EDGAR 10-K Filing

Company CIK: 860543
Filing Year: 2022
Filename: 860543_10-K_2022_0001477932-22-001870.json

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ITEM 1. BUSINESS
Item 1. Business
Company and Product Overview
Jacksam Corporation dba Convectium is a technology company focused on developing and commercializing products of vaporizer cartridge filling & capping, pre-roll filling, and automation systems. We service the medical and recreational cannabis, hemp, and CBD segments of the larger e-cigarette, vaporizer, and pre-roll markets. Our product line primarily consists of the eShark cartridge filling machine, the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, the “PreRoll-ER” automated pre-roll & cone filling machine, and cartridges.
The eShark was introduced to the market in the second half of 2019. The eShark was developed based on our prior flagship product - the 710 Shark cartridge filling machine. The eShark features electric motor system, oil heating mechanics, and advanced automation software system. eShark machines are designed to inject oil into various cartridges (glass, plastic and PODS), while also having the capability to fill bottles and other form factors. eShark machines can fill 100 traditional cartridges in approximately 60 seconds, saving our customers’ valuable time and labor expense over the hand filling method, which is currently the industry norm. We estimate that, in most applications, the eShark will have a 50x faster rate than hand filling. The eShark is currently produced in USA. The eShark has the UL Certification. UL stands for Underwriter Laboratories, a third-party product safety certification company that has operated for over a century.
Our prior flagship product is the 710 Shark cartridge filling machine, which is now on its eighth version. The 710 Shark has pneumatic motor system, oil heating mechanics, and automation software system. It can inject oil into various cartridges (glass, plastic and PODS), while also having the capability to fill bottles and other form factors. It can fill 100 traditional cartridges in approximately 60 seconds. The 710 Shark is currently produced in China. The 710 Shark is sold at a lower price point compared to the eShark to meet the demand from a wider group of customers.
During the second quarter of 2018, we introduced our 710 Captain cartridge capping machine. It is designed to affix caps to the cartridges filled by our eShark and 710 Shark filling machines and matches their production capacity of 100 cartridges in approximately 30 seconds. It is pneumatically operated. The 710 Captain is currently produced in USA.
In December 2019, we entered into a strategic partnership with Jupiter Research, a subsidiary of TILT Holdings. This partnership enabled our company to distribute Jupiter Research’s C-Cell cartridges and enabled Jupiter Research to distribute our filling and capping machines under a profit-sharing agreement.
As the first company in our industry, we introduced a pre-racked tray solution to the market in late 2019. Our customers will receive boxes of trays preloaded with empty cartridges. Using our automated machines, our customers can finish filling and capping 100 cartridges in less than 2 minutes. As the last step, our customers made new orders, and boxed of pre-racked cartridges will be delivered to their facilities. Customers using our pre-racked tray solution together with our automated capping and filling machines can save significant production time and labor cost, compared to using the traditional hand filling method or using our competitors’ machines.
During the second quarter of 2020, we entered into a strategic partnership with 14th Round Inc, a California based leading cartridge company specialized in high-end and customizable cartridges. The partnership highlights the sales force collaboration, equipment R&D collaboration, and marketing collaborations.
During the third quarter of 2020, we introduced the PreRoll-Er pre-roll filling machine to the U.S. market. The PreRoll-ER is the result of 30 months of research and development. Capable of replacing the work of 10-15 employees, the PreRoll-ER can produce up to 900 cones per hour. The machine has a highly sophisticated system of tamping, twisting, weighing and cutting the cones to a precise and uniform specification. It is manufactured in Montreal, Canada and is one of the leading automated pre-roll machines in the marketplace.
Our customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include, but not limited to, medical and recreational cannabis multi-state operators (MSOs), dispensaries, large and small-scale processors, growers, and distributors. We expect continued growth as we take measures to invest in our intellectual property. We utilize our direct sales force, our strategic partners’ sales force, independent sales representatives, our website, and a wide range of referral network to sell our products.
Our marketing efforts include attending industry trade shows and advertising on social media, industry magazines, and other regional events where both B2B and B2C opportunities exist. We plan to expand our marketing efforts to new jurisdictions as they pass medical and recreational cannabis-use laws.
Corporate History and Background
The Company was originally incorporated under the laws of the State of Nevada on September 21, 1989, under the name of Fulton Ventures, Inc. On September 19, 2002, management at that time changed the name of Fulton Ventures, Inc. to Asia Premium Television Group, Inc. On November 16, 2009, management at that time changed the name of Asia Premium Television Group, Inc. to China Grand Resorts, Inc. to reflect their new business efforts more accurately. Commencing in 2002, management at that time acquired and sold a series of subsidiary entities that were incorporated in various foreign jurisdictions, including the People’s Republic of China, or PRC, Macau, Hong Kong and the British Virgin Islands. From 2002 to 2009, these subsidiaries engaged in a variety of businesses, including, principally, marketing, brand management, advertising, media planning, public relations and direct marketing services to clients in the PRC.
Management at that time discontinued filing periodic reports under the Exchange Act, after it filed a quarterly report on Form 10-Q for the period ended June 30, 2014 (the “June 2014 10-Q”) on August 14, 2014. As reported in the Company’s annual report on Form 10-K for the year ended September 20, 2013 (the last periodic audited report filed under the Exchange Act, with which the Company furnished audited financial statements) and the June 2014 10-Q, management at that time engaged the Company, through its subsidiaries, in the provision of mobile phone based services in the PRC through Sun New Media Transaction Services Ltd., a Hong Kong corporation, and real estate investment in the PRC through Key Proper Holdings Limited, a British Virgin Islands corporation.
Since the filing of the June 2014 10-Q, current management is not aware of any contact between the Company and management at that time as of the filing of the June 2014 10-Q, nor does current management have any knowledge or information relating to the business operations conducted by the Company or its subsidiaries as of that date, other than as reported in the periodic reports filed with the SEC.
On April 4, 2016, Mr. Bryan Glass was appointed to serve as the custodian of the Company, which was under the name of China Grand Resorts, Inc. at that time, pursuant to an order of the District Court of Clark County, Nevada. During the course, Mr. Glass was issued 30 million shares of common stock and became the controlling owner of the Company. Current management does not have any records of the Company prior to Mr. Glass became the controlling owner of the Company in April 2016, other than the documents filed with or furnished to the SEC.
Jacksam was a company originally founded in August 2013, as a Delaware corporation, under the name of Jacksam Corporation. On September 14, 2018, current management entered into an Agreement and Plan of Merger and Reorganization (the “Merger”) that resulted in the acquisition of the operational business of Jacksam, by the Jacksam Acquisition Corp, or the Acquisition Sub, a corporation formed in the State of Nevada on September 11, 2018.
Prior to the Merger, the Company was a dormant company without any active operation and was a “shell company” as such term is defined in Exchange Act Rule 12b-2.
On November 5, 2018, current management merged Jacksam Acquisition Corp into the parent Company, China Grand Resorts, Inc, or the Company. In connection with the transaction, current management amended the articles of incorporation of the Company and changed its 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.
Products Details
Our principal products include the eShark cartridge filling machine, 710 Shark cartridge filling machine, 710 Captain cartridge capping machine, PreRoll-ER pre-roll filling machine, and cartridges.
eShark Cartridge Filling Machine
Details:
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Up to 100 Cartridge or Disposable Fills in approximately 60 seconds
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Built in air compressor; electric operated
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Ability to create and store up to 20 product/cartridge recipes for accelerated production changes
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4-in-1 Filling: Plastic, Ceramic, and Stainless Cartridges or Disposables
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Dual Heated Injection System for the thickest of oils - temps up to 100C
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Size: 76”H x 25.5”W x 24”D
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Fill Range: 0.1ml - 3ml per cartridge with a 0.01ml resolution (x100)
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Weight: 275 lbs
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UL certification
710 Shark Cartridge Filling Machine
Details:
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Up to 100 Cartridge or Disposable Fills in approximately 60 seconds
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4-in-1 Filling: Plastic, Ceramic, and Stainless Cartridges or Disposables
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Dual Heated Injection System for the thickest of oils - temps up to 100C
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Size: 52”H x 24”W x 14.5”D
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Fill Range: 0.1ml - 3ml per cartridge with a 0.01ml resolution (x100)
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Weight: 115 lbs
710 Captain Cartridge Capping Machine
Details:
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Caps up to 100 of cartridges in approximately 30 seconds
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Built in air compressor; pneumatically operated
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No calibration required, plug & play
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Customizable per customer requirements
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Manual 2-step press process to properly align and lock mouthpieces in place
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76”H X 26”D x 24.25”W
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UL Listed
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Weight: 275lbs
PreRoll-ER Pre-roll Filling Machine
Details:
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Production of up to 2,000 pre-rolls/hour
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Replace 15-20 persons per shift
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1 operator for up to 5 machines
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30 months of R&D. Patent pending technology
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Electrical: 220V, 1Ph, 3.3kWh
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UL/CSA approved
Cartridges and Pre-Racked Trays
We currently distribute C-Cell cartridges under a profit-sharing agreement with Jupiter Research and customizable cartridges under a profit-sharing agreement with 14th Round Inc. Our cartridges are shipped directly to customers with the option to pre-racked them in customizable trays, which are under additional charge.
Our Business Strategy
Our overall goal is to become a leading technology company in the segment of the vaporizer cartridge filling & capping, pre-roll filling, and automation systems. We focus on serving the medical and recreational cannabis, hemp and CBD industries. We develop and commercialize products utilizing an open-source platform.
