated life. Assets acquired under finance leases are recorded in property and equipment, net. All other leases are categorized as operating leases. We did not have any finance leases as of June 30, 2022. Our lease for property is for three years. We elected the accounting policy to include both the lease and non-lease components of our agreements as a single component and account for them as a lease.
Lease liabilities are recognized at the present value of the fixed lease payments using a discount rate based on similarly secured borrowings available to us. Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the lease. Lease assets are tested for impairment in the same manner as long-lived assets used in operations. Leasehold improvements are capitalized at cost over the lesser of their expected useful life or the lease term.
When we have options to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease. Costs associated with the operating lease are recognized on a straight-line basis within operating expenses over the term of the lease.
The following table presents the lease-related asset and liability recorded on the balance sheets:
| June 30, | ||||
| 2022 | ||||
| Assets | ||||
| Leasehold improvement, net | $ | |||
| Operating lease asset | $ | |||
| Liabilities | ||||
| Current | ||||
| Operating lease liabilities | $ | 25,101 | ||
| Noncurrent | ||||
| Operating lease liabilities | $ | 126,204 | ||
Supplemental cash flow information related to leases were as follows:
| Six Months Ended | ||||
| June 30, 2022 | ||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||
| Operating cash flows from operating leases | $ | |||
| ROU assets recognized in exchange for lease obligations | ||||
| Operating leases | $ | |||
The table below present the remaining lease terms and discount rates for operating lease.
| June 30, 2022 | ||||
| Weighted-average remaining lease term | ||||
| Operating lease | ||||
| Weighted-average discount rate | ||||
| Operating lease | % | |||
Maturities of lease liabilities as of June 30, 2022, were as follows:
| Operating Lease | ||||
| 2022 (six months remaining) | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: amount of lease payments representing interest | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
| Less: current obligations under lease | $ | ( | ) | |
| Non-current obligations | $ | |||
Note 6 – SUBSEQUENT EVENTS
On
July 11, 2022 we sold shares of our common stock for $
On July 11, 2022 we issued shares of our common stock to a consultant for the consultant’s guidance in identifying business opportunities, partners and other skilled consultants in both Asia and North America.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations for the six months ended June 30, 2022 and 2021 should be read in conjunction with the unaudited financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Cautionary Statements Regarding Forward-Looking Information” appearing earlier in this report, Part I. Item 1A. Risk Factors appearing in our 2021 10-K, and our other filings with the Securities and Exchange Commission. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this report.
| 7 |
Overview
We are a technology company; we design and develop innovative methods to heat plant-based and/or medicant-infused formulations to produce aerosols for the efficient and efficacious inhalation of the plant and medicant constituents contained therein. We have two ways of accomplishing this: 1) at high temperatures via induction without combustion or the constituents of combustion; and 2) at low temperatures, where we heat an inert carrier, producing an inhalable, medicant-infused aerosol while maintaining the integrity of the active ingredient(s).
Our high-temperature non-combusting technology is supported by 22 U.S. and international patents and pending patents. Among the applications of our patented and patent-pending technology are those for Heat-not-Burn (“HnB”) devices. In one instance for example, our method of heating a tobacco formulation for inhalation is superior, less toxic and far more convenient than other methods of tobacco consumption, especially when compared to the inhalation of the smoke produced by combustible products, i.e., cigarettes, cigars and pipes. Independent tests of our system’s prototypes supported the benefits of rapid heating, confirmed non-combustion, even at high temperatures and produced better toxicology results, 98% better, when compared to products requiring combustion and compared to other non-combusting technologies currently on the market.
Our low-temperature, aerosolizing technology is supported by 30 U.S. and international patents and pending patents. This portfolio includes intellectual property (“IP”) around device designs and around formulations containing a wide variety of herbal and pharmaceutical preparations. This system features the ability to verify the user, validate the medicant or pharmaceutical preparation and measure, meter and monitor the proper, prescribed dosage.
We define our target market as the “international inhalation market,” a market that includes herbal, pharmaceutical, medical, recreational and lifestyle products and ingredients. Industry experts, like Nielsen, Grand View Research, Fior Markets, have published reports in the last half of 2021 that we have consolidated; these consolidated estimates support that this as a $950 billion USD annual market currently and it’s expected to grow to $1.1 trillion USD by 2025. The largest category within this market is the combustible tobacco market, comprising 92% of the total. Our near-term focus is on this segment, which represents the greatest opportunity for growth and the greatest opportunity to positively impact public health and wellness.
We believe our HnB technologies are of great interest to the international tobacco industry and the growing hemp/CBD and cannabis industries. HnBs represent the latest in tobacco and inhalable technologies, and likely to supplant the electronic vapor system (EVS) technologies including e-cigarettes and electronic nicotine delivery systems. We believe HnBs, if properly designed, will avoid many of the issues that have proved troublesome for EVS’ including thermal decomposition, heating irregularities and the formation and presence of high levels of acrolein and formaldehyde. In late 2019 Philip Morris International introduced its HnB product to U.S. markets. This product, which was sold in more than 40 countries before entering U.S. markets, like other HnB technologies, is a device that heats a tobacco stick, rather than burning it, and testing supports claims that the product can potentially reduce the number of noxious chemicals found in cigarette smoke by 95%.
