EDGAR 10-K Filing

Company CIK: 1479915
Filing Year: 2024
Filename: 1479915_10-K_2024_0001493152-24-014570.json

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ITEM 1. BUSINESS
ITEM 1. DESCRIPTION OF BUSINESS.
Our Business
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 inhalable, medicant-infused aerosols while maintaining the integrity of the active ingredient(s).
Our high-temperature non-combusting technology is supported by 44 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. Independent tests performed by an accredited lab on our system’s prototypes supported the benefits of rapid heating, confirmed non-combustion, even at high temperatures, and produced better toxicology results, greater than 99% 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 31 U.S. and international patents and pending patents. This portfolio includes intellectual property around device designs and formulations containing a wide variety of herbal and pharmaceutical preparations. The development stage devices feature 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, published reports in 2022 and 2023 that we have consolidated; these consolidated estimates support that this is 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 have applications to the international tobacco industry and the growing hemp/CBD and cannabis industries. HnBs represent the latest in tobacco and inhalable technologies, and it’s likely to supplant the electronic vapor system (EVS) technologies that include 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 sought to introduce 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 by an independent accredited lab supports claims that the product can potentially reduce the number of noxious chemicals found in cigarette smoke by 95%. The Philip Morris product received the approval of the US FDA in 2019, via both a Pre-market Tobacco Authorization (“PMTA”) and in 2020 with a Modified Risk Tobacco Product (“MRTP”) designation to market the product in the US. However, the International Trade Commission ruled on September 29, 2021 that the Philip Morris product violated certain British American Tobacco patents and ruled that the Philip Morris product could not be imported to or sold in the US. In 2023 Phillip Morris and British American Tobacco settled their patent litigation, but, as of the date of this report, there are no HnB products on the market in the US.
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: 1) all patent applications and patent related documents and materials that had been assigned, owned, or held by Xten in the field of HnB methods and designs, the backbone of the CQENS HnB system, 2) all documents and files related to device and tobacco consumable development, 3) all versions of prototyped embodiments, consisting of both device and tobacco consumable embodiments, and 4) all files, correspondence, communications and testing related to toxicology test results and consumer focus groups. 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.
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 completion of a Restated Operating Agreement sometime in 2024.
On August 17, 2021, as a result of a previously executed Memorandum of Understanding with the Barker Group of Companies, we entered into a Joint Venture Agreement (the “JV Agreement”) with Firebird Manufacturing, LLC (“Firebird”), a Barker Group company. Under the terms of the JV 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 HnB 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. Firebird will be responsible for manufacturing the consumable and distributing both the device and consumables to the retail locations where the product can be lawfully sold.
Pursuant to the JV 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 JV 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 JV 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 JV Agreement contains customary 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 JV Agreement. The parties anticipate completing all of the relevant agreements in 2024 although there are no assurances that the parties will complete and formalize these 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 February 23, 2023, the Company made a payment of $138,386 for completion of the design phase. On March 29, 2023, the Company signed Amendment 1 to the manufacturing contract for additional design work and paid $12,465 of the additional $36,809 cost. As Amendment 1 was for design work, the $12,465 was expensed. On October 18, 2023, the Company signed Amendment 2 to the manufacturing contract to modify certain components and paid $40,091 of the $114,546 cost.
In 2022, $130,948 of the initial payment was expensed for design services completed by Montrade. The remaining payment of $458,317 and the additional payment on October 24, 2023, for Amendment 2 of $40,091 for a combined total of $498,408 are related to the manufacturing of the module for the automated manufacture of consumables for the Company’s proprietary, patented and patent pending Heat-not-Burn system. The $498,408 payment is recorded as Prepaid expenses - noncurrent portion. With the two amendments added and with payments made in 2023 the Company will be required to pay up to $1,046,878. On February 26, 2024, the Company signed Amendment 3 to the manufacturing contract, for a change to a component with a cost of $27,845 and made payment in full on March 6, 2024 for this change.
On December 20, 2023 we entered into a Shareholder Agreement with Asahi Corporation to establish CQENS Electronics (Hong Kong) Limited (“CEL”), a Hong Kong company, for design, development and manufacture of our heat-not-burn device (“Device”). CQENS acquired 50% membership of CEL and holds majority of the board seats including the chair. Pursuant to the establishment of CEL, CQENS entered into an exclusive, worldwide License Agreement with CEL for designing, manufacturing a consumer device consistent with our IP. Although the activities of CEL in 2023 are minimal and are reflective of its set-up, CEL is included in our consolidated financial statements.
Intellectual Property
Our high-temperature non-combusting technology is supported by 44 U.S. and international patents and pending patents. Our low-temperature, aerosolizing technology is supported by 31 U.S. and international patents and pending patents.
On August 1, 2022 the Company was informed that the Patent Office of Singapore issued the Company Singapore Patent No. 11202006324T for our innovative 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.
On March 21, 2023 the Company was issued U.S. Patent No. 11,606,969 by the U.S. Patent and Trademark Office for a Heat-not-Burn Device and Method. As of December 31, 2023, we have been issued 11 patents for our HnB system, four in the US, and one each in Singapore, Mexico, China, Macau, Hong Kong, Japan, and the European Union.
Human capital
At April 12, 2024, the Company had three employees, consisting of its three executive officers.
In 2023 we engaged seven consultants who performed product design, product testing and corporate business development on our behalf. We compensate these individuals at various rates.
Employee health and safety in the workplace is one of our core values. Given our current product development opportunities and commercialization efforts, we expect to expand our executive, management and employee numbers in order to meet future strategic and operational requirements and commitments. Over the next few years, we would expect to undertake this expansion with strong consideration given to management and employee diversity, to learning and innovation and to establishing and maintaining positive and dynamic workplace environments. This will require greater compensation and benefit expenditures than the Company has incurred during its development stage.
