10-Q 1 jksm_10q.htm FORM 10-Q jksm_10q.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________.

 

Commission File Number: 033-33263

 

JACKSAM CORPORATION

(Exact name of registrant as specified in its charter)

 

Nevada

46-3566284

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

3100 Airway Avenue Suite 138

Costa Mesa, CA

92626

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (800) 605-3580

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

 

JKSM

 

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

 

As of December 20, 2023, the registrant had 81,088,719 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

TABLE OF CONTENTS

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

 

5

 

 

Condensed Consolidated Statements of Stockholders’ Deficit

 

6

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

Item 4.

Controls and Procedures

25

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

 

Item 1A.

Risk Factors

26

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

Item 3.

Defaults Upon Senior Securities

26

 

 

Item 4.

Mine Safety Disclosures

26

 

 

Item 5.

Other Information

26

 

 

Item 6.

Exhibits

27

 

 

Signatures

28

 

 
2

Table of Contents

 

Forward-Looking Statements

 

For purposes of this report, unless otherwise indicated or the context otherwise requires, all references herein to “Jacksam Corporation”, “the Company”, “we”, “us”, and “our”, refer to Jacksam Corporation, a Nevada corporation.

 

This Quarterly Report on Form 10-Q, or this Report, contains forward-looking statements. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may”, “might”, “would”, “should”, “could”, “project”, “estimate”, “pro-forma”, “predict”, “potential”, “strategy”, “anticipate”, “attempt”, “develop”, “plan”, “help”, “believe”, “continue”, “intend”, “expect”, “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the development of our cartridge filling machines, cartridge capping machines and cartridges, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.

 

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties.

 

 
3

Table of Contents

 

Jacksam Corporation

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$145,534

 

 

$482,908

 

Accounts receivable, net

 

 

25,605

 

 

 

-

 

Inventory, net

 

 

215,986

 

 

 

214,143

 

Prepaid expenses

 

 

83,805

 

 

 

41,751

 

Total Current Assets

 

 

470,930

 

 

 

738,802

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

229

 

 

 

517

 

Right of-use asset - operating lease

 

 

52,715

 

 

 

77,677

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$523,874

 

 

$816,996

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$698,221

 

 

$558,879

 

Accrued dividends

 

 

139,836

 

 

 

80,000

 

Deferred revenue

 

 

853,384

 

 

 

1,127,634

 

Convertible notes payable, current portion

 

 

444,444

 

 

 

444,444

 

Notes payable, current portion

 

 

625,283

 

 

 

158,672

 

Line of Credit

 

 

50,000

 

 

 

-

 

Right of use liability - operating lease, current portion

 

 

37,891

 

 

 

34,007

 

Derivative liability

 

 

822,719

 

 

 

491,913

 

Accrued liabilities - other

 

 

1,642,269

 

 

 

1,642,269

 

Subscription payable

 

 

499,999

 

 

 

499,999

 

Total Current Liabilities

 

 

5,814,046

 

 

 

5,037,817

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion (net of discount $0 and $94,095 respectively)

 

 

138,852

 

 

 

580,105

 

Right of use liability - operating lease

 

 

17,230

 

 

 

46,233

 

Total Liabilities

 

 

5,970,128

 

 

 

5,664,155

 

 

 

 

 

 

 

 

 

 

Commitment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine equity

 

 

 

 

 

 

 

 

Series A Preferred stock - 2,800,000 authorized, $0.001 par value, 2,800,000 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022

 

 

281,446

 

 

 

272,022

 

 

 

 

 

 

 

 

 

 

Stockholders' Deficit:

 

 

 

 

 

 

 

 

Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding

 

 

-

 

 

 

-

 

Series B Preferred Stock - 1,000,000 authorized, $0.001 par value, $1 stated value, 1,000,000 and 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

100

 

 

 

100

 

Common stock - 200,000,000 authorized, $0.001 par value, 81,088,719 shares issued and outstanding as of September 30, 2023 and 2022, respectively

 

 

81,088

 

 

 

81,088

 

Additional paid-in capital

 

 

7,382,657

 

 

 

7,451,916

 

Accumulated deficit

 

 

(13,191,545)

 

 

(12,652,285)

Total Stockholders' Deficit

 

 

(5,727,700)

 

 

(5,119,181)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Deficit

 

$523,874

 

 

$816,996

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
4

Table of Contents

 

Jacksam Corporation

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2023 and 2022

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$190,747

 

 

$492,891

 

 

$1,221,782

 

 

$3,737,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

92,610

 

 

 

431,454

 

 

 

745,511

 

 

 

2,832,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

98,137

 

 

 

61,437

 

 

 

476,271

 

 

 

905,004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages (including contractors)

 

 

23,059

 

 

 

222,731

 

 

 

187,220

 

 

 

764,211

 

Other selling, general and administrative expenses

 

 

88,780

 

 

 

174,832

 

 

 

310,592

 

 

 

550,312

 

Total operating expenses

 

 

111,839

 

 

 

397,563

 

 

 

497,812

 

 

 

1,314,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from operations

 

 

(13,702)

 

 

(336,126)

 

 

(21,541)

 

 

(409,519)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative gain (loss)

 

 

1,078,040

 

 

 

70,733

 

 

 

(330,806)

 

 

435,730

 

Interest expense

 

 

(39,908)

 

 

(53,030)

 

 

(213,140)

 

 

(350,153)

Other income

 

 

26,227

 

 

 

-

 

 

 

26,227

 

 

 

-

 

Total other income (expense)

 

 

1,064,359

 

 

 

17,703

 

 

 

(517,719)

 

 

85,577

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

1,050,657

 

 

 

(318,423)

 

 

(539,260)

 

 

(323,942)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

(23,340)

 

 

(23,340)

 

 

(69,259)

 

 

(69,260)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common shareholders

 

$1,027,317

 

 

$(341,763)

 

$(608,519)

 

$(393,202)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$0.01

 

 

$(0.00)

 

$(0.01)

 

$(0.00)

Diluted

 

$(0.00)

 

$(0.00)

 

$(0.01)

 

$(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

81,088,719

 

 

 

80,855,219

 

 

 

81,088,719

 

 

 

78,700,014

 

Diluted

 

 

214,896,127

 

 

 

80,855,219

 

 

 

81,088,719

 

 

 

78,700,014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
5

Table of Contents

 