Since late 2019 we have focused our efforts on commercializing our HnB technology. This entry began with the December 31, 2019 transaction pursuant to which we acquired the following assets from Xten Capital Group, Inc., formerly known as Chong Corporation (“Xten”), a related party:
| ● | assignment of all patent applications and patent related documents and materials currently assigned to or owned or held by Xten in the field of HnB methods and embodiments developed by Xten which are the backbone of the CQENS System, consisting of the following: |
| ● | the provisional patent application filed by Xten on January 3, 2018, the non-provisional patent application filed by Xten on June 28, 2018 and the Patent Cooperation Treaty (“PCT”) application filed by Xten on January 3, 2019; | |
| ● | all documents and files related to device and tobacco consumable development; | |
| ● | all versions of prototyped embodiments, consisting of both device and tobacco consumable embodiments; and | |
| ● | all files, correspondence, communication, data and test results related to the toxicology testing undertaken by Xten related to the CQENS System. |
| 8 |
| ● | exclusive licenses from Xten in the fields and applications of tobacco, nicotine, reduced tobacco risk and smoking cessation, for device patents assigned to Xten, U.S. Patent No. 9,770,564 and U.S. Patent No. 9,913,950; and | |
| ● | exclusive licenses from Xten in the fields and applications of tobacco, nicotine, reduced tobacco risk and smoking cessation, for international device patents and patent applications assigned to Xten, including those issued in the People’s Republic of China, the European Union, Japan and Hong Kong, and those pending in Germany, France, Brazil, Canada and Korea, and divisional patents pending in the European Union and Japan. |
Through to the date of this report we have continued our efforts begun in 2019, including:
| ● | On July 24, 2020, we entered into an Amended and Restated Operating Agreement (the “Operating Agreement”) of Leap Technology LLC (“Leap Technology”) with Zong Group Holdings LLC (“Zong”) and Leap Management LLC (“LM”). Under the terms of the Operating Agreement and the related Contribution Agreement dated July 24, 2020 (the “Contribution Agreement”), we acquired a 55% membership interest in Leap Technology in exchange for the contribution of an exclusive, royalty-free license (the “Leap License Agreement”) for the use in the Asia Pacific countries listed in the Contribution Agreement of certain of our intellectual property, patents pending and patents related to our heated tobacco product technology. It is expected that Leap Technology will form additional business entities to commercialize our propriety technology in those Asia Pacific countries which include China, India, Indonesia, Vietnam, the Philippines, Thailand, Malaysia, Singapore and Hong Kong. The goal of the joint venture is the market development of the Company’s intellectual property in the Asia Pacific region together with other initiatives and the formation business relationships with tobacco companies who operate in the Asia Pacific region. As of the date of this report, the joint venture is still in a pre-formative stage expected to be formalized consistent with the Restated Operating Agreement in the second half of 2022; | |
| ● | On August 25, 2020, we were issued U.S. Patent 10,750,787 by the U.S. Patent and Trademark Office for a Heat-not-Burn Device and Method. The patent covers the technology behind the proprietary CQENS System; |
| ● | On September 30, 2020, we entered into an Asset Purchase Agreement with Xten pursuant to which we acquired a portfolio of 29 U.S. and international patents and patent applications in the areas of devices and technologies for aerosolizing certain remedies and pharmaceutical preparations, as well as the solutions and preparation for inhaled delivery. This transaction effectively terminated all prior licensing agreements and resulting with the portfolio being assigned to the Company; | |
| ● | On September 30, 2020, we also entered into a second Asset Purchase Agreement with Xten pursuant to which we acquired certain assets including, but not limited to, a custom built plume and inhalation testing machine, oscilloscope with probe, multiple pieces of laboratory and workshop equipment, computers, monitors and accessories; and | |
| ● | On February 15, 2021, we entered into a non-binding Memorandum of Understanding (the “MOU”) with The Barker Group of Companies and affiliates. The Barker Group is involved in the processing, manufacturing and distribution of tobacco from “seed through shelf,” principally in the US. From planting the seeds, through growing, processing, manufacturing and finally placing the finished product on the shelf, The Barker Group has the necessary permits and facilities to support fully legal and regulatory compliant tobacco activity in the U.S. The Barker Group’s businesses have recently expanded to include hemp and CBD products. The Barker Group includes Cherokee Tobacco Company (CTC), the exclusive national distributor of Cherokee and Palmetto cigarettes, Cherokee and Arrowhead pipe tobacco, Cherokee and Virginia Heritage filtered cigars, the full line of Pure HempSmokes, Piedmont Blue CBD products and AHP hemp pre-rolls. The Barker Group distributes its products to over 130,000 US retail locations. The parties have agreed to negotiate in good faith collaborating on certain strategic initiatives, including the following: |
| 9 |
| ● | to commercialize CQENS’ patented and patent-pending HnB technology by designing devices and consumables for The Barker Group to manufacture and distribute exclusively in the U.S. for tobacco, hemp/CBD and cannabis products where U.S. laws and regulations permit; | |
| ● | to prepare and submit a Premarket Tobacco Authorization (“PMTA”) for submission to the FDA to enable the launch of the CQENS System throughout the U.S.; and | |
| ● | to expand the scope of the HnB marketing opportunities by also submitting a Modified Risk Tobacco Product (“MRTP”) application to the FDA in addition to the PMTA. |
Additionally, the MOU provides for CQENS to license its technology to The Barker Group under certain terms and conditions yet to be finalized and for The Barker Group to invest in CQENS with terms and conditions yet to be finalized. The foregoing initiatives, as well as other items contained in the non-binding MOU, are subject to the completion and execution of definitive agreements, all of which will be subject to customary closing conditions.
Since signing the MOU, we have been engaged in discussions and negotiations designed to identify an initial target market in the U.S. and the EU, to develop a product for that market and agree to a definitive agreement to launch the product.
On August 17, 2021, we entered into a Joint Venture Agreement (the “Joint Venture Agreement”) with Firebird Manufacturing, LLC (“Firebird”). Under the terms of the Joint Venture Agreement the parties have agreed to organize, negotiate and establish a limited liability company joint venture entity (the “Joint Venture Entity”) for the purposes of developing, manufacturing and distributing Heat- not-Burn (“HnB”) hemp/CBD products in the United States for an initial term of four years, subject to an automatic renewal for successive one-year terms provided certain conditions are met.. The Joint Venture Entity will be owned equally by the Company and Firebird. The Company will license its intellectual property to the Joint Venture Entity, receiving a 10% royalty on direct consumable sales and will be responsible for designing and coordinating the manufacture of an HnB device exclusively conformed to heat but not combust hemp/CBD. Firebird will be responsible for manufacturing the hemp/CBD consumable and distributing both the device and consumables to the retail locations where the product can be lawfully sold. Pursuant to the Joint Venture Agreement, the Company and Firebird will each receive on a monthly basis a distribution out of the Joint Venture profits, if any, equal to 30% after payment of expenses. The remaining profits, if any, will be distributed annually. The JV Agreement also provides that the parties will be prohibited from marketing a competing product for two years following the termination of the Joint Venture Entity, subject to penalty in the amount of $5 million. The Joint Venture Agreement also sets forth in general terms the respective contributions of the parties, including equipment, manufacturing facilities, intellectual property and expertise. Under the terms of the Joint Venture Agreement, there will be five managers of the Joint Venture Entity, three of whom will be designated by the Company and two of whom will be designated by Firebird. In the event the parties formalize and enter into a Joint Venture Entity Operating Agreement, Jay Barker, an affiliate of Firebird, may be appointed to the Company’s board of directors. The Joint Venture Agreement contains customary representations and warranties. The parties have also agreed to indemnify each other and the JV against any losses arising from a breach by the other of certain representations and warranties. The execution of the Joint Venture Entity Operating Agreement is subject to formalizing the definitive Joint Venture Operating Agreement and the execution of additional agreements, including a license agreement for the use of intellectual property, certain product development agreements, supply agreements and such other agreements as may be necessary to further the purpose of the Joint Venture Agreement. There are no assurances that the parties will complete and formalize such agreements.
On July 13, 2022, we announced that we completed R&D stages for the module for the automated manufacture of consumables for its proprietary, patented and patent pending Heat-not-Burn system. The system heats plant-based and/or medicant-infused formulations to produce aerosols for the inhalation of the plant and medicant constituents without combustion or the constituents of combustion, although there are no assurances its products can be commercialized. Contemporaneous with the completion of these R&D stages, effective July 13, 2022 the Company entered into a manufacturing contract with Montrade S.p.A., (“Montrade”) a company based in Bologna, Italy, for Montrade to manufacture and install the module. The Company made an initial payment of $589,265 USD and is required to make additional payments of up to $1,086,465 USD for the module as certain stages are completed. Montrade is an industry leading designer and manufacturer of machines for a wide range of products, including heated tobacco products.
On August 1, 2022 the Company was informed that the Patent Office of Singapore issued the Company Singapore Patent No. 11202006324T for our innovative Heat-not-Burn (“HnB”) system on January 21, 2022. We were further informed that the US Patent and Trademark Office issued the Company US Patent No. 11,272,741 also for our HnB system on March 15.2022.
On August 2, 2022 we were informed that the patent office of Japan issued the Company a Patent, registration number 7093919, for our HnB system on June 23, 2022. As of the date of this filing, we now have a total of four HnB related Patents and another 21 pending US and international patents for the system.