Our immediate term goals are:
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Create new products and maintain technology leadership. We intend to continue to develop increasing efficient and faster iterations of our filling and capping machines. Additionally, we intend to continue to develop and introduce new automation solutions to the market.
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Execute strategic partnership. We intend to focus on the plan and execution for the best utilization of the sales force and other resources of both parties of a strategic partnership.
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Increase our domestic and international presence. As more states and countries approve legalized cannabis use, we plan to hire additional sales personnel where appropriate to take advantage of the new markets. We also plan to continue to grow our distributor and affiliate networks to meet expected additional demand for our products.
Existing or Probable Governmental Regulation
Because cannabis remains illegal under U.S. federal law and our products are primarily purchased by providers of cannabis to consumers in those states that have legalized medical or recreational cannabis, a change in U.S. federal enforcement priorities could adversely affect our customers and our business.
Our products and business are not otherwise subject to material governmental regulation other than those laws and regulations of general application.
Market Competition
The automated cartridge filling and packaging industry in the cannabis, hemp and CBD marketplace is relatively nascent. We believe that we are the largest manufacturer of cannabis-focused filling machines, with an approximately 50% market share by units sold. Our automated filling machine is designed to fill 100 cartridges per minute. Most cartridge filling operations are still done by using the hand filling method at present, with a throughput rate of approximately 5 per minute. Hand-filling remains our largest competitor. We also believe we offer the highest efficient automated capping machine in the marketplace. Our automated capping machine is designed to cap 100 cartridges per minute, matching the production capability of our filling machines. Lastly, we believe we are the first company offering pre-roll automated filling machine and pre-racked tray solution to customers in the U.S. market.
The competition in the cannabis-focused filling machine market consists of a few players that are focused on regional markets and small growers. Our most direct competitors include Thompson-Duke in Oregon, ATG Pharma in Canada, Vape-Jet in Oregon, and Cooljarz in California. We estimate that none of these competitors appears to offer filling and capping machines that can match the production capability of our machines.
Additionally, there are a few manufacturers that manufacture and distribute machines directly from China, none of which appears to have gained significant market share.
Our most substantial competitive threat would be from the large tobacco e-cigarette manufacturers and the large medical equipment manufacturers, should either decide to enter the automated cartridge filling and packaging industry for cannabis, hemp and CBD products. Many of these companies possess substantially greater manufacturing, sales, marketing, research and development, and financial resources. As of the date of this report, however, none has entered the market, nor are we aware of any with immediate plans to do so. We believe the changing Federal and state laws that regulate the cannabis industry have an impact on the decisions of those larger manufacturers. Were any large tobacco or e-cigarette manufacturer or medical equipment manufacturer to enter the market, our business and prospects would be adversely affected.
Intellectual Property Rights
We currently have one U.S. patent filed with the United States Patent and Trademark Office (USPTO), number 16682977, issued on November 13, 2019 and valid for 20 years. We also have one Certificate of Design Patent from the People’s Republic of China, number ZL201630571863.4, issued on May 31, 2017 and valid for 10 years. We have not filed for any other patent, but continue to examine whether, and where, it may be advantageous for us to do so.
In addition, we also rely upon trade secrets, know-how, trademarks, copyright protection, and continuing technological opportunities to develop and maintain our competitive position. We have periodically monitored and continue to monitor the activities of our competitors and other third parties with respect to their use of our intellectual property. We require our employees, consultants, and third-party collaborators to execute confidentiality and invention assignment agreements upon commencing employment or consulting relationships with us.
Research and Development
Our research and development team was originally formed by Jacksam’s founder, Daniel Davis, and three employed engineers. The founder separated from the Company on May 31, 2019. One of the three engineers remained with the Company as the lead engineer and continue research and development activities. This lead engineer and our new engineers work with our manufacturers to design new products.
Employees
Presently, we have 10 full-time employees. Three employees are engaged in sales and business development, three employees are engaged in research and development and engineering, and four are engaged in business operations including project management, manufacturing, logistics, marketing, finance and accounting, and general management and administration. We have no collective bargaining agreements with our employees, and we have not experienced any work stoppages. We consider our relations with our employees to be good.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
As a smaller reporting company, we are not required to include Risk Factors in our 10-K filing.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
At present, we do not hold any title to any real estate property. Our property is leased. We do not have any mortgages, liens or encumbrances against any such properties.
Lease
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 $111,043 and $61,133 for the years ended December 31, 2021 and 2020, respectively.
The Company has a single operating lease for an office and warehouse lease in Costa Mesa, California. The lease started on February 2, 2022 with an initial term of 3 years and 14 days. Base monthly rent was approximately $3,855 per month plus net operating expenses.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
The Company has a pending lawsuit with one of its previous suppliers regarding defected cartridges. The Company is still evaluating the case and determining the impact of the case on the Company and as of the date of this Report the amount or range of possible losses is not reasonably estimable. From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time and harm our business.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stocks are traded on the Pink Tier of the OTC Markets Group, Inc. under the symbol “JKSM”. The following table sets forth the high and low sale prices for our common stock for each quarterly period within the two most recent fiscal years.
High
Low
High
Low
First Quarter ended March 31
$ 0.40
$ 0.11
$ 0.36
$ 0.17
Second Quarter ended June 30
$ 0.27
$ 0.10
$ 0.33
$ 0.13
Third Quarter ended September 30
$ 0.14
$ 0.07
$ 0.50
$ 0.16
Fourth Quarter ended December 31
$ 0.13
$ 0.07
$ 0.42
$ 0.18
Holders
As of March 23, 2022, we had 186 stockholders of record of our common stock.
Dividend Policy
We have not previously declared nor paid any cash dividend on any share of our common stock, nor have we determined to pay dividends on such shares in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business plan and objectives. The permissibility to pay dividends on our shares is restricted by Section 78.288 of the Nevada Revised Statutes, which provides that a company may not issue a dividend if the result of such dividend would be to make the company have negative retained earnings. There can be no assurance that our operations will result in sufficient revenue to enable us to operate at profitable levels or to generate positive cash flow. Furthermore, there is no assurance that our Board of Directors will declare dividends even if profitable. Our Dividend Policy is subject to the Nevada Revised Statutes and the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors that our Board of Directors considers significant.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautious Statement Concerning Forward-Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations include 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 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 filling machines, and cartridges to customers in the medical and recreational cannabis, hemp, and CBD industries.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). In doing so, we make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses, gains and losses, as well as related disclosure of contingent assets and liabilities. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.
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 December 31, 2021 and 2020, the balance of accounts receivable on a gross basis was $665,169 and $366,835, respectively. As of December 31, 2021 and 2020, the Company had recorded an allowance for doubtful accounts of $74,000. As of December 31, 2021, two customers accounted for approximately 49% and 10% of outstanding accounts receivable.
Inventory
Inventories are stated at the lower of cost, determined on the average cost basisor 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 December 31, 2021 and 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 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of December 31, 2021, and December 31, 2020, the Company has determined that no allowance is required.
Property and Equipment
Property and equipment are measured at cost, less accumulated depreciation, and is 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 warrants and options issued.
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.
Issuance Costs Related to Equity and Debt
The Company allocates issuance costs between the individual freestanding instruments identified on the same basis as proceeds were allocated. Issuance costs associated with the issuance of stock or equity contracts (i.e., equity-classified warrants and convertible preferred stock) are recorded as a charge against the gross proceeds of the offering. Any issuance costs associated with the issuance of liability-classified warrants are expensed as incurred. Issuance costs associated with the issuance of debt (i.e., convertible debt) is recorded as a direct reduction of the carrying amount of the debt liability but limited to the notional value of the debt. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount to interest expense using the effective interest method over the expected term of the notes pursuant to Accounting Standards Codification (“ASC”) 835, Interest (“ASC 835”). To the extent that the reduction from issuance costs of the carrying amount of the debt liability would reduce the carrying amount below zero, such excess is recorded as interest expense.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options.” Under the ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on the consolidated balance sheets and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible debt to their face amount over the term of the convertible debt. We report higher interest expense in our financial results because ASC 470-20 requires interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest.
For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount. When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Revenue Recognition
The Company derives revenues from the sale of machines and non-machine products. 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
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Identification of the performance obligations in the contract
·
Determination of the transaction price
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Allocation of the transaction price to the performance obligations in the contract
·
Recognition of revenue when, or as, the Company satisfies a performance obligation
Derivatives and Hedging
On July 1, 2017, the Company early adopted ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features. The Company has concluded that the retroactive provisions of ASU 2017-11 had no impact on the accounting for the Company’s previously outstanding warrant which had been issued to the warrant holder as stock compensation.
ASU 2017-11 changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. ASU 2017-11 also clarifies existing disclosure requirements for equity- classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “Debt-Debt with Conversion and Other Options”), including related EPS guidance (ASC 260). Part II of ASU 2017-11 recharacterize the indefinite deferral of certain provisions of ASC 480 that now are presented as pending content in the ASC, to a scope exception. Those amendments do not have an accounting effect.
Prior to the early adoption of ASU 2017-11, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in ASC 480 is evaluated under the guidance in ASC 815, “Derivatives and Hedging,” to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
ASU 2017-11 revises the guidance for instruments with down round features in ASC 815-40, “Derivatives and Hedging-Contracts in Entity’s Own Equity,” which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in ASC 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
For entities that present EPS in accordance with ASC 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by ASU 2017-11.
Part I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. ASU 2017-11 Part 1 should be applied retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs ASC 250-10-45-5 through 45-10.
