U.S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31,ended September 30, 2018
OR
o¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________.
Commission file number: 0-27246File Number: 033-33263
CHINA GRAND RESORTS, |
( |
Nevada |
| 16-0383696 |
(State or other jurisdiction of |
| ( |
30191 Avenida De Las Banderas Suite B | 92688 | |
(Address of principal executive offices) | (Zip Code) |
20 West Park Avenue, Suite 207, Long Beach, NY 11561
Address of registrant’s principal executive offices
(516) 442-1883
Issuer’sRegistrant’s telephone number,
(Former name, former address and former fiscal year, if changed since last report) including area code: (800) 805-3580
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes x Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o YesNo xNo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
| Accelerated filer |
| |||
Non-accelerated filer |
| (Do not check if a smaller reporting company) | Smaller reporting company | x | |||
Emerging |
| x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). x oYes o xNo
StateAs of November 5, 2018, the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: At July 12, 2018 there were 33,272,311registrant had 48,272,311 shares of common stock, $0.001 par value per share, outstanding.
2 |
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q, or this Report, contains forward-looking statements, including, without limitation, in the sections captioned “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Plan of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms. Forward-looking statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.
The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties.
3 |
Table of Contents |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.Statements
China Grand Resorts, Inc.Inc and Subsidiary
Condensed Consolidated Balance Sheets
(Unaudited)
As of March 31, 2018 (Unaudited) As of September 30, 2017 (Audited) CURRENT ASSETS Cash Prepaid Expenses TOTAL CURRENT ASSETS TOTAL OTHER ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILTIES Accounts Payable Accrued Interest on Loans from Related Parties Loan from Related Parties TOTAL CURRENT LIABILTIES TOTAL LIABILITIES COMMITMENTS AND CONTIGENCIES STOCKHOLDER'S EQUITY Common stock ($0.001 par value; 100,000,000 shares authorized; 33,272,311 shares issued and outstanding at March 31, 2018 and September 30, 2017) Additional Paid in Capital Accumulated Deficit TOTAL STOCKHOLDER'S EQUITY (DEFICIT) TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY/(DEFICIT) $ - $ - - 5,000 - 5,000 - - $ - $ 5,000 44,145 21,187 378,292 353,944 1,219,814 1,219,814 1,642,251 1,594,945 1,642,251 1,594,945 - - $ 33,272 $ 33,272 10,128,046 10,114,796 (11,803,569 ) (11,738,013 ) (1,642,251 ) (1,589,945 ) $ - $ 5,000
|
| September 30, |
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| December 31, |
| ||
|
| 2018 |
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| 2017 |
| ||
Assets | ||||||||
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|
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|
| ||
Current Assets: |
|
|
|
|
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| ||
Cash |
| $ | 988,379 |
|
| $ | 1,146,374 |
|
Accounts receivable, net |
|
| 53,700 |
|
|
| - |
|
Inventory, net |
|
| 739,095 |
|
|
| 124,121 |
|
Marketable securities |
|
| - |
|
|
| 200,004 |
|
Total Current Assets |
|
| 1,781,174 |
|
|
| 1,470,499 |
|
|
|
|
|
|
|
|
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Property and Equipment, net |
|
| 14,879 |
|
|
| 15,413 |
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Other Assets |
|
| 36,672 |
|
|
| 2,461 |
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|
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|
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Total Assets |
| $ | 1,832,725 |
|
| $ | 1,488,373 |
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Liabilities and Stockholders (Deficit) | ||||||||
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Current Liabilities: |
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|
|
|
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Accounts Payable and Accrued Expenses |
|
| 81,006 |
|
|
| 133,160 |
|
Deferred Revenue |
|
| 376,483 |
|
|
| 200,852 |
|
Convertible notes payable, current portion |
|
| 1,500,000 |
|
|
| - |
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Notes Payable |
|
| 89,529 |
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|
| 165,000 |
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Accrued liabilities - other |
|
| 1,642,118 |
|
|
| - |
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Total Current Liabilities |
|
| 3,689,136 |
|
|
| 499,012 |
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Long-Term Liabilities: |
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Convertible Notes Payables |
|
| 1,718,500 |
|
|
| 1,643,500 |
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Total Long-Term Liabilities |
|
| 1,718,500 |
|
|
| 1,643,500 |
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Total Liabilities |
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| 5,407,636 |
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| 2,142,512 |
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Stockholders' Deficit: |
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Common Stock - 100,000,000 authorized, $0.001 par value, 48,272,311 and 41,828,952 shares issued and outstanding, respectively |
|
| 48,272 |
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|
| 41,829 |
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Additional Paid-In Capital |
|
| (21,793 | ) |
|
| 1,883,656 |
|
Accumulated Deficit |
|
| (3,601,390 | ) |
|
| (2,579,624 | ) |
Total Stockholders' Deficit |
|
| (3,574,911 | ) |
|
| (654,139 | ) |
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Total Liabilities, and Stockholders' Deficit |
| $ | 1,832,725 |
|
| $ | 1,488,373 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
China Grand Resorts, Inc.
Statements of Operations
(Unaudited)
For the three months ending March 31, For the six months ending March 31, 2018 2017 2018 2017 Sales Total Revenue Loss from operations Provision for Income Taxes Net Income/(Loss) $ - $ - $ - $ - $ - $ - $ - $ - EXPENSES: Selling, General and Administrative - - 2,500 - Professional Fees 23,115 635 38,707 1,085 Total Expense 23,115 635 41,207 1,085 $ (23,115 ) $ (635 ) $ (41,207 ) $ (1,085 ) OTHER INCOME/(EXPENSES): Interest Income - - - - Interest Expense (12,174 ) (12,174 ) (24,348 ) (24,348 ) Total Other Net Income/(Expense) $ (12,174 ) $ (12,174 ) $ (24,348 ) $ (24,348 ) Loss Before Income tax $ (35,289 ) $ (12,809 ) $ (65,555 ) $ (25,433 ) - - - - $ (35,289 ) $ (12,809 ) $ (65,555 ) $ (25,433 ) Weighted average common shares outstanding, basic and fully diluted 33,272,311 33,272,311 33,272,311 33,272,311 Basic and fully diluted net loss per common share: Net Income/(Loss) $ (0.001 ) $ (0.000 ) $ (0.002 ) $ (0.001 )
The accompanying notes are an integral part of these financial statements.
China Grand Resorts, Inc.