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Going concern
For the six months ended June 30, 2022, we reported a net loss of $2,377,237 and net cash used in operations of $1,589,948 compared to a net loss of $2,601,485 and net cash used in operations of $652,174 for the six months ended June 30, 2021. At June 30, 2022, we had cash on hand of $1,840,776 and an accumulated deficit of $15,686,731. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2021 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our limited cash and no source of revenues which may not be sufficient to cover our operating costs. These factors, among others, despite the cash and cash equivalent amount on hand at the end of this quarter, raise substantial doubt about our ability to continue as a going concern and pay our obligations as they become due over the next year. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to raise additional capital, develop a source of revenues, report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.
Results of operations
We did not generate any revenues from our operations in the first six months of 2022 or 2021. Our total operating expenses for the second quarter of 2022 increased 99.1% over those reported in the second quarter of 2021 while the first half of 2022 decreased 8.6% over those reported in the first half of 2021. General and administrative expenses decreased 14.1% in the first six months of 2022 compared to the same period in 2021 due mainly to the non-cash stock option expense of $1,672,293 relating to the options granted to two consulting engineers involved in research and development activities during 2021.
Research and development expenses in the second quarter of 2022 increased 20.8% over this same period in 2021 while the first six months show an increase of 11.0% over the first half of 2021 which reflects the cost of building and testing product prototypes. Professional fees decreased 45.1% in the second quarter of 2022 compared to the second quarter of 2021 with an overall increase of 2.9% in the first half of 2022 when compared to this same period in 2021 which is attributable primarily to an increase in consulting services and their associated fees. Professional fees in 2022 includes an agreement entered into in January 2022 with an unrelated third party whereby the consultant will provide introductions to manufacturers and advice and counsel regarding potential manufacturers for the products of the Company in the Peoples Republic of China and/or other territories of Asia and general business plan and strategy in the region as required by the Company. Further the consultant will identify and introduce high net worth capital sources (qualified non-U.S. investors) to the Company. In exchange the Company paid a consulting fee of $333,000.
We expect that our operating expenses will increase as we continue to develop our business and we devote additional resources towards promoting that growth, most notably reflected in anticipated increases in research and development, general overhead, salaries for personnel and technical resources, as well as increased costs associated with our SEC reporting obligations. However, as set forth elsewhere in this report, our ability to continue to develop our business and achieve our operational goals is dependent upon our ability to raise significant additional working capital. As the availability of this capital is unknown, we are unable to quantify at this time the expected increases in operating expenses in future periods.
Liquidity and capital resources
Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of June 30, 2022, we had $1,840,776 in cash and cash equivalents and a working capital surplus of $2,049,138 as compared to $3,588,377 in cash and cash equivalents and a working capital surplus of $3,532,821 at December 31, 2021. Our current liabilities decreased $57,441 from December 31, 2021, reflecting a $26,385 decrease in accounts payable and a $56,157 decrease in accrued expenses offset by $25,101 in current portion of our lease liability. Our source of operating capital in the six months ended June 30, 2022 came solely from the cash on hand at the end of 2021 compared to the six months ended June 30, 2021 where we sold 214,288 shares of our common stock that raised $1,500,000.
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The ability of the Company to continue as a going concern is dependent upon the Company obtaining adequate capital to fund operating losses until it becomes profitable. As the company is not generating revenues, continued activities and expenditures to bring product(s) to market as soon as we are able is important. Management believes the currently available funding will be insufficient to finance the Company’s operations for a year from the date of these financial statements and to satisfy our obligations as they become due.
As of June 30, 2022 we have no outstanding debt with a related party and at June 30, 2021 the outstanding amount we owed a related party was $255,544 which is due on demand.
We will need to raise $3,000,000 to $5,000,000 in additional capital during the next 12 months. As we do not have any firm commitments for all or any portion of this necessary capital, there are no assurances we will have sufficient funds to fund our operating expenses and continued development of our products and to satisfy our obligations as they become due over the next 12 months. In that event, our ability to continue as a going concern is in jeopardy.
Summary of cash flows
| June 30, 2022 | June 30, 2021 | |||||||
| Net cash (used) in operating activities | $ | (1,589,948 | ) | $ | (652,174 | ) | ||
| Net cash (used) in investing activities | $ | (157,653 | ) | $ | (79,065 | ) | ||
| Net cash provided by financing activities | $ | - | $ | 1,500,000 | ||||
Our cash used in operating activities increased 143.8% in the six months ended June 30, 2022 when compared to the six months ended June 30, 2021. During these time periods we primarily used the cash to fund our net losses.
In the first half of 2022 there was $157,653 net cash used in investing activities from capitalization of IP related legal fees, for additions to furniture and equipment, and leasehold improvements compared to net cash used in investing activities of $79,065 for the capitalization of IP related legal fees in the first half of 2021.
In the first half of 2022 we did not have any net cash provided by financing activities. In the first half of 2021 our net cash provided by financing activities consisted of $1,500,000 raised from the sale of 214,288 shares of our common stock.
Critical accounting policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, accounts receivable allowances and impairment of long-lived assets. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 2 to our unaudited financial statements for 2021 appearing in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 14, 2022.
Off balance sheet arrangements
As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable for a smaller reporting company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures” as such term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure due to the presence of continuing material weakness in our internal control over financial reporting as reported in our Annual Report on Form 10-K for the year ended December 31, 2021. These material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple level of review in the financial close process.
The existence of the continuing material weaknesses in our internal control over financial reporting increases the risk that a future restatement of our financials is possible. In order to remediate these material weaknesses, we will need to expand our accounting resources. We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal control over financial reporting on an ongoing basis, however, we do not expect that the deficiencies in our disclosure controls will be remediated until such time as we have remediated the material weaknesses in our internal control over financial reporting. Subject to the availability of sufficient capital, we expect to expand our accounting resources during 2022, in an effort to remediate the material weaknesses in our internal control over financial reporting.
Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting 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.
Item 1A. Risk Factors.
In addition to the other information set forth in this report you should carefully consider the risk factors in Part I, Item 1A in our 2021 10-K and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable to our company’s operations.
Item 5. Other Information.
None.
Item 6. Exhibits.
+ Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the Staff of the Securities and Exchange Commission upon request any omitted information.
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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.
| CQENS Technologies Inc. | ||
| August 15, 2022 | By: | /s/ Alexander Chong |
| Alexander Chong, Chief Executive Officer | ||
| August 15, 2022 | By: | /s/ Daniel Markes |
| Daniel Markes, Chief Financial Officer | ||
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EXHIBIT 10.2
CERTAIN IDENTIFIED INFORMATION [***] HAS BEEN EXCLUDED FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARM IF PUBLICLY DISCLOSED.
Purchase Agreement
No.: 0122
Between
CQENS Technologies Inc.
And
Montrade S.p.A.
For the purchase of:
The development, manufacture, delivery, and installation of an automated 100 stick per minute ‘vapour/heat stick’ manufacturing line.