Jacksam Corporation

Condensed Consolidated Statements of Stockholders' Deficit

For the Three and Nine Months Ended September 30, 2023 and 2022

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A Preferred Stock,

 

 

Series B Preferred Stock,

 

 

Common Stock, $0.001 Par Value

 

 

 Paid-In

 

 

Share

 

 

 Accumulated

 

 

 Stockholders'

 

 

 

 Shares

 

 

Amount

 

 

 Shares

 

 

Amount

 

 

 Shares

 

 

Amount

 

 

 Capital

 

 

 Payable

 

 

 Deficit

 

 

 Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2021

 

 

2,800,000

 

 

 

259,422

 

 

 

-

 

 

 

-

 

 

 

74,490,147

 

 

 

74,490

 

 

 

6,210,414

 

 

 

331,600

 

 

 

(11,130,807)

 

 

(4,514,303)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Series B Preferred Stock, net of fees

 

 

-

 

 

 

-

 

 

 

1,000,000

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

889,900

 

 

 

-

 

 

 

-

 

 

 

890,000

 

Common Stock and Warrants issued in connection with preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,000,000

 

 

 

2,000

 

 

 

(2,000)

 

 

-

 

 

 

-

 

 

 

-

 

Dividends on Series A and B Preferred Stock

 

 

-

 

 

 

3,107

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,833)

 

 

-

 

 

 

-

 

 

 

(22,833)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

29,384

 

 

 

29,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2022

 

 

2,800,000

 

 

 

262,529

 

 

 

1,000,000

 

 

 

100

 

 

 

76,490,147

 

 

 

76,490

 

 

 

7,075,481

 

 

 

331,600

 

 

 

(11,101,423)

 

 

(3,617,752)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for share payable

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,222,221

 

 

 

2,222

 

 

 

329,378

 

 

 

(331,600)

 

 

-

 

 

 

-

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,389,175

 

 

 

1,389

 

 

 

67,588

 

 

 

-

 

 

 

-

 

 

 

68,977

 

Common Stock and Warrants issued in connection with preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

670,034

 

 

 

670

 

 

 

(670)

 

 

-

 

 

 

-

 

 

 

-

 

Dividends on Series A and B Preferred Stock

 

 

-

 

 

 

3,141

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,087)

 

 

-

 

 

 

-

 

 

 

(23,087)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(34,903)

 

 

(34,903)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2022

 

 

2,800,000

 

 

 

265,670

 

 

 

1,000,000

 

 

 

100

 

 

 

80,771,577

 

 

 

80,771

 

 

 

7,448,690

 

 

 

-

 

 

 

(11,136,326)

 

 

(3,606,765)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

317,142

 

 

 

317

 

 

 

7,683

 

 

 

-

 

 

 

-

 

 

 

8,000

 

Dividends on Series A Preferred Stock

 

 

-

 

 

 

3,176

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,340)

 

 

-

 

 

 

-

 

 

 

(23,340)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(318,423)

 

 

(318,423)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2022

 

 

2,800,000

 

 

$268,846

 

 

 

1,000,000

 

 

$100

 

 

 

81,088,719

 

 

$81,088

 

 

$7,433,033

 

 

$-

 

 

$(11,454,749)

 

$(3,940,528)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2022

 

 

2,800,000

 

 

$272,022

 

 

 

1,000,000

 

 

$100

 

 

 

81,088,719

 

 

$81,088

 

 

$7,451,916

 

 

$-

 

 

$(12,652,285)

 

$(5,119,181)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Series A and B Preferred Stock

 

 

-

 

 

 

3,107

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,833)

 

 

-

 

 

 

-

 

 

 

(22,833)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

55,429

 

 

 

55,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2023

 

 

2,800,000

 

 

 

275,129

 

 

 

1,000,000

 

 

 

100

 

 

 

81,088,719

 

 

 

81,088

 

 

 

7,429,083

 

 

 

-

 

 

 

(12,596,856)

 

 

(5,086,585)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Series A and B Preferred Stock

 

 

-

 

 

 

3,141

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,086)

 

 

-

 

 

 

-

 

 

 

(23,086)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,645,346)

 

 

(1,645,346)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2023

 

 

2,800,000

 

 

$278,270

 

 

 

1,000,000

 

 

$100

 

 

 

81,088,719

 

 

$81,088

 

 

$7,405,997

 

 

$-

 

 

$(14,242,202)

 

$(6,755,017)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends on Series A and B Preferred Stock

 

 

-

 

 

 

3,176

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(23,340)

 

 

-

 

 

 

-

 

 

 

(23,340)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,050,657

 

 

 

1,050,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2023

 

 

2,800,000

 

 

$281,446

 

 

 

1,000,000

 

 

$100

 

 

 

81,088,719

 

 

$81,088

 

 

$7,382,657

 

 

$-

 

 

$(13,191,545)

 

$(5,727,700)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
6

Table of Contents

 

Jacksam Corporation

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income

 

$(539,260)

 

$(323,942)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

 

 

 

Depreciation expense

 

 

288

 

 

 

859

 

Stock based compensation

 

 

-

 

 

 

76,977

 

Amortization of debt discount

 

 

96,095

 

 

 

63,625

 

Amortization of right-of-use assets

 

 

24,962

 

 

 

20,225

 

Interest expense from derivative issuance

 

 

-

 

 

 

141,020

 

Derivative (gain) loss

 

 

330,806

 

 

 

(435,730)

Inventory impairment

 

 

-

 

 

 

18,800

 

Net change in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(25,605)

 

 

(283,138)

Inventory

 

 

(1,843)

 

 

(30,545)

Prepaid expenses

 

 

(42,054)

 

 

(85,779)

Right-of-use liabilities

 

 

(25,119)

 

 

(17,916)

Accounts payable and accrued expenses

 

 

139,343

 

 

 

324,327

 

Deferred revenue

 

 

(274,250)

 

 

(23,999)

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(316,637)

 

 

(555,216)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from line of credit

 

 

50,000

 

 

 

-

 

Payments on convertible notes payable

 

 

-

 

 

 

(300,000)

Payment of debt issuance costs

 

 

(1,000)

 

 

-

 

Proceeds from notes payable

 

 

-

 

 

 

231,194

 

Payments on notes payable

 

 

(69,737)

 

 

(312,009)

Proceeds from issuance of Series A preferred stock

 

 

-

 

 

 

890,000

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

(20,737)

 

 

509,185

 

 

 

 

 

 

 

 

 

 

Net Change in Cash

 

 