Our history
We were incorporated under the laws of the State of Delaware on December 21, 2009 under the name OICco Acquisition IV, Inc. with the principal business objective of merging with or being acquired by another entity. On April 11, 2014, we entered into a Share Exchange Agreement and Plan of Reorganization with VapAria Solutions and its shareholders which is described in greater detail in Note 1 of the notes to our consolidated financial statements appearing later in this report. Following the closing of this transaction, in August 2014 we changed the name of our company to VapAria Corporation. In December 2019 we changed our corporate name to CQENS Technologies Inc.
Additional Information
We file annual, quarterly and other reports, proxy statements and other information with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers such as our company that file electronically with the SEC. Our corporate website address is www.CQENS.com. We make available free of charge, through the Investor section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information which appears on our corporate website is not part of this report.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS.
Before you invest in our securities, you should be aware that there are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected.
FINANCIAL RISKS
We have a history of losses, do not generate any revenues and do not have sufficient working capital to fund our operations and pay our obligations.
We reported a net consolidated loss of $4,303,550 and $6,244,202 for 2023 and 2022, respectively, and we have a working capital deficit of $921,732 at December 31, 2023. We do not have any revenue generating operations, do not presently expect to launch our first products until 2025 and will need to raise significant capital to pay our operating expenses and satisfy our obligations as they become due, in addition to continuing to implement our business plan. If we are unable to secure the necessary capital, our ability to continue our operations will be in jeopardy.
Our auditors have raised substantial doubts as to our ability to continue as a going concern.
Our consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced losses from operations, which losses have caused an accumulated deficit of $23,856,439 at December 31, 2023. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2023, contains an explanatory paragraph regarding our ability to continue as a going concern based upon our recurring losses, minimal cash and no source of revenues which are sufficient to cover our operating costs. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We do not have any external sources of capital and our working capital is not sufficient to pay our operating expenses and satisfy our obligations as they become due. There are no assurances that we will be able to raise sufficient capital to implement our business plan in order to permit us to begin generating revenues and cash flow to a level which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.
We require additional capital to fund our operations and we may have difficulty raising capital, which could deprive us of necessary revenues.
We have not generated any revenues to date and, subject to the availability of sufficient capital, do not expect to launch our first products until 2025, owing to our recent focus on regulatory approved products. We have raised funds through private transactions since inception that have to date covered our operating expenses. In order to support our initiatives, we will need to raise additional funds through public or private debt or equity financing, collaborative relationships or other arrangements with well capitalized companies. Our ability to raise additional financing depends on many factors beyond our control, including the current volatility in the capital markets, risks associated with investing in a pre-revenue company with no assurances our products can be commercialized, the lack of a public market for our common stock and the development or prospects for development of competitive technology by others. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock. If we are unsuccessful in raising additional capital, or the terms of raising such capital are unacceptable, we may never be able to effectively monetize our intellectual property assets. In that event, we may have to modify our business plan and/or significantly curtail our planned activities and other operations.
BUSINESS RISKS
We have a limited operating history and have not developed or launched any products.
We are a company with a limited operating history. We have only recently completed the development of prototypes of new products using our proprietary technology; our development stage products are unproven and we have not generated any revenues. We are subject to the substantial risk of failure facing businesses seeking to develop and commercialize new products and technologies. Certain factors that could, alone or in combination, affect our ability to successfully develop and market our products, include:
● our ability to build and finance our products at our targeted scale on a cost-effective basis and in the time frame we anticipate;
● technical challenges developing our commercial production processes or systems that we are unable to overcome;
● reliance on third-party manufacturers and our recently formed Hong Kong-based joint venture for fabricating and assembling our products;
● our ability to establish markets for our products;
● our ability to obtain financing;
● our ability to meet our potential customers’ requirements or specifications;
● our ability to secure and maintain all necessary U.S. and international regulatory approvals and to comply with applicable laws and regulations for our products;
● our ability to establish new relationships, or maintain and expand our existing relationships, with strategic partners, including strategic partners that will manufacture and market our products; and
● actions of direct and indirect competitors or that may seek to compete with the products that we develop.
Leap Technology is in a pre-formative stage with no operating history.
As disclosed earlier in this report, in July 2020 we agreed to become a member of Leap Technology through the contribution of a license for certain of our intellectual property. Leap Technology is still in a pre-formative stage with no operating history and its operations are subject to all the risks inherent in the establishment of a new business enterprise. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays that are frequently encountered in a newly-formed company. There can be no assurance that at this time that Leap Technology will be able to implement its business plan, generate revenues, operate profitably or will have adequate working capital to meet its obligations as they become due. Prospective investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. We cannot be certain that Leap Technology’s business strategy will be successful or that it will successfully address these risks. In the event that Leap Technology does not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected and it may not have the resources to continue or expand our business operations. In that event, any benefits we expect to receive from Leap Technology would not materialize.
There are no assurances the Barker Group/Firebird Manufacturing joint venture will be finalized.
As of the date of this report, the Barker Group/Firebird Joint Venture has not been finalized. We expect to finalize the Joint Venture in 2024. There can be no assurance that we will be able to finalize the Joint Venture by then or at any point in the future. In either case, delay in or failure to complete and finalize certain details may impair our ability to realize our business prospects and strategic objectives.
Our management does not devote their full time to our company and certain of our officers and directors may have conflicts of interest.
As of the date of this report we have three full-time employees, consisting of our three executive officers. While our executive officers devote such time to us as they deem reasonable and necessary to discharge the business of our company, our officers have professional interests in a variety of activities other than those relevant to us. Accordingly, conflicts may arise in the allocation of time between our company and one or more of these activities. While we expect that our board of directors and management will exercise their fiduciary obligation to our company, there are no assurances any conflicts of interest which may arise will be resolved in our favor.