Statements of Cash Flows
(Unaudited)
For the six months ended March 31, 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net (loss) to net cash provided by (used in) operations: Changes in Assets and Liabilities: (Increase) decrease in Prepaid Expense Increase (decrease) in Accounts Payable and Other Accruals NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Capital Contributions NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD END OF THE PERIOD SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR: Interest Taxes $ (65,555 ) $ (25,433 ) 5,000 - 47,305 24,348 (13,250 ) (1,085 ) - 13,250 1,085 13,250 1,085 - - - - $ - $ - $ - $ - $ - $ -
The accompanying notes are an integral part of these financial statements.statements
4 |
Table of Contents |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSChina Grand Resorts, Inc and Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
|
| Three Months ended |
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| Nine Months ended |
| ||||||||||
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| September 30, 2018 |
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| September 30, 2017 |
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| September 30, 2018 |
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| September 30, 2017 |
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Sales |
| $ | 1,613,419 |
|
| $ | 467,089 |
|
| $ | 4,965,646 |
|
| $ | 1,317,946 |
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Cost of Sales |
|
| 1,232,217 |
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|
| 516,270 |
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| 3,344,655 |
|
|
| 904,739 |
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Gross Profit (Loss) |
|
| 381,202 |
|
|
| (49,181 | ) |
|
| 1,620,991 |
|
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| 413,207 |
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Operating Expenses |
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Salaries and wages (including Contractors) |
|
| 477,212 |
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| 82,408 |
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| 1,169,856 |
|
|
| 257,326 |
|
Other Selling, general and administrative expenses |
|
| 468,841 |
|
|
| 159,969 |
|
|
| 1,364,896 |
|
|
| 507,170 |
|
Total operating expenses |
|
| 946,053 |
|
|
| 242,377 |
|
|
| 2,534,752 |
|
|
| 764,496 |
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|
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|
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|
|
|
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Loss from operations |
|
| (564,851 | ) |
|
| (291,558 | ) |
|
| (913,761 | ) |
|
| (351,289 | ) |
|
|
|
|
|
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|
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|
|
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Other Expense |
|
|
|
|
|
|
|
|
|
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|
|
|
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Other Expense |
|
| (6,503 | ) |
|
| - |
|
|
| (6,503 | ) |
|
| - |
|
Interest expense |
|
| (35,174 | ) |
|
| (10,408 | ) |
|
| (101,502 | ) |
|
| (59,115 | ) |
Total Other Expense |
|
| (41,677 | ) |
|
| (10,408 | ) |
|
| (108,005 | ) |
|
| (59,115 | ) |
|
|
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Net Loss |
| $ | (606,528 | ) |
| $ | (301,966 | ) |
| $ | (1,021,766 | ) |
| $ | (410,404 | ) |
|
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Net Loss Per Share |
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Basic and Diluted |
| $ | (0.01 | ) |
| $ | (0.01 | ) |
| $ | (0.02 | ) |
| $ | (0.01 | ) |
|
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Weighted average shares outstanding |
|
|
|
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|
|
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|
|
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Basic and Diluted |
|
| 45,575,351 |
|
|
| 50,236,238 |
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|
| 43,575,351 |
|
|
| 40,169,806 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
5 |
Table of Contents |
China Grand Resorts, Inc and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended September 30, 2018 and 2017
|
| 2018 |
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| 2017 |
| ||
Cash Flows from Operating Activities |
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| ||
Net loss |
| $ | (1,021,766 | ) |
| $ | (410,404 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
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|
|
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Depreciation expense |
|
| 534 |
|
|
| 800 |
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Loss on sale of marketable securities |
|
| 6,504 |
|
|
| - |
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Imputed interest |
|
| 83,112 |
|
|
| - |
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Inventory impairment |
|
| 128,640 |
|
|
| - |
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Net change in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (53,700 | ) |
|
| - |
|
Inventory |
|
| (743,614 | ) |
|
| (78,840 | ) |
Other assets |
|
| (34,211 | ) |
|
| (2,461 | ) |
Accounts payable and accrued expenses |
|
| (52,154 | ) |
|
| 59,698 |
|
Deferred revenue |
|
| 175,631 |
|
|
| 253,856 |
|
|
|
|
|
|
|
|
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Net Cash used in Operating Activities |
|
| (1,511,024 | ) |
|
| (177,351 | ) |
|
|
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Cash Flows from Investing Activities |
|
|
|
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|
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Proceeds from sale of marketable securities |
|
| 193,500 |
|
|
| - |
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Purchase of Property and Equipment |
|
| - |
|
|
| (5,341 | ) |
|
|
|
|
|
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Net Cash used in Investing Activities |
|
| 193,500 |
|
|
| (5,341 | ) |
|
|
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Cash Flows from Financing Activities |
|
|
|
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|
|
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Proceeds from convertible notes payable |
|
| 1,575,000 |
|
|
| 100,000 |
|
Payments on notes payable |
|
| (75,471 | ) |
|
| (102,184 | ) |
Payments related to reverse acquisition and re-purchase of shares |
|
| (340,000 | ) |
|
| - |
|
Proceeds from the sale of common stock |
|
| - |
|
|
| 200,000 |
|
|
|
|
|
|
|
|
|
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Net cash provided by financing activities |
|
| 1,159,529 |
|
|
| 197,816 |
|
|
|
|
|
|
|
|
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Net Change in Cash and Cash Equivalents |
|
| (157,995 | ) |
|
| 15,124 |
|
|
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|
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Cash and Cash Equivalents, Beginning of Period |
|
| 1,146,374 |
|
|
| - |
|
|
|
|
|
|
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Cash and Cash Equivalents, End of Period |
| $ | 988,379 |
|
| $ | 15,124 |
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Cash Paid For: |
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|
|
|
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Taxes |
| $ | - |
|
| $ | - |
|
Interest |
| $ | - |
|
| $ | - |
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|
|
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Non-cash transactions: |
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|
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|
Recapitalization related to reverse merger |
| $ | 1,642,118 |
|
| $ | - |
|
Common stock issued to settle convertible notes payable |
| $ | - |
|
| $ | 100,000 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
6 |
Table of Contents |
China Grand Resorts, Inc. and Subsidiary
March 31, 2018
(Unaudited)Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1: Organization and Nature of Operations
China Grand Resorts, Inc. (the “Company”) was organized under the laws of the State of Nevada on September 21, 1989 under the name Fulton Ventures, Inc. Effective on November 16, 2009, the name was changed to China Grand Resorts Inc. After the September 30, 2014 10Q filing, the management of the Company abandoned the Company and the subsidiaries were taken back by the PRC national companies in China who owned them. The remaining parent company, China Grand Resorts, Inc. became a dormant company until 2016 when a new shareholder acquired stock to become the majority shareholder and owner of the Company. The
On September 14, 2018, the Company’s fiscal year end iswholly-owned subsidiary, Jacksam Acquisition Corp., a corporation formed in the State of Nevada on September 30th11, 2018, or the Acquisition Sub, merged with and into Jacksam Corporation, a corporation incorporated in August 2013 in the State of Delaware, referred to herein as Jacksam. Pursuant to this transaction, or the Merger, Acquisition Sub was the surviving corporation, and changed its name to “Jacksam Corporation”.
NOTE B - GOING CONCERNIn accordance with the terms of the Exchange Agreement, and in connection with the completion of the acquisition, on the Closing Date the Company issued 45,000,000 shares of common stock, par value $0.001 per share to the Jacksam shareholders in exchange for all of the issued and outstanding Jacksam. In addition, the previous owners of China Grand Resorts, Inc. returned 30,000,000 shares of common stock to the treasury of the Company. Following the acquisition there was a total of 48,272,311 shares of common stock issued and outstanding of which 3,272,311 are held by shareholders of the Company prior to the merger. In connection with the above transaction $340,000 was paid to the former controlling shareholder related to the return of 30,000,000 shares of common stock.
As a result of the Merger, we acquired the business of Jacksam and will continue the existing business operations of Jacksam as our wholly-owned operating subsidiary under the name Jacksam Corporation.