(337,374)

 

 

(46,031)

 

 

 

 

 

 

 

 

 

Cash, Beginning of Period

 

 

482,908

 

 

 

344,811

 

 

 

 

 

 

 

 

 

 

Cash, End of Period

 

$145,534

 

 

$298,780

 

 

 

 

 

 

 

 

 

 

Cash Paid For:

 

 

 

 

 

 

 

 

Income Taxes

 

$-

 

 

$-

 

Interest

 

$8,691

 

 

$13,709

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Right of use asset and liability recognized, operating leases

 

$-

 

 

$105,822

 

Common stock issued for deferred finance costs

 

$-

 

 

$2,670

 

Common stock issued to settle share payable

 

$-

 

 

$331,600

 

Preferred stock dividends

 

$69,259

 

 

$45,920

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 
7

Table of Contents

 

 Jacksam Corporation

 Notes to Condensed Consolidated Financial Statements

 

Note 1: Organization and Nature of Operations

 

Jacksam Corporation dba Convectium is a technology company focused on developing and commercializing products of vaporizer cartridge filling & capping, pre-roll filling, and other automation systems. The Company’s product line primarily consisted of the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, the “PreRoll-ER” pre-roll & cone filling machine, and cartridges. The Company’s customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include medical and recreational dispensaries, large and small-scale processors and growers, multi-state operators, and distributors. The Company utilizes its direct sales force, website, strategic partners’ sales force, independent sales representatives, and a wide range of referral network to sell its products.

 

The Company was incorporated in the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. Since incorporated, the Company has engaged in a variety of businesses, but has been inactive since late 2014 through the Merger that closed on September 14, 2018. Since the Merger, the Company has been operated under the control of current management and continued to operate the business of Jacksam Corporation, described herein, as our sole business.

 

Note 2: Significant Accounting Policies

 

Basis of Preparation

 

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2022 in the Form 10-K filed on April 17, 2023. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Jacksam Corporation and its wholly owned subsidiary. All intercompany transactions and balances are eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements is in conformity with U.S. GAAP and requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions impact both assets and liabilities, including but not limited to net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, estimate of fair value of share-based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount and estimates of the probability and potential magnitude of contingent liabilities. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future nonconforming events. Accordingly, actual results could differ significantly from estimates.

 

 
8

Table of Contents

 

Risks and Uncertainties

 

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. The Company has experienced, and in the future, expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold, (iii) general economic conditions, and (iv) the related volatility of prices pertaining to the cost of sales. During the three months ended September 30, 2023 four customers accounted for 44%, 16%, 11% and 10% of revenue. During the three months ended September 30, 2022, two customers accounted for 14% and 11% of revenue. During the nine months ended September 30, 2023, three customers accounted for 27%, 16% and 14% of revenue. During the nine months ended September 30, 2022, three customers accounted for 11%, 10% and 10% of revenue.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and consist of cash on hand and demand deposits placed with banks or other financial institutions, and all highly liquid investments with an original maturity of three months or less. Federal Deposit Insurance Corporation (“FDIC”) deposit insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company has no amounts in excess of the FDIC limit as of September 30, 2023

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. As of September 30, 2023 and December 31, 2022, the Company had recorded an allowance for doubtful accounts of $264,659, respectively.

 

Inventory

 

Inventories are stated at the lower of cost, determined on the average cost basis, or net realizable value. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.

 

The September 30, 2023 and December 31, 2022 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of September 30, 2023 and December 31, 2022, the Company’s an inventory allowance was estimated at $18,800.

 

Property and Equipment

 

Property and equipment are measured at cost, less accumulated depreciation, and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5 to 7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Fair Value of Financial Instruments

 

 
9

Table of Contents

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

·

Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

 

·

Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; Quoted prices for similar assets or liabilities in active markets; Inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

 

·

Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and deferred revenue are an approximate of their fair values because of the short maturity of these instruments. The Company’s derivative liabilities recognized at fair value on a recurring basis are a level 3 measurement. See Note 6.

 

Binomial Calculation Model

 

The Company uses a binomial calculator model to determine fair market value of derivative liabilities, warrants and options issued.

 

Preferred Stock Subject to Possible Redemption

 

The Company accounts for its preferred stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. Preferred stock subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable preferred stock (including preferred stock that feature redemption rights that are either within the control of the holder or subject to the redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred stock is classified as stockholders’ equity.

 

Revenue Recognition

 

The Company derives revenues from the sale of machines and non-machine products (customizable and C-Cell cartridges and accessories). The Company recognizes revenue in accordance with ASC 606. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.

 

Revenue is recognized based on the following five step model:

 

 

-

Identification of the contract with a customer

 

-

Identification of the performance obligations in the contract

 

-

Determination of the transaction price

 

-

Allocation of the transaction price to the performance obligations in the contract

 

-

Recognition of revenue when, or as, the Company satisfies a performance obligation

 

 
10

Table of Contents

 

Performance Obligations

 

Sales of machines and non-machine products are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. The customer has a 10-day period to inspect the equipment and may return the product if it does not meet the agreed-upon specifications. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost plus margin approach when one is not available. Historically, the Company’s contracts have not had multiple performance obligations. The large majority of the Company’s performance obligations are recognized at a point in time related to the sale of machines and non-machine products.

 

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of September 30, 2023, none of the Company’s contracts contained a significant financing component.

 

The Company elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with an end user for the effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less than one year.

 

The majority of the Company’s contracts offer an assurance-type warranty of the products at no additional cost for a period of 3 years. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation. At the time a sale is recognized, the Company estimated future warranty costs, which were trivial.

 

Transaction Price Allocated to the Remaining Performance Obligations

 

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of September 30, 2023, $853,384 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The Company expects to recognize all of our unsatisfied (or partially unsatisfied) performance obligations as revenue in the next twelve months.

 

Contract Costs

 

Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed and included within cost of goods and services.

 

Critical Accounting Estimates

 

Estimates are used to determine the amount of any variable consideration in contracts and the standalone selling price among separate performance obligations. The Company reviews and updates these estimates regularly.

 

 
11

Table of Contents

 

Disaggregation of Revenue

 

All machine sales and most non-machine sales are completed in North America.