We will rely exclusively on third parties to formulate and manufacture our products.
We have no experience in the formulation or manufacturing of the products we intend to develop and do not intend to establish our own manufacturing facilities. We will rely on one or more third-party contractors and manufacturers, including, but not limited to CEL, Montrade and Firebird, to manufacture our products. Our anticipated future reliance on a limited number of third-party manufacturers exposes us to the following risks:
● we may be unable to identify manufacturers on acceptable terms or at all;
● our third-party manufacturers might be unable to formulate and manufacture our products in the volume and quality required to meet our needs;
● our contract manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to successfully produce, store and distribute our products; and
● our manufacturers may fail to comply with federal, state or foreign regulations.
Each of these risks could delay our product development or result in higher costs or deprive us of potential product revenues.
Certain of our proposed products will be subject to FDA oversight.
Our current business strategies call for us to develop certain products that now fall under the regulatory authority of the FDA. Our product candidates could be required to undergo costly and time-consuming rigorous non-clinical and clinical testing and we will be required to obtain regulatory approval prior to the sale and marketing of some of our products. While we believe that the features of certain of our products may enable us to secure FDA fast track approval, there are no assurances our beliefs are correct. The results of this testing or issues that develop in the review and approval by any regulatory agency, including the FDA, may subject us to unanticipated delays or prevent us from marketing any proposed products we may develop.
We have no experience selling, marketing or distributing products and have no internal capability to do so.
We currently have no sales, marketing or distribution capabilities. We do not anticipate having the resources in the foreseeable future to allocate to the sales and marketing of our proposed products. Our future success depends, in part, on our ability to enter into and maintain collaborative relationships for such capabilities, the collaborator’s strategic interest in the products under development and such collaborator’s ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing of our products, however, there can be no assurance that we will be able to establish or maintain such collaborative arrangements, or if able to do so, that our collaborators will have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. There can also be no assurance that we will be able to establish or maintain relationships with third party collaborators or develop in-house sales and distribution capabilities. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. In addition, there can also be no assurance that we will be able to market and sell our proposed products in the United States or overseas.
We may not be successful in establishing and maintaining strategic partnerships, which could adversely affect our ability to develop and commercialize our proposed products.
We intend to enter into strategic partnerships in the future, including alliances with other consumer product companies, to enhance and accelerate the development and commercialization of our proposed products. We face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future proposed products and programs because our research and development pipeline may be insufficient, our proposed products and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing.
If we ultimately determine that entering into strategic partnerships is in our best interest but either fail to enter into, are delayed in entering into or fail to maintain such strategic partnerships:
● the development of certain of our proposed products may be terminated or delayed;
● our cash expenditures related to development of certain of our proposed products would increase significantly and we may need to seek additional financing;
● we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted;
● we will bear all of the risk related to the development of any such products; and
● the competitiveness of any product that is commercialized could be reduced.
To the extent we elect to enter into licensing or collaboration agreements to partner our product candidates, our dependence on such relationships may adversely affect our business.
Our commercialization strategy for certain of our proposed products may depend on our ability to enter into agreements with collaborators to obtain assistance and funding for the development and potential commercialization of these product candidates. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more collaboration agreements, collaborations may involve greater uncertainty for us, as we have less control over certain aspects of our collaborative programs than we do over our proprietary development and commercialization programs. We may determine that continuing a collaboration under the terms provided is not in our best interest, and we may terminate the collaboration. Our collaborators could delay or terminate their agreements, and our proposed products subject to collaborative arrangements may never be successfully commercialized.
RISK RELATED TO OUR COMMON STOCK
There is no public market for our common stock. In the event we establish a market for our common stock, it is likely that the market for that common stock will be limited.
There is no public market for our common stock. We have delayed seeking a market maker or undertaking an initial public offering, pending the enhancement of our prototypes, the initiation of certain clinical studies and our progress in discussions with certain third parties. We continue to explore securing a market maker to file the appropriate documents with the Financial Industry Regulatory Authority, Inc. (FINRA) to obtain a quotation of our common stock in the over the counter market or engaging an investment banker to assist us in an initial public offering, the timing and success thereof is presently unknown. Even if we are successful in establishing a public market for our common stock, it is likely that the market will be limited and sporadic and generally at very low volumes until such time, if ever, as we are able to develop a following for our common stock. An active market for our common stock may never develop.
Delaware law contains anti-takeover provisions that could deter takeover attempts that could be beneficial to our stockholders.
Provisions of Delaware law could make it more difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without our board of directors’ consent, for at least three years from the date they first hold 15% or more of the voting stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to a smaller reporting company.

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ITEM 2. PROPERTIES
ITEM 2. DESCRIPTION OF PROPERTY.
We maintain our corporate offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. We lease these premises from 5550 Nicollet LLC, an affiliate of Mr. Chong. In December 2019 we entered into a month-to-month lease for the 2020 calendar year with an annual rental of $9,300. In December 2020 a new month-to-month lease, commencing January 1, 2021, was entered into with a rental rate of $775 per month. We occupied the space for all the 2023 calendar year for rent totaling $9,300. We continue to rent on this same month-to-month basis with no change to the monthly rental rate of $775. We are not certain whether or not we will continue renting this space for the entire 2024 calendar year.
Effective April 15, 2022, the Company entered into a lease agreement for research and development and product engineering space located at 8035 Soquel Drive, #41, Aptos, California. The term of the lease will be three years from the effective date, unless terminated earlier in accordance with the lease. The Company will have the right to extend the term of the lease for an additional 5-year term. The Company will pay an escalating base rent over the life of the lease of initially $4,800 per month increased to $5,175 beginning May 2023. In addition, the Company will pay its pro rata portion of property expenses and operating expenses for the property.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any pending or threatened litigation.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable to our company.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
There is no public market for our common stock. As of April 15, 2024, there were approximately 170 record owners of our common stock.