CONTENTS
| CLAUSE | PAGE | |
| 1. | definitions and interpretation | 2 |
| 2. | sale and purchase | 5 |
| 3. | pricing and payment | 5 |
| 4. | Terms of DElivery and deadlines | 7 |
| 5. | insurance | 7 |
| 6. | liquidated damages | 7 |
| 7. | warranties | 8 |
| 8. | pre-delivery inspection | 8 |
| 9. | installation and Commissioning | 9 |
| 10. | Acceptance Testing | 9 |
| 11. | defective equipment | 10 |
| 12. | training | 10 |
| 13. | documentation | 10 |
| 14. | limitation of liability | 11 |
| 15. | intellectual property | 11 |
| 16. | force majeure | 12 |
| 17. | termination | 12 |
| 18. | confidential information | 13 |
| 19. | dispute resolution and governing law | 14 |
| 20. | NOTICES | 14 |
| 21. | ASSIGNMENT AND SUB-CONTRACTING | 15 |
| 22. | invalidity | 15 |
| 23. | waiver | 15 |
| 24. | NO PARTNERSHIP | 15 |
| 25. | ENTIRE AGREEMENT | 15 |
| Schedule 1 |
| Technical Specification of Equipment |
| Schedule 2 |
| Performance Standards |
| Schedule 3 |
| Documentation |
| Schedule 4 |
| Timetable |
| Schedule 5 |
| Spare Parts |
| Schedule 6 |
| Related Equipment |
| 1 |
THIS AGREEMENT is made on 14thJUNE 2022BETWEEN:
| (1) | CQENS Technologies Inc, of 5550 Nicollet Avenue, Minneapolis, MN 55419, USA or its assigns (the “Buyer”); |
| and | |
| (2) | Montrade S.p.A., Via Armando Sarti 6, 40132 Bologna, Italy (the “Seller”). |
RECITALS
| (A) | The Seller carries on the business of manufacturing and selling the Equipment, as defined below. |
| (B) | The Buyer carries on the business of manufacturing and selling the Finished Products, as defined below. |
| (C) | The Buyer is willing to purchase from the Seller the Equipment for use in connection with its business on the terms set out in this agreement. |
THE PARTIES AGREE AS FOLLOWS:
| 1. | definitions and interpretation |
| 1.1 | In this agreement, the following words and expressions shall have the following meanings, unless the context otherwise requires: |
“Acceptance” means the successful completion of the Acceptance Tests and any relevant Repeat Tests (and “Accepted” shall be construed accordingly);
“Acceptance Certificate” means the letter to be issued by the Buyer on Acceptance confirming the successful completion of the Acceptance Tests;
“Acceptance Date” means the date of issue of the Acceptance Certificate;
“Acceptance Tests” means the tests to be carried out by the Buyer and Seller pursuant to clause 10 (and “Acceptance Testing” shall be construed accordingly);
“Computer Software” means any and all computer programs as back up files including the Human machine Interface back up file and all documentation, including user manuals, relating to the foregoing.
“Delivery Premises” means the Buyers facility at ___________________________ or such other place as Buyer shall designate.
“Delivery” means the Equipment having been brought on to the Delivery Premises and being in all respects ready and available for installation;
“Delivery Date” has the meaning given to it in the Timetable at schedule 4;
“Documentation” means the documentation listed at schedule 3, together with any further documentation in respect of the operation, maintenance, or repair of the Equipment supplemental to it issued by the Seller from time to time;
| 2 |
“Encumbrance” means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, trust, right of set-off or other third party right or interest (whether legal or equitable and including, without limitation, a third party right or interest arising out of or referable to a conditional sale, credit sale, hire-purchase agreement or agreement for lease or use), assignment by way of security, reservation of title or any other security interest of any kind however created or arising or any other agreement or arrangement (including, without limitation, a sale and repurchase arrangement) having similar effect;
“Equipment” means the equipment to be designed and built by Seller and purchased by the Buyer as summarised at the head of this agreement and described more particularly in the Technical Specification;
“Finished Product” means “vapor/heat” stick as described in Schedule [***] as per drawing MI002CQE022002 _;
“Force Majeure” has the meaning given to it in clause 16;
“Installation” means the process of setting up the Equipment (including its unpacking, assembly, installation, and commissioning) at the Buyer’s premises in order to render the Equipment ready for commercial operation and Acceptance Testing;
“Intellectual Property Right” means any (i) Patent, Trademark, Trae Secrets, design right (whether registered or unregistered), copyright, database right, semiconductor topography right, right of confidence or other similar intellectual or industrial property rights, (ii) any similar right which could be patented, trademarked or copyrighted anywhere in the world including any application in respect of the registration of any of the foregoing if not already protected, and (iii) all other intellectual property or proprietary rights and claims or causes of action arising out of or related to any infringement, misappropriation, or other violation of any of the foregoing, including rights to recover for past, present, and future violations thereof;
Intellectual Property shall not include drawings and software of the Equipment so long as such drawings and software are related solely to the Equipment and are not related to the production of the Finished Product in any way whatsoever;
“Patents” means all inventions and discoveries, and all patents and patent applications therefor, including divisions, continuations, continuations-in-part, and reissues
“Performance Standards” has the meaning given to it in schedule 2;
“Purchase Price” has the meaning given to it in clause 3;
“Related Equipment” means the Buyer’s existing equipment with which the Equipment is required to operate, or to which the Equipment is required to interface, as set out in schedule 6;
“Site” means the area within the Buyer’s premises where the Equipment is to be installed, together with all fixtures and fittings appurtenant to it;
“Spare Parts” means any replacement parts or components as set out in schedule 5 which may be required from time to time for the maintenance or repair of the Equipment;
“Start Date” means the date by which the Equipment shall be ready for commercial operation, as specified in the Timetable;
“Technical Specification” means the technical specification of the Equipment as set out in schedule 1;
“Timetable” means the timetable in accordance with which the Seller shall carry out its obligations as set out in schedule 4;
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“Trade Secrets” means confidential and proprietary information, trade secrets and know-how, including confidential processes, schematics, databases, formulae, drawings, prototypes, models, designs, know-how and customer lists, in each case, to the extent protectable under applicable law as a trade secret.
“Trademarks” means all trademarks, service marks, internet domain names, logos, symbols, trade dress, assumed names, fictitious names, trade names, social media account handles, and other indicia of origin, all applications, and registrations for all the foregoing, and all goodwill associated therewith and symbolized thereby, including all renewals of same;
“Training” means the training to be provided by the Seller pursuant to clause 12;
“Value Added Tax” means value added tax or any other tax of a similar nature that may be substituted for or levied in addition to it in each case at the rate current from time to time;
“Warranties” means the warranties given by the Seller pursuant to clause 9;
“Warranty Period” means the period commencing on the date of this agreement and expiring on the date 12 months from the Acceptance Date;
“Working Days” means Monday to Friday inclusive in every week of a calendar year excluding only public holidays in North Carolina (USA);
“Working Hours” means 8 a.m. to 6 p.m. on Working Days; and
“Works” means all duties and obligations of the Seller set out in this agreement (including as the same may be amended from time to time) relating to the manufacture, Installation, , and Acceptance Testing of the Equipment and the provision of the Training.