 

 

 

Three Months ended September 30, 2023

 

 

Three Months ended September 30, 2022

 

 

Nine Months ended September 30, 2023

 

 

Nine Months Ended September 30, 2022

 

Machine sales

 

$38,000

 

 

$225,335

 

 

$486,000

 

 

$2,416,419

 

Non-Machine sales

 

 

152,747

 

 

 

267,556

 

 

 

735,782

 

 

 

1,320,856

 

Total sales

 

$190,747

 

 

$492,891

 

 

$1,221,782

 

 

 

3,737,275

 

 

Net Loss Per Common Share

 

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises that are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation.

 

The following table presents the effect of potential dilutive issuances for three and nine months September 30, 2023 and 2022:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30, 2023

 

 

September 30, 2022

 

 

September 30, 2023

 

 

September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$1,027,317

 

 

$(341,763)

 

$(608,519)

 

$(393,202)

Preferred stock dividends

 

 

23,340

 

 

 

23,340

 

 

 

69,259

 

 

 

69,260

 

Derivative gain

 

 

(1,064,687)

 

 

(70,733)

 

 

339,540

 

 

 

(435,730)

Interest expense associated with convertible debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income (loss) for dilutive calculation

 

$(14,030)

 

$(389,156)

 

 

(199,720)

 

 

(759,672)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

81,088,719

 

 

 

80,132,342

 

 

 

81,088,719

 

 

 

77,605,012

 

Dilutive effect of preferred stock

 

 

18,066,667

 

 

 

-

 

 

 

-

 

 

 

-

 

Dilutive effect of convertible debt

 

 

115,740,741

 

 

 

-

 

 

 

-

 

 

 

-

 

Dilutive effect of common stock warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Weighted average shares outstanding for diluted net income (loss) per share

 

 

214,896,127

 

 

 

80,132,342

 

 

 

81,088,719

 

 

 

77,605,012

 

 

During the three and nine months ended September 30, 2023, the impact of 15,189,056 warrants to purchase common stock, were excluded from the calculation, as their impact would be anti-dilutive. During the nine months ended 115,740,741 shares issuable under convertible debt and 18,066,667 shares issuable under convertible preferred stock  were excluded from the calculation During the three and nine months ended September 30, 2022, the impact of 14,279,965 warrants to purchase common stock, 2,469,136 shares issuable under convertible debt and 18,066,667 shares issuable under convertible preferred stock were excluded from the calculation above as their impact would be anti-dilutive. The calculation for each period presented also excludes 2,777,778 shares not yet issued related to conversions of debt that occurred in 2020. Additionally, 2,222,223 shares to be issued as part of the share payable equity balances as of September 30, 2022 are excluded from the calculation of weighted average shares outstanding for the three and six months ended September 30, 2022.

 

Income Tax Provision

 

 
12

Table of Contents

 

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.  

 

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within the related tax liability.

 

Going Concern

 

The Company’s financial statements are prepared using U.S. GAAP to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have a source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute the business plan and attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

 

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the SEC, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

 

Historically, it has mostly relied upon convertible notes payable and cash flows from operations to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.

 

Advertising and Marketing Expenses

 

The Company expenses the cost of advertising and promotions as incurred. Advertising and promotion expense was $0 and $1,000 for the three months ended September 30, 2023 and 2022, respectively, and was $220 and $26,500 for the nine months ended September 30, 2023 and 2022, respectively.

 

Research and Development Costs

 

Research and development costs are expensed as incurred. The Company incurred no research and development costs during the three and nine months ended September 30, 2023 and 2022.

 

 
13

Table of Contents

 

Lease arrangements

 

The Company follows the guidance of ASC 842 for accounting for leases. Transactions give rise to leases when the Company receives substantially all the economic benefits from and has the ability to direct the use of specified property and equipment. The Company determines if an arrangement is a lease at inception. The operating lease ROU assets are included within the Company’s non-current assets and lease liabilities are included in current or non-current liabilities on the Company’s consolidated balance sheets.

 

ROU assets represent the Company’s right to use, or control the use of, a specified asset for the lease term. Lease liabilities are the Company’s obligation to make lease payments arising from a lease and are measured on a discounted basis. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term on the commencement date. The operating lease ROU asset includes any lease payments made and initial direct costs incurred and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments continues to be recognized on a straight-line basis over the lease term.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective and will not have a material effect on its consolidated financial position or results of operations upon adoption.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”(“ASU 2016-13”). ASU 2016-13 requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (“CECL”) model). Under the CECL model entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. Further, ASU 2016-13 made certain targeted amendments to the existing impairment standards for available for sale (“AFS”) debt securities. An entity will apply the amendments in ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The Company determined that the update applied to its trade accounts receivable and adopted the guidance on January 1, 2023 with no material impact to the Company’s financial statements or results of operations. The Company will estimate its expected credit losses based on the expected losses on its receivables based on a variety of data, including current economic conditions in the Company’s industry and the credit status of the Company’s customers.

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

 

Note 3: Property and Equipment

 

 
14

Table of Contents

 

Property and equipment consist of the following:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

 

 

 

 

 

 

 

Furniture and fixtures

 

$10,425

 

 

$10,425

 

Equipment

 

 

7,579

 

 

 

7,579

 

Trade show display

 

 

2,640

 

 

 

2,640

 

Total

 

 

20,644

 

 

 

20,644

 

Less: Accumulated depreciation

 

 

(20,415 )

 

 

(20,127 )

Property and equipment, net

 

$229

 

 

$517

 

 

Depreciation expense amounted to $288 and $859 for the nine months ended September 30, 2023 and 2022, respectively.

 

Note 4: Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following:

 

 

 

September 30,

2022

 

 

December 31,

2022

 

 

 

 

 

 

 

 

Accounts payable

 

$275,469

 

 

$245,482

 

Accrued interest

 

 

278,199

 

 

 

168,844

 

Sales tax payable

 

 

144,553

 

 

 

144,553

 

Total Accounts payable and Accrued expenses

 

$698,221

 

 

$558,879

 

 

Note 5: Notes Payable and Line of Credit

 

A summary of Notes Payable are as follows:

 

 

 

September 30,

2023

 

 

December 31,

2022

 

 

 

 

 

 

 

 

SBA loan May 2020

 

$142,259

 

 

$144,739

 

Note payable September 2021

 

 

621,876

 

 

 

635,658

 

Note Payable September 2022

 

 

-

 

 

 

52,475

 

Total notes payable

 

 

764,135

 

 

 

832,872

 

Less: discount and deferred finance costs

 

 

-

 

 

 

(94,095 )

Less: current portion

 

 

(625,283 )

 

 

(158,672 )

Long-term portion of notes payable

 

$138,852

 

 

 

580,105

 

 

On June 2, 2020, the Company received $150,000 under the Small Business Administration’s Economic Injury Disaster Loan. The loan bears interest at a fixed rate of 3.75%, and matures on May 26, 2050, payable monthly with payments of $731 beginning twelve months after issuance. The loan gives the Small Business Administration a security interest in all assets of the Company. As of September 30, 2023 and December 31, 2022, the Company owed a principal amount of $142,259 and $144,739 under this loan.