Dividend policy
We have never paid cash dividends on our common stock. Under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits and dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired. Even if permitted under Delaware law, we do not have any present intention of declaring or paying dividends on our common stock in the foreseeable future.
Recent sales of unregistered securities
In addition to disclosures in previous reports, we have sold additional unregistered securities during the period covered by this report.
On February 16, 2023, we sold 7,500 shares of our common stock for $150,000 in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
On March 9, 2023, we sold 1,500 shares of our common stock for $30,000 in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
On June 15, 2023, we sold 9,750 shares of our common stock for $195,000 in private transactions. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
On June 30, 2023, we sold 10,000 shares of our common stock for $200,000 in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
On July 6, 2023, we sold 25,000 shares of our common stock for $500,000 in a private transaction. We did not pay commissions or finder’s fees and are using the proceeds for working capital.
On August 4, 2023, we sold 16,000 shares of our common stock for $320,000 in a private transaction. We did not pay commissions or finder’s fees and are using the proceeds for working capital.
On August 28, 2023, we sold 5,000 shares of our common stock for $100,000 in a private transaction. We did not pay commissions or finder’s fees and are using the proceeds for working capital.
On September 12, 2023, we sold 1,250 shares of our common stock for $25,000 in a private transaction. We did not pay commissions or finder’s fees and are using the proceeds for working capital.
On September 15, 2023, we sold 20,000 shares of our common stock for $400,000 in two private transactions. We did not pay commissions or finder’s fees and are using the proceeds for working capital.
On October 13, 2023, we sold 5,000 shares of our common stock to a “non U.S. Person” Accredited Investor for $100,000 in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital.
On November 27, 2023, we sold 2,750 shares of our common stock, to a non U.S. Person Accredited Investor for $55,000 in a private transaction. We did not pay a commission or finder’s fee and are using the proceeds for working capital. The transactions were exempt from registration under the Securities Act of 1933, as amended, (the “Securities Act”), pursuant to the exemption from registration provided by Section 4(c)(2) under the Securities Act. The shares are restricted from transfer subject to registration or an applicable exemption.
Purchases of equity securities by the issuer and affiliated purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to a smaller reporting company.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations for 2023 and 2022 should be read in conjunction with the consolidated 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 Statement Regarding Forward Looking Information, Item 1A. Business and Item 1A. Risk Factors in this report. 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.
Going concern
For 2023, we reported a net consolidated loss of $4,303,550 and net cash used in operations of $2,583,282. At December 31, 2023, we had cash on hand of $350,565 and an accumulated deficit of $23,856,439. The report of our independent registered public accounting firm on our consolidated financial statements for the year ended December 31, 2023 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our cash balances and no source of revenues which are sufficient to cover our operating costs. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated 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 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 2022 or 2023. Our total operating expenses for 2023 decreased 31.2% from those for 2022. General and administrative expenses, which include amortization, depreciation, compensation, rent, software subscriptions, and website hosting expenses, decreased by 44.2% in 2023 compared to 2022. The non-cash compensation expense from stock options granted in 2022 far exceeded 2023 levels and resulted in this decrease. Research and development expenses in 2023 for new prototype designs and development were $1,132,806 compared to $1,050,230 in 2022. The 7.9% increase is attributable to additional engineering services devoted to research and development in 2023. Professional fees decreased by 31.9% in 2023 compared to 2022, due largely to business development consulting services utilized in 2022 that were not as prevalent in 2023.
We expect that our operating expenses will increase as we continue to develop our business and we devote additional resources toward our new technologies and business opportunities, promoting that growth, most notably reflected in anticipated increases in 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 December 31, 2023, we had $350,565 in cash and cash equivalents and a working capital deficit of $921,732 compared to $219,781 in cash and cash equivalents and a working capital surplus of $33,688 at December 31, 2022. Our current liabilities increased $947,382 from December 31, 2022, reflecting a related party loan of $904,247, decrease in our accounts payable, increase in our accrued expenses, and slight increase in the current portion of our lease liability. Our source of operating capital in 2023 came from the sale of 103,750 shares of our common stock raising $2,075,000 and a related party loan of $904,247, compared to the same period in 2022 where our source of capital came from the sale of 35,000 shares of our common stock raising $350,000 in capital.
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 consolidated financial statements and to satisfy our obligations as they become due.
In 2023 we borrowed funds from Xten Capital Group, a related party, and as a result on December 31, 2023, we owed Xten $900,000. During the period covered by this report and through April 15, 2024, the Company borrowed $1,000,000 from Xten. The loan is non-interest bearing and due upon demand. The funds are being used for working capital.
While we raised $2,075,000 from the sale of our securities during 2023, we still will need to raise $10,000,000 to $20,000,000 in additional capital during the next 12 months to achieve our goals. 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
December 31, 2023 December 31, 2022
Net cash (used) in operating activities $ (2,583,282 ) $ (3,353,697 )
Net cash (used) in investing activities $ (265,181 ) $ (364,899 )
Net cash provided by financing activities $ 2,979,247 $ 350,000
Our cash used in operating activities decreased 23.0% in 2023 compared to 2022. During these time periods we used the cash primarily to fund our net losses.
In 2023 our cash used in investing activities was $265,181 and was comprised of $266,502 from capitalization of intellectual property related to legal fees, and $1,321 investment in CEL. In 2022 our cash used in investing activities was comprised of $339,055 from capitalization of intellectual property related to legal fees, furniture and equipment of $7,800 and leasehold improvements of $18,044.