| 1.2 | In this agreement unless otherwise specified, reference to: | |
| (a) | clauses, paragraphs, and schedules are to clauses and paragraphs of and schedules to this agreement. The schedules form part of the operative provisions of this agreement and reference to this agreement shall, unless the context otherwise requires, include references to the schedules; | |
| (b) | a person includes any individual, firm, corporation or undertaking (whether or not having separate legal personality and irrespective of the jurisdiction in or under the law of which it was incorporated or exists); | |
| (c) | a statute or statutory instrument or any of their provisions is to be construed as a reference to that statute or statutory instrument or such provision as the same may have been or may from time-to-time hereafter be amended or re-enacted; and | |
| (d) | references to the Seller or Buyer shall be deemed to include their respective permitted assignees and the successors in title to substantially the whole of their respective undertakings. | |
| (e) | The index and the headings in this agreement are for information only and are to be ignored in construing the same. | |
| (f) | The terms “including” or “includes” are to be construed as being without limitation. | |
| 4 |
| 2. | sale and purchase | ||
| 2.1 | Subject to the terms and conditions of this agreement: | ||
| (a) | the Seller shall: | ||
| (i) | perform the Works according to Schedule [***], the product; and | ||
| (ii) | sell and Deliver the Equipment free from any Encumbrance; and | ||
| (b) | the Buyer shall pay for the Project/machinery development cost part (A): | ||
| (i) | Payment 1 – 1st instalment on signing of contract – 50% | ||
| (ii) | Payment 2 – 2nd instalment on completion of design phase within 4 months from signing of contract – 50% | ||
| (c) | the Buyer shall purchase the Equipment part (B): | ||
| (i) | Payment 1 – Deposit on signing of contract - 35% | ||
| (ii) | Payment 2 – Successful completion of FAT - 55% | ||
| (iii) | Payment 3 – Final Payment on install and SAT – 10% part (B) plus installation part (C) and (D) and training options as taken | ||
The transportation as delivery to the Buyer site is an additional service provided by the Seller, but it is purely a transportation service not including any import fee or taxation . The insurance fee is to be covered by the Buyer.
| 3. | pricing and payment |
| 3.1 | The total price payable by the Buyer for the Equipment and the performance by the Seller of the Works (the “Purchase Price”) shall be that sum set out in, or calculated in accordance with, the table below: |
| Item | Description | Price (EUR) | ||||
| (A) | Project/machinery development cost part a | € | 257,500 | |||
| (B) | [***] | € | 1287,500 | |||
| (C) | Installation of product detailed in B as per Montrade proposal in a location to be finalised as determined by Buyer in its sole discretion | € | 81,575 | |||
| (D) | Travelling time and costs for engineering install team to install equipment in the USA | € | 21,030 | |||
| Total | € | 1,647,605 | ||||
| OPTIONS TO BE EXERCISED BY THE BUYER | ||||||
| (E) | Training services cost if not chosen to be taken at the time of install visit | € | 65,835 | |||
| (F) | Item E if delivered in the same period as the machine installation takes place | € | 0.00 | |||
| (G) | Production support post start up- 1 engineer per week | € | 9,000 | |||
| (H) | Part b of the machinery development cost | € | 257,000 | |||
| 5 |
| 3.2 | This agreement and payment schedule calls for the payment of € 257,500 to cover the project/machinery development costs for the machine contemplated herein. Once made, the payment is made it also provides the buyer a five-year option entitling the buyer to pay another € 257,500 for similar development costs should the buyer commission another machine from the seller. In the event that the buyer declines to order another machine, the payment will provide the buyer all rights to the proprietary intellectual property arising from the development of the machine purchased under this agreement, if, in the opinion of both the buyer and seller, there is such property. Should the buyer decline the option by neither purchasing another machine nor paying for the intellectual property, the intellectual property shall remain with the seller |
| 3.3 | The Purchase Price DO NOT include all other taxes and import duties whatsoever to the Seller of effecting Delivery of the Equipment according to Incoterms 2000. The Purchase Price DO NOT include any insurance to deliver the Equipment to Buyer’s site. |
| 3.4 | The Buyer shall pay the Purchase Price as per clause 2.1 at the date as shown by an appropriate invoice from the Seller. The Seller shall issue an invoice for the relevant percentage of the Purchase Price on or by the dates, or within three Working Days after the events. |
| 3.5 | Bank Warranty |
A bank warranty/guaranty equal to the amount of the payment 1 of part (B) as per clause 2.1 must be supplied to the Buyer and be granted by a European bank of recognised reputation approved by the Buyer and is binding until successful FAT and it expires before the Equipment is despatched to its destination. It does not create any additional costs toward the Buyer and must be paid on the first Buyer’s call.
| 6 |
The outstanding amount of the part B of the contract value will be paid to the Seller by the Buyer after signing the final protocol of acceptance by both parties, latest however 120 days after receiving the equipment on site, in case, that the test of acceptance for reasons which do not have to be represented by the Seller cannot be carried out.
Unless the Buyer instructs otherwise, the Seller shall address each invoice to:
CQENS Technologies Inc., 5550 Nicollet Avenue, Minneapolis, MN 55419 USA
| 4. | Terms of DElivery and deadlines |
| 4.1 | The Seller shall effect Delivery of the Equipment according to Schedule1.1, the product , and carry out the Works in accordance with the Timetable in Schedule 4. |
| 4.2 | The Seller shall effect Delivery of the Equipment according to delivery terms Incoterm 2010; Ex-Works Bologna (Italy). |
| 4.3 | Unless agreed otherwise in writing, the Seller shall notify the Project Manager at the Buyer by facsimile or email, at least two weeks prior to Delivery, full details of the Equipment, including the dimensions, weight, and contents of any case to be used to deliver the Equipment to the Buyer. |
| 5. | insurance |
| The Buyer shall insure the Equipment at his own expense. |
| 6. | liquidated damages |
| 6.1 | The parties agree that there are no liquidated damages to be compensated by the Seller to the Buyer. |
| (a) | Attached hereto and made a part hereof as Schedule 6.1(a), is a list of sole source suppliers of Seller for parts or materials critical to the Equipment, the parts or materials supplied by such sole source supplier, and the delivery dates agreed to by the Seller and the sole source supplier. If any sole source supplier, notifies Seller of a delay in the delivery date of such soul source part or material which delivery shall be outside the delivery date set forth on Schedule 6.1(a), then in such event, Seller shall immediately notify Buyer of such delay and an estimated time of delivery of such sole source product. Buyer shall have ten (10) days form such notice to agree that (i) the Delivery Date and Acceptance Date shall be extended day for day of the soul source supplier delay, If any sole source supplier fails to provide a delay notice, and also fails to deliver such sole source product or material, then in such event, Seller shall immediately notify Buyer of such sole source supplier’s failure to deliver. Buyer shall have ten (10) days form such notice to agree that (i) the Delivery Date and Acceptance Date shall be extended day for day of the soul source supplier delay, or |
| 6.2 | If the Equipment is not, for any reason solely attributable to the Seller, Accepted by the “Acceptance Date” , the Seller shall pay, by way of liquidated damages, to the Buyer, for each full week by which the Acceptance is delayed more than 6 weeks beyond that date a sum per delayed week equal to 0,1 per cent (or whatever is agreed) of the part B of the Purchase Price, which sum the Seller acknowledges is a genuine and reasonable assessment of the damages incurred by Buyer for such delayed Acceptance . |
| 6.3 | The total sum payable by the Seller to the Buyer pursuant to clause 6.2 shall not exceed two per cent of the Purchase Price. |
| 6.4 | No further claims for compensation will be allowed on the basis of a delay for which the Seller is responsible |
| 7 |
| 7. | WARRANTIES | |
| 7.1 | The Seller warrants to the Buyer that: | |
| (a) | it will use and will procure that its employees, agents, sub-contractors use all reasonable skill and care in the performance of the Works; | |
| (b) | the Equipment shall meet the Technical Specification, be of satisfactory quality and shall operate in accordance with the Performance Standards throughout the Warranty Period; | |
| (c) | it will comply with all applicable legislation or standards, including all health and safety regulations, product safety regulations and noise emission regulations in the performance of the Works and the Equipment shall as at the Acceptance Date comply with the same; and | |