 

On September 29, 2021, the Company entered into a Revenue Loan and Security Agreement (the “RSLA) with an investor for up to a total amount of $1,000,000. Upon drawing from the facility and continuing thereafter until maturity or earlier prepayment in full, the Company shall pay monthly to the lender an amount equal to the product of (i) all revenue of the Company for the immediately preceding month multiplied by (ii) an applicable revenue percentage. On September 29, 2021, the Company borrowed $750,000 under the agreement and received initial cash proceeds of $727,500. The Company also paid an additional $5,000 in fees to the investor to secure the loan for total deferred financing fees of $27,500. On November 12, 2021, the Company issued a total of 843,750 shares of common stock to a lender in connection with the note payable issued. These shares had a fair value of $100,744 and were recorded as deferred finance costs.

 

 
15

Table of Contents

 

On March 13, 2023, the Company entered into an Amendment to the RSLA (the “Amended RSLA”) whereby, the lender agreed to a limited forbearance on the loan as a result of the existing defaults if the company were to meet certain criteria. As of September 30, 2023, the Company did not meet the criteria as outlined in the Amended RSLA, and therefore the Company is in default on the loan and the lender has the right to demand full repayment of the loan. As a result, the remaining deferred finance cost was amortized to interest expenses and the full amount of the loan is classified as a current liability.

 

As of September 30, 2023 and December 31, 2022, the Company owed a principal amount of $621,875 and $635,658 under this loan, with remaining unamortized discount of $0 and $94,095, respectively.

 

In December 2022, the Company received cash proceeds of $52,475 under an unsecured short term financing agreement. The Company repaid the loan in full during the nine months ended September 30, 2023.

 

On March 30th, 2023, the Company entered into a line of credit agreement with a principal amount of $50,000, which was drawn in full as of September 30, 2023. The line of credit is unsecure, bears interest at 10% and matured on June 30, 2023. The Company paid $1,000 in financing costs associated with the loan. The Company is currently in default of this agreement.

 

The Company amortized $96,095 and $63,625 of debt discount and deferred finance costs to interest expense related to notes payable and the line of credit during the nine months ended September 30, 2023 and 2022, respectively.

 

Accrued interest on notes payable was $278,199 and $168,844 as of September 30, 2023 and December 31, 2022, respectively.

 

Note 6: Convertible Notes Payable and Derivative Liabilities

 

Convertible Notes Payable

 

The following table summarizes outstanding convertible notes as of September 30, 2023 and December 31, 2022:

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

 

 

 

 

 

June 2019 Notes, due April 30, 2023

 

$444,444

 

 

$444,444

 

Total

 

 

444,444

 

 

 

444,444

 

Less: Debt discount and deferred finance costs on short-term convertible notes

 

 

-

 

 

 

-

 

Less: Current convertible notes payable, net of discount

 

 

(444,444 )

 

 

(444,444 )

 

 

 

 

 

 

 

 

 

Total long-term convertible notes payable, net

 

$-

 

 

$-

 

 

In June and July 2019, the Company issued convertible notes to 10 investors with an original principal amount of $2,388,889, receiving $1,583,333 in net cash proceeds (the “June 2019 Notes”). The June 2019 Notes matured on March 25, 2020 and are convertible into the Company’s common stock at a per share price of $0.35 at any time subsequent to the issuance date. The June 2019 Notes contain a down round feature, whereby any sale of common stock or common stock equivalent at a price per share lower than the conversion price of the June 2019 Notes will result in the conversion price being lowered to the new price. The warrants contain the same down round feature as the notes. As a result of a dilutive issuance during the year ended December 31, 2020, the exercise price of the remaining notes payable and the warrants is currently $0.18 per share.

 

During the year ended December 31, 2020, $1,500,000 of the principal on the June 2019 Notes was converted into the right to receive 7,883,599 shares of common stock, of which 5,105,821 were issued by March 31, 2023 and 2,777,778 were part of the subscriptions payable liability balance of $499,999 as of March 31, 2023 and December 31, 2022. See Note 7.

 

 
16

Table of Contents

 

The Company was in default of the convertible debt outstanding as of December 31, 2022, which resulted in the conversion price on the outstanding note adjusting to be 60% of the lowest trading price in the 25 days prior to a conversion notice. Following the previous extensions, the holder of $444,444 of the notes agreed to extend the repayment period to April 30, 2023. There were no other changes to terms of the convertible notes payable, and the amendments were accounted for as a debt modification. The Company is currently in default of this agreement.

 

Derivative Liabilities

 

The fair values of the conversion option of outstanding convertible notes payable and common stock warrants were determined to be derivative liabilities under ASC 815 due to the default on convertible notes payable disclosed above, which resulted in a variable conversion price on the outstanding convertible note payable. The fair value of the derivative liabilities was estimated using a binomial model with the following assumptions:

 

 

 

As of September 30, 2023

 

 

 

Conversion Option

 

 

Warrants

 

 

 

 

 

 

 

 

Volatility

 

 

100.79%

 

95.85-100.79

Dividend Yield

 

 

0%

 

 

0%

Risk-free rate

 

 

5.53%

 

4.80-5.53%

 

Expected term

 

0.5 year

 

 

0.5-3.40 years

 

Stock price

 

$0.0108

 

 

$0.0108

 

Exercise price

 

$0.0038

 

 

$ 0.18-0.27

 

Derivative liability fair value

 

$817,512

 

 

$5,209

 

 

All fair value measurements related to the derivative liabilities are considered significant unobservable inputs (Level 3) under the fair value hierarchy of ASC 820.

 

The table below presents the change in the fair value of the derivative liability during the nine months ended September 30, 2023:

 

Fair value as of December 31, 2022

 

$

491,913

 

Fair value on the date of issuance related to warrants issued

 

 

 

 

Extinguishment due to repayment of debt

 

 

-

Extinguishment due to conversion of debt

 

 

-

Change in fair value of derivatives

 

 

330,806

Fair value as of September 30, 2023

 

$

822,719

 

 

The total impact of derivative liabilities recognized in the Company’s consolidated statements of operations includes the change in fair value of derivatives, with the Company recognizing a total loss of $330,806 and a total gain of $435,730 during the nine months ended September 30, 2023 and 2022, respectively.