In accordance with “reverse merger” or “reverse acquisition” accounting treatment, the China Grand Resorts, Inc. historical financial statements as of period ends, and for periods ended, prior to the Merger will be replaced with the historical financial statements of Jacksam, prior to the Merger, in all future filings with the SEC.
Jacksam Corp. (“Jacksam”) is a technology company focused on developing and commercializing products utilizing a proprietary technology platform. The Company services the medical cannabis, hemp and CBD segments of the larger e-cigarette and vaporizer markets with oil vaporizer focused products. As of December 31, 2017, the Company had two principal product lines consisting of vape cartridges and batteries and a filling machine. 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, and distributors. The Company expects continued growth as they take measures to invest in their own molds and intellectual property. The Company operates and sells products from the website www.Convectium.com.
Note 2: Significant Accounting Policies
Basis of Preparation
The accompanyinginterim unaudited condensed consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. They do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with the Jacksam Corporation’s audited financial statements and notes filed with the SEC on September 17, 2018 on Form 8-K for the year ended December 31, 2017.
7 |
Table of Contents |
Inventory
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method or net realizable value. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.
At September 30, 2018 and December 31, 2017, the Company had $739,095 and $124,121 in inventory, respectively. The September 30, 2018 and December 31, 2017 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of September 30, 2018, and December 31, 2017, the Company has determined that an allowance of $0 and $0 is required.
Revenue Recognition
The Company derives revenues from the sale of machines and product income. 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:
o | Identification of the contract with a customer | |
o | Identification of the performance obligations in the contract | |
o | Determination of the transaction price | |
o | Allocation of the transaction price to the performance obligations in the contract | |
o | Recognition of revenue when, or as, the Company satisfies a performance obligation |
On January 1, 2017, the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting standards under Topic 605. The adoption has had an immaterial impact to the Company’s comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We expect the impact of the adoption of the new standard to be immaterial to the Company’s net income on an ongoing basis.
Going Concern
The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, basis, which assumescontemplates the Company will realize itsrealization of assets and discharge itsliquidation of liabilities in the normal course of business. As reflected in the accompanying financial statements,However, the Company has negative working capital, recurring losses, and does not have a deficit accumulatedsource of $11,803,569 and cash used in operations of $13,250 at March 31, 2018.revenues sufficient to cover its operating costs. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability of the Company to continue as a going concern is dependent upon its ability to generate futuresuccessfully execute the business plan and attain profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern.operations. The accompanying financial statements do not include any adjustments that might arise because of this uncertainty.may be necessary if the Company is unable to continue as a going concern.
To address these aforementioned, Management has undertakenIn the following initiatives: 1) enter into discussions to secure additional equity funding from current or new shareholders; 2) undertake a program to continue to monitorcoming year, the Company’s ongoing working capitalforeseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and minimum expenditure commitments; and 3) continue their focus on maintaining an appropriate level of corporate overhead in linemaking the requisite filings with the Company’s availableSecurities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash resources.shortfall and be required to raise additional capital.
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESHistorically, 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.
Basis of Presentation- The financial statements included herein were prepared under Generally Accepted Accounting Principles (GAAP).Net Loss Per Common Share
All adjustments have been made which in the opinion of management are necessary for presentation.
Interim filings should be read in conjunction with the Company’s annual report as of September 30, 2017.
Cash and Cash Equivalents- For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
Management’s Use of Estimates- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business.
Revenue Recognition- The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all the following criteria are met:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
China Grand Resorts, Inc.
March 31, 2018
(Unaudited)
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—CONT’D
Comprehensive Income (Loss) - The Company reports Comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
Net Income per Common Share- Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per common share is computed by dividing net loss by the weighted averageweighted-average number of shares of common stockshares outstanding during the period. DilutedPotential common stock equivalents are determined using the treasury stock method. For diluted net loss per share is computedpurposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises but which are subject to repurchase by dividingthe Company, whose effect would be anti-dilutive from the calculation. During the three and nine months ended September 30, 2018 and 2017, common stock equivalents were excluded from the calculation of diluted net loss byper common share, as their effect was anti-dilutive due to the weighted average numbernet loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented.
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The Company had 5,000,000 and 3,171,048 potentially dilutive securities that have been excluded from the computation of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutivediluted weighted-average shares outstanding as of March 31,September 30, 2018 and March 31, 2017.2017, as they would be anti-dilutive.
Deferred Taxes- The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when 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.Stock-Based Compensation
Fair Value of Financial Instruments- The carrying amounts reported in the balance sheet for cash, accounts receivable and payable approximate fair value based on the short-term maturity of these instruments.
Accounts Receivable- Accounts deemed uncollectible are written off in the year they become uncollectible. As of March 31, 2018 and September 30, 2017, the balance in Accounts Receivable was $0 and $0, respectively.
Impairment of Long-Lived Assets- The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down to fair value, which is determined based on either discounted future cash flows or appraised values. The Company adopted the statement on inception. No impairments of these types of assets were recognized during the periods ended March 31, 2018 and March 31, 2017.
Stock-Based Compensation- The Company accounts for stock-based compensation usingin accordance with the fair value method following the guidance set forth in section 718-10 of the FASBFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification for disclosure about Stock-Based Compensation. This section(“ASC”) 718, Stock Compensation (“ASC 718”), which requires a public entity to measurethat stock-based compensation be measured and recognized as an expense in the cost of employee services received in exchange for an award of equity instrumentsfinancial statements and that such expense be measured at the grant date fair value.
For awards that vest based on service conditions, the grant-dateCompany 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 award (with limited exceptions)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”). That costThe 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 that grantees may have the right to exercise an option prior to vesting. Shares purchased upon the exercise of unvested options will be recognizedsubject 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.
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 period during whichexpected term of the notes pursuant to 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 employeeentity 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 provide servicebe 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.
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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.
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 warrantholder 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.
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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.
Subsequent Events
The Company evaluates events occurring after the date of its consolidated balance sheet for potential recognition or disclosure in its consolidated financial statements. There have been no subsequent events that occurred through the date the Company issued its consolidated financial statements that require disclosure in or adjustment to its consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of China Grand Resorts, Inc. and its wholly owned subsidiary. All intercompany transactions and balances are eliminated in consolidation.
New 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 May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. The new standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the award-nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In July 2015, the requisite service period (usuallyFASB approved a one-year deferral of the vesting period). No compensation cost is recognized for equity instruments for which employees doeffective date of this standard to annual reporting periods, and interim reporting periods within those years, beginning after December 15, 2017. The Company adopted this standard effective January 1, 2018 using the modified retrospective method. The adoption of this guidance did not renderhave a significant impact on the requisite service.Company’s consolidated financial statements.
Fair ValueIn July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015- 11”). ASU 2015-11, which simplifies the measurement of inventories valued under most methods, including the Company’s inventories valued under FIFO — the first-in, first-out cost method. Inventories valued under LIFO — the last-in, first-out method — are excluded. Under this new guidance, inventories valued under these methods would be valued at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. The Company adopted this standard on January 1, 2017. The adoption of this guidance did not have a significant impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities- The Company follows paragraph 825-10-50-10," which addresses the recognition, measurement, presentation and disclosure of financial assets and liabilities. This ASU primarily affects the FASB Accounting Standards Codificationaccounting for disclosures about fair value of itsequity investments, financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measureliabilities under the fair value of itsoption and the presentation and disclosure requirements for financial instruments. Paragraph 820-10-35-37 establishesIn addition, this ASU clarifies the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. This standard became effective on January 1, 2018. This standard did not have a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurementsmaterial impact on our consolidated financial statements and related disclosures Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizesfor the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:six months ended June 30, 2018.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
China Grand Resorts, Inc.