| (d) | the Equipment is, and shall continue to be, until title in it transfers to the Buyer in accordance with clause 4, its absolute property free from any Encumbrance except the rights provided to CQENS under this Agreement. | |
| 7.2 | The Warranties shall continue to apply in full notwithstanding the issue of an Acceptance Certificate by the Buyer. | |
| 8. | pre-delivery inspection (FAT) |
| 8.1 | The Buyer shall be entitled at any time prior to Delivery to inspect the Equipment at the Seller’s premises to ensure its compliance with the Technical Specification schedule [***], and the Buyer and the Seller shall together conduct such preliminary checks of the performance of the Equipment at the Seller’s premises (not amounting to the full performance of the Acceptance Tests) as the Buyer shall reasonably require. Buyer’s right to or actual inspection of the Equipment or any preliminary checks will not act to void Seller’s Warranty. |
| 8.2 | Following completion of the inspection and the checks referred to in clause 8.1 to the Buyer’s reasonable satisfaction, once the Seller declare the Equipment readiness, the Buyer shall fulfil the payment 2 of part (B) as per clause 2.1 and effect the Delivery of the Equipment in accordance with clause 4. |
| 8.3 | Completion of the inspection and checks referred to in this clause shall not operate to limit the rights of the Buyer in relation to Acceptance or otherwise void or alter the Warranty. |
| 8 |
| 9. | installation and Commissioning |
| 9.1 | Following Delivery of the Equipment, the Buyer shall notify the Seller that the Equipment is ready to be Installed. The Seller shall Install the Equipment in accordance with the Timetable. Seller shall be liable for any and all of its, its employees, contractors, or agents’ actions related to the installation of the Equipment. |
| 9.2 | When installing the Equipment, the Seller shall comply with and shall procure that its employees, agents and sub-contractors comply with all reasonable instructions issued by the Buyer to ensure that Installation and operation of the Equipment does not present any risk to the health and safety of individuals at the Buyer’s premises and that the Equipment complies with CE mark . Buyer’s instructions will not act to void the Warranty, and Seller shall remain liable for the proper installation and operation of the Equipment until the Equipment maintains the original status of parts and the correct handling in operations is executed according to the Seller’s training instructions. |
| 9.3 |
| 10. | Acceptance Testing |
| 10.1 | The Buyer and the Seller shall together conduct the Acceptance Tests in accordance with the Timetable to determine whether the Equipment: |
| (a) | complies in all material respects with the Technical Specification, schedule [***]; and | |
| (b) | operates in accordance with the Performance Standards (together the “Acceptance Criteria”). |
| 10.2 | If during the course of the Acceptance Tests the Equipment does not comply with any of the Acceptance Criteria to the satisfaction of the Buyer, for reasons only attributable to the Seller, the Equipment shall fail the Acceptance Tests and the Seller shall forthwith and at its own expense: |
| (a) | rectify any defects to the Equipment; and | |
| (b) | conduct a repeat of the Acceptance Tests (“Repeat Tests”) and | |
| (c) | . pay the liquidated damages, per week , if such failure continues past the 6 weeks from Acceptance Date |
| 10.3 | Subject to clause 10.5, the Seller shall repeat the process set out in clause 10.2 until the relevant Repeat Test demonstrates to the satisfaction of the Buyer that the Equipment complies with the Acceptance Criteria. If the Equipment fails the Acceptance Tests three or more times, Buyer may, in its sole discretion require Seller to pick up the Equipment, at Seller’s sole cost and receive a refund for the full Purchase Price. |
| 10.4 | Where the Acceptance Tests or Repeat Tests have been completed successfully the Equipment shall be deemed to be Accepted and the Buyer shall forthwith issue an Acceptance Certificate. |
| 10.5 | If the Equipment is delayed beyond 6 weeks by the Acceptance Date for reasons only attributable to the Seller , then the Seller shall be liable to pay liquidated damages to the Buyer in accordance with clause 6.2. |
| 9 |
| 11. | DEFECTIVE EQUIPMENT | |
| 11.1 | During the Warranty Period: | |
| (a) | if the Equipment ceases to operate properly or absolutely, or if it fails to continue to comply with the Performance Standards (in each case a “Defect Event”) for any reason not attributable to the actions of Buyer, then the Seller shall, at the Buyer’s request, make available in a reasonable period of time at the Buyer’s premises trained staff to inspect and commence repair of the Equipment in order to remedy the Defect Event within a reasonable time of such request; | |
| (b) | on request by the Buyer during Working Hours the Seller shall provide advice to the Buyer over the telephone or by way email or facsimile (whichever is requested by the Buyer) in relation to the maintenance or repair of the Equipment; and | |
| (c) | the Seller shall retain sufficient, trained staff to fulfil its obligations in this clause. | |
| 11.2 | All services provided by the Seller pursuant to clause 11.1 shall be undertaken or provided at no cost to the Buyer, save that where the Seller can show that the Defect Event is attributable to the Buyer’s failure to operate or maintain the Equipment in accordance with the Service Manual, in case of natural wear and tear or by the use of non-specified materials or replacement materials, the Seller may charge for that work undertaken or those services provided in accordance with its then current price list. | |
| 11.3 | The Seller undertakes that it shall at all times during the Warranty Period maintain a sufficient stock of the Spare Parts and shall deliver any Spare Parts reasonably required by the Buyer for the purposes of any maintenance of the Equipment by it as soon as possible after Buyer’s request. | |
| 11.4 | All Spare Parts provided by the Seller pursuant to clause 11.3 shall be provided at no cost to the Buyer save where the Seller can show that the Buyer’s requirement for the Spare Parts in question is attributable to its failure to operate or maintain the Equipment in accordance with the Service Manual, in cases of natural wear and tear or by the use of non-specified materials or replacement materials, in which case the Spare Parts shall be supplied at the Seller’s then current price list. | |
| 12. | training |
| 12.1 | The Seller shall, in accordance with Schedule 7, provide Buyer’s skilled employees with all necessary training in order to enable those employees to properly use and maintain the Equipment. |
| 13. | documentation |
| 13.1 | The Seller shall on or prior to the Acceptance Date supply the Buyer with the Documentation. |
| 13.2 | Seller shall maintain an insurance policy acceptable to Buyer in its reasonable discretion for Seller’s liability for any actions or inactions taken on Buyer’s property or otherwise related to the installation and operation of the Equipment a. |
| 10 |
| 14. | limitation of liability |
| 14.1 | Subject to binding statutory requirements, the Seller shall be liable for personal injury and damage to property. The Seller shall supply the Buyer with evidence of the extent of its liability insurance on request. Seller shall be liable for any and all damages caused by it, its agents, employees, or contractor, while on the property of Buyer or otherwise engaged in the installation of the Equipment |
| 14.2 | The Buyer will not be entitled to make claims other than those mentioned, except in cases of wilful intent or gross negligence on the part of the Seller in particular, neither party shall have any claims for indirect or consequential damages and shall not be liable to the other by reason of any negligence or any other tortuous action or any representation (unless fraudulent), or any implied warranty, condition or other term, or under the express terms of this agreement, for any loss of anticipated revenues, loss of profits, loss of business opportunities, indirect loss or damage, costs, expenses or other such claims for compensation whatsoever (whether caused by its negligence or that of its employees, agents or otherwise) which arises out of or in connection with the agreement, except as expressly provided in this clause. |
| 14.3 | Subject to clause 14.1 and 14.4 below, the aggregate liability of each party to the other under or in connection with the agreement shall not exceed the amount of the Purchase Price. |
| 14.4 | Nothing in this agreement shall operate to limit or exclude the liability of either party to the other for death or personal injury caused by its negligence or that of its employees, agents, or subcontractors; or for fraud (including, but not limited to, fraudulent misrepresentation), provided that nothing in this clause confers any right or remedy upon any party to which it would not otherwise be entitled. |
| 14.5 | The Seller will not be liable for the suitability of the premises, building or facilities for the installation and operation of the Equipment supplied. |
| 15. | intellectual property | |
