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, 2021

 

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.)

 

4440 Von Karman Avenue Suite 220

Newport Beach, CA

 

92660

(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 September 30, 2021, the registrant had 73,646,397 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

21

 

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)

 

 

(Audited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash

 

$ 612,146

 

 

$ 489,560

 

Accounts receivable, net

 

 

630,747

 

 

 

292,835

 

Inventory, net

 

 

231,749

 

 

 

189,423

 

Prepaid expenses

 

 

13,850

 

 

 

148,459

 

Total Current Assets

 

 

1,488,492

 

 

 

1,120,277

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,836

 

 

 

3,348

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$ 1,490,328

 

 

$ 1,123,625

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 703,674

 

 

$ 681,439

 

Deferred revenue

 

 

698,980

 

 

 

1,024,466

 

Convertible notes payable, current portion (net of discount $167,670 and $239,282, respectively)

 

 

576,774

 

 

 

809,242

 

Notes payable, current portion

 

 

77,262

 

 

 

109,104

 

Derivative liability

 

 

554,577

 

 

 

1,305,106

 

Accrued liabilities - other

 

 

1,696,374

 

 

 

1,696,223

 

Subscription payable

 

 

499,999

 

 

 

1,055,555

 

Total Current Liabilities

 

 

4,807,641

 

 

 

6,681,135

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

848,695

 

 

 

147,942

 

Total Liabilities

 

 

5,656,336

 

 

 

6,829,077

 

 

 

 

 

 

 

 

 

 

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, 2021 and December 31, 2020, respectively

 

 

256,315

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders’ Deficit

 

 

 

 

 

 

 

 

Preferred stock - 10,000,000 authorized, $0.001 par value, 0 shares issued and outstanding

 

 

-

 

 

 

-

 

Common stock - 170,000,000 authorized, $0.001 par value, 73,646,397 and 66,366,419 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

73,646

 

 

 

66,366

 

Additional paid-in capital

 

 

6,113,621

 

 

 

4,708,323

 

Shares payable, consisting of 2,222,223 and 4,421,662 shares of common shares as of September 30, 2021 and December 31, 2020, respectively

 

 

331,600

 

 

 

645,192

 

Accumulated deficit

 

 

(10,941,190 )

 

 

(11,125,333 )

Total Stockholders’ Deficit

 

 

(4,422,323 )

 

 

(5,705,452 )

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Deficit

 

$ 1,490,328

 

 

$ 1,123,625

 

 

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

 

 
4

Table of Contents

 

Jacksam Corporation

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

 

 

Three Months

Ended

 

 

Three Months

Ended

 

 

Nine Months

Ended

 

 

Nine Months

Ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

 

September 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$ 1,949,392

 

 

$ 735,604

 

 

$ 5,380,615

 

 

$ 2,022,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

 

1,354,084

 

 

 

331,863

 

 

 

3,767,498

 

 

 

879,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

 

595,308

 

 

 

403,741

 

 

 

1,613,117

 

 

 

1,142,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and wages

 

 

324,009

 

 

 

306,307

 

 

 

989,460

 

 

 

786,004

 

Other selling, general and administrative expenses

 

 

257,639

 

 

 

194,316

 

 

 

976,529

 

 

 

561,154

 

Total Operating Expenses

 

 

581,648

 

 

 

500,623

 

 

 

1,965,988

 

 

 

1,347,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from Operations

 

 

13,660

 

 

 

(96,882 )

 

 

(352,871 )

 

 

(204,488 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,154

 

Derivative gain (loss)

 

 

95,882

 

 

 

(2,000,866 )

 

 

1,171,242

 

 

 

(3,512,675 )

Interest expense

 

 

(221,865 )

 

 

(67,945 )

 

 

(735,750 )

 

 

(1,684,857 )

Loss on conversion of notes payable

 

 

-

 

 

 

-

 

 

 

(58,642 )

 

 

-

 

Gain on settlement of notes payable

 

 

-

 

 

 

-

 

 

 

160,164

 

 

 

-

 

Total Other Income (Expense)

 

 

(125,983 )

 

 

(2,068,811 )

 

 

537,014

 

 

 

(5,191,378 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$ (112,322 )

 

$ (2,165,693 )

 

$ 184,143

 

 

$ (5,395,866 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

(3,107 )

 

 

-

 

 

 

(4,315 )

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Available to Common Shareholders

 

$ (115,429 )

 

$ (2,165,693 )

 

$ 179,828

 

 

$ (5,395,866 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$ (0.00 )

 

$ (0.03 )

 

$ 0.00

 

 

$ (0.09 )

Diluted

 

$ (0.00 )

 

$ (0.03 )

 

$ (0.00 )

 

$ (0.09 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

73,645,455

 

 

 

62,803,497

 

 

 

71,490,810

 

 

 

62,531,289

 

Diluted

 

 

73,645,455

 

 

 

62,803,497

 

 

 

76,522,446

 

 

 

62,531,289

 

 

The accompanying notes are an integral part of these 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, 2021 and 2020

(Unaudited)

 

 

 

Series A

Preferred Stock,

 

 

Common Stock,

$0.001 Par Value

 

 

Paid-In

 

 

Share

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Payable

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2020

 

 

-

 

 

$ -

 

 

 

66,366,419

 

 

$ 66,366

 

 

$ 4,708,323

 

 

$ 645,192

 

 

$ (11,125,333 )

 

$ (5,705,452 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for debt conversion

 

 

-

 

 

 