The Company has determined that there were no previously outstanding financial instruments that fall under the scope of ASU 2017-11. Therefore, the Company has not determined and has not recorded a cumulative-effect adjustment to the balance sheet.
ASU 2017-11 Part II does not require any transition guidance because those amendments do not have an accounting effect.
The Company considered the impact of Part 1 of ASU 2017-11 and determined the Company had no financial instruments previously carried as derivative liabilities that were deemed to be such on the basis of embedded features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity offerings. As a result, upon the early adoption provisions of ASU 2017-11, the Company did not record any adjustment to its books to account for any transition accounting issues.
Stock Based Compensation
The Company accounts for stock-based compensation in accordance with the Financial Accounting Standards Board (“FASB”) ASC 718, Stock Compensation (“ASC 718”), which requires that stock-based compensation be measured and recognized as an expense in the financial statements and that such expense be measured at the grant date fair value.
For awards that vest based on service conditions, the Company uses the straight-line method to allocate compensation expense to reporting periods. The grant date fair value of options granted is calculated using the Black-Scholes option pricing model, which requires the use of subjective assumptions including volatility, expected term and the fair value of the underlying common stock, among others.
The Company periodically issues performance-based awards. For these awards, vesting will occur upon the achievement of certain milestones. When achievement of the milestone is deemed probable, the Company expenses the compensation of the respective awards over the implicit service period.
Stock awards to non-employees are accounted for in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). The measurement date for non-employee awards is generally the date performance of services required from the non-employee is complete. For non-employee awards that vest based on service conditions, the Company expenses the value of the awards over the related service period, provided they expect the service condition to be met. The Company records the expense of services rendered by non- employees based on the estimated fair value of the stock option using the Black-Scholes option pricing model over the contractual term of the non-employee. The fair value of unvested non-employee awards is remeasured at each reporting period and expensed over the vesting term of the underlying stock options on a straight-line basis. The Company adopted ASU No. 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting during the year ended December 31, 2017.
The stock-based compensation plans provide those grantees may have the right to exercise an option prior to vesting. Shares purchased upon the exercise of unvested options will be subject to the same vesting schedule as the underlying options and are subject to repurchase at the original exercise price by the Company should the grantee discontinue providing services to the Company for any reason, prior to becoming fully vested in such shares.
Income Tax Provision
Since inception of the Company on August 29, 2013 through March 5, 2017, the Company was taxed as a pass-through entity for federal and state income tax purposes as an S Corporation. For federal and state Income tax purposes, income and losses are passed through to the shareholders. As a pass-through entity, the Company was subject to California state income tax.
On March 6, 2017, the Company inadvertently terminated its S-election by issuing common stock to an ineligible shareholder. On March 6, 2016 and thereafter, the Company is taxed as a C corporation. The Company is subject to income taxes in the United States.
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within the related tax liability.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Subsequent Events
In January and February 2022, the Company sold a total of 2,000,000 shares of Series B Preferred Stock (“Series B”) to two investors for net cash proceeds of $885,000 after closing costs of $115,000 and issued warrants to purchase 4,000,000 shares of common stock at $0.20 per share for a period of five years.
Each of the Investors shall be issued 1,000,000 shares of the Series B and the interest rate is 8.0% per annum. The Company granted to the Investors the piggy-back registration rights.
The Series B holders do not have voting rights on matters other than those related to amending the certificate of incorporation of the Series B, altering voting or other powers of the Series B, or redemption or acquisition of outstanding Series B. For a period of one year following closing of the Series B funding, the Company may not authorize or create any class of stock that is senior to the Series B with respect to dividends, redemption or distribution of assets upon Liquidation. In the event of liquidation of the Company, the Series B holders shall be paid 125% of the Stated value plus 125% of any unpaid dividends.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the 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 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.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The amendments within the update require certain disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The amendments will require disclosure of information about the nature of the transactions and the related accounting policy used to account for the transactions, information regarding the line items within the consolidated financial statements that are affected by the transactions, and significant terms and conditions of the transactions. The amendments in the update will be effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The Company does not believe the adoption of this ASU will have a material impact on the Company’s consolidated financial statements or results of options.
Components of Statements of Operations
Revenue
Product revenue consists of sales of our eShark filling machine, 710 Shark filling machine, 710 Captain capping machine, PreRoll-ER pre-roll filling machine, 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 (3 years), labor and maintenance for one year for product defects.
Cost of Goods Sold
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 consist primarily of compensation, benefits, travel and other costs for our direct sales force and project managers. Sales and marketing expenses also 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 with non-sales roles. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, and allocations of overhead costs, such as rent, facilities and information technology. We expect general and administrative expenses to increase as we grow our business.
Interest Expense
Interest expense consists primarily of interest from notes due to debtholders.
Results of Operations - Twelve Month Periods
The following set forth our results of operations for the Fiscal Years ended December 31, 2021 and December 31, 2020:
Revenue
Total revenue during the twelve months ended December 31, 2021 were $6,749,065 (comprised of $5,218,158 of machine sales and $1,530,907 of non-machine sales). Compared to the year-ended December 31, 2020 which had $3,281,935 revenue (comprised of $1,969,693 of machine sales and $1,312,242 of non-machine sales). Strong demand for legacy and new products contributed to the increase in revenue.
Cost of Goods Sold
Total cost of goods sold was $4,860,656 during the twelve months ended December 31, 2021 compared to $1,788,817 during the twelve months ended December 31, 2020. The increase in cost of goods sold was driven by increased sales and a shift of product mix in 2021.
Gross margin decreased from 45% during the twelve months ended December 31, 2020 to 28% during the twelve months ended December 31, 2021, primarily attributable to a shift of product mix.
Operating Expenses
Operating expenses during the during the twelve months ended December 31, 2021 increased to $2,525,514 (comprised of $1,273,064 in salaries and $1,252,450 of other SG&A expenses), compared to $1,881,795 (comprised of $1,093,268 in salaries and $788,527 of other SG&A expenses) during the twelve months ended December 31, 2020.
Driven by increases in revenue, salaries increased due to a higher amount of commission paid to sales representatives. Other SG&A expenses increased primarily due to a one-time cost of $219,606, which was a Directors and Officers Liability Insurance (“D&O Insurance”) payment to cover previous 12-month period (“Extended Period Coverage”) and was fully recognized during the second quarter of 2021.
Loss from Operations
Total loss from operations was $637,105 during the twelve months ended December 31, 2021, compared to $388,677 during the twelve months ended December 31, 2020.
Interest Expense
Interest expense, a non-cash item, during the twelve months ended December 31, 2021 was $869,902, compared to $1,751,710 during the twelve months ended December 31, 2020. The decrease was mainly due to decreased debt amortization, which is an accounting treatment.
Derivative Gain/Loss
Derivative gain, a non-cash item, during the twelve months ended December 31, 2021 was $1,400,011, compared to derivative loss of $1,205,196 during the twelve months ended December 31, 2020. The change was mainly due to the stock price change between December 31, 2020 and December 31, 2021.
Net Income/Loss
Net loss was $5,474 during the twelve months ended December 31, 2021, compared to a net loss of $3,058,549 during the twelve months ended December 31, 2020.
Liquidity and Capital Resources
Since Jacksam’s inception in 2013 as a Delaware corporation, we have incurred net losses and negative cash flows from operations. We had net losses of $3,058,547 during the twelve months ended December 31, 2020 and net losses of $5,474 during the twelve months ended December 31, 2021. At December 31, 2021, we had an accumulated deficit of $11,130,807.
On December 31, 2021, we had cash and cash equivalents of $344,811. As of the date of this report, we have financed our operations principally through borrowing on credit facilities, debt of $3,395,824, issuance of equity of $2,857,800, issuances of Convertible Debt of $14,058,212, issuance of Preferred Stocks of $252,000, and receipts of customer deposits for new orders and payments from customers for our products.
We anticipate that we will need additional financing to continue as an ongoing entity over the next 12 months. Over the course of the next 12 months, we plan to raise capital to support our business plan through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we may continue to be unprofitable.
We anticipate our cash requirements to be as follows:
Estimated Funding Required During the Next Twelve Months
Expense
Amount
General operating expenses
900,000
Additional staff
400,000
Increased marketing and advertising costs
200,000
Total
$ 1,500,000
*Estimated expense
Cash Flow from Operating Activities
We have historically experienced negative cash outflows as we developed and sold our eShark filling machine, 710 Shark filling machine, 710 Captain capping machine, pre-roll filling machine, and cartridges. 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 products. 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, the extent to which we build up our inventory balance, and increased spending on personnel and other operating activities as our business grows.
Several of our products are produced in China. We do not have firm purchase or minimum quantity commitments with any of our Chinese suppliers. Certain of our Chinese suppliers require a deposit in the range of 50% to 75% of the total cost of an order before beginning production. All of our Chinese suppliers require that the entirety of the purchase price of an order be sent prior to shipment to us. However, since we generally require that our customers make a deposit of not less than half of any order of the products, including the products produced in China, as a condition of accepting an order from our customers, we typically have on hand sufficient funds to cover the entirety of the amounts owed to our Chinese suppliers in advance. The timing of cash payment obligations is thus coordinated to not to create a cash flow or liquidity problem for us.
During the twelve months ended December 31, 2021 and 2020, cash used in operating activities was $1,237,345 and $1,105,696, respectively.
Cash Flow from Investing Activities
During the twelve months ended December 31, 2021 and 2020, cash used in investing activities were both zero.