 

Note 7: Equity

 

Common Stock

 

The Company’s Article of Incorporation authorize the Company to issue from 230,000,000 shares, consisting of two classes to be designated respectively, “Common Stock” and “Preferred Stock”, with all such shares having a par value of $0.001 per share, of which 200,000,000 shall be designated as Common stock and 30,000,000 designated as Preferred stock. 

 

 
17

Table of Contents

 

As of September 30, 2023 and December 31, 2022, there are 2,777,778 shares remaining to be issued related to 2020 debt conversions of $499,999, which is included in Subscription payable on the consolidated balance sheets.

 

Series A Redeemable Preferred Stock

 

The Company created the 2,800,000 shares of Series A Preferred Stock out of the 10,000,000 shares of preferred stock authorized by the Company’s articles of incorporation by filing a certificate of designation as authorized by the Company’s board of directors (the “Certificate of Designation”).

 

The Series A Preferred Stock bears a cumulative dividend of 5.0% per annum on the original purchase price and is redeemable by the Company or upon a class vote by the holders of the Series A Preferred Stock at the original purchase price, plus any unpaid dividends then owing, payable in 4 equal quarterly payments. The Series A Preferred Stock converts into the Company’s common stock at a ratio of 2:1, subject to revision on the basis of standard weighted average anti-dilution protective provisions, at the option of the holders of the Series A Preferred Stock or automatically upon the occurrence of a merger, sale of the Company’s assets, or upon another Deemed Liquidation Event as defined in the Certificate of Designation. In the absence of an anti-dilution adjustment, the 2,800,000 shares of Series A Preferred Stock will convert into 1,400,000 shares of the Company’s common stock.

 

The Series A Preferred Stock votes with the Company’s common stock, as a single class, at a rate of 20 votes for each share of Series A Preferred Stock. The Series A Preferred Stock carries a liquidation preference and is participating. The Series A Preferred Stock carries standard protective provisions that preclude the Company from amending its articles of incorporation, bylaws or the terms of the Certificate of Designation adversely to the holders of the Series A Preferred Stock without their prior approval.

 

Due to the redemption feature, the Company accounts for the Series A Preferred Stock as temporary equity in accordance with ASC 480. The Series A Preferred Stock is accounted for at redemption value.

 

On May 26, 2021, the Company, entered into a subscription agreement (the “Preferred Stock Agreement”) with Mark Adams, Chief Executive Officer, President, and a member of Board of Directors of the Company. Mark Adams paid $126,000 to purchase 1,400,000 shares of the Series A Preferred Stock, at a price per share of $0.09. Scott Wessler, former Chairman of Board of Directors of the Company, paid $126,000 to purchase 1,400,000 shares of the Series A Preferred Stock, at a price per share of $0.09.

 

The Company accrued $9,424 in dividends on the Series A Preferred Stock for the nine months ended September 30, 2023. Total accrued dividends at September 30, 2023 and December 31, 2022 were $29,446 and $20,022, respectively. The redemption value of the Series A Preferred Stock as of September 30, 2023 and December 31, 2022 was $281,446 and $272,022, reflected as temporary equity on the Company’s consolidated balance sheet.

 

Series B Convertible Preferred Stock

 

In February 2022, the Company designated 1,000,000 shares of Series B Convertible Preferred Stock (“Series B”). The Series B has a par value of $0.0001 per share, a stated value of $1 per share and carries a dividend of 8%. The Series B are convertible into shares of common stock at a price of $0.06 per share, and contains an exercise price reset provision in the event of dilutive issuances of common stock or any common stock equivalent by the Company with a price below the exercise price.

 

The Series B holders do not have voting rights on matters other than those related to amending the certificate of incorporation of the Series B, altering voting or other powers of the Series B, or redemption or acquisition of outstanding Series B. For a period of one year following closing of the Series B funding, the Company may not authorize or create any class of stock that is senior to the Series B with respect to dividends, redemption or distribution of assets upon Liquidation. In the event of liquidation of the Company, the Series B holders shall be paid 125% of the Stated value plus 125% of any unpaid dividends.

 

 
18

Table of Contents

 

During the nine months ended September 30, 2022, the Company sold a total of 1,000,000 shares of Series B to two investors for net cash proceeds of $890,000 and issued warrants to purchase 4,000,000 shares of common stock at $0.20 per share for a period of five years. The Company also issued 2,000,000 shares of common stock with a fair value of $139,800 to the investors, which were recorded as a cost of capital with no expense recognized. The Company granted to the Investors the piggy-back registration rights.

 

The Company accrued $139,836 and $80,000 in dividends on the Series B Preferred Stock as of September 30, 2023 and December 31, 2022, respectively.

 

Stock Warrants

 

A summary of stock warrant information is as follows:

 

 

 

Aggregate

Number

 

 

Aggregate

Exercise

Price

 

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2022

 

 

14,279,965

 

 

$2,946,044

 

 

$0.21

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited and cancelled

 

 

(2,211,389 )

 

 

(631,200 )

 

 

0.29

 

Outstanding at September 30, 2023

 

 

12,068,576

 

 

$2,314,844

 

 

$0.19

 

 

The weighted average remaining contractual life is approximately 1.57 years for stock warrants outstanding with no intrinsic value of as of September 30, 2023. All of the above warrants were fully vested.

 

Note 8: Related Party

 

Mark Adams, CEO, invested $250,000 in the June 2019 Notes and converted his debt during the year ended December 31, 2020 into shares of common stock of 1,388,885, which have yet to be issued for a conversion value of $277,778. Mark Adams will also receive an additional 154,321 shares of common stock once the shares are issued. The Company’s former VP of sales also invested $100,000 in the June 2019 Notes and converted his debt during the year ended December 31, 2020 into shares of common stock of 555,556, which have yet to be issued for a conversion value of $111,111. The former VP of sales will also receive an additional 61,728 shares of common stock once the shares are issued.

 

Those shares were included in subscriptions payable on the Company’s consolidated balance sheet.

 

Mark Adams contributed $126,000 to purchase the Series A Preferred Stock during the year ended December 31, 2021, as discussed in Note 7.