-

 

 

 

3,086,420

 

 

 

3,087

 

 

 

611,111

 

 

 

-

 

 

 

-

 

 

 

614,198

 

Common stock issued for deferred finance cost

 

 

-

 

 

 

-

 

 

 

200,000

 

 

 

200

 

 

 

71,800

 

 

 

-

 

 

 

-

 

 

 

72,000

 

Sale of common stock units

 

 

-

 

 

 

-

 

 

 

2,479,994

 

 

 

2,480

 

 

 

322,195

 

 

 

(136,875 )

 

 

-

 

 

 

187,800

 

Common stock and warrants issued for settlement of notes payable

 

 

-

 

 

 

-

 

 

 

414,930

 

 

 

415

 

 

 

140,703

 

 

 

-

 

 

 

-

 

 

 

141,118

 

Convertible debt imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,682 )

 

 

(8,682 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2021

 

 

-

 

 

 

-

 

 

 

72,547,763

 

 

 

72,548

 

 

 

5,854,132

 

 

 

508,317

 

 

 

(11,134,015 )

 

 

(4,699,018 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

57,895

 

 

 

58

 

 

 

6,153

 

 

 

-

 

 

 

-

 

 

 

6,211

 

Sale of common stock units

 

 

-

 

 

 

-

 

 

 

1,388,889

 

 

 

1,389

 

 

 

175,328

 

 

 

(176,717 )

 

 

-

 

 

 

-

 

Exercise of warrants

 

 

-

 

 

 

-

 

 

 

426,136

 

 

 

426

 

 

 

(426 )

 

 

-

 

 

 

-

 

 

 

-

 

Extinguishment of derivative liability due to conversion

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

72,958

 

 

 

-

 

 

 

-

 

 

 

72,958

 

Shares returned under share-lending arrangement

 

 

-

 

 

 

-

 

 

 

(860,000 )

 

 

(860 )

 

 

860

 

 

 

-

 

 

 

-

 

 

 

-

 

Issuance of Series A Preferred Stock

 

 

2,800,000

 

 

 

252,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends on Series A Preferred Stock

 

 

-

 

 

 

1,208

 

 

 

-

 

 

 

-

 

 

 

(1,208 )

 

 

-

 

 

 

-

 

 

 

(1,208 )

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

305,147

 

 

 

305,147

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

2,800,000

 

 

 

253,208

 

 

 

73,560,683

 

 

 

73,561

 

 

 

6,107,797

 

 

 

331,600

 

 

 

(10,828,868 )

 

 

(4,315,910 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

-

 

 

 

-

 

 

 

85,714

 

 

 

86

 

 

 

8,931

 

 

 

-

 

 

 

-

 

 

 

9,017

 

Dividends on Series A Preferred Stock

 

 

-

 

 

 

3,107

 

 

 

-

 

 

 

-

 

 

 

(3,107 )

 

 

-

 

 

 

-

 

 

 

(3,107 )

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(112,323 )

 

 

(112,323 )

Balance, September 30, 2021

 

 

2,800,000

 

 

$ 256,315

 

 

 

73,646,397

 

 

$ 73,647

 

 

$ 6,113,621

 

 

$ 331,600

 

 

$ (10,941,191 )

 

$ (4,422,323 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2019

 

 

-

 

 

$ -

 

 

 

62,871,972

 

 

$ 62,872

 

 

$ 3,396,369

 

 

$ -

 

 

$ (8,066,784 )

 

$ (4,607,543 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

151

 

 

 

-

 

 

 

-

 

 

 

151

 

Common stock issued for debt conversion

 

 

-

 

 

 

-

 

 

 

476,191

 

 

 

476

 

 

 

166,191

 

 

 

1,333,333

 

 

 

-

 

 

 

1,500,000

 

Sale of common stock units

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

356,470

 

 

 

-

 

 

 

356,470

 

Extinguishment of derivative liability due to conversion

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

606,048

 

 

 

-

 

 

 

-

 

 

 

606,048

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,262,535 )

 

 

(5,262,535 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, March 31, 2020

 

 

-

 

 

 

-

 

 

 

63,348,163

 

 

 

63,348

 

 

 

4,168,759

 

 

 

1,689,803

 

 

 

(13,329,319 )

 

 

(7,407,409 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

151

 

 

 

-

 

 

 

-

 

 

 

151

 

Sale of common stock units

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

168,080

 

 

 

-

 

 

 

168,080

 

Common stock issued for deferred finance cost

 

 

-

 

 

 

-

 

 

 

388,667

 

 

 

389

 

 

 

72,345

 

 

 

-

 

 

 

-

 

 

 

72,734

 

Shares issued under share-lending arrangement

 

 

-

 

 

 

-

 

 

 

1,443,333

 

 

 

1,443

 

 

 

(1,443 )

 

 

-

 

 

 

-

 

 

 

-

 

Shares returned under share-lending arrangement

 

 

-

 

 

 

-

 

 

 

(933,333 )

 

 

(933 )

 

 

933

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,032,362

 

 

 

2,032,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2020

 

 

-

 

 

 

-

 

 

 

64,246,830

 

 

 

64,247

 

 

 

4,240,745

 

 

 

1,857,883

 

 

 

(11,296,957 )

 

 

(5,134,082 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt imputed interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

151

 

 

 

-

 

 

 

-

 

 

 

151

 

Sale of common stock units

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

120,642

 

 

 

-

 

 

 

120,642

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,165,693 )

 

 