Net cash provided by financing activities in 2023 consisted of $2,075,000 from issuance of our common stock and $904,247 in borrowing from a related party. Net cash provided by financing activities in 2022 consisted of $350,000 raised from the sales of 35,000 shares of common stock.
Critical accounting policies
The preparation of consolidated 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 expenses during the reported periods. The more significant accounting estimates include estimates related to 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 audited consolidated financial statements for 2023 appearing later in this report.
Recent accounting pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016 - 13, “Financial Instruments - Credit Losses,” which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments. This standard was effective for the Company as of January 1, 2023. There was no impact on our financial statements at adoption.
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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for a smaller reporting company.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Please see our consolidated financial statements beginning on page of this annual report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures. We are required to maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, 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 and Chief Financial Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
● provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment our management has concluded that as of December 31, 2023, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses. These material weaknesses in our internal control over financial reporting result from limited segregation of duties and limited multiple levels 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. In order to do so, we will need additional capital to permit us to hire employees and put the requisite controls in place. We had expected to expand our accounting resources in 2019, which has been delayed into 2024. Given the uncertainties with our ability to raise working capital as discussed earlier in this report, there are no assurances we will be able to remediate the material weaknesses in our internal control over financial reporting during 2024.
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.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The following table provides information on our executive officers and directors:
Name
Age
Positions
Alexander Chong
Chairman of the Board of Directors, Chief Executive Officer
William P. Bartkowski
President, Chief Operating Officer
Daniel Markes
Vice President, Chief Financial Officer, director
Roger Nielsen
Secretary, director
Alexander Chong. Mr. Chong has served as Chairman of the Board and Chief Executive Officer since July 2014. Mr. Chong is an experienced entrepreneur and businessman. Since founding the company in 1993, he has also served as the Chairman of Plexus International, a consulting and training organization with 14 international offices and its principal office located in Minneapolis, Minnesota. Mr. Chong has also served as Chief Executive Officer and a member of the board of directors of Xten, a Minnesota-based company with investment interests in technology and a variety of Asia-based opportunities since 2007. He has broad experience in international business and manufacturing quality. Mr. Chong also has experience serving on boards of directors of privately-held companies in the role of an independent director, as well as identifying key joint venture partners and negotiating and securing international distribution agreements with large multi-national companies. In connection with the developer of the original e-cigarette, Mr. Chong oversaw U.S. patent filings and developed the first disposable e-cigarette offered for distribution and sale in the U.S. Mr. Chong received a B.S. in Chemistry from Boston University. Mr. Chong’s significant professional experience in our business sector and international business and technology were factors considered by the board of directors in concluding that he should be serving as a director of our company.
William P. Bartkowski. Mr. Bartkowski has served as an executive officer of our company since July 2014. Mr. Bartkowski has had a three-decade career in banking, consulting and marketing. Since 2008 Mr. Bartkowski has been engaged as a business consultant. From 1988 to 1995 he was an executive officer of Metropolitan Financial Corp., a NYSE listed company and from 1996 to 2004 Mr. Bartkowski was a partner in Neuger, Henry, Bartkowski, a public relations firm. He has been involved with the electronic cigarette business since late 2006. In that capacity he has organized, directed and optimized marketing, consumer focus group testing, market analysis and sales testing and he has negotiated and finalized plans and agreements with major U.S. distributors and retailers with respect to electronic cigarettes. Mr. Bartkowski has also been involved extensively in U.S. and international regulatory and legal issues affecting electronic cigarettes and tobacco issues. He previously provided investor relations and capital markets advisory services, including capital formation and M&A counsel for more than a dozen public companies. From April of 2013 until November of 2015 Mr. Bartkowski served on the board of directors and was an officer of the Smoke Free Alternatives Trade Association (SFATA), a leading international advocacy group for keeping e-cigarettes innovative, accessible and unencumbered by burdensome laws and regulations. Mr. Bartkowski received a B.A. in English from the University of Mary, an M.A. in English from North Dakota State University and a PhD in Adult Education.
Daniel Markes. Mr. Markes has served as an executive officer and member of the board of directors of our company since July 2014. Mr. Markes is an experienced businessman and financial executive and his background includes having served in various capacities as Chief Financial Officer, controller, human resources director, business development specialist and member of the board of directors of a number of organizations throughout his professional career. Since 1997 Mr. Markes has been Director, Human Resources, Finance and Administration with Minneapolis-based Plexus Corporation founded by Mr. Chong. He also is an officer of Xten, serving as its Treasurer/Chief Financial Officer, as well as serving as an officer of 5550 Nicollet LLC, an entity affiliated with Mr. Chong. Mr. Markes received a BBA degree from Brock University. Mr. Markes’ experience as a businessman and a financial executive were factors considered by the board of directors in concluding that he should be serving as a director of our company.
Roger Nielsen. Mr. Nielsen has served as a member of our board of directors since April 2015. Mr. Nielsen is an experienced businessman with broad and lengthy experience in international commerce and world-wide distribution. Mr. Nielsen is a member of the board of directors and Director, Procurement and Facilities, with Minneapolis-based Plexus Corporation founded by Mr. Chong, serving as an officer and director of that company since 1993. Mr. Nielsen and Mr. Chong have worked closely together for over 25 years in various international businesses. He has established global distribution centers throughout Asia Pacific, negotiated and closed distribution agreements with major international manufacturers for export and directed and managed international logistics for a number of global distribution networks. Mr. Nielsen studied Business Administration at Dana College. Mr. Nielsen’s experience in international commerce and world-wide distribution activities were factors considered by the board of directors in concluding that he should be serving as a director of our company.