Cash Flow from Financing Activities
During the twelve months ended December 31, 2021, cash provided by financing activities was $1,092,596, primarily from $570,000 of proceeds from new convertible debt, $1,024,024 of proceeds from stock issuance, $252,000 of proceeds issuance of Series A Preferred Stock, and $250,000 of proceeds from sales of common stock units. The Company also made payments of $92,925 on notes payable and $905,503 on convertible notes.
During the twelve months ended December 31, 2020, cash provided by financing activities was $1,141,633, primarily from $634,940 of proceeds from new convertible debt, $591,900 of proceeds from stock issuance, and $846,400 of proceeds from exercise of common stock warrants. The Company also made payments of $104,942 on notes payable, $43,300 on debt issuance costs, and $783,365 on convertible notes.
Off-Balance Sheet Arrangements
During the year ended December 31, 2021, we did not have any off-balance sheet arrangements as defined by applicable SEC regulations.
Going Concern
The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute the business plan and attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the SEC, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon convertible notes payable and cash flows from operations to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Seasonality
In the past, our operating results and operating cash flows historically have not been subject to seasonal variations. At this time, we do not anticipate having any seasonal fluctuations in sales.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Registered Public Accounting Firm - L&L CPAs, PA (PCAOB ID 454)
Financial Statements:
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders’ Deficit
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Jacksam Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Jacksam Corporation (“the Company”) as of December 31, 2021 and 2020 and the related statements of operations, stockholders’ deficit, cash flows and the related notes to consolidated financial statements (collectively referred to as the consolidated financial statements) for the years ended December 31, 2021 and 2020. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations, changes in stockholders’ deficit and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
www.llcpas.net
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Inventories
As described in Note 2 to the consolidated financial statements, the gross inventories balance was $215,512 and the balance net of reserves was $196,712 as of December 31, 2021. The Company values its inventories at the lower of cost or net realizable value, and cost being determined using the average costing method. The Company writes down inventory for slow-moving and obsolete inventory based on historical selling trends for finished goods. Per discussion with the management, if this factor is less favorable than those projected, additional inventory write-downs may be required.
The principal considerations for our determination that performing procedures relating to valuation of inventories is a critical audit matter are the significant assumptions and complex judgments by management when determining the future salability of the inventory and its net realizable value. These assumptions and judgments include the assessment of the net realization value by inventory category considering retention periods, future usage and market demand for products which in turn led to high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s methods, calculations, and assumptions.
The following are the primary procedures we performed to address this critical audit matter:
·
We obtained an understanding of management’s process and methodology to develop the estimates.
·
We evaluated the reasonableness of assumptions used by management in forming the forecasted inventory usage and future salability, including examining historical accuracy of the Company’s prior estimates by considering subsequent sales and write-off activity.
·
We tested the completeness, accuracy, and relevance of the underlying data used in management’s estimate.
·
We tested the mathematical accuracy and computation related to the application of the methodology to specific inventory items and categories.
www.llcpas.net
Convertible Notes
As discussed in Note 6 to the consolidated financial statements, the Company had various debt instruments which included conversion features requiring bifurcation and separate accounting. Management evaluated the required accounting, significant estimates, and judgments around the valuation for these embedded derivatives. These embedded derivatives were initially measured at fair value and have subsequently been remeasured to fair value at each reporting period and at settlement.
There is no current observable market for these types of features and, as such, the Company determined the fair value of the embedded derivatives using a binomial option pricing model to measure the fair value of the bifurcated derivative. As a result, a high degree of auditor judgment and effort was required in performing audit procedures to evaluate the conclusions reached by management as well as the inputs to the Company’s binomial option pricing model.
Our principal audit procedures performed to address this critical audit matter included the following:
·
We obtained an understanding of the controls and processes surrounding the evaluation, initial measurement and revaluation of the bifurcated derivatives.
·
We evaluated management’s assessment and the conclusions reached to ensure these instruments were recorded in accordance with the relevant accounting guidance.
·
We evaluated the fair value of the bifurcated derivatives that included testing the valuation models and assumptions utilized by management. We reviewed and tested the fair value model used, significant assumptions, and underlying data used in the model.
/s/ L&L CPAS, PA
L&L CPAS, PA
Certified Public Accountants
Plantation, FL
The United States of America
March 31, 2022
We have served as the Company's auditor since January 2018.
www.llcpas.net
Jacksam Corporation
Consolidated Balance Sheets
For the Years Ended December 31, 2021 and 2020
(Audited)
December 31,
December 31,
Assets
Current Assets:
Cash
$ 344,811
$ 489,560
Accounts receivable, net
591,169
292,835
Inventory, net
196,712
189,423
Prepaid expenses
8,600
148,459
Total Current Assets
1,141,292
1,120,277
Property and equipment, net
1,472
3,348
Total Assets
$ 1,142,764
$ 1,123,625
Liabilities and Stockholders’ Deficit
Current Liabilities:
Accounts payable and accrued expenses
$ 641,690
$ 681,439
Deferred revenue
171,771
1,024,466
Convertible notes payable, current portion
701,175
809,242
Notes payable, current portion
87,774
109,104
Derivative Liability
325,808
1,305,106
Accrued liabilities - other
2,264,390
1,696,223
Subscription payable
499,999
1,055,555
Total Current Liabilities
4,692,607
6,681,135
Notes payable, net of current portion and discount
705,038
147,942
Total Liabilities
5,397,645
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 December 31, 2021 and 2020
259,422
-
Stockholders’ Deficit:
Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding
-
-
Common stock - 200,000,000 authorized, $0.001 par value, 74,490,147 and 66,366,419 shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively
74,490
66,366
Additional paid-in capital
6,210,414
4,708,323
Shares payable, consisting of 2,222,223 and 4,421,662 shares of common shares as of December 31, 2021 and 2020, respectively
331,600
645,192
Accumulated deficit
(11,130,807 )
(11,125,333 )
Total Stockholders’ Deficit
(4,514,303 )
(5,705,452 )
Total Liabilities and Stockholders’ Deficit
$ 1,142,764
$ 1,123,625
The accompanying notes are an integral part of these audited consolidated financial statements
Jacksam Corporation
Consolidated Statements of Operations
For the Years Ended December 31, 2021 and 2020
(Audited)
December 31,
December 31,
Sales
$ 6,749,065
$ 3,281,935
Cost of sales
4,860,656
1,788,817
Gross profit
1,888,409
1,493,118
Operating expenses
Salaries
1,273,064
1,093,268
Other selling, general and administrative expenses
1,252,450
788,527
Total operating expenses
2,525,514
1,881,795
Loss from operations
(637,105 )
(388,677 )
Other expense
Gain on extinguishment of debt
-
399,000
Other (income) expense
-
6,154
Derivative gain (loss)
1,400,011
(1,205,196 )
Interest expense
(869,902 )
(1,751,710 )
Loss on conversion of notes payable
(58,642 )
(64,815 )
Loss on additional shares issued to unit subscribers
-
(53,305 )
Loss on settlement of notes payable
160,164
Total other expense
631,631
(2,669,872 )
Net loss
$ (5,474 )
$ (3,058,549 )
Preferred stock dividends
(7,422 )
-
Net loss available to common shareholders
$ (12,896 )
$ (3,058,549 )
Net income (loss) per share
Basic
$ (0.00 )
$ (0.05 )
Diluted
$ (0.00 )
$ (0.05 )
Weighted average shares outstanding
Basic
72,126,152
64,184,514
Diluted
77,495,514
64,184,514
The accompanying notes are an integral part of these audited consolidated financial statements
Jacksam Corporation
Consolidated Statements of Stockholders’ Deficit
For the Years Ended December 31, 2021 and 2020
(Audited)
Series A Preferred Stock,
Common Stock, $0.001 Par Value
Paid-In
Share
Accumulated
Total Stockholders'
Shares
Amount
Shares
Amount
Capital
Payable
Deficit
Deficit
Balance, December 31, 2019
-
$ -
62,871,972
$ 62,872
$ 3,396,369
$ -
$ (8,066,784 )
$ (4,607,543 )
Convertible debt imputed interest
-
-
-
-
-
-
Extinguishment of derivative liability due to conversion
-
-
-
-
606,048
-
-
606,048
Common stock issued for debt conversion
-
-
2,019,401
2,019
507,240
-
-
509,259
Sale of common stock units
-
-
-
-
-
645,192
-
645,192
Common stock issued for deferred finance cost
-
-
965,046
198,572
-
-
199,537
Shares issued under share-lending arrangement
-
-
1,443,333
1,443
(1,443 )
-
-
-
Shares returned under share-lending arrangement
-
-
(933,333 )
(933 )
-
-
-
Net loss
-
-
-
-
-
-
(3,058,549 )
(3,058,549 )
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
-
-
1,043,750
1,044
171,700
-
-
172,744
Sale of common stock units
-
-
3,868,883
3,869
497,523
(313,592 )
-
187,800
Common stock and warrants issued for settlement of notes payable
-
-
414,930
140,703
-
-
141,118
Common stock issued for services
-
-
143,609
15,084
-
-
15,227
Exercise of warrants
-
-
426,136
(426 )
-
-
-
Extinguishment of derivative liability due to conversion
-
-
-
-
72,958
-
-
72,958
Shares returned under share-lending arrangement
-
-
(860,000 )
(860 )
-
-
-
Issuance of Series A Preferred Stock
2,800,000
252,000
-
-
-
-
-
-
Dividends on Series A Preferred Stock
-
7,422
-
-
(7,422 )
-
-
(7,422 )
Net loss
(5,474 )
(5,474 )
Balance, December 31, 2021
2,800,000
$ 259,422
74,490,147
$ 74,490
$ 6,210,414
$ 331,600
$ (11,130,807 )
$ (4,514,303 )
The accompanying notes are an integral part of these audited consolidated financial statements
Jacksam Corporation
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021 and 2020
(Audited)
Cash Flows from Operating Activities
Net loss
$ (5,474 )
$ (3,058,549 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense
1,876
9,932
Gain on extinguishment of debt
-
(399,000 )
Loss on share conversion
58,642
64,815
Inventory allowance
18,000
-
Imputed interest
-
Amortization of debt discount
730,371