(2,165,693 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2020

 

 

-

 

 

$ -

 

 

 

64,246,830

 

 

$ 64,247

 

 

$ 4,240,896

 

 

$ 1,978,525

 

 

$ (13,462,650 )

 

$ (7,178,982 )

 

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

 

 
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Table of Contents

 

Jacksam Corporation

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2021 and 2020

(Unaudited)

 

 

 

2021

 

 

2020

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$ 184,143

 

 

$ (5,395,866 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

1,512

 

 

 

9,428

 

Imputed interest

 

 

-

 

 

 

453

 

Amortization of debt discount

 

 

599,052

 

 

 

1,594,924

 

Derivative (gain) loss

 

 

(1,171,242 )

 

 

3,512,675

 

Stock based compensation

 

 

15,228

 

 

 

-

 

Gain on settlement of notes payable

 

 

(160,164 )

 

 

-

 

Loss on conversion of notes payable

 

 

58,642

 

 

 

-

 

Net change in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(337,912 )

 

 

(204,320 )

Inventory

 

 

(42,326 )

 

 

38,115

 

Prepaid expenses

 

 

134,609

 

 

 

127,032

 

Right-of-use asset

 

 

-

 

 

 

9,299

 

Accounts payable and accrued expenses

 

 

34,614

 

 

 

(23,958 )

Right-of-use liability

 

 

-

 

 

 

(9,837 )

Other long-term liabilities

 

 

-

 

 

 

(220,000 )

Deferred revenue

 

 

(325,486 )

 

 

(357,078 )

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(1,009,330 )

 

 

(919,133 )

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from convertible notes payable

 

 

570,000

 

 

 

388,900

 

Payment of debt issuance cost

 

 

-

 

 

 

(43,300 )

Payment on convertible notes payable

 

 

(905,503 )

 

 

(630,000 )

Proceeds from notes payable

 

 

1,024,024

 

 

 

591,900

 

Payment on notes payable

 

 

(53,605 )

 

 

(89,426 )

Proceeds from sale of common stock units

 

 

250,000

 

 

 

846,400

 

Proceeds from sale of Series A preferred stock

 

 

252,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

1,131,916

 

 

 

1,064,474

 

 

 

 

 

 

 

 

 

 

Net Change in Cash

 

 

122,586

 

 

 

145,341

 

 

 

 

 

 

 

 

 

 

Cash Balance, Beginning of Period

 

 

489,560

 

 

 

453,623

 

 

 

 

 

 

 

 

 

 

Cash Balance, End of Period

 

$ 612,146

 

 

$ 598,964

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Income taxes

 

$ -

 

 

$ -

 

Interest

 

$ 118,732

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Non-cash transactions:

 

 

 

 

 

 

 

 

Common stock issued to settle convertible notes payable

 

$ 614,198

 

 

$ 1,500,000

 

Derivative liability recognized at issuance of warrants and conversion option

 

$ 493,670

 

 

$ 201,208

 

Extinguishment of derivative to conversion

 

$ -

 

 

$ 390,383

 

Common stock issued for deferred finance costs

 

$ 72,000

 

 

$ 72,734

 

Extinguishment of derivative due to warrant exercise

 

$ 72,958

 

 

$ -

 

 

The accompanying notes are an integral part of these 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, customizable and C-Cell cartridges, and accessories. 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 originally organized under the laws of the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. Effective November 16, 2009, management at that time changed the name of Fulton Ventures, Inc. to China Grand Resorts, Inc. After the September 30, 2014 10-Q filing, the management of China Grand Resorts, Inc. abandoned the Company and its subsidiaries were taken back by Chinese national companies in China who owned them. The remaining parent company, China Grand Resorts, Inc., became a dormant company until 2016 when a new shareholder Bryan Glass became the majority shareholder and owner of the Company.

 

On September 14, 2018 (the “Merger”), the Company’s wholly owned subsidiary, Jacksam Acquisition Corp., a corporation formed in the State of Nevada on September 11, 2018, or the Acquisition Sub, merged with and into Jacksam, a corporation incorporated in the State of Delaware in August 2013.

 

On November 5, 2018, current management merged Jacksam into the parent Company, China Grand Resorts, Inc. In connection with the transaction, current management amended our articles of incorporation to change the Company’s name from China Grand Resorts, Inc. to Jacksam Corporation dba Convectium.

 

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.

 

 
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Table of Contents

 

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.

 

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.

 

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.

 

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, 2021 and December 31, 2020, the Company had recorded an allowance for doubtful accounts of $74,000.

 

Inventory

 

Inventories are stated at the lower of cost, determined on the first-in, first-out (“FIFO”) method 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, 2021 and December 31, 2020 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 24-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, 2021 and December 31, 2020, the Company has determined that no inventory allowance is required.

 

 
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Table of Contents

 

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

 

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 an approximate of their fair values because of the short maturity of these instruments.