There are no family relationships between any of the executive officers and directors.
Board of Directors
Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out his or her term, or if the board of directors increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the stockholders.
Board leadership structure and board’s role in risk oversight
The board of directors is comprised of members of our management and we do not have any independent directors. Mr. Chong, our Chief Executive Officer, also serves as Chairman of the Board. Given the early stage of our company, our board believes the current leadership structure is appropriate for our company. As our company grows, we expect to expand our board of directors through the appointment of independent directors.
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of the risks we face and have responsibility for the oversight of risk management in their dual roles as directors.
Committees of the board of directors; stockholder nominations; audit committee financial expert
We have not established any committees comprised of members of our board of directors, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing similar functions. The functions of those committees are being undertaken by our board of directors as a whole.
We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our board of directors established a process for identifying and evaluating director nominees, nor do we have a policy regarding director diversity. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board of directors. Given the early stage of our business, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our board will participate in the consideration of director nominees. In considering a director nominee, it is likely that our board will consider the professional and/or educational background of any nominee with a view towards how this person might bring a different viewpoint or experience to our board.
None of our directors is an “audit committee financial expert” within the meaning of Item 401(e) of Regulation S-K. In general, an “audit committee financial expert” is an individual member of the audit committee or board of directors who:
● understands generally accepted accounting principles and consolidated financial statements;
● is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves;
● has experience preparing, auditing, analyzing or evaluating consolidated financial statements comparable to the breadth and complexity to our consolidated financial statements;
● understands internal controls over financial reporting; and
● understands audit committee functions.
Our securities are not quoted on an exchange that has requirements that a majority of our board members be independent, and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our board of directors include “independent” directors, nor are we required to establish or maintain an Audit Committee or other committee of our board of directors.
Code of Ethics and Conduct
We have adopted a Code of Ethics and Conduct which applies to our board of directors, our executive officers and our employees. The Code of Ethics and Conduct outlines the broad principles of ethical business conduct we adopted, covering subject areas such as:
● conflicts of interest;
● corporate opportunities;
● public disclosure reporting;
● confidentiality;
● protection of company assets;
● health and safety; and
● compliance with applicable laws.
A copy of our Code of Ethics and Conduct is available without charge, to any person desiring a copy, by written request to us at our principal offices at 5550 Nicollet Avenue, Minneapolis, MN 55419. A copy of our Code of Ethics and Conduct may also be found on our website at www.cqens.com.
Director compensation
Our directors do not receive compensation for their services as directors.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes all compensation recorded by us in the past two years for:
● our principal executive officer or other individual serving in a similar capacity;
● our two most highly compensated named executive officers at December 31, 2023 whose annual compensation exceeded $100,000; and
● up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2023.
For definitional purposes, these individuals are sometimes referred to as the “named executive officers.”
Summary Compensation Table
Name and principal position
Year Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
No equity
incentive
plan
compensation
($)
Non-qualified
deferred
compensation
earnings
($)
All
other
compensation
($)
Total
($)
Alexander Chong, 325,080
-
325,080
Chief Executive Officer 325,080 - - - - - - 325,080
Daniel Markes, 135,028
-
135,028
Chief Financial Officer 200,040 - - 139,427 (1) - - - 339,467
William Bartkowski 87,315
-
87,315
Chief Operating Officer 125,040 - - 139,427 (1) - - - 264,467
(1) The amounts represent the aggregate grant date fair value of stock options to purchase 20,000 shares of common stock at an exercise price of $10.00 per share awarded to Mr. Markes and Mr. Bartkowski in October 2022 as additional compensation.
How the executive’s compensation is determined
Mr. Chong, who has served as our Chief Executive Officer since July 2014, previously did not receive cash compensation for his services to us. Effective August 1, 2020, the board of directors approved an annual salary for Mr. Chong of $98,400 and in October 2020 he was awarded stock options to purchase 175,000 shares of our common stock at an exercise price of $5.31 as additional compensation. In addition, effective August 1, 2020, the board of directors also approved the following salaries: (1) COO, William Bartkowski, of $81,600 per annum; and (2) CFO, Daniel Markes, of $90,000 per annum. The amount of compensation we may pay to Mr. Chong from time to time is in the discretion of the board of directors of which he is one of three members.
Effective with the end of the first 2022 pay period, on January 14, 2022, the board approved annual salaries for its: (1) CEO, Alexander Chong, of $325,080 per annum; (2) COO, William Bartkowski, of $125,040 per annum; and (3) CFO, Daniel Markes, of $200,040 per annum. The Company has not entered into any written employment agreements with its officers. These rates remain in effect as of the date of this report. Due to limited cash resources in 2023 some of the executive compensation amounting to $102,738 was deferred and remains outstanding and payable.
Outstanding equity awards at fiscal year-end
The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2023:
OPTION AWARDS STOCK AWARDS
Name Number of Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised Options (#) Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
(#)
Option
Exercise
Price ($)
Option
Expiration
Date
Number
of
Shares
or Units
of Stock
That Have
Not Vested (#)
Market
Value of
Shares
or Units
of Stock
That
Have Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
that Have
Not
Vested (#)
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
Alexander Chong, CEO
175,000 - - 1.00 12/31/24 - - - -
175,000 - - 5.31 10/1/25 - - - -
300,000 - - 12.00 10/20/26 - - - -
William Bartkowski COO
25,000 - - 1.00 12/31/24 - - - -
25,000 - - 5.31 10/1/25 - - - -
42,858 - - 12.00 10/20/26 - - - -
20,000 - - 10.00 10/21/27
Dan Markes, CFO
25,000 - - 1.00 12/31/24 - - - -
25,000 - - 5.31 10/1/25 - - - -
42,858 - - 12.00 10/20/26 - - - -
20,000 - - 10.00 10/21/27

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
At April 9, 2024, we had 26,202,670 shares of our common stock issued and outstanding which is our only class of voting securities. The following table sets forth information regarding the beneficial ownership of our common stock as of April 9, 2024 by:
● each person known by us to be the beneficial owner of more than 5% of our common stock;
● each of our directors;
● each of our named executive officers; and
● our named executive officers, and directors.