 

Note 9: Leases, Commitments and Contingencies

 

Leases

 

The Company entered into a lease agreement for office space on February 2, 2022, for a term beginning February 15, 2022 through February 28, 2025. The lease requires payments of $3,267 per month through the lease term, increasing by 4% each year, with an option to renew. The Company recognized an initial right of use asset and lease liability of $105,822, based on the present value of the minimum lease payments. For purposes of calculating operating lease liabilities, lease terms may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial right-of-use (“ROU”) asset or lease liability. The Company’s lease agreements do not contain any material restrictive covenants.

 

 
19

Table of Contents

 

The components of lease cost for operating leases for the six months ended September 30, 2023 and 2022 were as follows:

 

 

 

Nine Months Ended

 

 

 

September 30, 

2023

 

 

September 30, 

2022

 

Operating lease cost

 

$30,163

 

 

$26,811

 

Short-term lease cost

 

 

5,837

 

 

 

24,220

 

Variable lease cost

 

 

 

 

 

 

Sublease income

 

 

 

 

 

 

Total lease cost

 

$36,000

 

 

$51,031

 

 

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at September 30, 2023 and December 31, 2022:

 

Lease Position

 

September 30, 2023

 

 

December 31,

2022

 

Operating Leases

 

 

 

 

 

 

Operating lease right-of-use assets

 

$52,715

 

 

$77,677

 

Right of use liability operating lease current portion

 

$37,891

 

 

$34,007

 

Right of use liability operating lease long term

 

 

17,230

 

 

 

46,233

 

Total operating lease liabilities

 

$55,121

 

 

$80,240

 

 

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company estimated its incremental borrowing rate to be 10%. The lease has a remaining term of 1.67 years and a weighted average rate of 10%.

 

The following table provides the maturities of lease liabilities at September 30, 2023:

 

 

 

 Operating

 

 

 

 Leases

 

2023 (3 months remaining)

 

$10,193

 

2024

 

 

42,123

 

2025

 

 

7,065

 

2026

 

 

-

 

2027 and thereafter

 

 

-

 

Total future undiscounted lease payments

 

 

59,381

 

Less: Interest

 

 

(4,260 )

Present value of lease liabilities

 

$55,121

 

 

 
20

Table of Contents

 

Lawsuit

 

The Company has a pending lawsuit with one of its previous suppliers regarding defected cartridges. The Company is still evaluating the case and determining the impact of the case on the Company and as of the date of this report the amount or range of possible losses is not reasonably estimable.

 

Note 10: Accrued Liabilities – Other

 

Prior to the Merger, China Grand Resorts, Inc. recorded various liabilities that were incurred by former related parties. The current management team is not aware of any written agreements in place governing the terms of the loans nor have they been in contact with the debt holders however recognizes that China Grand Resorts, Inc. previously reported these amounts as liabilities of the Company. In accordance with ASC 405-20-40, the liabilities may only be removed from the Company’s financial statements if they are paid, formally settled or judicially released. Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities of $1,642,269 but does not believe that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,642,269 from the Company’s financial statements until such time that the liability is formally settled or judicially released in accordance with ASC 405-20-40. Due to the lack of written agreements and other factors noted above, management concluded to no longer accrue interest on these loans.

 

Note 11: Subsequent Events

 

On October 31, 2023, the Company entered into amendment agreements with certain existing debt holders. Following this event, the Company is no longer in default on the loans.

 

 
21

Table of Contents

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations include several forward-looking statements that reflect management’s current views with respect to future events and financial performance. You can identify these statements by forward-looking words such as “may”, “will”, “expect”, “anticipate”, “believe”, “estimate” and “continue”, or similar words. Those statements include statements regarding the intent, belief or current expectations of us and members of the management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. Important factors currently known to management could cause actual results to differ materially from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in the pricing of our products, and competition.

 

The following discussion provides information that management believes is relevant to an assessment and understanding of our past financial condition and plan of operations. The discussion below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this report.

 

Overview

 

The Company was originally incorporated in the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. Since incorporated, the Company has engaged in a variety of businesses, but has been inactive since late 2014 through the Merger that closed on September 14, 2018. Since the Merger, the Company has been operated under the control of current management and continued to operate the business of Jacksam Corporation, described herein, as our sole business. Our sole business has been the design, manufacturing and sale of vaporizer cartridge filling machines, capping machines, pre-roll & cone filling machines, and cartridges to customers in the medical and recreational cannabis, hemp, and CBD industries.

 

Components of Statements of Operations

 

Revenue

 

Product revenue consists of sales of 710 Shark filling machines, 710 Captain capping machines, “PreRoll-ER” pre-roll & cone filling machines, cartridges, accessories, warranty, service and freight charges, net of returns, discounts and allowances. Once a sales order is negotiated and received by a sales representative, we generally collect a 50% deposit from the customer. When the product is ready to be shipped, the customer will generally pay the remaining balance. We recognize the revenue when the product leaves the warehouse on the way to the customer.

 

For the filling and capping machines, training is coordinated with the customers in accordance with their availability but generally completed within a week or two of the shipment. Standard warranties are offered at no cost to customers to cover parts for three years, and labor and maintenance are offered for one year for product defects.

 

 
22

Table of Contents

 

Cost of Revenue

 

Cost of goods sold represents costs directly related to supplies and materials, machines, freight and delivery, commissions, printing, packaging and other costs.

 

We expect our cost of goods sold per unit to decrease as we continue to scale our operations, improve product designs and work with our third-party suppliers to lower costs.

 

Operating Expenses

 

Sales and Marketing. Sales and marketing expenses include costs associated with our business development efforts with our distributors and partners and costs related to trade shows and other marketing programs. We expense sales and marketing costs as incurred. We expect sales and marketing expenses to increase in future periods as we expand our sales and marketing teams and increase our participation in global trade shows and other marketing programs.

 

General and Administrative. Our general and administrative expenses consist primarily of compensation, benefits, travel and other costs for employees. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, and allocations of overhead costs, such as rent, facilities and information technology. We expect general and administrative expenses to increase as our revenue increases.

 

Results of Operations– Three-month Periods

 

Comparison for the three-month periods ended September 30, 2023 and 2022:

 

Revenue

 

Total revenue during the three months ended September 30, 2023 was $ $190,747 (comprised of machine sales of $38,000 and non-machine sales of $152,747), compared to the three months ended September 30, 2022 that generated sales of $492,891 (comprised of machine sales of $225,335 and non-machine sales of $267,556).