 

Binomial Calculation Model

 

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

 

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 Accounting Standards Codification (“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

 

 
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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, 2021, 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, 2021, $698,980 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 variable consideration in contracts, the standalone selling price among separate performance obligations and the measure of progress for contracts where revenue is recognized over time. 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,

2021

 

 

Three Months

Ended

September 30,

2020

 

 

Nine Months

Ended

September 30,

2021

 

 

Nine Months

Ended

September 30,

2020

 

Machine sales

 

$ 1,280,139

 

 

$ 685,635

 

 

$ 4,465,754

 

 

$ 1,802,305

 

Non-machine sales

 

 

699,253

 

 

 

49,969

 

 

 

914,861

 

 

 

200,002

 

Total sales

 

$ 1,949,392

 

 

$ 735,604

 

 

$ 5,380,615

 

 

$ 2,022,307

 

 

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 the three and nine months ended September 30, 2021 and 2020:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

2021

 

 

September 30,

2020

 

 

September 30,

2021

 

 

September 30,

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$ (115,429 )

 

 

(2,165,693 )

 

$ 179,828

 

 

$ (5,395,866 )

Preferred stock dividends

 

 

-

 

 

 

-

 

 

 

4,315

 

 

 

-

 

Derivative (gain) loss

 

 

-

 

 

 

-

 

 

 

(1,171,242 )

 

 

-

 

Interest expense associated with convertible debt

 

 

-

 

 

 

-

 

 

 

715,401

 

 

 

-

 

Net income (loss) for dilutive calculation

 

$ (115,429 )

 

 

(2,165,693 )

 

$ (271,698 )

 

$ (5,395,866 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

 

 

73,645,455

 

 

 

62,803,497

 

 

 

71,490,810

 

 

 

62,531,289

 

Dilutive effect of preferred stock

 

 

-

 

 

 

-

 

 

 

1,400,000

 

 

 

-

 

Dilutive effect of convertible debt

 

 

-

 

 

 

-

 

 

 

3,969,136

 

 

 

-

 

Dilutive effect of common stock warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

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

 

 

73,645,455

 

 

 

62,803,497

 

 

 

76,859,946

 

 

 

62,531,289

 

 

During the three and nine months ended September 30, 2021, the impact of 11,189,056 warrants to purchase common stock were excluded from the calculation above as their impact would be dilutive. For the nine months ended September 30, 2021, 3,969,136 shares issuable under convertible debt were excluded from the calculation of dilutive earnings per share as the impact would be anti-dilutive.

 

Additionally, 583,333 shares of common stock issued during the year ended December 31, 2020 under a share lending arrangement, 2,777,778 shares related to conversions of notes payable in fiscal year 2020 that have not yet been issued, and 2,222,223 shares to be issued as part of the share payable equity balance are excluded from the calculation of weighted-average shares outstanding.

 

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.

 

 
12

Table of Contents

 

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.

 

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 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

 

Property and equipment consist of the following:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

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

 

 

(18,807 )

 

 

(17,296 )

Property and equipment, net

 

$ 1,836

 

 

$ 3,348

 

 

Depreciation expense amounted to $1,512 and $9,428 for the nine months ended September 30, 2021 and 2020, respectively.

  

Note 4: Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

Accounts payable

 

$ 456,789

 

 

$ 279,207

 

Credit cards payable

 

 

-

 

 

 

23,445

 

Accrued interest

 

 

5,265

 

 

 

4,931

 

Sales tax payable

 

 

144,398

 

 

 

141,803

 

Accrued officer consulting cost

 

 

55,000

 

 

 

178,750

 

Other

 

 

42,222

 

 

 

53,303

 

Total Accounts payable and Accrued expenses

 

$ 703,674

 

 

$ 681,439

 

 

 
13

Table of Contents

 

Note 5: Notes Payable

 

A summary of Notes Payable are as follows:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

Note payable December 2019

 

 

54,813

 

 

 

107,146

 

SBA loan May 2020

 

 

148,627

 

 

 

149,900

 

Note payable September 2021

 

 

722,516

 

 

 

-

 

Total notes payable

 

 

925,957

 

 

 

257,046

 

Less: current portion

 

 

(77,262 )

 

 

(109,104 )

Long-term portion of notes payable

 

$ 848,695

 

 

 

147,942

 

 

On September 29, 2021, the Company entered into a Revenue Loan and Security Agreement 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.

 

Note 6: Convertible Notes Payable and Derivative Liabilities

 

Convertible Notes Payable

 

The following table summarizes outstanding convertible notes as of September 30, 2021 and December 31, 2020:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

June 2019 Notes, maturing March 25, 2020

 

$ 444,444

 

 

$ 448,888

 

June 2020 Note 1, maturing June 4, 2021

 

 

-

 

 

 

119,078

 

June 2020 Note 2, maturing June 24, 2021

 

 

-

 

 

 

87,779

 

June 2020 Note 3, maturing June 24, 2021

 

 

-

 

 

 

87,779

 

November 2020 Note, maturing November 23, 2021

 

 

-

 

 

 

305,000

 

February 2021 Note, maturing February 15, 2022

 

 

300,000

 

 

 

-

 

Total

 

 

744,444

 

 

 

1,048,524

 

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

 

 

(167,670 )

 

 

(239,282 )

Less: Current convertible notes payable, net of discount

 

 

(576,774 )

 

 

(809,242 )

 

 

 

 

 

 

 

 

 

Total long-term convertible notes payable, net

 

$ -

 

 

$ -

 

 

 
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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 September 30, 2021 and 2,777,778 were part of subscriptions payable liability balance of $499,999.

 

Following two previous extensions and on July 9, 2021, the holder of $444,444 of the notes agreed to extend the repayment period to December 31, 2021. There were no other changes to terms of the convertible notes payable, and the amendments were accounted for as a debt modification.