Unless otherwise indicated, the business address of each person listed is in care of 5550 Nicollet Avenue, Minneapolis, MN 55419. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
Common Stock
Name and Address of Beneficial Owner Shares %
Alexander Chong (1) 19,816,216 71.1 %
William P. Bartkowski (2) 112,858 *
Daniel Markes (3) 424,288 1.5 %
Roger Nielsen (4) 378,573 1.4 %
All officers and directors as a group (four persons) (1)(2)(3)(4) 20,731,935 74.4 %
* less than 1%
(1) Includes: (i) 1,745,715 shares of our common stock held of record by Chinhak LLC; (ii) 17,420,501 shares of our common stock held of record by Xten; (iii) 175,000 shares of common stock underlying options with an exercise price of $1.00 per share; (iv) 175,000 shares of common stock underlying options held at an exercise price of $5.31 per share; and (v) 300,000 shares of common stock underlying options held with an exercise price of $12.00 per share. Mr. Chong has voting and dispositive control over the shares held of record by both of these entities. Excludes 428,572 shares of common stock held by Mr. Chong’s wife, of which he disclaims any beneficial ownership.
(2) Includes (i) 25,000 shares of common stock underlying options with an exercise price of $1.00 per share; (ii) 25,000 shares of common stock underlying options with an exercise price of $5.31; (iii) 42,858 shares of our common stock of common stock underlying options with an exercise price of $12.00 per share; and (iv) 20,000 share of our common stock underlying options with an exercise price of $10.00 per share.
(3) Includes (i) 168,572 shares of our common stock; (ii) 25,000 shares of common stock underlying options with an exercise price of $1.00 per share; (iii) 25,000 shares of common stock underlying options with an exercise price of $5.31; (iv) 42,858 shares of common stock underlying options with an exercise price of $12.00 per share; (v) 20,000 shares of common stock underlying options with an exercise price of $10,00 per share; and (vi) 142,858 shares of our common stock owned by Paula Markes, his spouse.
(4) Includes (i) 285,715 shares of our common stock; (ii) 25,000 shares of common stock underlying options with an exercise price of $1.00 per share; (iii) 25,000 shares of common stock underlying options with an exercise price of $5.31; and (iv) 42,858 shares of our common stock underlying options with an exercise price of $12.00 per share.
Securities authorized for issuance under equity compensation plans
The following table sets forth securities authorized for issuance under any equity compensation plans approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of December 31, 2023.
Plan category Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
Plans not approved by our stockholders: - - -
Plans approved by stockholders:
2014 Equity Compensation Plan 1,063,574 $ 10.81 493,578
2019 Equity Compensation Plan 920,000 $ 4.98 1,680,000
Equity Compensation Plan
We currently have two equity compensation plans, our 2014 Equity Compensation Plan (the “2014 Plan”) and our 2019 Equity Compensation Plan (the “2019 Plan”). While the number of shares of our common stock underlying outstanding grants under these plans were proportionally reduced and the exercise price was proportionally increased following the December 26, 2019 effective date of our 1:7 reverse stock split of our common stock, the total number of shares reserved for grants under the plans and the evergreen formulas were not impacted by the reverse split.
On August 19, 2014, our board of directors adopted our 2014 initially covering 10,000,000 shares of common stock. The 2014 Plan was ratified by our shareholders on August 19, 2019. The 2014 Plan also contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2014 Plan will automatically increase on the first trading day of January each calendar year during the term of the 2014 Plan, beginning with calendar year 2015, by an amount equal to 1% of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, up to a maximum annual increase of 100,000 shares of common stock or 14,286 post reverse split.
On November 19, 2019, our board of directors authorized our 2019 Plan and the 2019 Plan was ratified by our stockholders on December 26, 2019. The 2019 Plan initially covered 2,000,000 shares of common stock. The 2019 Plan also contains an “evergreen formula” pursuant to which the number of shares of common stock available for issuance under the 2019 Plan will automatically increase on January 1 of each calendar year during the term of the 2019 Plan, beginning with calendar year 2020, by an amount equal to 15% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, up to a maximum annual increase of 150,000 shares of common stock.
The other terms of the 2014 Plan and the 2019 Plan are identical. The purpose of each of the plans is to enable us to offer to our employees, officers, directors and consultants, whose past, present and/or potential contributions to our company have been, are or will be important to our success, an opportunity to acquire a proprietary interest in our company. The plans are administered by our board of directors. Plan options may either be:
● incentive stock options (ISOs),
● non-qualified options (NSOs),
● awards of our common stock, or
● rights to make direct purchases of our common stock which may be subject to certain restrictions.
Any option granted under a plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The plan further provides that with respect to ISOs the aggregate fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year cannot exceed $100,000. The term of each plan option and the manner in which it may be exercised is determined by the board of directors or the compensation committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant. In the event of any stock split of our outstanding common stock, the board of directors in its discretion may elect to maintain the stated amount of shares reserved under the plan without giving effect to such stock split. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
From January 27, 2023 and through April 9, 2024 the Company borrowed $1,000,000 from Xten, a common control entity. The loan is non-interest bearing and due upon demand. The funds are being used for working capital.
Director independence
None of our directors is considered “independent” within the meaning of meaning of Rule 5605 of the NASDAQ Marketplace Rules.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following table shows the fees that were billed for the audit and other services provided by MaloneBailey LLP for 2023 and 2022.