1,654,625
Derivative gain (loss)
(1,400,011 )
1,205,196
Stock based compensation
15,227
-
Gain on settlement of notes payable
(160,163 )
-
Net change in:
Accounts receivable
(298,334 )
(187,325 )
Inventory
(25,289 )
Prepaid expenses
139,859
103,080
Right-of-use assets
-
9,299
Accounts payable and accrued expenses
540,646
40,563
Right-of-use liabilities
-
(9,837 )
Other long-term liabilities
-
(220,000 )
Deferred revenue
(852,695 )
(319,517 )
Net cash used in operating activities
(1,237,345 )
(1,105,696 )
Cash Flows from Financing Activities
Proceeds from convertible notes payable
570,000
634,940
Payments on convertible notes payable
(905,503 )
(783,365 )
Payment of debt issuance costs
-
(43,300 )
Proceeds from sales of shares
1,024,024
591,900
Payments on notes payable
(92,925 )
(104,942 )
Proceeds from sale of common stock units
250,000
846,400
Proceeds from issuance of Series A Preferred Stock
252,000
-
Net cash provided by financing activities
1,092,596
1,141,633
Net Change in Cash
(144,749 )
35,937
Cash, Beginning of Period
489,560
453,623
Cash, End of Period
$ 344,811
$ 489,560
Cash Paid For:
Income Taxes
$ -
$ -
Interest
$ 118,732
$ 59,933
Non-cash transactions:
Common stock issued to settle convertible notes payable
$ 614,198
$ 1,676,234
Extinguishment of derivative due to warrant exercise
$ 72,958
$ -
Derivative liability recognized at issuance of warrants
$ 493,670
$ 201,208
Extinguishment of derivative to conversion and repayment
$ -
$ 390,383
Common stock issued for deferred finance costs
$ 172,744
$ 199,537
The accompanying notes are an integral part of these audited consolidated financial statements
Jacksam Corporation
Notes to the Consolidated Financial Statements
Note 1: Organization and Nature of Operations
Jacksam Corporation dba Convectium is a technology company focused on developing and commercializing products of vaporizer cartridge filling & capping, pre-roll filling, and other automation systems. The Company’s product line primarily consisted of the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, the “PreRoll-ER” pre-roll & cone filling machine, and cartridges. The Company’s customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include medical and recreational dispensaries, large and small-scale processors and growers, multi-state operators, and distributors. The Company utilizes its direct sales force, website, strategic partners’ sales force, independent sales representatives, and a wide range of referral network to sell its products.
The Company was incorporated in the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. Since incorporated, the Company has engaged in a variety of businesses, but has been inactive since late 2014 through the Merger that closed on September 14, 2018. Since the Merger, the Company has been operated under the control of current management and continued to operate the business of Jacksam Corporation, described herein, as our sole business.
Note 2: Significant Accounting Policies
Basis of Preparation
The accompanying financial statements of the Company have been prepared in 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.
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 December 31, 2021 and 2020, the balance of accounts receivable on a gross basis was $665,169 and $366,835, respectively. As of December 31, 2021 and 2020, the Company had recorded an allowance for doubtful accounts of $74,000. As of December 31, 2021, two customers accounted for approximately 49% and 10% of outstanding accounts receivable.
Inventory
Inventories are stated at the lower of cost, determined on the average cost basis, or net realizable value. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.
The December 31, 2021 and 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 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of December 31, 2021 and 2020, the Company has determined that an inventory allowance of $18,800 and $0 is required.
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. The Company’s derivative liabilities recognized at fair value on a recurring basis are a level 3 measurement. See Note 6.
Binomial Calculation Model
The Company uses a binomial calculator model to determine fair market value of derivative liabilities, warrants and options issued.
Revenue Recognition
The Company derives revenues from the sale of machines and non-machine products (customizable and C-Cell cartridges and accessories). The Company recognizes revenue in accordance with ASC 606. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.
Revenue is recognized based on the following five step model:
-
Identification of the contract with a customer
-
Identification of the performance obligations in the contract
-
Determination of the transaction price
-
Allocation of the transaction price to the performance obligations in the contract
-
Recognition of revenue when, or as, the Company satisfies a performance obligation
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 December 31, 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 December 31, 2021 and 2020, $171,771 and $1,024,466, respectively, 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.
Disaggregation of Revenue
All machine sales and most non-machine sales are completed in North America.
Year
Ended
December 31,
Year
Ended
December 31,
Machine sales
$ 5,218,158
$ 1,969,693
Non-machine sales
1,530,907
1,312,242
Total sales
$ 6,749,065
$ 3,281,935
Sales, General and Administrative Expenses
Selling, general and administrative expenses include advertising and marketing costs, and costs related to the compensation of the Company’s administrative functions, insurance costs, professional fees and consulting expense. Advertising and marketing expenses were $106,872 and $56,518 for the years ended December 31, 2021 and 2020, respectively.
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 years ended December 31, 2021 and 2020:
Years Ended
December 31,
December 31,
Net loss attributable to common stockholders
$ (12,896 )
$ (3,085,549 )
Preferred stock dividends
7,422
-
Derivative gain
(1,400,011 )
-
Interest expense associated with convertible debt
846,750
-
Net income (loss) for dilutive calculation
$ (558,765 )
$ (3,085,549 )
Weighted average shares outstanding
72,126,152
64,184,514
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
77,669,683
64,184,514
During the year ended December 31, 2021, the impact of 11,189,056 warrants to purchase common stock were excluded from the calculation above as their impact would be anti-dilutive. For the year ended December 31, 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 and 4,421,662 shares to be issued as part of the share payable equity balance as of December 31, 2021 and 2020, respectively, are excluded from the calculation of weighted-average shares outstanding as they have not yet been issued.
Income Tax Provision
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within the related tax liability.
Going Concern
The Company’s financial statements are prepared using U.S. GAAP to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has negative working capital, recurring losses, and does not have a source of revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully execute the business plan and attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the SEC, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon convertible notes payable and cash flows from operations to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the 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.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The amendments within the update require certain disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. The amendments will require disclosure of information about the nature of the transactions and the related accounting policy used to account for the transactions, information regarding the line items within the consolidated financial statements that are affected by the transactions, and significant terms and conditions of the transactions. The amendments in the update will be effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. The Company does not believe the adoption of this ASU will have a material impact on the Company’s consolidated financial statements or results of options.
Note 3: Property and Equipment
Property and equipment consist of the following:
December 31,
December 31,
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
(19,172 )
(17,296 )
Property and equipment, net
$ 1,472
$ 3,348
Depreciation expense amounted to $1,876 and $9,428 for the years ended December 31, 2021 and 2020, respectively.
Note 4: Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
December 31,
December 31,
Accounts payable
$ 382,925
$ 279,207
Credit cards payable
-
23,445
Accrued interest
4,338
4,931
Sales tax payable
144,541
141,803
Accrued officer consulting cost
13,750
178,750
Other
42,221
53,303
Total Accounts payable and Accrued expenses
$ 641,690
$ 681,439
Note 5: Notes Payable
A summary of Notes Payable are as follows:
December 31,
December 31,
Note payable December 2019
35,245
107,146
SBA loan June 2020
148,093
149,900
Note payable September 2021
730,783
-
Total notes payable
914,121
257,046
Less: Unamortized discount
(121,309
)
Less: current portion
(87,774 )
(109,104 )
Long-term portion of notes payable
$ 705,038
147,942
On December 31, 2019, the Company entered into an inventory financing arrangement with a single lender, whereby $150,000 was paid by the lender directly to a vendor to secure inventory for the sales to customers in January 2020. The Company will repay $164,835 of principal and interest by February 29, 2020. The interest and fees of $14,835 were recorded as debt discount and were amortized through the maturity date. The Company also paid a deferred finance cost of $5,000 which was amortized through the maturity date. The Company entered into a second agreement on February 6, 2020 with the same lander for an additional $43,000 of funding. The Company will repay $47,253 at maturity on April 6, 2020. On April 22, 2020, these two notes payable were refinanced with the lender into a single agreement whereby the Company will make an initial repayment of $74,231 and 24 monthly payments of $7,467, for total payments of $253,439. This amendment was accounted for as a modification of the debt. The note payable matures on April 22, 2022.
On June 2, 2020, the Company received $150,000 under the Small Business Administration’s Economic Injury Disaster Loan (“EIDL”). The loan bears interest at a fixed rate of 3.75%, and matures on May 26, 2050, payable monthly with payments of $731 beginning twelve months after issuance. The loan gives the Small Business Administration a security interest in all assets of the Company.
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. On November 12, 2021, the Company issued a total of 843,750 shares of common stock to a lender in connection with the note payable issued. These shares had a fair value of $100,744 and were recorded as deferred finance costs. As of December 31, 2021, the Company owed a principal amount of $730,783 under this loan, with a remaining unamortized discount of $121,310. The Company amortized $6,934 of debt discount and deferred finance costs to interest expense related to notes payable.