 

On February 15, 2021, the Company entered into a convertible note agreement with an institutional investor for a principal amount of $675,000 (the “February 2021 Note”) bearing interest at 10% with an original issue discount of $67,500 and a maturity date of February 15, 2022. The Company paid $37,500 of deferred finance costs and issued 200,000 shares of common stock to the lender of the February 2021 Note as deferred finance costs, valued at $72,000 based on the closing price of the stock at the date of borrowing. This lender also received 767,045 common stock warrants with an exercise price of $0.44 and a term of 3 years valued at $179,699. If the note is in default, the holder has the right to convert the outstanding principal and accrued interest balance into shares of common stock at the closing bid price of the Company’s common stock immediately prior to conversion. As a result of the variable conversion price on the Company’s outstanding notes payable and reset provisions, the conversion option and the warrants were accounted for as a derivative liability. The original balance of this note was $675,000 as of September 30, 2021. The Company used proceeds from this note payable to pay in full the June 2020 Notes and the November 2020 Note. To date, the Company has repaid $375,000 of the note balance in cash and the balance of this note was $300,000 as of September 30, 2021.

 

On February 22, 2021, the Company entered into a settlement agreement with the holder of the June 2020 Note 2. The agreement allowed for the holder to convert all principal into 414,930 shares of common stock in full settlement of the note. The holder also received 207,465 warrants to purchase shares of common stock at an exercise price of $0.18 per share. The warrants had a fair value of $55,273 and were recorded as a derivative liability due to the variable number of shares to be issued under the Company’s dilutive instruments. The Company recognized a loss of $137,506 under this settlement agreement.

 

The Company amortized $579,978 and $1,594,924 of debt discount and deferred finance costs to interest expense related to convertible notes payable during the nine months ended September 30, 2021 and 2020, respectively. Accrued interest on notes payable and convertible notes payable was $35,108 and $4,931 as of September 30, 2021 and December 31, 2020, respectively.

 

 
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Derivative Liabilities

 

The fair values of the conversion option of outstanding convertible notes payable and common stock warrants with reset provisions were estimated using a binomial model with the following assumptions:

 

 

 

As of September 30, 2021

 

 

 

Conversion

Option

 

 

Warrants

 

 

 

 

 

 

 

 

Volatility

 

 

114.32 %

 

114.32-117.50

% 

Dividend Yield

 

 

0 %

 

 

0 %

Risk-free rate

 

 

0.05 %

 

0.09-0.53%

 

Expected term

 

0.50 year

 

 

1-3 years

 

Stock price

 

$ 0.10

 

 

$ 0.10

 

Exercise price

 

$

0.18-0.20

 

 

$

0.18-0.44

 

Derivative liability fair value

 

$ 57,497

 

 

$ 497,080

 

 

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, 2021:

 

Fair value as of December 31, 2020

 

$ 1,305,106

 

Fair value on the date of issuance of new derivatives

 

 

493,671

 

Extinguishment due to repayment of debt

 

 

(19,747 )

Extinguishment due to exercise of warrant

 

 

(72,958 )

Gain on change in fair value of derivatives

 

 

(1,151,494 )

Fair value as of September 30, 2021

 

$ 554,577

 

 

Note 7: Equity

 

Common Stock

 

In February 2021, the Board of Directors of the Company increased the authorized common shares to be 170,000,000. The Company is authorized to issue up to 10,000,000 shares of preferred stock. 

 

During the nine months ended September 30, 2021, the Company issued 3,086,420 shares of common stock related to the conversion of $73,578 of Convertible Notes Payable.

 

During the nine months ended September 30, 2021, the Company received $250,000 of cash proceeds related to sale of 1,388,889 common stock units at $0.18 per unit. Each $0.18 unit consists of a share of common stock and a warrant to purchase half a share of common stock at an exercise price of $0.27, for a period of three years from issuance. These shares have not yet been issued. During the nine months ended September 30, 2021, the Company issued 3,868,883 shares related to common stock unit subscriptions from the year ended December 31, 2020, with 2,222,223 shares remaining to be issued.

 

The Company also issued 3,086,420 shares related to conversions of notes payable during the year ended December 31, 2020 associated with the subscription payable liability balance and recognized a loss of $58,642. As of September 30, 2021, there are 2,777,778 shares remaining to be issued related to 2020 debt conversions, with 2,160,494 of those shares remaining to be issued to Mark Adams and David Hall.

 

During the nine months ended September 30, 2021, the Company issued a total of 200,000 shares of common stock to a lender in connection with the convertible notes payable issued during the period. These shares had a fair value of $72,000 and were recorded as deferred finance costs.

 

On April 15, 2021, 860,000shares under the share lending arrangements with debt holders were returned to the Company and cancelled in connection with retirement of the convertible notes payable during the nine months ended September 30, 2021.

 

During the nine months ended September 30, 2021, the Company issued 143,609 shares of common stock with a fair value of $15,228 for professional services.

 

 
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Series A Redeemable Preferred Stock

 

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, 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 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.

 

The Company accrued $4,315 in dividends for the nine months ended September 30, 2021. The redemption value of the Series A Preferred Stock as of September 30, 2021 was $256,315, reflected as temporary equity on the Company’s consolidated balance sheet.

 

Stock Warrants

 

A summary of stock warrant information is as follows:

 

 

 

Aggregate

Number

 

 

Aggregate

Exercise

Price

 

 

Weighted

Average

Exercise

Price

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2020

 

 

9,378,056

 

 

$ 1,921,200

 

 

$ 0.20

 

Granted

 

 

2,578,045

 

 

 

562,343

 

 

 

0.34

 

Exercised

 

 

(767,045 )

 

 

337,500

 

 

 

0.44

 

Forfeited and cancelled

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding at September 30, 2021

 

 

11,189,056

 

 

$ 2,646,044

 

 

$ 0.24

 

 

The weighted average remaining contractual life is approximately 2.39 years for stock warrants outstanding with no intrinsic value of as of September 30, 2021. All of the above warrants were fully vested.