March 31, 2018
(Unaudited)
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The carrying amounts of the Company’s financial assets and liabilities, such as cash and accrued expenses, approximate their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at March 31, 2018 and March 31, 2017.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at March 31, 2018, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the periods ended March 31, 2018 or March 31, 2017.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), amendingor ASU 2016-02. ASU 2016-02 requires that lessees recognize in the existing accounting standardsstatement of financial position for all leases (with the exception of short-term leases) a lease accounting,liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and a right-of-use asset, which is an asset representing the lessee’s right to use the underlying asset for the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The new standard requiresinterim periods within those fiscal years, with early adoption permitted. Lessees must apply a modified retrospective transition approach for all leases existing at, or entered into after, the datebeginning of initial application,the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees may not apply a full retrospective transition approach. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.
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In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 will simplify the income tax consequences, accounting for forfeitures and classification on the statements of consolidated cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with an optionearly adoption permitted. The Company elected to use certain transition relief. The guidance will be effectiveadopt ASU 2016-09 in the first quarter of 2019 and allows for early adoption. The2017 retrospectively to January 1, 2017. As a result of adopting ASU No. 2016-09 during the year ended December 31, 2017, the Company adjusted its accumulated deficit related to the accounting policy election to recognize the impact of share-based award forfeitures only as they occur rather than by applying an estimated forfeiture rate as previously required. ASU No. 2016-09 requires that this change be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to accumulated deficit as of the beginning of the fiscal year in which the guidance is assessing whetheradopted. As a result of this adoption, the new standard will haveCompany recorded a material effect on its financial position or resultsdecrease to accumulated deficit of operations.approximately $28 thousand with an offset to Additional Paid-in Capital as of January 1, 2017.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), that clarifies how certain cash receipts and cash payments should be classified on the statement of cash flows. Thisor ASU addresses2016-15. The amendments in ASU 2016-15 address eight specific cash flow issues with the objectiveand apply to all entities that are required to present a statement of reducing the existing diversitycash flows under FASB Accounting Standards Codification 230, Statement of Cash Flows. The amendments in practice. The guidance isASU 2016-15 are effective for annual reporting periodspublic business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect there to be a materialpermitted, including adoption during an interim period. We have evaluated the impact from adopting this new guidance.of ASU No. 2016-15 and noted it had no impact on our consolidated financial statements for the six months ended June 30, 2018.
In January 2017,November 2016, the FASB issued ASU 2017-01, ClarifyingNo. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Definition of a Business, which revisesFASB Emerging Issue Task Force), or ASU 2016-18. This new standard addresses the definition of a business and assistsdiversity that exists in the evaluationclassification and presentation of changes in restricted cash on the statement of cash flows. The amendments in ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when a setreconciling the beginning-of-period and end-of-period total amounts shown on the statement of transferred assets and activities is a business. ASU 2017-01cash flows. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017 and should be applied prospectively. Early adoption is permitted under certain circumstances. The Company does not expect the adoption of this guidance will have a material impact on its financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019;2017, including interim periods within the year of adoption, with early adoption is permitted. We currently anticipateOur consolidated financial statements reflect this standard for the six months ended June 30, 2018 and 2017.
In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (ASC 260) Distinguishing Liabilities from Equity (ASC 480) Derivatives and Hedging (ASC 815),” which addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. For public business entities, the amendments in Part I of ASU 2017-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company has chosen to early adopt this standard on April 1, 2018 with retroactive restatement of comparative periods. The Company has concluded that the adoptionretroactive provisions of ASU 2017-04 will not have a material2017-11 had no impact on our financial statements.the accounting for the Company’s previously outstanding warrant which had been issued to the warrantholder as stock compensation.
Note 3: Property and equipment
Property and equipment consisted of the following:
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| September 30, 2018 |
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| December 31, 2017 |
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Furniture and Fixtures |
| $ | 10,425 |
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| $ | 10,425 |
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Equipment |
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| 7,579 |
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| 7,579 |
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Trade Show Display |
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| 2,640 |
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| 2,640 |
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Total |
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| 20,644 |
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| 20,644 |
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Less: Accumulated Depreciation |
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| (5,765 | ) |
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| (5,231 | ) |
Property and Equipment net |
| $ | 14,879 |
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| $ | 15,413 |
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Depreciation expense amounted to $534 and $800 for the nine months ended September 30, 2018 and 2017, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
China Grand Resorts, Inc.
March 31, 2018
(Unaudited)
Recently Issued Accounting Pronouncements (Cont’d)Note 4: Accounts payable and accrued expenses
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment awarded require an entity to apply modification accounting. ASU 2017-09 is effective for interimAccounts payable and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The amendments in ASU 2017-09 are to be applied prospectively to an award modified on or after the adoption date; consequently, the impact will be dependent on whether we modify any share-based payment awards and the nature of such modifications. The adoption of this standard is not expected to have a material impact on our financial statements.
NOTE D - SEGMENT REPORTING
The Company follows the guidance set forth by section 280-10 of the FASB Accounting Standards Codification for reporting and disclosure on operating segments of the Company. It also requires segment disclosures about products and services, geographic areas, and major customers. The Company determined that it did not have any separately reportable operating segments as of March 31, 2018 and March 31, 2017.
NOTE E - ACCOUNTS PAYABLE PRIOR TO COMPANY BEING ABANDONED
Other payables prior to the Company being abandonedaccrued expenses consist of the following:
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| March 31, 2018 |
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| September 30, 2017 |
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Professional Fees |
| $ | 2,000 |
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| $ | 2,000 |
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Office Expenses |
| $ | 19,187 |
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| $ | 19,187 |
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Total |
| $ | 21,187 |
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| $ | 21,187 |
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|
| September 30, 2018 |
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| December 31, 2017 |
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Accounts payable |
| $ | 36,187 |
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| $ | 102,249 |
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Credit cards payable |
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| 12,999 |
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|
| 5,398 |
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Accrued interest |
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| 473 |
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| 16,766 |
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Sales tax payable |
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| 30,071 |
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|
| 7,147 |
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Other |
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| 1,276 |
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|
| 1,600 |
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Total Accounts payable and Accrued expenses |
| $ | 81,006 |
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| $ | 133,160 |
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NOTE F - RELATED PARTY TRANSACTIONS PRIOR TO COMPANY BEING ABANDONED
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| March 31, 2018 |
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| September 30, 2017 |
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Redrock Capital Venture Limited (a) |
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| 100,281 |
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| $ | 100,281 |
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Beijing Hua Hui Hengye Investment Limited (b) |
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| 1,119,533 |
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| 1,119,533 |
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Total |
| $ | 1,219,814 |
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| $ | 1,219,814 |
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A summary of Notes Payable are as follows:
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| September 30, 2018 |
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| December 31, 2017 |
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Note payable dated August 22, 2016, bearing interest at 12% per annum, due November 22, 2016, past due at year end, paid in full July 2018 |
| $ | - |
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| $ | 75,000 |
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|
Note payable dated November 21, 2016, bearing interest at 12% per annum, due February 21, 2017, currently past due |
|
| 89,529 |
|
|
| 90,000 |
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|
|
|
|
|
|
|
|
|
Total notes payable |
|
| 89,529 |
|
|
| 165,000 |
|
Less: current portion |
|
| 89,529 |
|
|
| 165,000 |
|
Long term portion of notes payable |
| $ | - |
|
| $ | - |
|
As of September 30, 2018 and December 31, 2017, accrued interest on these loans outstanding balances for $473 and $16,766, respectively.