 

Cost of Revenue

 

Total cost of revenue decreased to $92,610 during the three months ended September 30, 2023, compared to the three months ended September 30, 2022 that had a cost of revenue of $431,454.

 

Operating Expenses

 

Operating expenses during the three months ended September 30, 2023 were $ 111,839 (comprised of Salaries of $ 23,059 and Other Sales, Marketing and General and Administrative (“SG&A”) expenses of $ 88,780), compared to the three months ended September 30, 2022 that produced $397,563 (comprised of Salaries of $222,731 and SG&A expenses of $174,832).

 

Loss from Operations

 

Total loss from operations was $13,702 during the three months ended September 30, 2023, compared to $336,126 for the three months ended September 30, 2022.

 

Derivative Gain

 

Derivative gain, a non-cash item, was $1,078,040 during the three months ended September 30, 2023, due to the fair value change of the debt and warrants driven by the stock price change between June 30, 2023 and September 30, 2023, compared to $70,733 during the three months ended September 30, 2022.

 

Interest Expense

 

Interest expense, a non-cash item, was $39,908 during the three months ended September 30, 2023, compared to $53,030 during the three months ended September 30, 2022.

 

Other Income

 

Other income was $26,227 during the three months ended September 30, 2023, compared to $0 during the three months ended September 30, 2022.

 

 
23

Table of Contents

 

Net Income / (Loss)

 

Net income was $1,050,657 during the three months ended September 30, 2023, compared to a net loss of $318,423 during the three months ended September 30, 2022.

 

Results of Operations – Nine-month Periods

 

Comparison for the nine-month periods ended September 30, 2023 and 2022: 

 

Revenue

 

Total revenue during the nine months ended September 30, 2023 was $ $1,221,782 (comprised of machine sales of $486,000 and non-machine sales of $735,782), compared to the nine months ended September 30, 2022 that generated sales of $3,737,275 (comprised of machine sales of $2,416,419 and non-machine sales of $1,320,856).

 

Cost of Revenue

 

Total cost of revenue was $745,511 during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022 that had a cost of revenue of $2,832,271.

 

Operating Expenses

 

Operating expenses during the nine months ended September 30, 2023 were $497,812 (comprised of Salaries of $187,220 and Other SG&A expenses of $310,592), compared to the nine months ended September 30, 2022 that produced $1,314,523 (comprised of Salaries of $764,211 and Other SG&A expenses of $550,312).

 

Loss from Operations

 

Total loss from operations was $21,541 during the nine months ended September 30, 2023, compared to $409,519 for the nine months ended September 30, 2022.

 

Derivative Gain / (Loss)

 

Derivative loss, a non-cash item, was $330,806 during the nine months ended September 30, 2023, due to the fair value change of the debt and warrants driven by the stock price change between December 31, 2022 and September 30, 2023, compared to a derivative gain of $435,730 during the nine months ended September 30, 2022.

 

Interest Expense

 

Interest expense, a non-cash item, was $213,140 during the nine months ended September 30, 2023, compared to $350,153 during the nine months ended September 30, 2022.

 

Other Income

 

Other income was $26,227 during the nine months ended September 30, 2023, compared to $0 during the nine months ended September 30, 2022.

 

Net Loss

 

Net loss was $539,260 during the nine months ended September 30, 2023, compared to $323,942 during the nine months ended September 30, 2022.

 

 
24

Table of Contents

 

Liquidity and Capital Resources

 

At September 30, 2023, we had cash and cash equivalents of $ $145,534. During the nine months ended September 30, 2023, we have financed our operations principally through receipts of customer payments and proceeds on the line of credit of $50,000.

 

We anticipate that we will need additional financing to continue as an ongoing entity over the next 12 months. Our future capital requirements and the adequacy of available funds will depend on many factors. There can be no assurance we will be able to obtain additional financing on favorable terms, or at all. If we are unable to obtain additional financing, our financial results and business prospects may be materially adversely affected.

 

Operating Activities

 

We have historically experienced negative cash outflows. Our net cash used in operating activities primarily results from our operating losses combined with changes in working capital components as we have grown our business and is influenced by the timing of cash payments for inventory purchases and cash receipts from our customers. Our primary source of cash flow from operating activities is cash down payments and final payments for our machines. Our primary uses of cash from operating activities are employee-related expenditures and amounts due to vendors for purchased components. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we build up our inventory balances and increase spending on personnel and other operating activities as our business grows.

 

During the nine months ended September 30, 2023, net cash used in operating activities was $316,637, compared to $555,216 during the nine months ended September 30, 2022.

 

Investing Activities

 

The Company had no investing activities in either period.

 

Financing Activities

 

During the nine months ended September 30, 2023, the Company received $50,000 in proceeds from the new line of credit, and made payments of $69,737 of convertible notes payable and $1,000 of debt issuance cost.

 

During the nine months ended September 30, 2022, the Company received $890,000 in proceeds from issuance of Series B Preferred Stock and $163,988 in proceeds from short-term debt and made payments of $300,000 of convertible notes payable and $252,751 of non-convertible debt.

 

Off-Balance Sheet Arrangements

 

During the nine months ended September 30, 2023 and the year ended December 31, 2022, we did not have any off-balance sheet arrangements as defined by applicable SEC regulations.

 

Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of ninety (90) days or less to be cash equivalents. We do not believe that a notional or hypothetical 10% change in interest rates would have a material impact on our interest income.

 

Item 4. Controls and Procedures

 

Management’s Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our Chief Executive Officer and interim Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Form 10-Q, we have concluded that, based on such evaluation, our disclosure controls and procedures were ineffective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

 
25

Table of Contents

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company has a pending lawsuit with one of its previous suppliers regarding defected cartridges. The Company is still evaluating the case and determining the impact of the case on the Company and as of the date of this Report the amount or range of possible losses is not reasonably estimable. From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time and harm our business.

 

Item 1A. Risk Factors

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

 
26

Table of Contents

 

Item 6. Exhibits

 

Exhibit

Number

 

Exhibit Description

 

31.1

 

Certification of the Company’s Principal Executive Officer and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023

 

32.1

 

Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

 

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 
27

Table of Contents

 

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.

 

 

JACKSAM CORPORATION

 

 

Dated: December 21, 2023

By:

/s/ Mark Adams

 

Mark Adams

 

Chief Executive Officer and interim Chief Financial Officer

 

 
28