 

 
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Note 8: Related Party

 

Mark Adams, CEO, and David Hall, EVP of Sales invested in the June 2019 Notes. Mark Adams and David Hall contributed $250,000 and $100,000 respectively, and converted their debt during the year ended December 31, 2020 into shares of common stock of 1,388,885 and 555,555, respectively, that have not yet to be issued. Mark Adams and David Hall will also receive an additional 154,321 and 61,728 shares of common stock once the shares are issued. Those shares were in subscriptions payable and presented on the balance sheet.

 

Mark Adams and Scott Wessler each contributed $126,000 to purchase the Series A Preferred Stock as discussed in Note 7.

 

Note 9: Commitments

 

Employment Agreement

 

In December 2017 (the “Effective Date”), the Company entered into an employment agreement with Daniel Davis and Mark Adams (the “Executive”). As of the Effective Date, and for one year of the date therefrom, the Executive’s annual salary shall be equal to $180,000 and $120,000, respectively, per annum (the “Annual Salary”). The Annual Salary shall be paid to the Executive in equal installments in accordance with the Company’s usual payroll practices.

 

Executive’s Annual Salary shall increase automatically at the rate of five percent (5%) per year for four years, beginning on the anniversary date of the Effective Date. In addition to the automatic raises set forth above, the Annual Salary may also be increased from time to time by merit and general increases in amounts determined by the Board.

 

Performance Bonus. In addition to the Annual Salary, the Executive is eligible to earn an annual bonus of up to thirty percent (30%) of Executive’s Annual Salary (the “Performance Bonus”). The amount of the Performance Bonus will be determined in good faith by the Board, based upon the following factors:

 

(a)

Fifty percent (50%) of the Performance Bonus shall be based upon the achievement of the Executive’s individual objectives, as defined in writing and presented to Executive annually by the Board.

 

 

(b)

Fifty percent (50%) of the Performance Bonus shall be based upon the achievement of Company objectives, which shall include specifically, meeting or exceeding the revenue targets and other objectives as determined by the Board.

 

The initial set of performance objectives, both for Executive individually and for the Company, will be reasonably established by the Board within sixty (60) days of the Effective Date of this Agreement. Subsequent performance objectives, both for Executive individually and for the Company, will be reasonably established by the Board within sixty (60) days of the beginning of the calendar year to which the Performance Bonus relates. The Performance Bonus shall be paid to Executive in the first regular payroll period after the Board makes a good faith determination that such Performance Bonus has been earned, but in no event shall the Performance Bonus be paid later than March 1 of the calendar year immediately following the calendar year in which the bonus was earned.

 

In addition to salary, the agreement provided for the option of 1,000,000 common shares of the Company, which shall vest at a rate of 28,000 share for each full one-month period worked from the Effective Date. If this Agreement is terminated pursuant to written notice by the Company to the Executive on or before the date that is one year after the Effective Date, all the options shall vest and the Executive shall retain the options subject to their terms and the terms hereof. The options may contain terms providing the issuer the right to accelerate vesting and/or require the exercise of options prior to the initial public offering and listing of the issuer. The Company may arrange for the grant of additional options to the Executive from time to time based on the Executive’s performance and other relevant factors as the Board may determine in its discretion.

 

All options to purchase Holdings Shares granted to the Executive shall be subject to the terms of the stock option agreement pursuant to which they are granted and the terms of the stock option plan under which they are granted in effect from time to time. Shares issuable on exercise of the options shall be subject to any escrow, trading restriction, or other requirement imposed by any stock exchange or securities regulatory authority upon initial public offering or listing of the shares. The Executive shall take such steps and execute and deliver such documents as may be required to affect the foregoing.

 

 
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Table of Contents

 

The Company may terminate Executive’s employment for Cause immediately upon Notice from the Company to Executive. For purposes of this Agreement, “Cause” shall mean the occurrence of any of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty, or moral turpitude; (ii) Executive’s commission of, or participation in, a fraud against the Company. In the event Executive’s employment is terminated for Cause, the Company shall have no further obligations to the Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination.

 

Upon termination of this agreement pursuant, the Company shall provide to the Executive:

 

 

(a)

A lump sum payment equal to the greater of (i) twelve (12) months’ Annual Salary at the Executive’s then- current rate, or (ii) Executive’s Annual Salary for the remainder of the Term;

 

 

 

 

(b)

if applicable, to the extent permitted by the Company’s group insurance carrier and applicable law, continued group insurance benefits coverage, together with reimbursement of the individual life insurance premium for the period of time equal to the number of months in respect of which payment is due pursuant and;

 

 

 

 

(c)

any other amounts (including but not limited to any earned Performance Bonus during the Executive’s active employment that may be payable pursuant to this Agreement) accrued and earned by the Executive prior to the effective date of termination.

 

If a Change of Control occurs and the Executive is not offered continued employment on a comparable basis after the Change of Control, the Executive shall be entitled to receive, within thirty (30) days after the Change of Control, a sum equivalent to twelve (12) months’ Annual Salary, plus an additional 4% of Annual Salary in lieu of benefits, and any Performance Bonus that has been earned by Executive prior to the effective date of the Executive’s termination from the Company. Thereafter, the Company shall have no further obligations to the Executive under this Agreement other than payment of any other amounts accrued as owing to the Executive under this Agreement as of the date the Change of Control occurs.