Note 6: Convertible Notes Payable and Derivative Liabilities
Convertible Notes Payable
The following table summarizes outstanding convertible notes as of December 31, 2021 and 2020:
December 31,
December 31,
June 2019 Notes, due December 21, 2022
$ 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
(43,269 )
(239,282 )
Less: Current convertible notes payable, net of discount
(701,175 )
(809,242 )
Total long-term convertible notes payable, net
$ -
$ -
In June and July 2019, the Company issued convertible notes to 10 investors with an original principal amount of $2,388,889, receiving $1,583,333 in net cash proceeds (the “June 2019 Notes”). The June 2019 Notes matured on March 25, 2020 and are convertible into the Company’s common stock at a per share price of $0.35 at any time subsequent to the issuance date. The June 2019 Notes contain a down round feature, whereby any sale of common stock or common stock equivalent at a price per share lower than the conversion price of the June 2019 Notes will result in the conversion price being lowered to the new price. The warrants contain the same down round feature as the notes. As a result of a dilutive issuance during the year ended December 31, 2020, the exercise price of the remaining notes payable and the warrants is currently $0.18 per share.
During the year ended December 31, 2020, $1,500,000 of the principal on the June 2019 Notes was converted into the right to receive 7,883,599 shares of common stock, of which 5,105,821 were issued by December 31, 2021 and 2,777,778 were part of subscriptions payable liability balance of $499,999.
Following three previous extensions and on December 31, 2021, the holder of $444,444 of the notes agreed to extend the repayment period to December 31, 2022. 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. 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 December 31, 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 $723,436 and $1,594,924 of debt discount and deferred finance costs to interest expense related to convertible notes payable during the years ended December 31, 2021 and 2020, respectively. Accrued interest on notes payable and convertible notes payable was $38,024 and $4,931 as of December 31, 2021 and 2020, respectively.
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 December 31, 2021
Conversion Option
Warrants
Volatility
76.57 %
76.57-117.41
%
Dividend Yield
0 %
0 %
Risk-free rate
0.39 %
0.39-0.73%
Expected term
0.50 year
1-3 years
Stock price
$ 0.08
$ 0.08
Exercise price
$ 0.18-0.20
$ 0.18-0.44
Derivative liability fair value
$ 19,728
$ 306,079
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 years ended December 31, 2021 and 2020:
Fair value as of December 31, 2019
$ 504,750
Fair value on the date of issuance related to warrants issued
201,208
Extinguishment due to repayment of debt
(356,007 )
Extinguishment due to conversion of debt
(606,048 )
Loss on change in fair value of derivatives
1,561,203
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
(19,748 )
Extinguishment due to exercise of warrant
(72,958 )
Gain on change in fair value of derivatives
(1,380,263 )
Fair value as of December 31, 2021
$ 325,808
The total impact of derivative liabilities recognized in the Company’s consolidated statements of operations includes extinguishments due to repayments and the change in fair value of derivatives, with the Company recognizing a total gain of $1,400,011 and a loss of $1,205,196 during the years ended December 31, 2021 and 2020, respectively.
Note 7: Equity
Common Stock
For the year ended December 31, 2021:
On December 31, 2021, the Board of Directors of the Company and shareholders holding a majority of the voting power of the Company both approved an amendment to the Company’s Article of Incorporation to increase the total number of authorized shares that the Company shall have authority to issue from 100,000,000 shares to 230,000,000 shares, consisting of two classes to be designated respectively, “Common Stock” and “Preferred Stock”, with all such shares having a par value of $0.001 per share, of which 200,000,000 shall be designated as Common stock and 30,000,000 designated as Preferred stock.
During the year ended December 31, 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 year ended December 31, 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 December 31, 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, CEO and David Hall, EVP of Sales.
During the year ended December 31, 2021, the Company issued a total of 1,043,750 shares of common stock to a lender in connection with the debt issued during the period. These shares had a fair value of $172,744 and were recorded as deferred finance costs.
During the year ended December 31, 2021, 860,000 shares 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 year ended December 31, 2021.
During the year ended December 31, 2021, the Company issued 143,609 shares of common stock with a fair value of $15,227 for professional services.
During the year ended December 31, 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.
During the year ended December 31, 2021, the company issued 426,136 shares of common stock for the cashless exercise of 767,045 warrants previously issued with debt financings.
For the year ended December 31, 2020:
During the year ended December 31, 2020, the Company issued 2,019,401 shares of common stock related to the conversion of $444,444 of Convertible Notes Payable. Additionally, principal of $1,333,333 was converted into 6,666,661 shares of common stock that have not yet been issued.
During the year ended December 31, 2020, the Company received $846,400 of cash proceeds related to sale of 2,525,000 common stock units at $0.20 per unit and 1,896,662 common stock units at $0.18 per unit. Each $0.20 unit and $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 $0.30 and $0.27, respectively, for a period of three years from issuance. The Company agreed to issue an additional 280,554 shares to the subscribers of $0.20 units in December 2020, and recognized a loss of $53,305. The common shares related to these unit sales have not yet been issued as of December 31, 2020. As a result of the down round provision in the convertible debt described above, the fair value of the warrants was estimated using a binomial model and were accounted for as a derivative liability, due to the potentially unlimited number of shares that can be issued upon conversion of the debt instruments. Total shares to be issued related to convertible debt converted and stock units was 10,566,414 as of December 31, 2020.
During the year ended December 31, 2020, the Company issued a total of 965,046 shares of common stock to an investment banker and the various lenders in connection with the convertible notes payable issued during the period. These shares had a fair value of $199,537 and were recorded as deferred finance costs. Additionally, 1,443,333 shares of common stock with a fair value of $288,667 were issued to the convertible note lenders under a share lending arrangement, which the company recorded as contra-equity. The shares may be returned to the Company if the debt is satisfied in full by the maturity date. If the debt is not repaid by the maturity date or an event of default occurs, the shares are concerned fully earned, and the fair value of the shares will be amortized in full to expense. In connection with the repayment of the December 2019 convertible note in June 2020, the lender returned 933,333 shares previously issued during the year ended December 31, 2019 under the share lending arrangement, which were cancelled.
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 30,000,000 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 $7,422 in dividends for the year ended December 31, 2021. The redemption value of the Series A Preferred Stock as of December 31, 2021 was $259,422, 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, 2019
5,785,714
$ 1,292,100
$ 0.01
Warrants issued due to reset provisions
3,480,953
562,343
0.35
Warrants issued with common stock units
2,211,389
631,200
0.001
Exercised
-
-
-
Forfeited and cancelled
(2,100,000 )
(2,100 )
0.001
Outstanding at December 31, 2020
9,378,056
1,921,200
0.20
Granted
2,578,045
562,343
0.41
Exercised
(767,045 )
337,500
0.44
Forfeited and cancelled
-
-
-
Outstanding at December 31, 2021
11,189,056
$ 2,646,044
$ 0.24
The weighted average remaining contractual life is approximately 2.14 years for stock warrants outstanding with no intrinsic value of as of December 31, 2021. All of the above warrants were fully vested.
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 and Contingencies
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.
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 $165,000 during the year ended December 31, 2021, leaving a balance of $13,750 in accounts payable as of December 31, 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 $111,043 and $61,133 for the years ended December 31, 2021 and 2020, respectively.
The Company has a single operating lease for an office and warehouse lease in Costa Mesa, California. The lease started on February 2, 2022 with an initial term of 3 years and 14 days. Base monthly rent was approximately $3,855 per month plus net operating expenses.
Lawsuit
The Company has a pending lawsuit with one of its previous suppliers regarding defected cartridges. The Company is still evaluating the case and determining the impact of the case on the Company and as of the date of this report the amount or range of possible losses is not reasonably estimable.
Note 10: Accrued Liabilities - Other
Prior to the Merger, China Grand Resorts, Inc. recorded various liabilities that were incurred by former related parties. The current management team is not aware of any written agreements in place governing the terms of the loans nor have they been in contact with the debt holders however recognizes that China Grand Resorts, Inc. previously reported these amounts as liabilities of the Company. In accordance with ASC 405-20-40, the liabilities may only be removed from the Company’s financial statements if they are paid, formally settled or judicially released. Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities of $1,696,374 but does not believe that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,696,374 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: Income Taxes
The components of the provision for income taxes for the years ended December 31, 2021 and 2020, respectively, consisted of the following:
For the year ended
For the year ended
December 31,
December 31,
Current:
Federal
-
-
State
$ 800
$ 800
Deferred:
Federal
-
-
State
-
-
Total provision for (benefit from) income taxes
$ 800
$ 800
Deferred tax assets (liabilities) consist of the following:
For the year ended
For the year ended
December 31,
December 31,
Deferred Tax Assets:
Net operating losses
$ 1,694,212
$ 1,536,424
Other
1,900
1,900
Total Deferred Tax Asset
1,696,112
1,538,324
Valuation Allowance
(1,695,904 )
(1,538,116 )
Deferred Tax Liabilities
Fixed Assets
(208 )
(208 )
Net Deferred Tax Assets/(Liabilities)
$ 0
$ 0
Reconciliation of the statutory federal income tax to the Company’s effective tax:
December 31,
December 31,
Tax at Federal Statutory Rate
21.00 %
21.00 %
State Taxes
-58.50 %
0.04 %
Nondeductible Items
-240.7 %
-19.65 %
Valuation Allowance
278.2 %
-0.27 %
Other
0.00 %
1.03 %
Provision for Taxes
0.00 %
0.00 %
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Based on the available objective evidence, management believes it is not more likely than not that the net deferred tax assets will be fully realizable for the period ending December 31, 2021. On the basis of this evaluation, as of December 31, 2021, a full allowance has been recorded on its net deferred tax assets.
As of December 31, 2021, the Company had $631,000 of federal and $6,086,000 of state net operating loss carryforwards available to reduce future taxable income. As of December 31, 2020, the Company has approximately $5,413,000 of federal net operating loss carryforwards available to reduce future taxable income which carryforward indefinitely.
Federal and state laws can impose substantial restrictions on the utilization of net operating loss carry-forwards in the event of an “ownership change”, as defined in Section 382 of the Internal Revenue Code. The Company is in the process of determining if significant limitations would be placed on the utilization of its net operating loss carry-forwards due to prior ownership changes.
As of December 31, 2021, the Company does not have any unrecognized tax benefits. As of December 31, 2021, the Company has not recognized any interest or penalties for unrecognized tax benefits.
The Company files income tax returns in the U.S. and California. Tax Years 2016 to 2021 remain subject to examination for federal income tax purposes, and tax years 2014 through 2020 remain open to examination for California income tax purposes. All net operating losses generated to date are subject to adjustment for U.S. federal and California income tax purposes.
Note 12: Subsequent Events
In January and February 2022, the Company sold a total of 2,000,000 shares of Series B Preferred Stock (“Series B”) to two investors for net cash proceeds of $885,000 after closing costs of $115,000 and issued warrants to purchase 4,000,000 shares of common stock at $0.20 per share for a period of five years.
Each of the Investors shall be issued 1,000,000 shares of the Series B and the interest rate is 8.0% per annum. The Company granted to the Investors the piggy-back registration rights.
The Series B holders do not have voting rights on matters other than those related to amending the certificate of incorporation of the Series B, altering voting or other powers of the Series B, or redemption or acquisition of outstanding Series B. For a period of one year following closing of the Series B funding, the Company may not authorize or create any class of stock that is senior to the Series B with respect to dividends, redemption or distribution of assets upon Liquidation. In the event of liquidation of the Company, the Series B holders shall be paid 125% of the Stated value plus 125% of any unpaid dividends.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. 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-K, 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.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all controls systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.
Changes in Internal Control over Financial Reporting
Other than as described above, there have not been any changes in the Company’s internal controls over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.
Part III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Set forth below is certain information with respect to the individuals who are our directors and executive officers as of the date of this report:
Name
Age
Position(s)
Date of Appointment
Mark Adams
President, Chief Executive Officer, Director
September 14, 2018
Steven Duo
Chief Financial Officer
October 1, 2021
Scott Wessler
Director
September 14, 2018
Theodore Winston
Director
September 14, 2018
Rob Hagan
Director
April 3, 2019
Stephen Ashekian
Director
September 14, 2020
Mark Adams has served as our Chief Executive Officer and Board Member since September 14, 2018 and in those same roles with Jacksam Corporation, pre-Merger, since December 2017. From 2013 to 2017, he served as Vice President of Business Development for eSentire, a software security firm in Boston, Massachusetts. From 2010 to 2013, he was a Partner at Torrey Hills Capital in San Diego, California. From 2007-2009, he served as a portfolio manager at BAM, a hedge fund in NYC. From 2005 to 2008, he served as a portfolio manager at PT 72 in Boston, Massachusetts. From 2000-2004, he served as an analyst at Essex Investment Management in Boston, Massachusetts. From 1996 to 2000, he served as Vice President of Business Development at Dell-EMC. His career started as an analyst at JP Morgan Chase from 1990 to 1994. He holds a Bachelor of Science degree from Providence College awarded in 1990 and an M.B.A. from Harvard Business School awarded in 1996.
Steven Duo has served as our Chief Financial Officer since October 1, 2021. Prior to joining the Company as Controller in September 2019, Mr. Duo was a portfolio manager at a Southern California based Family Office, where he managed the investments for an ultra-high-net-worth family. Prior to that, he was a M&A consultant at Ernst & Young. Prior to Ernst & Young, he was an equity research associate at Susquehanna International Group, a global investment company on Wall Street. Mr. Duo holds an MBA degree from University of California, Irvine and a B.A. degree from Capital Normal University.
On September 28, 2021, Michael Sakala, former Chief Financial Officer, notified the Company of his decision to resign effective September 28, 2021. Mr. Sakala remains as a consultant of the Company.
Scott Wessler has served on our Board since September 14, 2018. Prior to the Merger, he invested in the early phases of Jacksam Corporation and has served on Jacksam’s advisory board as a member of its board of directors since 2017. In 2015, Scott Wessler invested in the early phases of MJIC, a cannabis compliance and distribution company and is currently engaged as a consultant. In 2011, Scott Wessler formed Canopi LLC, a family business focused primarily in property management, leasing and financial management of commercial real estate. From 2006 to present, he has served as Chief Operating Officer of Vimpex International Corporation, a family-owned company specializing in sourcing, importing, sales and distribution of food products in the United States. From 2004 to 2005, Scott Wessler served as Vice President of Product Development of an early-stage search portal product, Local.com, designed to provide relevant search results for local businesses, products and services. From 1996 to 2004, Scott Wessler worked at the Walt Disney Internet Group where he held leadership roles in the conception and execution of strategies for next-generation revenue producing online initiatives. He holds a Bachelor of Arts degree in English from the University of California, Irvine awarded in 1991.
Theodore Winston has served as our Director since September 14, 2018 and as a director of Jacksam Corporation, pre-Merger, since 2017. From a young age to present, Theodore Winston helped grow a family business, Winston Flowers, the largest independent floral retailer. He currently shares the title of President and CEO and oversees business operations and marketing including the utilization of web-based technology to drive online services worldwide. Since 1999, Theodore Winston has overseen the Winston Flowers Donations Committee, and the charitable giving program that has raised over $2 million for over 30 non-profit organizations. Theodore Winston holds a Bachelor of Science degree in Business Administration from the University of Massachusetts awarded in 2013 and sits on the board of several non-profit organizations in Boston, Massachusetts.
Rob Hagan has served as our Director since April 3, 2019. Rob Hagen is also a director of DMO Holdings, a private company providing research services in the cannabis industry. In addition, since August 2018 he has served as the CEO of Jujube International, Inc., an Irvine, California based private company which is a global leader in direct-to-consumer sales of motherhood accessories, including diaper bags and other related products. Previously, from 2015 through 2018, Rob Hagen was employed as the President and Chief Operating Officer of BRB / Sherline, a private company that develops and markets carbon removal technologies. Rob Hagen holds a Bachelor of Science degree in Accounting and Finance awarded by Cal Poly San Luis Obispo.
Stephen Ashekian has served as our Director since September 14, 2020. Stephen Ashekian held Senior Vice President positions at several of the nation’s largest investment banks. After 22 years of equity trading career on Wall Street, he retired from the industry in 2005 and then co-founded Open Exchange, a virtual conference company for the financial services industry. Stephen Ashekian is a medical cannabis industry veteran since 2007. He co-founded Valley Agriceuticals in 2014 for the purpose of bringing the benefits of cannabis to the public. Valley Agriceuticals was the recipient of 1 of 10 medical marijuana licenses for New York State. Stephen Ashekian and his partner later sold the company at the highest transaction amount for a single cannabis state license. Stephen Ashekian graduated from Babson College with degrees in both Investments and Finance.
Board Composition
Corporate Governance and Director Independence
Our business and affairs are managed under the direction of our Board of Directors, which consist of five members.
Our four non-employee directors, Scott Wessler, Theodore Winston, Rob Hagan, and Stephen Ashekian, are independent using the definition for “Independent Directors” set out in Nasdaq Listing Rule 5605(a)(2). Under Nasdaq rules, a director will only qualify as an “independent director” if, in the opinion of that company’s Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Our Board of Directors has undertaken a review of its composition, the composition of its proposed committees and the independence of each director. Based upon information requested from and provided by each director concerning his or her background, employment and affiliations, including family relationships, our Board of Directors has determined that neither Scott Wessler nor Theodore Winston has any relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of Nasdaq. In making this determination, our Board of Directors considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Board Committees
There are currently no committees of the Board of Directors.
Board Leadership Structure and Role in Risk Oversight
Due to the small size and early stage of the Company, we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or may be combined.
Our Board of Directors is primarily responsible for overseeing our risk management processes on behalf of our company. The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.
Code of Ethics
Our board of directors intends to adopt a code of ethics that our officers, directors and any person who may perform similar functions will be subject to.
Involvement in Certain Legal Proceedings
To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:
1.
any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
4.
being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
5.
being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
6.
being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The following table sets forth the compensation for our fiscal years ended December 31, 2021 and 2020 earned by or awarded to, as applicable, our principal executive officer, principal financial officer and our other most highly compensated executive officers as of December 31, 2021.