| If use of the delivered Equipment within the Warranty Period leads to the infringement of Intellectual Property rights or Copyright , for any reason solely attributable to the Equipment mechanism, the Seller will obtain the right of continued use for the Buyer or the Seller will modify the delivered Equipment to prevent continued infringement of the intellectual property right, at its discretion. The Seller will also indemnify the Buyer against any claims by the owners of the intellectual property rights concerned, including but in no way limited to, attorneys’ fees. | ||
| The Buyer will indemnify the Seller against any claims related to the infringement of intellectual property rights or copyrights concerned the product and the methods to produce. | ||
| 15.1 | Save as provided in this agreement the above undertakings will be final in the event of intellectual property right or copyright infringement. | |
| They will apply only if | ||
| a. | the Buyer informs the Seller of the intellectual property right or copyright infringement claims within 20 working days, | |
| b. | the Buyer provides the Seller with reasonable assistance to counter these claims and enable the Seller, where appropriate, to make the modifications referred to in clause 15.1 at no cost to Buyer | |
| 11 |
| c. | the Seller reserves the right to take any action to counter these claims, including the right to settle out of court, | |
| d. | , and | |
| e. | the infringement did not occur because the Buyer altered the delivered Equipment independently or used it in violation of the agreement. | |
| 15.2 | For purposes of this Agreement, “Innovations” shall mean any invention, improvement, discovery or idea, whether or not shown or described in writing or reduced to practice, and works of authorship, whether or not patentable or copyrightable, including “works for hire” as that term is defined in the United States Copyright Act (17 U.S.C. § 101), which (i) relate directly to the business of the Buyer, (ii) relate to the Buyer’s actual or demonstrably anticipated research and development, (iii) result from any work performed by the Seller’s employees agents, independent contractors, shareholders or officers pursuant to this Agreement, or (iv) are developed or conceived through the use of Confidential Information or equipment, supplies or facilities provided by Buyer. | |
| Seller acknowledges that all Innovations have been created or are being created at the instance of Buyer and are “works made for hire,” as that term is defined in the United States Copyright Act (17 U.S.C. § 101) and otherwise by common law. If such laws are inapplicable or in the event that such works, or any part thereof, are determined by a governmental authority or a court of competent jurisdiction not to be works made for hire, then Seller hereby grants an irrevocable, exclusive, and unconditional assignment by Seller to Buyer of all of Seller’s right, title and interest (including, without limitation, all rights in and to the patents, copyrights, or comparable protections throughout the world, including the right to prepare derivative works and the right to all renewals and extensions). | ||
| The above Is valid starting from the payment remittance by the Buyer to Seller of part (H) of the Contract Price as in clause 3.1 within 6 months from Ex-works delivery of the Equipment. | ||
| 16. | force majeure | |
| 16.1 | For the purpose of this clause 16 the term ““Force Majeure Even”“ means, in relation to either party, an event or circumstance beyond the reasonable control of that party (the ““Claiming Part”“). | |
| 16.2 | The Claiming Party shall not be deemed to be in breach of this agreement (the “Non-claiming Part”“) for any delay in performance or any non-performance of any obligations under this agreement (and the time for performance shall be extended accordingly) if and to the extent that the delay or non-performance is due to a Force Majeure Event, always provided that: | |
| (a) | the Claiming Party could not have avoided the effect of the Force Majeure Event by taking precautions which, having regard to all matters known to it before the occurrence of the Event of Force Majeure and all relevant factors, it ought to have taken but did not take; and | |
| (b) | the Claiming Party has used its best endeavours to mitigate the effect of the Force Majeure Event and continues to carry out its obligations under this agreement in any other way that is practicable. | |
| 16.3 | As a condition precedent of relief under this clause, the Claiming Party shall promptly notify the Non-claiming Party of the nature and extent of the circumstances giving rise to the Force Majeure Event within seven days of becoming aware of the Force Majeure Event. | |
| 12 |
| 16.4 | If the Force Majeure Event in question prevails for a continuous period of more than six months after the date on which it began, the Non-claiming Party may give notice to the Claiming Party terminating this agreement. The notice to terminate must specify the termination date, which must be not less than 20 Working Days after the date on which the notice to terminate is given. Once a notice to terminate has been validly given, this agreement will terminate on the termination date set out in the notice. |
| 17. | confidential information | |
| 17.1 | For the purposes of this clause, “Business Information” means all business, commercial, economic, financial, operational, technical, administrative, marketing, planning and staff information and data relating to either party or any of its group companies and “Equipment Information” means all technical information and data relating to the nature or specification of the Equipment provided by either party to the other. | |
| 17.2 | Each party undertakes to the other in respect of all Business Information and in respect of all Equipment Information that: | |
| (a) | it shall not use any such Business Information or Equipment Information for any purpose other than the proper performance by it of the obligations to which it is subject pursuant to this agreement; and | |
| (b) | it shall not, without the express written consent of the other, disclose any such Business Information or Equipment Information to any person other than to such of its directors, employees and advisers who are necessarily required in the course of their duties to receive and act on the same for the purpose of the proper performance by it of the obligations to which it is subject pursuant to this agreement. | |
| 17.3 | The obligations of confidentiality provided for by clause 17.2 shall not apply in respect of Business Information or Equipment Information to the extent that such information: | |
| (a) | is in the public domain as at the date of this agreement or comes into the public domain hereafter otherwise than by reason of the disclosure of such information in breach of the terms of this agreement; or | |
| (b) | is required to be disclosed as a matter of law or by any court or governmental, administrative, or regulatory authority (including pursuant to the rules of any stock exchange) competent to require such disclosure. | |
| 17.4 | Each party shall, forthwith upon receipt by it of written demand from the other, return all written Business Information and Equipment Information provided to it, its directors, employees and advisers and all copies of the same, and shall either return or destroy all notes, memoranda and other stored information (including information stored in any computer system or other device capable of containing information whether in readable form or otherwise) prepared by it, its directors, employees and advisers which relate to any Business Information or Equipment Information, whether or not any of the same are then in its possession and it will, upon receipt of written demand, confirm in writing that all such Business Information and Equipment Information has been returned or destroyed. | |
| 17.5 | Neither party shall disclose the making of this agreement nor its terms without the prior written consent of the other. | |
| 17.6 | Each party undertakes to the other that it shall procure that each of its employees and all those persons to whom Business Information or Equipment Information is disclosed pursuant to clause 17.2(b) shall observe the terms of this agreement relating to such Business Information and Equipment Information in all respects as if they were party to it. | |
| 17.7 | The obligations and restrictions provided for by this clause shall apply without limit of time and whether or not this agreement has expired or been terminated. | |
| 13 |
| 18. | governing law AND JURISDICTION |
The parties hereby irrevocably and unconditionally: (1) agree that any action or Proceeding related to this Agreement shall be brought in, and hereby submits itself and its property to the jurisdiction of, the courts of the State of minnesota located in the City of minneapolis. the courts of the United States of America for the ____________ District of minnesota, and the appellate courts from any thereof; (2) consent to the venue of any such action or Proceeding in any of said courts and waives any objection that it may have, now or hereafter, that such action or Proceeding was brought in an inconvenient court and agrees not to plead or claim the same; and (3) agree that service of process in any such action or Proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the party against whom the action or Proceeding is brought at its address set forth herein, provided the same is permitted by the appropriate rules of the governing court.