 

On May 31, 2019, the Company entered into a consulting agreement with Daniel Davis related to his departure from employment with the Company. The agreement requires Daniel. Davis to provide limited consulting services to the Company for a period of up to three years beginning May 1, 2019 in exchange for $165,000 per year. During the year ended December 31, 2020, the Company and Daniel Davis agreed to accelerate the payment of a portion of the consulting agreement, with the maturity period ending three months earlier than the original agreement. The Company made payments of $192,500 through December 31, 2020, and payments of $137,500 during the nine months ended September 30, 2021, leaving a balance of $55,000 in accounts payable as of September 30, 2021. In addition, the Company entered into a lock up agreement with Daniel Davis that restricts the number of shares Daniel Davis can otherwise publicly sell for a period of up to three years to one third of the volume limits set forth under SEC Rule 144. Daniel Davis also agreed to a standstill agreement that provides that for a period of up to three years Daniel Davis will not seek to influence the governance of the Company, including by participation in any solicitation of other shareholders, promotion of any extraordinary transaction, nomination of any candidate to the Board or by seeking the removal of any existing directors.

 

Leases

 

The Company entered into a lease agreement on March 1, 2021, for a term beginning April 1, 2021 through February 28, 2022. The lease requires payments of $5,000 per month through the lease term, with no option to renew. Based on the short-term nature of the lease, no right-of-use asset or liability was recognized on the Company’s consolidated balance sheet.

 

The Company also maintains short-term rental agreements for certain storage facilities. Total rent expense for these rental agreements were $82,668 and $40,256 for the nine months ended September 30, 2021 and 2020, respectively.

 

 
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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 $1,696,374, but does not believes that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,696,374 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

 

The Company has evaluated subsequent events through the filing of this Quarterly Report on Form 10-Q and determined that there have been no events that have occurred that would require adjustments to our disclosures in the financial statements.

 

 
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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 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 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.

 

Basis of Presentation

 

The condensed consolidated financial statements of Jacksam Corporation as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such interim periods have been included in these financial statements. All such adjustments are of a normal recurring nature.

 

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.

 

 
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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. In the near term, we expect general and administrative expenses to decrease driven by our cost reduction initiatives. In the long term, we expect general and administrative expenses to increase as we grow our business.

 

Results of Operations – Three Month Periods

 

Comparison for the three-month periods ended September 30, 2021 and 2020:

 

Revenue

 

Total revenue during the three months ended September 30, 2021 increased to $1,949,392 (comprised of machine sales of $1,280,139 and non-machine sales of $699,253), compared to the three months ended September 30, 2020 that generated sales of $735,604 (comprised of machine sales of $681,635 and non-machine sales of $49,969).

 

The increase in sales was due to our customers’ strong demand for our products, including our filling machines, capping machines, PreRoll-ER machines, customizable and C-Cell cartridges, and accessories.

 

Cost of Revenue

 

Total cost of revenue increased to $1,354,084 during the three months ended September 30, 2021, compared to the three months ended September 30, 2020 that had a cost of revenue of $331,863. The increase in cost of revenue was driven by increased sales.

 

Due to a more diversified product portfolio, our gross margin percentage decreased from 55% for the three months ended September 30, 2020 to 31% for the three months ended September 30, 2021.

 

 
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Table of Contents

 

Operating Expenses

 

Operating expenses during the three months ended September 30, 2021 increased to $581,648 (comprised of Salaries of $324,009 and Other Sales, Marketing and General and Administrative (“SG&A”) expenses of $257,639), compared to the three months ended September 30, 2020 that produced $500,623 (comprised of Salaries of $306,307 and Other SG&A expenses of $194,316). The increase in operating expenses was driven by increased sales.

 

Income (loss) from Operations

 

Total income from operations was $13,660 during the three months ended September 30, 2021, compared to loss from operations of $96,882 for the three months ended September 30, 2020.

 

Derivative Gain (loss)

 

Derivative gain, a non-cash expense, was $95,882 during the three months ended September 30, 2021, due to the fair value change of the debt and warrants of the Notes driven by the stock price decrease between June 30, 2021 and September 30, 2021, compared to a derivative loss of $2,000,866 for the three months ended September 30, 2020.

 

Interest Expense

 

Interest expense, a non-cash expense, increased to $221,865 during the three months ended September 30, 2021, compared to $67,945 for the three months ended September 30, 2020, primarily due to the amortization of debt discount of the Notes.

 

Loss on Conversion of Notes Payable

 

There was no loss on conversion of notes payable during the three months ended September 30, 2021 and 2020.

 

Gain on Settlement of Notes Payable

 

There was no gain or loss on settlement of notes payable for the three months ended September 30, 2021, and 2020.

 

Results of Operations – Nine Month Periods

 

Comparison for the nine-month periods ended September 30, 2021 and 2020:

 

Revenue

 

Total revenue during the nine months ended September 30, 2021 increased to $5,380,615 (comprised of machine sales of $4,465,754 and non-machine sales of $914,861), compared to the nine months ended September 30, 2020 that generated sales of $2,022,307 (comprised of machine sales of $1,802,305 and non-machine sales of $200,002).

 

As described above, the increase in sales was due to our customers’ strong demand for our products.