Summary Compensation Table (last two complete fiscal years)
Name and Position
Year
Salary ($)
Bonus ($)
Stock Awards ($)
Option Awards ($)
All other Compensation ($)
Total ($)
Mark Adams (CEO since 4/2019)
$ 120,000
-
-
-
$ 120,000
$ 120,000
-
-
-
-
$ 120,000
Steven Duo (CFO since 10/2021)
$ 100,000
-
-
-
$ 100,000
$ 100,000
-
-
-
-
$ 100,000
Michael Sakala (former CFO)
-
-
-
-
-
-
-
-
-
-
-
-
Daniel Davis (founder, former CEO)
$ 165,000
-
-
-
$ 165,000
$ 206,250
-
-
-
-
$ 206,250
Summary of Employment Agreements and Material Terms
Mark Adams
We entered into a five-year employment agreement on December 22, 2017, with Mark Adams to serve as the Chief Operating Officer of Jacksam in exchange for a base salary of $120,000 per annum, which shall automatically increase at a rate of five percent per year, in addition to any increases that our board, in its discretion, may determine is appropriate. In addition, Mark Adams is eligible for a performance bonus of up to thirty percent of his then-applicable annual salary, as determined by our board in its good faith discretion. Mark Adams’ employment agreement also provides that Jacksam is to provide Mark Adams with a grant of options to purchase up to 100,000 shares of Jacksam common stock at an undetermined exercise price, to vest over three years, upon Jacksam adopting an equity compensation plan. Jacksam did not ever adopt such a stock option plan and the options Jacksam was obligated to grant to Mark Adams have not been granted and, as a result of the Merger, will not be granted. We are in the process of renegotiating this term with Mark Adams. Mark Adams is also entitled to health insurance and other benefits if and to the extent provided by Jacksam to other executives.
If we terminate Mark Adams for cause, or if he resigns for good reason (both as defined in Mark Adams employment agreement), we owe Mark Adams his salary and benefits for a period of twelve months following his termination. If he dies, we owe Mark Adams’ estate six month’s salary.
Mark Adams was promoted to our Chief Executive Officer on April 10, 2018, by our board, following the decision by Daniel Davis to step down from that office.
Daniel Davis
We entered into a five-year employment agreement on December 22, 2017, with Daniel Davis to serve as the Chief Executive Officer of Jacksam in exchange for a base salary of $180,000 per annum, which shall automatically increase at a rate of five percent per year, in addition to any increases that our board, in its discretion, may determine is appropriate. In addition, Daniel Davis is eligible for a performance bonus of up to thirty percent of his then-applicable annual salary, as determined by our board in its good faith discretion. Daniel Davis’ employment agreement also provides that Jacksam is to provide Daniel Davis with a grant of options to purchase up to 100,000 shares of Jacksam common stock at an undetermined exercise price, to vest over three years, upon Jacksam adopting an equity compensation plan. Jacksam did not ever adopt such a stock option plan and the options Jacksam was obligated to grant to Daniel Davis have not been granted and, as a result of the Merger, will not be granted. We are in the process of renegotiating this term with Daniel Davis. Daniel Davis is also entitled to health insurance and other benefits if and to the extent provided by Jacksam to other executives.
If we terminate Daniel Davis for cause, or if he resigns for good reason (both as defined in Daniel Davis employment agreement), we owe Daniel Davis his salary and benefits for a period of twelve months following his termination. If he dies, we owe Daniel Davis’ estate six month’s salary.
Daniel Davis stepped down as our Chief Executive Officer on April 10, 2018, Daniel Davis stepped down as our Chief Executive Officer but remains employed in charge of new product development on the same terms and conditions as are contained in his employment agreement.
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 Mr. 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 $481,250 through December 31, 2021, leaving a balance of $13,750 in accounts payable. In addition, the Company entered into a lock up agreement with Mr. Davis that restricts the number of shares Mr. Davis can otherwise publicly sell for a period of up to three years to one third of the volume limits set forth under SEC Rule 144. Mr. Davis also agreed to a standstill agreement that provides that for a period of up to three years Mr. Davis will not seek to influence the governance of the Company, including by participation in any solicitation of other shareholders, promotion of any extraordinary transaction, nomination of any candidate to the Board or by seeking the removal of any existing directors.
Pension Benefits and Nonqualified Deferred Compensation
We do not provide a pension plan for our employees, and none of our named executive officers participated in a nonqualified deferred compensation plan in 2021.
Other than as set forth herein, we have not entered into any employment or consulting agreements with any of our current officers, directors or employees.
Outstanding Equity Awards at Fiscal Year End
The following table sets forth information regarding outstanding stock options and stock awards held by our named executive officers as of December 31, 2021. From inception and through the date of this report, we have not granted any stock options or stock awards to any of our executive officers.
Outstanding Equity Awards at Fiscal Year-End (most recent)
Option Awards
Stock Awards
Name
Number of Securities underlying unexercised options (#) exercisable
Number of securities underlying unexercised options (#) un-exercisable
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)
Option exercise price ($)
Option expiration date
Number of shares or units of stock that have not vested (#)
Market value of shares of units of stock that have not vested ($)
Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)
Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Mark Adams (CEO since 4/2018)
-
-
-
-
-
-
-
-
-
Michael Sakala (CFO)
-
-
-
-
-
-
-
-
-
Daniel Davis (former CEO)
-
-
-
-
-
-
-
-
-
Steven Duo (CFO)
-
-
-
-
-
-
-
-
-
Director Compensation
The Company plans to appoint additional directors and may reimburse its directors for expenses incurred in connection with attending board meetings. The Company has not paid any director’s fees or other cash compensation for services rendered as a director since our inception to the date of this filing. The Company has no formal plan for compensating its directors for their service in their capacity as directors.
Employee Benefit and Stock Plans
We have not adopted any employee equity compensation plans. We provide basic health insurance coverage to our fulltime employees. We have not adopted any retirement or deferred compensation plans for any of our employees.
Compensation Committee Interlocks and Insider Participation
The Company does not have a compensation committee. The board of directors conducts reviews with regards to the compensation of the directors and the Chief Executive Officer once a year. To make its recommendations on such compensation, the board of directors does take into account the types of compensation and the amounts paid to officers of comparable publicly traded companies.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. In accordance with SEC rules, shares of our common stock, which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the applicable table below are deemed beneficially owned by the holders of such options and warrants and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person.
The percentage of shares beneficially owned is computed as of December 31, 2021, on the basis of 74,490,147 shares of common stock outstanding. The following table sets forth information with respect to the beneficial ownership of our common stock as of December 31, 2021 (the “Determination Date”), by (i) each stockholder known by us to be the beneficial owner of more than 5% of our common stock (our only classes of voting securities), (ii) each of our directors and executive officers, and (iii) all of our directors and executive officers as a group. To the best of our knowledge, except as otherwise indicated, each of the persons named in the table has sole voting and investment power with respect to the shares of our common stock beneficially owned by such person, except to the extent such power may be shared with a spouse. To our knowledge, none of the shares listed below are held under a voting trust or similar agreement, except as noted. Other than the Merger, to our knowledge, there is no arrangement, including any pledge by any person of our securities or any of our parents, the operation of which may at a subsequent date result in a change in control of the Company.
Names of Beneficial Owner
Number of Shares Beneficially Owned
Percentage of Beneficial Ownership
5% and Greater Stockholders
Daniel Davis, Founder
24,603,333
33.0 %
Jeff Brady
4,277,807
5.7 %
Names of Executive Officers and Directors
Mark Adams, CEO and Director
7,656,636
10.3 %
Scott Wessler, Director
506,539
0.7 %
Theodore Winston, Director
250,000
0.3 %
Stephen Ashekian, Director
277,777
0.4 %
All current directors and executive officers as a group (4 persons)
8,663,175
11.7 %

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Party Transactions, and Director Independence
As part of the Merger, Jacksam Corporation purchased and subsequently returned to treasury 30 million shares of our common stock from our former sole officer and director, Bryan Glass, for total consideration of $340,000.
There has been no other transaction since January 1, 2017, to which we have been a party, in which the amount involved exceeded or will exceed $50,000, and in which any of our directors, executive officers or holders of more than 5% of Jacksam’s pre-Merger capital stock, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described in the section titled “Executive Compensation.”
On November 20, 2017, Theodore Winston purchased the 2017 Notes in the amount of $50,000. Theodore Winston was not a member of the Board of Directors at the time. He became a member of Jacksam’s Board of Directors, pre-Merger, on March 1, 2018, and a member of our Board of Directors as of the date of the Merger, September 14, 2018.
On November 8, 2018, we entered into a Line of Credit Agreement with Bass Point Capital, LLC, a Massachusetts limited liability company controlled by Doug Leighton, who is also a principal in Altar Rock Capital, one of our stockholders and the holder of the Altar Rock Warrant. The Line of Credit Agreement allows us, at the discretion of the lender, to borrow up to $250,000 by making specific requests of draws, if any, will be due and payable on individually determined terms.
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.
Mark Adams and Scott Wessler each contributed $126,000 to purchase the Series A Preferred Stock in 2021.
Other than the foregoing, we have not engaged in any transaction within the past fiscal year and do not plan to engage in any transaction with a related person or a person with a direct or indirect material interest in an amount exceeding $120,000.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Audit Fees. During the fiscal year ended December 31, 2021, the firm of L&L CPAs, PA, which we refer to as L&L was our principal auditor. Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by L&L in connection with regulatory filings. We paid L&L $43,000 and $43,000 in connection with our audited and reviewed financials for the fiscal years ended December 31, 2021 and 2020, respectively.
Audit-Related Fees. Audit-related services consist of fees billed for assurance and related services that are reasonably related to performance of the audit or review of our financial statements and are not reported under “Audit Fees.” These services include attest services that are not required by statute or regulation and consultations concerning financial accounting and reporting standards. There were no fees billed for audit-related services rendered by either L&L or other parties during the last two fiscal years.
Accounting Fees. None
All Other Fees. None
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
Number
Description
31.1*
Certification of Chief Executive Officer Pursuant To Sarbanes-Oxley Section 302
31.2*
Certification of Chief Financial Officer Pursuant To Sarbanes-Oxley Section 302
32.1*
Certification Pursuant To 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification Pursuant To 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
________
* Filed herewith.