The interpretation and construction of this Agreement, the obligations of the Parties, and any claims or disputes relating to this Agreement, shall be governed by, and construed in accordance with, the domestic Laws of the State of minnesota excluding the choice or conflicts of law rules .
| 19. | NOTICES |
Any notice, demand or other communication given or made under or in connection with this agreement (other than requests made pursuant to clause 11.1) shall be in writing and shall be delivered personally or sent by fax or prepaid first-class post or overnight delivery service (air mail or overnight delivery service if posted to or from a place outside the country of delivery):
| In the case of the Buyer to: CQENS Technologies Inc. | |
Address:5550 Nicollet Avenue, Minneapolis MN 55419 |
|
| Attention: W Bartkowski | |
| Email: [email protected] | |
| In the case of the Seller to: Montrade S.p.A. | |
| Address: Via Armando Sarti 6, 40132 | |
| Bologna, Italy | |
| Attention: Antonella Giannini | |
| Email: [email protected] |
and shall be deemed to have been duly given or made as follows:
| (a) | if personally delivered, upon delivery at the address of the relevant party; | |
| (b) | if sent by first class post, two Working Days after the date of posting; |
| (c) | if sent by air mail, five Working Days after the date of posting; | |
| (d) | if sent by fax, when despatched; and | |
| (a) | if sent by overnight delivery service, three working days after date of delivery to such service; |
provided that, if in accordance with the above provision, any such notice, demand or other communication would otherwise be deemed to be given or other communication would otherwise be deemed to be given or made outside Working Hours, such notice, demand, or other communication shall be deemed to be given or made at the start of Working Hours on the next Working Day.
| 14 |
| 20. | ASSIGNMENT AND SUB-CONTRACTING |
| 20.1 | Seller party may, without the prior written consent of the Buyer, assign the benefit of all or any of the Seller’s obligations under this agreement, nor any benefit arising under or out of this agreement, nor sub-contract or delegate the performance of any obligation to which it is subject pursuant to this agreement.
Buyer may assign its rights and obligations under this agreement in in its sole discretion. |
| 21. | invalidity | |
| 21.1 | If any provision of this agreement is or becomes (whether or not pursuant to any judgment or otherwise) invalid, illegal, or unenforceable in any respect under the law of any jurisdiction: | |
| (a) | the validity, legality, and enforceability under the law of that jurisdiction of any other provision; and | |
| (b) | the validity, legality, and enforceability under the law of any other jurisdiction of that or any other provision, | |
shall not be affected or impaired in any way thereby.
| 21.2 | If any provision of this agreement shall be held to be void or declared illegal, invalid, or unenforceable for any reason whatsoever, such provision shall be divisible from this agreement and shall be deemed to be deleted from this agreement and the validity of the remaining provisions shall not be affected. In the event that any such deletion materially affects the interpretation of this agreement then the parties shall negotiate in good faith with a view to agreeing a substitute provision which as closely as possible reflects the commercial intention of the parties. |
| 22. | waiver |
| 22.1 | A waiver of any term, provision, or condition of, or consent granted under, this agreement shall be effective only if given in writing and signed by the waiving or consenting party and then only in the instance and for the purpose for which it is given. |
| 22.2 | No failure or delay on the part of any party in exercising any right, power or privilege under this agreement shall operate as a waiver of such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise of such (or any other) right, power, or privilege. |
| 22.3 | The rights and remedies set out in this agreement are cumulative with, and not exclusive of, any rights or remedies to which either party may be entitled by law. The termination of this agreement for any reason whatsoever shall not affect or prejudice each party’s rights or remedies that may have accumulated as of the date of such termination. |
| 23. | NO PARTNERSHIP |
| Nothing in this agreement and no action taken by the parties pursuant to this agreement shall constitute, or be deemed to constitute, between the parties a partnership, association, joint venture, or other co-operative entity. |
| 24. | ENTIRE AGREEMENT |
| Save for fraud or fraudulent concealment by either party, this agreement embodies the entire agreement of the parties, and the parties agree that any standard terms and conditions of business of either of them shall not apply to the sale and purchase to which this agreement relates. This agreement shall not be modified, amended, or varied except in writing, signed by duly authorised representatives of the parties. |
| 15 |
| Signed for and on behalf of | Signed for and on behalf of | |
| SELLER | BUYER | |
| /s/ Antonella Giannini | /s/ Alexander Chong | |
| (Signature) | (Signature) | |
Antonella Giannini |
Alexander Chong | |
| /s/ Alberto Monzoni | /s/ Ged Shudall | |
| (Signature) | (Signature) | |
| Alberto Monzoni | Ged Shudall | |
| July 4, 2022 | Bologna, Italy / July 4, 2022 | |
| Place/date | Place/date |
| 16 |
Schedule 1.1
[***]
Schedule 1.2
[***]
Schedule 2
[***]
Schedule 3
[***]
Schedule 4
[***]
Schedule 5
[***]
Schedule 6
[***]
Schedule 7
[***]
EXHIBIT 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, Alexander Chong, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2022 of CQENS Technologies Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 15, 2022 | /s/ Alexander Chong |
Alexander Chong, Chief Executive Officer, principal executive officer |
EXHIBIT 31.2
Rule 13a-14(a)/15d-14(a) Certification
I, Daniel Markes, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2022 of CQENS Technologies Inc. |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| August 15, 2022 | /s/ Daniel Markes |
| Daniel Markes, Chief Financial Officer, principal financial and accounting officer |
EXHIBIT 32.1
Section 1350 Certification
In connection with the Quarterly Report of CQENS Technologies Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Alexander Chong, Chief Executive Officer of the Company, and I, Daniel Markes, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of the Company. |
| August 15, 2022 | /s/ Alexander Chong |
| Alexander Chong, Chief Executive Officer, principal executive officer | |
| August 15, 2022 | /s/ Daniel Markes |
| Daniel Markes, Chief Financial Officer, principal financial and accounting officer |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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