Note 6: Convertible Notes Payable
In December 2017, the Company issued non-interest bearing convertible debentures to 36 investors in exchange for $1,643,500 (the “2017 Notes”). The 2017 Notes have a three-year term and are convertible into the Company’s common stock at a per share price of $0.20 at any time subsequent to the issuance date. On the maturity date, if not previously converted, the 2017 Notes are subject to a mandatory conversion to the Company’s common stock. In January 2018, the Company issued non-interest bearing convertible notes with the same terms as the 2017 Notes in exchange for an additional $75,000. The Company determined that the 2017 Notes qualified as conventional convertible instruments. The Company evaluated the conversion feature and determined that no beneficial conversion feature existed on the issuance dates. Imputed interest of $51,222 was calculated and accrued at 4% and recorded to additional paid in capital.
In March 2018, the Company issued non-interest bearing convertible notes to two investors in exchange for $1,500,000 (the “2018 Notes”). The 2018 Notes have a one-year term and are convertible into the Company’s common stock at a per share price of $0.90 at any time subsequent to the issuance date. Upon either the maturity date or a successful financing involving the Company’s common stock or a financial instrument convertible into common stock at a valuation of $45,000,000 or more, the 2018 Notes are subject to mandatory conversion to the Company’s common stock, if not previously converted. The Company determined that the 2018 Notes qualified as conventional convertible instruments.
Further the Company evaluated the conversion feature and determined that there was no beneficial conversion feature or derivative liabilities. Imputed interest of $31,890 was calculated and accrued at 4% and recorded to additional paid in capital.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNote 7: Accrued Liabilities – Other
Prior to the Merger, China Grand Resorts, Inc.
March 31, 2018
(Unaudited), recorded various liabilities that were incurred by former related parties. Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities. However, management does not intend to remove these liabilities, $1,642,118, 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.
NOTE F - RELATED PARTY TRANSACTIONS PRIOR TO COMPANY BEING ABANDONED—CONT’DNote 8: Related Party
NOTE G - EQUITYNote 9: Commitments
Operating Lease
In March 2017, the Company entered into an office lease located in Racho Santa Margarita, California with an initial term of 37 months. Base monthly rent is approximately $3,200 per month plus net operating expenses. A deposit equal to one-month rent was paid and the commencement of the lease. The lease can be extended for a two-year period at the then fair market value. Minimum lease payment under this arrangement for 2018 (October – December), 2019 and 2020 is $14,554, $48,968 and $20,600, respectively.
Operating lease expenses for the nine months ended September 30, 2018 and 2017 were $47,785 and $43,109, respectively.
Note 10: Equity
Common Stock
As of September 30, 2018, the authorized capital stock of the Company is authorized to issueconsists of 100,000,000 Common Shares at $.001 par value per share.shares, of which 100,000,000 shares are designated as common stock.
In April 2016, 30,000,000accordance with the terms of the Exchange Agreement, and in connection with the completion of the acquisition, on the Closing Date the Company issued 45,000,000 shares were issuedof common stock, par value $0.001 per share to new owner, Bryan Glass at par.
Totalthe Jacksam shareholders in exchange for all of the issued and outstanding Jacksam common stock. In addition, the previous majority shareholder of China Grand Resorts, Inc. returned 30,000,000 shares as of March 31, 2018 were 33,272,311.common stock to the treasury of the Company. Following the acquisition there was a total of 48,272,311 shares of common stock issued and outstanding of which 3,272,311 are held by shareholders of the Company prior to the merger.
To date, the majority shareholder, Bryan Glass contributed $29,006 for expensesStock Options and fees to reinstate the Company. This money is booked as a capital contribution.Warrants
October 1, 2015 to September 30, 2016 |
| $ | 6,924 |
|
October 1, 2016 to September 30, 2017 |
| $ | 8,832 |
|
October 1, 2017 to March 31, 2018 |
| $ | 13,250 |
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Total |
| $ | 29,006 |
|
A summary of stock option and stock warrant information is as follows:
NOTE H - INCOME TAX
|
| Aggregate Number |
|
| Aggregate Exercise Price |
|
| Exercise Price Range |
|
| Weighted Average Exercise Price |
| ||||
Outstanding at December 31, 2017 |
|
| 8,171,048 |
|
| $ | 5,743 |
|
| $ | 0.0007 |
|
| $ | 0.0007 |
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Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (3,171,048 | ) |
|
| 743 |
|
|
| 0.0002 |
|
|
| 0.0002 |
|
Forfeited and cancelled |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding at September 30, 2018 |
|
| 5,000,000 |
|
| $ | 5,000 |
|
| $ | 0.001 |
|
| $ | 0.001 |
|
The Company provides for income taxes under (now included under Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. For Federal income tax purposes, the Company has net operating loss carry forwards that expire through 2030. The net operating loss as of March 31, 2018weighted average remaining contractual life is approximately $11,800,0002.2 years for stock options and aswarrants outstanding on September 30, 2018. All of March 31, 2017the above options and warrants were fully vested at the time of issuance. Stock based compensation is $11,700,000 approximately. The total deferred tax asset is approximately $2,478,000 and $2,457,000 forrelated to the periods March 31, 2018 and March 31, 2017, respectively.above issuances.
No tax benefit has been reported in the financial statements because after evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited.
The Company is not obligated to pay state income taxes because it is a Nevada corporation.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
China Grand Resorts, Inc.
March 31, 2018
(Unaudited)
NOTE I - MATERIAL EVENTS
Amended and Restated Articles of Incorporation
On May 5, 2016, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada. The principal amendments to the articles of incorporation, as amended through the date of the filing of the Amended and Restated Articles of Incorporation include:
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Related Party Transaction
On May 6, 2016, the Company entered into a consulting agreement with Bryan Glass pursuant to which it retained Mr. Glass to identify and negotiate with persons or entities with which the Company might enter into a business transaction to create an operating entity, in consideration for which services the Company issued to Mr. Glass 30 million shares of common stock. Mr. Glass has subsequently paid $10,756 on behalf of the Company for the filing and registration fees to the State of Nevada to reinstate the Company to active status.
Amended and Restated Bylaws
On October 24, 2017, the board of directors of the Company adopted Amended and Restated Bylaws to replace the prior bylaws in their entirety. The Amended and Restated Bylaws are intended to reflect the existing status of Nevada corporate law as of the date of their adoption and replace outdated provisions included in the Company’s original bylaws.