 

 
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Table of Contents

 

Cost of Revenue

 

Total cost of revenue increased to $3,767,498 during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020 that had a cost of revenue of $879,637.

 

As described above, the increase in cost of revenue was driven by increased sales. Also due to a more diversified product portfolio, our gross margin percentage decreased from 57% for the nine months ended September 30, 2020 to 30% for the nine months ended September 30, 2021.

 

Operating Expenses

 

Operating expenses during the nine months ended September 30, 2021 increased to $1,965,988 (comprised of Salaries of $989,460 and Other SG&A expenses of $976,529), compared to the nine months ended September 30, 2020 that produced $1,347,158 in expenses (comprised of $786,004 in Salaries and Other SG&A expenses of $561,154). Excluding a one-time charges for director of officer insurance in the second quarter of 2021, the increase in operating expenses were driven by increased sales.

 

Loss from Operations

 

Total loss from operations was $352,871 during the nine months ended September 30, 2021, compared to $204,488 for the nine months ended September 30, 2020.

 

As described above, the increased loss from operations was due to increased operating expenses, primarily the one-time expenses in the second quarter of 2021.

 

Derivative Gain (loss)

 

Derivative gain, a non-cash expense, was $1,171,242 during the nine months ended September 30, 2021, due to the fair value change of the debt and warrants of the Notes driven by the stock price decrease between December 31, 2020 and September 30, 2021, compared to a loss of $3,512,675 for the nine months ended September 30, 2020.

 

Interest Expense

 

Interest expense, a non-cash expense, decreased to $735,750 during the nine months ended September 30, 2021, compared to $1,684,857 for the nine months ended September 30, 2020, primarily due to the amortization of debt discount of the Notes.

 

Loss on Conversion of Notes Payable

 

Loss on conversion of notes payable was $58,642 during the nine months ended September 30, 2021, compared to $0 for the nine months ended September 30, 2020.

 

Gain on Settlement of Notes Payable

 

Gain on settlement of notes payable was $160,164 during the nine months ended September 30, 2021, due to the principal and accrued interest for PPP loan was forgiven in full by the U.S. Small Business Administration (“SBA”). There was no gain of loss on settlement of notes payable for the nine months ended September 30, 2020.

 

Liquidity and Capital Resources

 

At September 30, 2021, we had cash and cash equivalents of $612,146. To date, we have financed our operations principally through receipts of customer payments and borrowing on credit facilities, debt of $2,209,924, issuance of common equity of $1,553,900 and preferred stock of $252,000, and issuances of convertible debt of $7,314,106.

 

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.

 

 
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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, 2021, operating activities used $1,009,330 in cash, an increase of $90,197 from cash used in the nine months ended September 30, 2020 of $919,133.

 

Investing Activities

 

The Company had no investing activities in either period.

 

Financing Activities

 

During the nine months ended September 30, 2021, the Company received $570,000 in proceeds from convertible debt, $1,024,024 in proceeds from non-convertible debt, $250,000 in proceeds from sale of common stock units, and $252,000 from issuance of Series A Preferred Stock and made payments of $973,003 of convertible notes payable and $53,606 of non-convertible notes payable.

 

During the nine months ended September 30, 2020, the Company received $388,900 in proceeds from convertible debt, $591,900 in proceeds from non-convertible debt, and $846,400 in proceeds from sale of common stock units and made payments of $630,000 of convertible notes payable, $89,426 of non-convertible notes payable, and $43,300 of debt issuance cost.

 

Off-Balance Sheet Arrangements

 

During the nine months ended September 30, 2021 and the year ended December 31, 2020, we did not have any off-balance sheet arrangements as defined by applicable SEC regulations.

 

COVID-19 Impact

 

Our business and operating results for 2020 was impacted by the COVID-19 pandemic. However, we have seen improvement in our business and expect it to continue throughout 2021.

 

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 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 effective 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.

 

 
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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

 

There are presently no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.

 

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.

 

 
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Table of Contents

 

Item 6. Exhibits

 

Exhibit

Number

 

Exhibit Description

 

31.1

 

Certification of the Company’s Principal Executive 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, 2021

 

31.2

 

Certification of the Company’s Principal 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, 2021

 

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

 

Interactive data files pursuant to Rule 405 of Regulation S-T

 

 
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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: November 12, 2021

By:

/s/ Mark Adams

 

Mark Adams

 

Chief Executive Officer

 

 

Dated: November 12, 2021

By:

/s/ Steven Duo

 

Steven Duo

 

Chief Financial Officer

 

 

28

 

EXHIBIT 31.1

 

CERTIFICATION

 

Pursuant to 18 U.S.C Section 1350

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Mark Adams, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Jacksam Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2021

 

By:

/s/ Mark Adams

 

Mark Adams

 

Chief Executive Officer

 

EXHIBIT 31.2

 

CERTIFICATION

 

Pursuant to 18 U.S.C. Section 1350,

As adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Steven Duo, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Jacksam Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

 

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

c)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 12, 2021

 

By:

/s/ Steven Duo

 

Steven Duo

 

Chief Financial Officer

 

EXHIBIT 32.1

 

CERTIFICATION

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Jacksam Corporation, a Nevada corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

 

The Quarterly Report for the period ended September 30, 2021 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: November 12, 2021

By:

/s/ Mark Adams

 

Mark Adams

 

Chief Executive Officer

 

Dated: November 12, 2021

By:

/s/ Steven Duo

 

Steven Duo

 

Chief Financial Officer