UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 20192020

OR

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

For the transition period from __________ to __________.

Commission File Number: 033-33263

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

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. Yes x No o¨

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 xNo x¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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). oYes ¨ No x No

As of May 15, 2019,June 4, 2020, the registrant had 60,851,97262,514,830 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

Forward-Looking Statements

Special Note Regarding Forward-Looking StatementsFor purposes of this report, unless otherwise indicated or the context otherwise requires, all references herein to “Jacksam Corporation,” “the Company,” “we,” “us,” and “our,” refer to Jacksam Corporation, a Nevada corporation.

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

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

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Jacksam Corporation

(FKA China Grand Resorts, Inc.)

Consolidated Balance Sheets 

		(Unaudited)				(Audited)
		March 31,				December 31,
		2019				2018
Assets
Current Assets:
Cash		$	543,724			$	1,074,105
Accounts receivable, net			38,039				25,485
Inventory, net			589,620				764,095
Prepaid expenses			138,065				37,500
Total Current Assets			1,309,448				1,901,185
Property and equipment, net			14,080				14,346
Right of-use asset - operating lease			35,767				-
Other Assets			1,200				-
Total Assets		$	1,360,495			$	1,915,531
Liabilities and Stockholders Deficit
Current Liabilities:
Accounts payable and accrued expenses		$	407,127			$	537,601
Deferred revenue			1,096,572				906,964
Convertible notes payable, current portion			15,000				3,218,500
Notes payable			62,288				70,912
Right of use liability - operating lease			41,159				-
Accrued liabilities - other			1,642,118				1,642,118
Total Current Liabilities			3,264,264				6,376,095
Total Liabilities			3,264,264				6,376,095
Commitment
Stockholders' Deficit:
Preferred stock - 10,000,000 authorized, $0.001 par value, 0 shares issued and outstanding			-				-
Common stock - 90,000,000 authorized, $0.001 par value, 60,851,972 and 48,272,311 shares issued and outstanding, respectively			60,852				48,272
Additional paid-in capital			3,226,526				10,661
Accumulated deficit			(5,191,147	)			(4,519,497	)
Total Stockholders' Deficit			(1,903,769	)			(4,460,564	)
Total Liabilities, and Stockholders' Deficit		$	1,360,495			$	1,915,531

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

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Jacksam Corporation

(FKA China Grand Resorts, Inc.)

Consolidated Statements of Operations 

For the three months ended March 31, 2019 and 2018 

(unaudited)

Jacksam Corporation

Consolidated Statements of Operations

For the three months ended March 31, 2020 and 2019

(Unaudited)

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

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Jacksam Corporation

(FKA China Grand Resorts, Inc.)

Consolidated Statements of Stockholders' Deficit 

For the three months ended March 31, 2019 and 2018 

(unaudited)

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

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Jacksam Corporation

(FKA China Grand Resorts, Inc.)

Consolidated Statements of Cash Flows 

For the three months ended March 31, 2019 and 2018 

(unaudited) 

		2019				2018
Cash Flows from Operating Activities
Net loss		$	(669,243	)		$	(139,406	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense			266				265
Imputed interest			22,945				25,332
Net change in:
Accounts receivable			(12,554	)			-
Inventory			174,475				(108,833	)
Prepaid expenses			(100,565	)			(25,000	)
Other assets			1,785				-
Accounts payable and accrued expenses			(130,474	)			(533	)
Deferred revenue			189,608				(144,061	)
Net Cash used in operating activities			(523,757	)			(392,236	)
Cash Flows from Investing Activities
Purchase of property and equipment			-				-
Net Cash used in investing activities			-				-
Cash Flows from Financing Activities
Proceeds from convertible notes payable			-				1,575,000
Payments on notes payable			(8,624	)			(20,000	)
Proceeds from exercise of common stock warrants			2,000				-
Net cash provided by (used in) financing activities			(6,624	)			1,555,000
Net Change in Cash and Cash Equivalents			(530,381	)			1,162,764
Cash and Cash Equivalents, Beginning of Period			1,074,105				1,146,374
Cash and Cash Equivalents, End of Period		$	543,724			$	2,309,138
Cash Paid For:
Income Taxes		$	-			$	-
Interest		$	-			$	-
Non-cash transactions:
Common stock issued to settle convertible notes payable		$	3,203,500			$	100,000
Capitalization of right of use asset for operating lease		$	44,138			$	-
Common stock issued in exchange for marketable securities		$	-			$	200,004