Audit Fees $ 71,070 $ 70,350
Audit-Related Fees
Tax Fees
All Other Fees
Total $ 71,070 $ 70,350
Audit Fees - This category includes the audit of our annual consolidated financial statements, review of consolidated financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.
Audit-Related Fees - This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.
Tax Fees - This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.
All Other Fees - This category consists of fees for other miscellaneous items.
Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the board, or, in the period between meetings, by a designated member of the board. Any such approval by the designated member is disclosed to the entire board at the next meeting. The audit and tax fees paid to the auditors with respect to 2023 were pre-approved by the entire board of directors.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)(1) Financial statements.
● Report of MaloneBailey, LLP, Houston, TX (PCAOB ID 206);
● Consolidated balance sheets at December 31, 2023 and 2022;
● Consolidated statements of operations for the years ended December 31, 2023 and 2022;
● Consolidated statements of changes in stockholders’ equity (deficit) for the years ended December 31, 2023 and 2022;
● Consolidated statements of cash flows for the years ended December 31, 2023 and 2022, and
● Notes to consolidated financial statements.
(b) Exhibits.
Incorporated by Reference
Filed or
No .
Exhibit Description
Form
Date
Filed
Number
Furnished
Herewith
2.1
Share Exchange Agreement and Plan of Reorganization dated April 11, 2014 by and between OICco Acquisition IV, Inc., VapAria Corporation and the listed shareholders+
8-K
4/11/14
2a
3.1
Amended and Restated Certificate of Incorporation
S-1
6/11/14
3.C
3.2
Certificate of Amendment to the Amended and Restated Certificate of Incorporation
8-K
8/21/14
3.4
3.3
Certificate of Amendment to the Amended and Restated Certificate of Incorporation
10-Q
11/19/16
3.5
3.4
Certificate of Amendment to the Amended and Restated Certificate of Incorporation
8-K
12/18/19
3.5
3.5
Bylaws
S-1
3/29/10
3(b)
4.1
Form of Series A Common Stock Purchase Warrant
8-K
10/2/20
4.1
4.2
Form of Series B Common Stock Purchase Warrant
8-K
10/2/20
4.2
4.3
Form of Series C Common Stock Purchase Warrant
8-K
10/2/20
4.3
10.1
Intellectual Property Assignment Agreement dated August 1, 2010 between Alexander C. Chong, William P. Bartkowski and Chong Corporation
S-1
6/9/14
10(d)
10.2
2014 Equity Compensation Plan *
8-K
8/21/14
10.7
10.3
Lease extension dated December 31, 2017 with Chong Corporation
10-K
3/29/18
10.21
10.4
Asset Purchase Agreement dated December 31, 2019 by and between CQENS Technologies Inc. and Chong Corporation
8-K
1/2/20
10.1
10.5
Form of Stock Purchase Agreement
8-K
1/31/20
10.1
10.6
Commercial Month to Month Lease
10-K
4/10/20
10.29
10.7
Form of Stock Purchase Agreement
8-K
6/5/20
10.1
10.8
Form of Amended and Restated Operating Agreement dated July 24, 2020 of Leap Technology LLC by and between CQENS Technologies, Inc., Zong Group Holdings LLC and Leap Management LLP
8-K
7/29/20
10.1
10.9
Form of Contribution Agreement Via Exclusive Licensing Agreement dated July 24, 2020 by and between CQENS Technologies Inc. and Leap Technology LLC
8-K
7/29/20
10.2
10.10
Form of Intellectual Property License Agreement dated July 24, 2020 by and between CQENS Technologies Inc. and Leap Technology LLP
8-K
7/29/20
10.3
10.11
Asset Purchase Agreement dated September 30, 2020 by and between CQENS Technologies Inc. and Xten Capital Group, Inc. (IP)
8-K
10/2/20
10.1
10.12
Asset Purchase Agreement dated September 30, 2020 by and between CQENS Technologies Inc. and Xten Capital Group, Inc. (other assets)
8-K
10/2/20
10.2
10.13
Joint venture Agreement by and among Firebrand Manufacturing, LLC and CQENS Technology, Inc. dated August 17, 2021
8-K
8/23/21
10.1
10.14
Commercial Lease Agreement Research and Development Facilities effective April 15, 2022
10-K
4/14/22
10.20
10.15
Purchase Agreement between CQENS Technologies, Inc. and Montrade S.P.A. effective July 13, 2022+
10-Q
8/15/22
10.2
10.16
Form of Stock Option Grant
8-K
10/26/22
10.1
10.17
2019 Equity Compensation Plan,*
10-K
4/14/23
10.23
10.18
Amendment No. 2 of Montrade S.P.A. effective October 18, 2023
10-Q
11/13/23
10.2
10.19
Intellectual Property License Agreement effective August 22, 2023, by and between CQENS Technologies Inc. and XTEN Capital Group Inc.+
8-K/A
11/22/23
10.1
10.20
CQENS Electronics (Hong Kong) Limited Shareholders Agreement dated December 20, 2023 between CQENS Technologies Inc. and Asahi Corporation Limited
8-K
12/21/23
10.1
10.21
Intellectual Property Agreement dated December 20, 2023 by and between CQENS Technologies Inc. and CQEBNS Electronics (Hong Kong) Limited
8-K
12/21/23
10.2
14.1
Code of Conduct and Ethics
10-K
4/14/15
14.1
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Filed
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Filed
32.1
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
Filed
101.INS
Inline XBRL Instance Document
Filed
101.SCH
Inline XBRL Taxonomy Extension Schema Document
Filed
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Filed
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
Filed
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
Filed
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Filed
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Filed
+ 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.
* Management contract or compensatory agreement, plan or arrangement.