Statements, other thanThe following management’s discussion and analysis should be read in conjunction with the historical facts,financial statements and the related notes thereto contained in this Quarterly Report on Form 10-Q, includingReport. The management’s discussion and analysis contains forward-looking statements, such as statements of potential acquisitionsour plans, objectives, expectations and our strategies, plansintentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and objectives, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), and Section 21Eor similar expressions, identify certain of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we believe that ourthese forward-looking statements are based on reasonable assumptions, we caution that suchstatements. These forward-looking statements are subject to a wide range of risks trends and uncertainties, including those under “Risk Factors” in this Report that could cause actual results to differ materially from those projected. Among those risks, trends and uncertainties are important factors that could cause actual results to differ materially from the forward looking statements, including, but not limited to; the time management devotes to identifying a target business; management’s ability to consummate a business combination; the financial condition of the target company with which we may enter a business combination; the effect of existing and future laws; governmental regulations; the political and economic climate of the United States; and conditions in the capital markets. We undertake no duty to update or revise these forward-looking statements.
When used in this Form 10-Q, the words, “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar expressions are intendedevents to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by the forward-looking statements. The Company’s actual results and the timing of events could differ materially from those anticipated in these forward-looking statements foras a numberresult of important reasons.several factors. The Company does not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
General Background of the Registrant
China Grand Resorts, Inc. (“we,” “us,” “our” or the “Company”) was incorporatedOn September 14, 2018, our wholly-owned subsidiary, Jacksam Acquisition Corp., a corporation formed in the State of Nevada on September 21, 1989 under11, 2018, or the name Fulton Ventures, Inc. On September 19, 2002, we changed our name to Asia Premium Television Group, Inc. to more accurately reflect our business at the time. Effective November 16, 2009, we changed our name to China Grand Resorts, Inc. to more accurately reflect its new business efforts. Commencing in 2002, we acquired and soldAcquisition Sub, merged with Jacksam Corporation, a series of subsidiary entities that werecorporation incorporated in various foreign jurisdictions, including the People’s Republic of China, or PRC, Macau, Hong Kong and the British Virgin Islands. Through 2009, these subsidiaries engaged in a variety of businesses, including, principally, marketing, brand management, advertising, media planning, public relations and direct marketing services to clientsAugust 2013 in the PRC.State of Delaware, referred to herein as Jacksam. Pursuant to this transaction, or the Merger, Acquisition Sub was the surviving corporation and became our wholly-owned subsidiary.
The Company discontinued filing periodic reports underPrior to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), after it filedMerger, we were a quarterly report on Form 10-Q for the period ended June 30, 2014 (the “June 2014 10-Q”) on August 14, 2014.dormant company without any active operations. As reported in the Company’s annual report on Form 10-K for the year ended September 20, 2013 (the last periodic report filed under the Exchange Act with which the Company furnished audited financial statements) and the June 2014 10-Q, the Company was engaged, 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 filingresult of the June 2014 10-Q, current management is not aware of any contact between the Company and incumbent management as of the filing of the June 2014 10-Q, whichMerger, we refer to as prior management, 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 it filed with the SEC. The financial statements for the first and second quarters of fiscal 2018, ended on March 31, 2018 that are furnished with this report have been prepared under the assumption that prior management abandonedacquired the business of Jacksam and will continue the Company and appropriated allexisting business operations of Jacksam as our wholly-owned subsidiary.
As the result of the Company’s assets as of that date, including its operating subsidiaries, all of which were organized under foreign jurisdictions.
On April 4, 2016, Bryan Glass was appointed to serve asMerger and the custodianchange in business and operations of the Company, pursuant to an ordera discussion of the District Court of Clark County Nevada and was authorized to take any action on behalfpast financial results of the Company foris not pertinent, and under applicable accounting principles the benefithistorical financial results of Jacksam, the Company and otherwiseaccounting acquirer, prior to reinstate the Company’s corporate existence in Nevada and convene a shareholders’ meeting to elect directorsMerger are considered the historical financial results of the Company.
The following discussion highlights Jacksam’s results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of the statements of financial condition and results of operations presented herein. The following discussion and analysis are based on Jacksam’s audited and unaudited financial statements contained in this Report, which we have prepared in accordance with United States generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Basis of Presentation
The unaudited consolidated condensed financial statements of Jacksam for three and nine months ended September 30, 2018 and 2017 contained herein include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such unaudited interim periods have been included in these unaudited financial statements. All such adjustments are of a normal recurring nature.
Components of Statements of Operations
Revenue
Product revenue consists of sales of consumer vaporizers and of the 710 Shark filling machine, 710 Shark Captain capping machine, Cove 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 30% deposit from the customer. When the product is ready to be shipped, the customer will generally pay the remaining balance.
For the 710 Shark filling machine and 710 Captain capping machine, 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.
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The Company held a shareholders meeting on May 4, 2016 at which Mr. Glass was elected as the sole directorCost of Revenue
Product cost of revenue primarily consists of the Companycost of materials, labor and overhead associated with the shareholders adopted and approved Amended and Restated Articles of Incorporation After Issuance of Stock. As of the date hereof, Mr. Glass, who we refer to as management, serves as our only director and officer.
On May 6, 2016, the Company entered into a consulting agreement with Mr. Glass pursuant to which the Company retained Mr. Glass to identify, negotiate with and consummate, subject to the approval of the board of directors, a business transaction, in consideration for which services the Company issued to Mr. Glass 30 million shares of common stock.
Business Objectives of the Registrant
As of the date of this report, we have no current operations. Management has determined to direct our efforts and limited resources to pursue potential new business opportunities through a combination with an operating or development stage company or an acquisition of assets. We do not intend to limit ourselves to a particular industry and we have not established any particular criteria upon which we shall consider and proceed with a business opportunity. We expect to utilize our capital stock, debt or a combination of capital stock and debt, in effecting a business transaction. It may be expected that entering into a business transaction will involve the issuance of restricted shares of capital stock. The issuance of additional sharesmanufacture of our capital stock:
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Based onvaporizers and both our current business activities, we are a “shell company” as defined under the Exchange Act because we have no operations710 Shark filling machine and nominal assets consisting solely of cash and/or cash equivalents. We are also a “blank check” company as defined under the Exchange Act because we are a development stage company that is issuing a “penny stock” (as defined under the Exchange Act) and have no specific business plan or purpose other than to merge with an unidentified company or companies. Our status as a blank check company and a shell company will impact our company and shareholders in many ways, including:
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Further, the Company’s financial condition, including current liabilities as of $1,642,251 at March 31, 2018 and $1,594,945 at September 30, 2017, may be a significant impediment to identifying and consummating a business transaction.
Our management has broad discretion with respect to identifying and selecting a prospective business opportunity. We have not established any specific attributes or criteria (financial or otherwise) for a business opportunity and we may enter into a business combination with a development stage company, a distressed company or a foreign company engaged in any industry or we may purchase raw assets. Our management has never served in any capacity as management of a development stage public company that has consummated a business transaction such as that contemplated by us. Accordingly, our management may not successfully identify a prospective business opportunity or conclude a business transaction. In addition, our management engages in other business activities and is not obligated to devote any specific number of hours to our matters. Management intends to devote only as much time as it deems necessary to our affairs.710 Captain capping machine.
We anticipate that the selectionexpect our cost of an appropriate business opportunity will be complexrevenue per unit to decrease as we continue to scale our operations, improve product designs and extremely risky and we cannot assure you that we will be successful in concluding a transaction or if we do, that we will be successful thereafter. Our lack of financial and personnel resources may negatively impactwork with our abilitythird-party suppliers to consummate an attractive transaction or cause us to discontinue operations before we enter such a transaction.lower costs.
We cannot assure you that we will be successful in concluding a business transaction. We will not realize any revenues or generate any income unless and until we successfully merge with or acquire an operating business that is generating revenues and otherwise is operating profitably. Moreover, we can offer no guarantee that we will achieve long-term or immediate short-term earnings from any business transaction.Operating Expenses
Any entitySales and Marketing. Sales and marketing expenses consist primarily of compensation and related costs for personnel, employee benefits and travel associated with whichour direct sales force, project managers and sales management. Sales and marketing expenses also include costs associated with our support of business development efforts with distributors and partners and costs related to trade shows and marketing program. We expense sales and marketing costs as incurred. We expect sales and marketing expenses to increase in future periods as we enter into a business transaction will be subjectexpand our sales force and our marketing organization and increase our participation in global trade shows and marketing programs, including consumer marketing.
General and Administrative. Our general and administrative expenses consist primarily of compensation and related costs for personnel, employee benefits and travel. 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 numerous risksincrease in connection with its operations. Toabsolute dollars following the extent we affect a business transaction with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of such companies. If we consummate a business transaction with a foreign entity, we will be subject to allconsummation of the risks attendantMerger due to foreign operations. Althoughadditional legal, accounting, insurance, investor relations and other costs associated with being a public company, as well as other costs associated with growing our management will endeavor to evaluate the risks inherent in a particular opportunity, we cannot assure you that we will properly ascertain or assess all significant risk factors.business.
Our management anticipates that our Company likely will affect only one business transaction, dueInterest Expense
Interest expense consists primarily to our limited financial resources and the dilution of interest for present and prospective stockholders, which is likelyfrom notes due to occur as a result of our management’s plan to offer a controlling interest to a target in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us because it will not permit us to offset potential losses from one venture against potential gains from another.debtholders.
Our common stock has been subject to quotation on the pink sheets under the symbol “CGND.” There is currently no active trading market in our shares nor do we believe that any active trading market has existed for the last 3 years. There can be no assurance that there will be an active trading market for our securities following the date hereof. In the event that an active trading market commences, there can be no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.
Results of Operations
During the three and six-month periods ended March 31, 2018, the Company did not engage in any business operations. As described elsewhere in this report, management of the Company as of June 30, 2014 discontinued filing reports under the Exchange Act after the Company filed the June 2014 10-Q and current management, which assumed control of the Company in April 2016, believes that the Company has been inactive since August 14, 2014, the date on which the Company filed the June 2014 10-Q.
Results of Operations – Three Month Periods
Comparison for the three-month periods ended September 30, 2018 and 2017:
Revenue
Total revenue during the three months ended March 31,September 30, 2018 asincreased to $1,613,419 compared to the three months period ended September 30, 2017 which produced sales of $467,089. Sales of growth of $1,146,330 or 345% was primarily driven by the increased sales of the Shark 710 filling machines, 710 capping machines and sales of proprietary cartridges
Cost of Revenue
Total cost of revenue increased to $1,232,217 during the three months ended September 30, 2018 compared to the three months ended March 31,September 30, 2017 which had costs of revenues of $516,270. The gross margin percentage increased from -11% to 24%.
DuringThe 2017 period had a negative gross margin due to a high return of products including cartridges that could not be resold. Management cancelled all future production of cartridges from that vendor.
In the 2018 quarter, the Company had a lower than expected gross margin, 24%, and total sales number. The total sales and gross margin amounts were lower than expected, because the Company’s Cove cartridges had a manufacturing problem. The cartridges appeared to be less than full, due to an over absorption of the oil in the wick, which was caused by the amount and thickness of the cotton in the wick. This issue led to a decrease in sales and an increase in product returns.
The Company worked with the contract manufacturer and extensively tested changes to the Cove cartridges. We believe that the changes have resolved the issue, which should allow for increased sales and decreased returns in subsequent periods. An additional factor affecting the 2018 margin was the introduction of the United States 25% import tariff on Chinese products in July of 2018. The majority of our products, are manufactured in China and subjected to the tariff. The majority of the tariff is passed along to our customers, but not all.
We expect that the cost of revenue on current orders will show improvements from historic costs due to increased pricing, cost improvements from R&D, and increasing our production efficiencies. The overall margin may not improve as we expect lower margin cartridge sales to be a larger percentage of overall sales going forward.
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Operating Expenses
Sales, Marketing and General and Administrative. Sales, Marketing and General and Administrative during the three months ended March 31,September 30, 2018 the Company did not generate any revenue, incurred expenses of $35,289, including $23,115 of professional fees (attributable principallyincreased to the preparation and filing of the delinquent reports the Company was required to file with the SEC) and $12,174 of interest expense, and suffered a net loss of $35,289, as$946,053 compared to the three months ended March 31,September 30, 2017 which produced $242,377 in which the Company did not generate any revenue, incurred expenses of $12,809, including $635 of professional feesexpenses. The $703,676 increase was primarily attributed to increased employee count and $12,174 of interest expense, and suffered a net loss of $12,809.hiring an outsourced marketing agency.
Income (loss) from operations
Total loss from operations was $564,851 during the three months ended September 30, 2018 compared to $291,558 for the three months ended September 30, 2017.
The increased loss was a result of increased staff, as well as the Cove cartridge manufacturing issues and the onset of the tariff as described above.
Interest Expense
Interest expense during the three months ended September 30, 2018 increased to $35,174 compared to $10,408 for the three months ended September 30, 2017, due to new debt assumed.
Results of Operations – Nine Month Periods
Comparison for the sixnine-month periods ended September 30, 2018 and 2017:
Revenue
Total revenue during the nine months ended March 31,September 30, 2018 asincreased to $4,965,646 compared to the sixnine months period ended September 30, 2017 which produced sales of $1,317,946. Sales of growth of $3,647,700 or 377% was primarily driven by the increased sales of the Shark 710 filling machines, 710 capping machines and sales of proprietary cartridges.
Cost of Revenue
Total cost of revenue increased to $3,344,655 during the nine months ended March 31, 2017
During the six months ended March 31,September 30, 2018 the Company did not generate any revenue, incurred expenses of $65,555, including $2,500 of selling, general and administrative expenses, $38,707 of professional fees (attributable principally to the preparation and filing of the delinquent reports the Company was required to file with the SEC) and $24,348 of interest expense, and suffered a net loss of $65,555, as compared to the sixnine months ended March 31,September 30, 2017 which had costs of revenues of $904,739. The cost of revenue coupled with the revenues led to an increase in which the Company did not generate any revenue, incurred expenses of $25,433, including $1,085 of professional fees, and $24,348 of interest expense, and sufferedgross margin percentage from 31% to 33% for the nine months ended September 30, 2018. This was primarily attributable to less returns on a net loss of $65,555.percentage basis in 2018 than in 2017.
We expect that the cost of revenue on current orders will show improvements from historic costs due to increased pricing, cost improvements from R&D, and increasing our production efficiencies. The overall margin may not improve as we expect lower margin cartridge sales to be a larger percentage of overall sales going forward.
Operating Expenses
Sales, Marketing and General and Administrative. Sales, Marketing and General and Administrative expenses during the nine months ended September 30, 2018 increased to $2,534,752 compared to the nine months ended September 30, 2017, which produced $764,496 in expenses. The $1,770,256 increase was primarily attributed to increased employee count and hiring an outsourced marketing agency.
Income (loss) from operations
Total loss from operations was $913,761 during the nine months ended September 30, 2018 compared to $351,289 for the nine months ended September 30, 2017.
Interest Expense
Interest expense during the nine months ended September 30, 2018 increased to $101,502 versus $59,115 at September 30, 2017, due to new debt assumed.
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Liquidity and Capital Resources
At March 31, 2018, the Company had no assets and total liabilities of $1,642,251, comprising $1,598,106 of loans payable to parties related to prior management (including interest accrued thereon) and $44,145 of other accounts payables. At September 30, 2017, the Company’s last fiscal year end, the Company2018, we had no assetscash and total liabilitiescash equivalents of $1,594,945, comprising $1,573,758$988,379. To date, we have financed our operations principally through borrowing on credit facilities, debt of loans payable to parties related to prior management (including interest accrued thereon)$594,000, issuance of equity of $457,500, issuances of Convertible Debt of $3,813,500 and $21,187receipts of other payables.customer deposits for new orders and payments from customers for Shark 710 machines, 710 Captain capping machines and cartridges.
Prior to June 2014,The only capital commitment that Jacksam has currently is the Company funded its operations from the proceedslease at 30191 Avenida de las Banderas in Rancho Santa Margarita, California for $51,600 annually through April of loans received from parties related to prior management. The Company has no present sources of capital or liquidity.2020.
We do not expect to engage in any substantive activities unless and until such time asanticipate that we enter into a business transaction, if ever. We are dependent upon interim funding provided by current management to pay the cost associated with being a public company, among other fees and expenses. Our current management has agreed orally to provide funding as may be required to pay for accounting fees and other administrative expenses of the Company until the Company enters into a business combination. The Company would be unablewill need additional financing to continue as a going concern without interim financing provided by management. If we require additional financing, we cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all. The Company depends upon services provided by management to fulfill its filing obligations under the Exchange Act. At present, the Company has no financial resources to pay for such services and may be required to issue stock in lieu of cash or, in the alternative, issue debt instruments evidencing financial obligations if and when they arise. Any funds advanced by management will be advanced as loans that will bear interest at the rate of 8% per year and which shall mature on the closing of a business transaction.
Duringan ongoing entity over the next twelve months, we anticipate incurring costs related to:
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These costs are difficult to quantify given the multitudeadequacy of variables associated with such activities. Our ongoing expensesavailable funds will result in continued net operating losses that will increase until wedepend on many factors. There can consummate a business combination with a profitable operating company, if ever. We estimate that these costs will be in the range of to six to eight thousand dollars per year, and thatno assurance we will be able to meet these costsobtain additional financing on favorable terms, or at all. If we are unable to obtain additional financing, our financial results and business prospects may be materially adversely affected.
Operating Activities
We have historically experienced negative cash outflows as necessarywe developed and sold our 710 Shark Filling machines, 710 Captain Capping machines, and cartridges, pens and accessories. Our net cash used in operating activities primarily results from our operating losses combined with changes in working capital components as we have grown our business and is influenced by the timing of cash payments for inventory purchases and cash receipts from our customers. Our primary source of cash flow from operating activities is cash down payments and final payments for our machines. Our primary uses of cash from operating activities are employee-related expenditures and amounts due to vendors for purchased components. Our cash flows from operating activities will continue to be affected principally by our working capital requirements and the extent to which we build up our inventory balances and increase spending on personnel and other operating activities as our business grows.
During the nine months ended September 30, 2018, operating activities used $1,511,024 in cash, an increase of $1,333.673 from cash used in the nine months ended September 30, 2017 of $177,351.
Investing Activities
The Company raised $193,500 through the extensionsale of credit advanced to us by management.marketable securities in the third quarter of 2018.
Going ConcernFinancing Activities
Our negative working capital, continuing operating losses, failureDuring the nine months ended September 30, 2018, $1,575,000 of cash provided by financing activities was from the issuance of convertible debt and the issuance of equity from Company’s investors. The Company also made $75,471 of payments to generate revenuespay down notes payable and lack$340,000 related to the reverse acquisition and re-purchase of operating capital create substantial doubt aboutshares .
During the Company’s ability to continue as a going concern. The ability ofnine months ended September 30, 2017, the Company made $102,184 of payments to continue as a going concern is dependent on its ability to obtain capitalpay down notes payable, received $100,000 of proceeds from our affiliates to fund our operations, generate cashthe issuance of convertible notes payable and received $200,000 from the sale of its securities and attain future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.common stock.
Off-Balance Sheet Arrangements
The Company doesDuring the nine months ended September 30, 2018 and years ended December 31, 2017 and 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.applicable SEC regulations.
Item 3. Quantitative and Qualitative Disclosures aboutDisclosure About Market Risk.Risk
Not applicable.We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of ninety (90) days or less to be cash equivalents. We do not believe that a notional or hypothetical 10% change in interest rates would have a material impact on our interest income.
Item 4. Controls and Procedures.Procedures
Management’s Evaluation of Disclosure Controls and Procedures
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DisclosureUnder 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) under) as of the Exchange Act) are designedend of the period covered by this Form 10-Q, 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 filedthat we file or submittedsubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SECthe SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officerour principal executive and the Principal Financial Officer,principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.disclosure.
As of March 31, 2018, the Company had no management or other employees. Accordingly, there were no officers as of the close of such period to perform an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures and internal control over financial reporting. Had there been management in place during the three months ended March 31, 2018 to perform an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15, we believe that such management would have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2018 to ensure that the information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the time periods specified by the SEC as a result of the weakness in our internal controls because there existed a lack of segregation of duties in regard to the Company’s financial reporting, procedures for depositing of funds, procedures for cash disbursements, procedures for checkbook entries, period close procedures, and procedures for financial statement preparation, among other possible weaknesses.
A material weakness in ICFR is defined in Section 210.1-02(4) of Regulation S-X promulgated by the SEC as a deficiency, or combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in ICFR that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the Company’s financial reporting. As a result of the material weaknesses in the Company’s ICFR, there are increased risks of errors in financial reporting under current operations.
Changes in Internal Controls
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) during the three months ended March 31, 2018 that would have materially affected, or been reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Item 1. Legal Proceedings.Proceedings
There are presently no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
None.
Item 3. Defaults Upon Senior Securities.Securities
None.Not applicable.
Item 4. Mine Safety Disclosures.Disclosurers
N/ANot applicable.
Item 5. Other Information.Information
None.On October 24, 2018, we filed Articles of Merger with the Nevada Secretary of State whereby, effective November 5, 2018, our wholly-owned subsidiary, Jacksam Corporation, will merge with and into us (the “Short-Form Merger”) and will cease any independent existence. In connection with the Short-Form Merger, our name will change to Jacksam Corporation, also effective November 9, 2018. No shares or other consideration were issued in connection with the Short-Form Merger.
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* Pursuant to Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.____________
* | Pursuant to Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CHINA GRAND RESORTS, |
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Mark Adams | |||
Chief Executive Officer | |||
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Dated: November 5, 2018 |
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