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

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Jacksam Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

Jacksam Corporation (FKA China Grand Resorts, Inc.)

Notes to the Financial Statements

(unaudited)

Note 1: Organization and Nature of Operations

Jacksam Corporation (the “Company” or “Jacksam”)dba Convectium is a technology company that designs and develops high-performance automation machines and solutions for the medical and recreational cannabis, hemp and CBD segments of the larger e-cigarette and vaporizer markets. Prior to July 2019, the Company’s product line primarily consisted of the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, and proprietary cartridges. After July 2019, the Company added the eShark cartridge filling machine into its product line, discontinued the sales of proprietary cartridges, and entered into a strategic partnership with Jupiter Research, which enabled the Company to distribute C-Cell cartridges under a profit-sharing agreement with Jupiter Research. The Company’s customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include medical and recreational dispensaries, large and small-scale processors and growers, multi-state operators, and distributors. The Company utilizes its direct sales force, website, Jupiter Research’s sales force, independent sales representatives, and a wide range of referral network to sell its products.

The Company was originally organized under the laws of the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. FromEffective November 16, 2009, through November 5, 2018,management at that time changed the name wasof Fulton Ventures, Inc. to China Grand Resorts, Inc. The Company went dormant following its filing of Form 10Q forAfter the period ended September 30, 2018,2014 10-Q filing, the management of China Grand Resorts, Inc. abandoned the Company and remainedits subsidiaries were taken back by Chinese national companies in China who owned them. The remaining parent company, China Grand Resorts, Inc., became a dormant through September 14, 2018. company until 2016 when a new shareholder Bryan Glass became the majority shareholder and owner of the Company.

EffectiveOn September 14, 2018, the Company’s wholly-ownedwholly owned subsidiary, Jacksam Acquisition Corp., a corporation formed in the State of Nevada on September 11, 2018, or the Acquisition Sub, merged with and into Jacksam, Corporation, a Delaware corporation incorporated in the State of Delaware in August 2013 (the “Merger”).  Effective2013.

On November 5, 2018, current management merged Jacksam into the parent Company, mergedChina Grand Resorts, Inc. In connection with its operating subsidiary in a short form merger and changed itsthe transaction, current management amended our articles of incorporation to change the Company’s name from China Grand Resorts, Inc. to “Jacksam Corporation.”Jacksam Corporation dba Convectium.

As a resultSince the Merger, the Company has been operated under the control of current management and continued to operate the business of Jacksam Corporation, described herein, as our sole business.

In accordance with the terms of the Merger, we acquiredExchange Agreement, and have since been operatingin connection with the pre-merger businesscompletion of the acquisition, on the Closing Date, the Company issued 45,000,000 shares of common stock at par value $0.001 per share to the Jacksam shareholders in exchange for all of the issued and outstanding shares of 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 were 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.

In accordance with “reverse merger” or “reverse acquisition” accounting treatment, the Company’s historical financial statements of China Grand Resorts, Inc., 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 is a technology company focused on developing and commercializing products utilizing a proprietary technology platform. The Company services the medical and recreational cannabis, hemp and CBD segments of the larger e-cigarette and vaporizer markets with oil vaporizer focused products. The Company has two principal product lines consisting of vape cartridges, batteries, and other consumables, coupled with filling and capping machines. 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 interim unaudited consolidated financial statements as of March 31, 2019,2020, and for the three months ended March 31, 20192020 and 2018,2019, have been prepared in accordance with accounting principles generally accepted in the United States 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 Company’s audited financial statements and notes filed with the SEC for the year ended December 31, 2018.2019.

Inventory

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

The March 31, 20192020 and December 31, 20182019 inventory consisted entirely of finished goods, $589,620 and $764,095, respectively.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 March 31, 2019,2020 and December 31, 2018,2019, the Company has determined that no allowance is required.

 

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Revenue Recognition

The Company derives revenues from the sale of machines and product income.consumable products. Revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or services.

Revenue is recognized based on the following five step model:

Performance Obligations

Sales of machines and consumable products are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. The customer has a 10 day10-day period to inspect the equipment and may return the product if it does not meet the agreed-upon specifications. For contracts with multiple performance obligations, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company uses an observable price to determine the stand-alone selling price for separate performance obligations or a cost pluscost-plus margin approach when one is not available. Historically, the Company’s contracts have not had multiple performance obligations. The large majority ofMost the Company’s performance obligations are recognized at a point in time related to the sale of machines and consumable products.

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of March 31, 2019,2020, none of the Company’s contracts contained a significant financing component.

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

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

Transaction Price Allocated to the Remaining Performance Obligations

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. AtAs of March 31, 2019, $1,096,5722020, $967,183 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The Company expects to recognize all of our unsatisfied (or partially unsatisfied) performance obligations as revenue in the next twelve months.

Contract Costs

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

 

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Critical Accounting Estimates

Estimates are used to determine the amount of variable consideration in contracts, the standalone selling price among separate performance obligations and the measure of progress for contracts where revenue is recognized over time. The Company reviews and updates these estimates regularly.

Disaggregation of Revenue

All machine sales and most consumable products sales are completed in North America.

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Potential common stock equivalents are determined using the treasury stock method. For diluted net loss per share purposes, the Company excludes stock options and other stock-based awards, including shares issued as a result of option exercises but whichthat are subject to repurchase by the Company, whose effect would be anti-dilutive from the calculation. During the yearsthree months ended DecemberMarch 31, 20182020 and 2017,2019, common stock equivalents were excluded from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented.

The Company had 3,075,00023,814,676 and 15,654,6603,075,000 potentially dilutive securities that have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2020 and 2019, and December 31, 2018,respectively, as they would be anti-dilutive.

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

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

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

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

 

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Recently Issued Accounting Pronouncements

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

In February 2016,August 2018, the FASB issued ASU No. 2016-02, Leases2018-13, “Fair Value Measurement (Topic 842) (ASU 2016-02)820). Under ASU No. 2016-2, an entity” This standard modifies disclosure requirements related to fair value measurement and is required to recognize right-of-use assetseffective for all entities for fiscal years, and lease liabilitiesinterim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Implementation on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offersa prospective or retrospective basis varies by specific accounting guidancedisclosure requirement. The standard also allows for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a userearly adoption of any removed or modified disclosures upon issuance while delaying adoption of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies,additional disclosures until their effective date. The Company adoptedis currently assessing the impact of adopting this standard on January 1,its consolidated financial statements.

In December 2019, using the modified retrospective method. The newFASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. This standard provides a number of optional practical expedients in transition.simplifies the accounting for income taxes. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company electedis currently assessing the ‘packageimpact of practical expedients’, which permitted the Company not to reassess under the newadopting this standard on its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients.consolidated financial statements.

On adoption, the Company recognized a right of use asset of $44,138, operating lease liabilities of $46,545 with a cumulative effect adjustment to accumulated deficit of $2,407, based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease.

The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.

Note 3: Property and equipmentEquipment

Property and equipment consistedconsist of the following:

Depreciation expense amounted to $265$267 and $265 for the three months ended March 31, 20192020 and 2018,2019, respectively.

Note 4: Accounts payablePayable and accrued expensesAccrued Expenses

Accounts payable and accrued expenses consist of the following:

Note 5: Notes Payable

A summary of Notes Payable are as follows: