10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2022

OR

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

For the transition period from __________ to __________.

Commission File Number: 033-33263

Jacksam Corporation

(Exact name of registrant as specified in its charter)

Nevada	46-3566284
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
3100 Airway Avenue Suite 138 Costa Mesa, CA	92626
(Address of principal executive offices)	(Zip Code)

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

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

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	JKSM

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☐	Smaller reporting company	☒
Emerging Growth Company	☒

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

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

As of May 11, 2022, the registrant had 76,490,147 shares of common stock, $0.001 par value per share, outstanding.

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders’ Deficit	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
Signatures		26

2

Forward-Looking Statements

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

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

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

3

Jacksam Corporation
Condensed Consolidated Balance Sheets
	March 31,			December 31,
	2022			2021
	(Unaudited)			(Audited)
Assets
Current Assets:
Cash	$	807,014		$	344,811
Accounts receivable, net		890,996			591,169
Inventory, net		215,251			196,712
Prepaid expenses		10,620			8,600
Total Current Assets		1,923,881			1,141,292
Property and equipment, net		1,108			1,472
Right of-use asset - operating lease		100,877			-
Total Assets	$	2,025,866		$	1,142,764
Liabilities and Stockholders Deficit
Current Liabilities:
Accounts payable and accrued expenses	$	950,558		$	641,690
Deferred revenue		173,886			171,771
Convertible notes payable, current portion (net of discount $0 and $$43,269, respectively)		444,444			701,175
Notes payable, current portion		184,819			87,774
Right of use liability - operating lease, current portion		30,431			-
Derivative liability		179,730			325,808
Accrued liabilities - other		2,220,175			2,264,390
Subscription payable		499,999			499,999
Total Current Liabilities		4,684,042			4,692,607
Notes payable, net of current portion (net of discount $114,599 and $121,310 respectively)		624,798			705,038
Right of use liability - operating lease		72,249			-
Total Liabilities		5,381,089			5,397,645
Commitment
Mezzanine equity
Series A Preferred stock - 2,800,000 authorized, $0.001 par value, 2,800,000 and 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021		262,529			259,422
Stockholders' Deficit:
Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding		-			-
Series B Preferred Stock - 1,000,000 authorized, $0.001 par value, $1 stated value, 1,000,000 and 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		100			-
Common stock - 200,000,000 authorized, $0.001 par value, 74,490,147 and 74,490,147 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		76,490			74,490
Additional paid-in capital		7,075,481			6,210,414
Shares payable, consisting of 2,222,223 shares of common shares as of March 31, 2022 and December 31, 2021		331,600			331,600
Accumulated deficit		(11,101,423	)		(11,130,807	)
Total Stockholders' Deficit		(3,617,752	)		(4,514,303	)
Total Liabilities and Stockholders' Deficit	$	2,025,866		$	1,142,764
The accompanying notes are an integral part of these unaudited consolidated financial statements

4

Jacksam Corporation
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
	March 31, 2022			March 31, 2021
Revenue	$	1,777,075		$	1,770,966
Cost of Revenue		1,358,438			1,256,973
Gross Profit		418,637			513,993
Operating Expenses
Salaries and wages		267,644			329,083
Other selling, general and administrative expenses		149,613			181,160
Total Operating Expenses		417,257			510,243
Income (Loss) from Operations		1,380			3,750
Other Income (Expense)
Derivative gain (loss)		287,098			532,367
Interest expense		(259,094	)		(348,651	)
Loss on conversion of notes payable		-			(58,642	)
Loss on settlement of notes payable		-			(137,506	)
Total Other Income (Expense)		28,004			(12,432	)
Net Income (Loss)		29,384			(8,682	)
Preferred stock dividends		(22,833	)		-
Net Income (Loss) Available to Common Shareholders	$	6,551		$	(8,682	)
Net loss per share
Basic	$	0.00		$	(0.00	)
Diluted	$	0.00		$	(0.00	)
Weighted average shares outstanding
Basic		75,090,147			69,346,528
Diluted		103,955,268			69,346,528
The accompanying notes are an integral part of these unaudited consolidated financial statements

5

Jacksam Corporation
Condensed Consolidated Statements of Stockholders' Deficit
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
	Series A Preferred Stock,				Series B Preferred Stock,				Common Stock, $0.001 Par Value				Paid-In			Share			Accumulated			Stockholders'
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Payable			Deficit			Deficit
Balance, December 31, 2020		-	$	-		-	$	-		66,366,419	$	66,366	$	4,708,323		$	645,192		$	(11,125,333	)	$	(5,705,452	)
Common stock issued for debt conversion		-		-		-		-		3,086,420		3,087		611,111			-			-			614,198
Common stock issued for deferred finance cost		-		-		-		-		200,000		200		71,800			-			-			72,000
Sale of common stock units		-		-		-		-		2,479,994		2,480		322,195			(136,875	)		-			187,800
Common stock and warrants issued for settlement of notes payable		-		-		-		-		414,930		415		140,703			-			-			141,118
Net loss		-		-		-		-		-		-		-			-			(8,682	)		(8,682	)
Balance, March 31, 2021		-	$	-		-	$	-		72,547,763	$	72,548	$	5,854,132		$	508,317		$	(11,134,015	)	$	(4,699,018	)
Balance, December 31, 2021		2,800,000	$	259,422		-	$	-		74,490,147	$	74,490	$	6,210,414		$	331,600		$	(11,130,807	)	$	(4,514,303	)
Issuance of Series B Preferred Stock, net of fees		-		-		1,000,000		100		-		-		889,900			-			-			890,000
Common Stock and Warrants issued in connection with preferred stock		-		-		-				2,000,000		2,000		(2,000	)					-			-
Dividends on Series A Preferred Stock		-		3,107		-		-		-		-		(22,833	)		-			-			(22,833	)
Net loss																				29,384			29,384
Balance, March 31, 2022		2,800,000	$	262,529		1,000,000	$	100		76,490,147	$	76,490	$	7,075,481		$	331,600		$	(11,101,423	)	$	(3,617,752	)
The accompanying notes are an integral part of these unaudited consolidated financial statements

6

Jacksam Corporation
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2022 and 2021
(Unaudited)
	March 31, 2022			March 31, 2021
Cash Flows from Operating Activities
Net loss	$	29,384		$	(8,682	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation expense		364			504
Loss on settlement of notes payable		-			137,506
Loss on conversion of notes payable					58,642
Amortization of debt discount		49,980			292,549
Amortization of right-of-use assets		4,945			-
Interest expense from derivative issuance		141,020			-
Derivative (gain) loss		(287,098	)		(532,367	)
Inventory impairment		18,000			-
Net change in:
Accounts receivable		(299,827	)		(18,910	)
Inventory		(36,539	)		16,182
Prepaid expenses		(2,020	)		116,859
Right-of-use liabilities		(3,142	)		-
Accounts payable and accrued expenses		244,926			(168,775	)
Deferred revenue		2,115			(15,678	)
Net cash used in operating activities		(137,892	)		(122,170	)
Cash Flows from Financing Activities
Proceeds from convertible notes payable		-			570,000
Payments on convertible notes payable		(300,000	)		(526,058	)
Proceeds from notes payable		81,671			296,524
Payments on notes payable		(71,576	)		(16,443	)
Proceeds from sale of common stock units		-			250,000
Proceeds from issuance of Series A preferred stock		890,000			-
Net cash provided by financing activities		600,095			574,023
Net Change in Cash		462,203			451,853
Cash, Beginning of Period		344,811			489,560
Cash, End of Period	$	807,014		$	941,413
Cash Paid For:
Income Taxes	$	-		$	-
Interest	$	3,049		$	48,444
Non-cash transactions:
Right of use asset and liability recognized, operating leases	$	105,822		$	-
Common stock issued to settle convertible notes payable	$	-		$	614,198
Derivative liability recognized at issuance of warrants and conversion option	$	-		$	493,670
Common stock issued for deferred finance costs	$	-		$	72,000
The accompanying notes are an integral part of these unaudited consolidated financial statements

7

 Jacksam Corporation

 Notes to Condensed Consolidated Financial Statements

Note 1: Organization and Nature of Operations

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

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

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

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

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

Note 2: Significant Accounting Policies

Basis of Preparation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021 in the Form 10-K filed on March 31, 2022. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.

8

Principles of Consolidation

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

Use of Estimates

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

Risks and Uncertainties

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. The Company has experienced, and in the future, expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold, (iii) general economic conditions, and (iv) the related volatility of prices pertaining to the cost of sales.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and consist of cash on hand and demand deposits placed with banks or other financial institutions, and all highly liquid investments with an original maturity of three months or less. Federal Deposit Insurance Corporation (“FDIC”) deposit insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. As of March 31, 2022 and December 31, 2021, the Company had recorded an allowance for doubtful accounts of $74,000.

Inventory

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

The March 31, 2022 and December 31, 2021 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of March 31, 2022 and December 31, 2021, the Company has determined that an inventory allowance of $18,800 is required.

9

Property and Equipment

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

Fair Value of Financial Instruments

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

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

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

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

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and an approximate of their fair values because of the short maturity of these instruments.

Binomial Calculation Model

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

Revenue Recognition

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

10

Revenue is recognized based on the following five step model:

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

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

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

Performance Obligations

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

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of March 31, 2022, none of the Company’s contracts contained a significant financing component.

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

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

Transaction Price Allocated to the Remaining Performance Obligations

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of March 31, 2022, $173,886 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.

11

Critical Accounting Estimates

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

Disaggregation of Revenue

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Machine sales	$	1,033,123	$	1,658,668
Non-machine sales		743,952		112,298
Total sales	$	1,777,075	$	1,770,966

Net Loss Per Common Share

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

The following table presents the effect of potential dilutive issuances for the three months ended March 31, 2022 and 2021:

	Three Months Ended
	March 31, 2022			March 31, 2021
Net income (loss) attributable to common stockholders	$	6,551		$	(8,682	)
Preferred stock dividends		22,833			-
Derivative gain		(287,098	)		-
Interest expense associated with convertible debt		43,270			-
Net income (loss) for dilutive calculation	$	(214,444	)	$	(8,682	)
Weighted average shares outstanding		75,090,147			69,346,528
Dilutive effect of preferred stock		18,066,667			-
Dilutive effect of convertible debt		10,798,454			-
Dilutive effect of common stock warrants		-			-
Weighted average shares outstanding for diluted net income (loss) per share		103,955,268			69,346,528

During the three months ended March 31, 2022, the impact of 15,189,056 warrants to purchase common stock were excluded from the calculation above as their impact would be dilutive. During the three months ended March 31, 2021, the impact of 7,565,499 warrants to purchase common stock and 5,868,827 shares issuable under convertible debt were excluded from the calculation above as their impact would be dilutive.

Additionally, 2,222,223 and 3,611,112 shares to be issued as part of the share payable equity balance as of March 31, 2022 and March 31, 2021, respectively, are excluded from the calculation of weighted-average shares outstanding.

12

Going Concern

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

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

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

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

Recently Issued Accounting Pronouncements

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

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

Note 3: Property and Equipment

Property and equipment consist of the following:

	March 31, 2022			December 31, 2021
Furniture and fixtures	$	10,425		$	10,425
Equipment		7,579			7,579
Trade show display		2,640			2,640
Total		20,644			20,644
Less: Accumulated depreciation		(19,536	)		(19,172	)
Property and equipment, net	$	1,108		$	1,472

Depreciation expense amounted to $364 and $504 for the three months ended March 31, 2022 and 2021, respectively.

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Note 4: Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2022		December 31, 2021
Accounts payable	$	674,523	$	382,925
Accrued dividends on preferred stock		19,726		-
Accrued interest		69,533		4,338
Sales tax payable		144,553		144,541
Accrued officer consulting cost		-		13,750
Other		42,223		42,221
Total Accounts payable and Accrued expenses	$	950,558	$	641,690

Note 5: Notes Payable

A summary of Notes Payable are as follows:

	March 31, 2022			December 31, 2021
Note payable April 2020		14,508			35,245
SBA loan May 2020		147,133			148,093
Note payable September 2021		697,987			730,783
Note payable March 2022		64,588			-
Total notes payable		924,216			914,121
Less: discount and deferred finance costs		(114,599	)		(121,309	)
Less: current portion		(184,819	)		(87,774	)
Long-term portion of notes payable	$	624,798			705,038

On December 31, 2019, the Company entered into an inventory financing arrangement with a single lender, whereby $150,000 was paid by the lender directly to a vendor to secure inventory for the sales to customers in January 2020. The Company will repay $164,835 of principal and interest by February 29, 2020. The interest and fees of $14,835 were recorded as debt discount and were amortized through the maturity date. The Company also paid a deferred finance cost of $5,000 which was amortized through the maturity date. The Company entered into a second agreement on February 6, 2020 with the same lander for an additional $43,000 of funding. The Company will repay $47,253 at maturity on April 6, 2020. On April 22, 2020, these two notes payable were refinanced with the lender into a single agreement whereby the Company will make an initial repayment of $74,231 and 24 monthly payments of $7,467, for total payments of $253,439. This amendment was accounted for as a modification of the debt. The note payable matures on April 22, 2022.

On June 2, 2020, the Company received $150,000 under the Small Business Administration’s Economic Injury Disaster Loan. The loan bears interest at a fixed rate of 3.75%, and matures on May 26, 2050, payable monthly with payments of $731 beginning twelve months after issuance. The loan gives the Small Business Administration a security interest in all assets of the Company.

On September 29, 2021, the Company entered into a Revenue Loan and Security Agreement with an investor for up to a total amount of $1,000,000. Upon drawing from the facility and continuing thereafter until maturity or earlier prepayment in full, the Company shall pay monthly to the lender an amount equal to the product of (i) all revenue of the Company for the immediately preceding month multiplied by (ii) an applicable revenue percentage. On September 29, 2021, the Company borrowed $750,000 under the agreement and received initial cash proceeds of $727,500. The Company also paid an additional $5,000 in fees to the investor to secure the loan for total deferred financing fees of $27,500. On November 12, 2021, the Company issued a total of 843,750 shares of common stock to a lender in connection with the note payable issued. These shares had a fair value of $100,744 and were recorded as deferred finance costs. As of March 31, 2022 and December 31, 2021, the Company owed a principal amount of $697,987 and $730,783 under this loan, with remaining unamortized discount of $114,599 and $121,309, respectively.

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In March 2022, the Company received cash proceeds of $81,671 under an unsecured short term financing agreement. The Company repays $5,694 per week until paid in full. This note was paid in full subsequent to March 31, 2022.

The Company amortized $6,710 and $0 of debt discount and deferred finance costs to interest expense related to notes payable during the three months ended March 31, 2022 and 2021, respectively.

Note 6: Convertible Notes Payable and Derivative Liabilities

Convertible Notes Payable

The following table summarizes outstanding convertible notes as of March 31, 2022 and December 31, 2021:

	March 31, 2022			December 31, 2021
June 2019 Notes, due December 21, 2022	$	444,444		$	444,444
February 2021 Note, maturing February 15, 2022		-			300,000
Total		444,444			7,444,444
Less: Debt discount and deferred finance costs on short-term convertible notes		-			(43,269	)
Less: Current convertible notes payable, net of discount		(444,444	)		(701,175	)
Total long-term convertible notes payable, net	$	-		$	-

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

During the year ended December 31, 2020, $1,500,000 of the principal on the June 2019 Notes was converted into the right to receive 7,883,599 shares of common stock, of which 5,105,821 were issued by December 31, 2021 and 2,777,778 were part of subscriptions payable liability balance of $499,999. See Note 7.

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

On February 15, 2021, the Company entered into a convertible note agreement with an institutional investor for a principal amount of $675,000 (the “February 2021 Note”) bearing interest at 10% with an original issue discount of $67,500 and a maturity date of February 15, 2022. The Company paid $37,500 of deferred finance costs and issued 200,000 shares of common stock to the lender of the February 2021 Note as deferred finance costs, valued at $72,000 based on the closing price of the stock at the date of borrowing. This lender also received 767,045 common stock warrants with an exercise price of $0.44 and a term of 3 years valued at $179,699. If the note is in default, the holder has the right to convert the outstanding principal and accrued interest balance into shares of common stock at the closing bid price of the Company’s common stock immediately prior to conversion. As a result of the variable conversion price on the Company’s outstanding notes payable and reset provisions, the conversion option and the warrants were accounted for as a derivative liability. The original balance of this note was $675,000. The Company used proceeds from this note payable to pay in full the June 2020 Notes and the November 2020 Note. The Company repaid the remaining $300,000 of principal on this note during the three months ended March 31, 2022.

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The Company amortized $0 and $43,269 of debt discount and deferred finance costs to interest expense related to convertible notes payable during the three months ended March 31, 2022 and 2021, respectively. Accrued interest on notes payable and convertible notes payable was $69,533 and $4,338 as of March 31, 2022 and December 31, 2021, respectively.

Derivative Liabilities

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

	As of March 31, 2022
	Conversion Option			Warrants
Volatility		67.36	%	67.36-109.92		%
Dividend Yield		0	%		0	%
Risk-free rate		1.40	%	1.40-2.33		%
Expected term	1 year			1-5 years
Stock price	$	0.0488		$	0.0488
Exercise price	$	0.18		$	0.18-0.30
Derivative liability fair value	$	594		$	179,136

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

The table below presents the change in the fair value of the derivative liability during the three months ended March 31, 2022:

Fair value as of December 31, 2021	$	325,808
Fair value on the date of issuance of new derivatives		141,020
Extinguishment due to repayment of debt		(7,655	)
Gain on change in fair value of derivatives		(279,443	)
Fair value as of March 31, 2022	$	179,730

The total impact of derivative liabilities recognized in the Company’s consolidated statements of operations includes extinguishments due to repayments and the change in fair value of derivatives, with the Company recognizing a total gain of $287,098 and $532,367 during the three months ended March 31, 2022 and 2021, respectively. The increase of $141,020 was due to the 4 million warrants granted as part of Series B subscription.

Note 7: Equity

Common Stock

On December 31, 2021, the Board of Directors of the Company and shareholders holding a majority of the voting power of the Company both approved an amendment to the Company’s Article of Incorporation to increase the total number of authorized shares that the Company shall have authority to issue from 100,000,000 shares to 230,000,000 shares, consisting of two classes to be designated respectively, “Common Stock” and “Preferred Stock”, with all such shares having a par value of $0.001 per share, of which 200,000,000 shall be designated as Common stock and 30,000,000 designated as Preferred stock.

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During the years ended December 31, 2021 and 2020, the Company sold common stock units at $0.18 per unit. Each $0.18 unit consists of a share of common stock and a warrant to purchase half a share of common stock at an exercise price of $0.27, for a period of three years from issuance. As of March 31, 2022 and December 31, 2021 there were 2,222,223 shares remaining to be issued related to common stock units.

As of March 31, 2022 and December 31, 2021, there are 2,777,778 shares remaining to be issued related to 2020 debt conversions of $499,999, which is included in Subscription Payable on the consolidated balance sheets, with 2,160,494 of those shares remaining to be issued to Mark Adams, CEO, and David Hall, EVP of Sales. See Note 6.

Series A Redeemable Preferred Stock

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

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

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

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

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

Scott Wessler, Chairman of Board of Directors of the Company, paid $126,000 to purchase 1,400,000 shares of the Series A Preferred Stock, at a price per share of $0.09.

The Company accrued $3,107 in dividends on the Series A Preferred Stock for the three months ended March 31, 2022. The redemption value of the Series A Preferred Stock as of March 31, 2022 and December 31, 2021 was $262,529 and $259,422, reflected as temporary equity on the Company’s consolidated balance sheet.

Series B Convertible Preferred Stock

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

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

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During the three months ended March 31, 2022, the Company sold a total of 1,000,000 shares of Series B to two investors for net cash proceeds of $890,000 after closing costs of $110,000 and issued warrants to purchase 4,000,000 shares of common stock at $0.20 per share for a period of five years. The Company also issued 2,000,000 shares of common stock with a fair value of $69,990 to the investors, which were recorded as a cost of capital. The Company granted to the investors the piggy-back registration rights.

Stock Warrants

A summary of stock warrant information is as follows:

	Aggregate Number		Aggregate Exercise Value		Weighted Average Exercise Price
Outstanding at December 31, 2021		11,189,056	$	2,646,044	$	0.24
Granted		4,000,000		800,000		0.20
Exercised		-		-		-
Forfeited and cancelled		-		-		-
Outstanding at March 31, 2022		15,189,056	$	3,446,044	$	0.23

The weighted average remaining contractual life is approximately 2.67 years for stock warrants outstanding with no intrinsic value of as of March 31, 2022. All of the above warrants were fully vested.

Note 8: Related Party

Mark Adams, CEO, and David Hall, EVP of Sales invested in the June 2019 Notes. Mark Adams and David Hall contributed $250,000 and $100,000 respectively, and converted their debt during the year ended December 31, 2020 into shares of common stock of 1,388,885 and 555,555, respectively, that have not yet to be issued. Mark Adams and David Hall will also receive an additional 154,321 and 61,728 shares of common stock once the shares are issued. Those shares were in subscriptions payable and presented on the balance sheet. See note 6 and 7.

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

Note 9: Commitments

Employment Agreement

On May 31, 2019, the Company entered into a consulting agreement with its founder Daniel Davis related to his departure from employment with the Company. The agreement requires Daniel Davis to provide limited consulting services to the Company for a period of up to three years beginning May 1, 2019 in exchange for $165,000 per year. As of March 31, 2022, the Company has paid off the amount due to Daniel Davis.

Leases

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

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The components of lease cost for operating leases for the three months ended March 31, 2022 and 2021 were as follows:

	Three months ended
	March 31,  2022		March 31,  2021
Operating lease cost	$	6,703	$	-
Short-term lease cost		28,655		20,629
Variable lease cost		—		—
Sublease income		—		—
Total lease cost	$	35,358	$	20,629

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2022 and December 31, 2021:

Lease Position	March 31, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	100,877	$	-
Right of use liability operating lease current portion	$	30,431	$	-
Right of use liability operating lease long term		72,249		-
Total operating lease liabilities	$	102,680	$	-

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company estimated its incremental borrowing rate to be 10%. The lease has a remaining term of 2.9 years.

The following table provides the maturities of lease liabilities at March 31, 2022:

	Operating
	Leases
2022 (Nine months remaining)	$	29,403
2023		40,511
2024		42,123
2025		7,065
2026 and thereafter		-
Total future undiscounted lease payments		119,102
Less: Interest		(16,422	)
Present value of lease liabilities	$	102,680

Lawsuit

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

Note 10: Accrued Liabilities – Other

Prior to the Merger, China Grand Resorts, Inc. recorded various liabilities that were incurred by former related parties. The current management team is not aware of any written agreements in place governing the terms of the loans nor have they been in contact with the debt holders however recognizes that China Grand Resorts, Inc. previously reported these amounts as liabilities of the Company. In accordance with ASC 405-20-40, the liabilities may only be removed from the Company’s financial statements if they are paid, formally settled or judicially released. Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities of $1,696,374, but does not believe that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,696,374 from the Company’s financial statements until such time that the liability is formally settled or judicially released in accordance with ASC 405-20-40. Due to the lack of written agreements and other factors noted above, management concluded to no longer accrue interest on these loans. The balance of Accrued Liabilities, Other includes $577,906 and $622,121 of liabilities related to unfulfilled performance obligations that the Company does not expect to complete within the foreseeable future.

Note 11: Subsequent Events

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

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

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

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

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

Overview

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

Components of Statements of Operations

Revenue

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

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

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Cost of Revenue

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

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

Operating Expenses

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

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

Results of Operations

Comparison for the three-month periods ended March 31, 2022 and 2021: 

Revenue

Total revenue during the three months ended March 31, 2022 increased to $1,777,075 (comprised of machine sales of $1,033,123 and non-machine sales of $743,952), compared to the three months ended March 31, 2021 that generated sales of $1,770,966 (comprised of machine sales of $1,658,668 and non-machine sales of $112,298). The lockdown of major cities in China due to Covid-19 during the first quarter of 2022 caused shipping issues of machines from China to the U.S. and adversely impacted our ability to fulfill customers’ orders. However, lower machine sales were offset by record quarterly cartridge sales driven by our strong execution of strategic partnership and customer development.

Cost of Revenue

Total cost of revenue increased to $1,358,438 during the three months ended March 31, 2022, compared to the three months ended March 31, 2021 that had a cost of revenue of $1,256,973. The increase in cost of revenue was due to a higher mix of non-machine sales. Thus, our gross margin percentage decreased from 29% for the three months ended March 31, 2021 to 24% for the three months ended March 31, 2022.

Operating Expenses

Operating expenses during the three months ended March 31, 2022 increased to $417,257 (comprised of Salaries of $267,644 and Other Sales, Marketing and General and Administrative (“SG&A”) expenses of $149,613), compared to the three months ended March 31, 2021 that produced $510,243 (comprised of Salaries of $329,083 and Other SG&A expenses of $181,160). The decrease in operating expenses was driven by our continued operation optimization.

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Income from Operations

Total income from operations was $1,380 during the three months ended March 31, 2022, compared to $3,750 for the three months ended March 31, 2021.

Derivative Gain / (Loss)

Derivative gain, a non-cash item, was $287,098 during the three months ended March 31, 2022, due to the fair value change of the debt and warrants driven by the stock price change between December 31, 2021 and March 31, 2022, compared to $532,367 during the three months ended March 31, 2021.

Interest Expense

Interest expense decreased to $259,094 during the three months ended March 31, 2022, compared to $348,651 during the three months ended March 31, 2021, primarily due to the amortization of debt discount of the Notes, a non-cash item.

Loss on Settlement of Notes Payable

Loss on settlement of notes payable, a non-cash item, was $0 during the three months ended March 31, 2022, compared to $137,506 during the three months ended March 31, 2021.

Loss on Conversion of Notes Payable

Loss on conversion of notes payable, a non-cash item, was $0 during the three months ended March 31, 2022, compared to $58,642 during the three months ended March 31, 2021.

Net Income / (Loss)

Net income was $29,384 during the three months ended March 31, 2022, compared to a net loss of $8,682 during the three months ended March 31, 2021.

Liquidity and Capital Resources

At March 31, 2022, we had cash and cash equivalents of $807,014. During the three months ended March 31, 2022, we have financed our operations principally through receipts of customer payments, debt of $81,671, and issuance of preferred stock of $890,000.

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

Operating Activities

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

During the three months ended March 31, 2022, net cash used in operating activities was $137,892, compared to $122,170 during the three months ended March 31, 2021.

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Investing Activities

The Company had no investing activities in either period.

Financing Activities

During the three months ended March 31, 2022, the Company received $890,000 in proceeds from issuance of Series B Preferred Stock and $81,671 in proceeds from short-term debt and made payments of $300,000 of convertible notes payable and $71,576 of short-term debt.

During the three months ended March 31, 2021, the Company received $570,000 in proceeds from convertible debt, $296,524 in proceeds from non-convertible debt, and $250,000 in proceeds from sale of common stock units, and made payments of $526,058 of convertible notes payable and $16,443 of non-convertible notes payable.

Off-Balance Sheet Arrangements

During the three months ended March 31, 2022 and the year ended December 31, 2021, we did not have any off-balance sheet arrangements as defined by applicable SEC regulations.

COVID-19 Impact

Our business and operating results for 2020 and first quarter of 2022 were impacted by the COVID-19 pandemic. We expect improvements throughout 2022.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

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

Item 4. Controls and Procedures

Management’s Evaluation of Disclosure Controls and Procedures

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

23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

None.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

24

Item 6. Exhibits

Exhibit Number	Exhibit Description
31.1	Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022
31.2	Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022
32.1	Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	JACKSAM CORPORATION
Dated: May 16, 2022	By:	/s/ Mark Adams
		Mark Adams
		Chief Executive Officer
Dated: May 16, 2022	By:	/s/ Steven Duo
		Steven Duo
		Chief Financial Officer

26

EX-31.1

EXHIBIT 31.1

CERTIFICATION

Pursuant to 18 U.S.C Section 1350

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

I, Mark Adams, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Jacksam Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2022

By:	/s/ Mark Adams
	Mark Adams
	Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

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

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

I, Steven Duo, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Jacksam Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2022

By:	/s/ Steven Duo
	Steven Duo
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION

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

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

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

The Quarterly Report for the period ended March 31, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 16, 2022	By:	/s/ Mark Adams
		Mark Adams
		Chief Executive Officer
Dated: May 16, 2022	By:	/s/ Steven Duo
		Steven Duo
		Chief Financial Officer

XML

Cover - shares	3 Months Ended
	Mar. 31, 2022	May 11, 2022
Cover [Abstract]
Entity Registrant Name	Jacksam Corporation
Entity Central Index Key	0000860543
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	true
Entity Current Reporting Status	Yes
Document Period End Date	Mar. 31, 2022
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Entity Ex Transition Period	false
Entity Common Stock Shares Outstanding		76,490,147
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	033-33263
Entity Incorporation State Country Code	NV
Entity Tax Identification Number	46-3566284
Entity Interactive Data Current	Yes
City Area Code	800
Local Phone Number	605-3580
Entity Address State Or Province	CA
Security 12b Title	Common Stock, par value $0.001 per share
Trading Symbol	JKSM
Entity Address Address Line 1	3100 Airway Avenue Suite 138
Entity Address City Or Town	Costa Mesa
Entity Address Postal Zip Code	92626

XML

Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Current Assets:
Cash	$ 807,014	$ 344,811
Accounts receivable, net	890,996	591,169
Inventory, net	215,251	196,712
Prepaid expenses	10,620	8,600
Total Current Assets	1,923,881	1,141,292
Property and equipment, net	1,108	1,472
Right of-use asset - operating lease	100,877	0
Total Assets	2,025,866	1,142,764
Current Liabilities:
Accounts payable and accrued expenses	950,558	641,690
Deferred revenue	173,886	171,771
Convertible notes payable, current portion (net of discount $0 and $$43,269, respectively)	444,444	701,175
Notes payable, current portion	184,819	87,774
Right of use liability - operating lease, current portion	30,431	0
Derivative liability	179,730	325,808
Accrued liabilities - other	2,220,175	2,264,390
Subscription payable	499,999	499,999
Total Current Liabilities	4,684,042	4,692,607
Notes payable, net of current portion (net of discount $114,599 and $121,310 respectively)	624,798	705,038
Right of use liability - operating lease	72,249	0
Total Liabilities	5,381,089	5,397,645
Stockholders' Deficit:
Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding	0	0
Common stock - 200,000,000 authorized, $0.001 par value, 74,490,147 and 74,490,147 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively	76,490	74,490
Additional paid-in capital	7,075,481	6,210,414
Shares payable, consisting of 2,222,223 shares of common shares as of March 31, 2022 and December 31, 2021	331,600	331,600
Accumulated deficit	(11,101,423)	(11,130,807)
Total Stockholders' Deficit	(3,617,752)	(4,514,303)
Total Liabilities and Stockholders' Deficit	2,025,866	1,142,764
Series A Preferred Stock Shares [Member]
Stockholders' Deficit:
Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding	262,529	259,422
Series B Preferred Stock Shares [Member]
Stockholders' Deficit:
Preferred stock - 30,000,000 authorized, $0.001 par value, 0 shares issued and outstanding	$ 100	$ 0

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Convertible notes payable, current portion (net of discount)	$ 114,599	$ 121,309
Preferred stock, shares par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	30,000,000	30,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares par value	$ 0.001	$ 0.001
Common stock, shares issued	74,490,147	74,490,147
Common stock, shares outstanding	74,490,147	74,490,147
Shares payable	2,222,223	2,222,223
Series A Preferred Stock Shares [Member]
Preferred stock, shares par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	2,800,000	2,800,000
Preferred stock, shares issued	2,800,000	2,800,000
Preferred stock, shares outstanding	0	0
Series B Preferred Stock Shares [Member]
Preferred stock, shares par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	1,000,000	1,000,000
Preferred stock, shares outstanding	0	0
Preferred stock,shares stated value	$ 1	$ 1

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Condensed Consolidated Statements of Operations (Unaudited)
Revenue	$ 1,777,075	$ 1,770,966
Cost of Revenue	1,358,438	1,256,973
Gross Profit	418,637	513,993
Operating Expenses
Salaries and wages	267,644	329,083
Other selling, general and administrative expenses	149,613	181,160
Total Operating Expenses	417,257	510,243
Income (Loss) from Operations	1,380	3,750
Other Income (Expense)
Derivative gain (loss)	287,098	532,367
Interest expense	(259,094)	(348,651)
Loss on conversion of notes payable	0	(58,642)
Loss on settlement of notes payable	0	(137,506)
Total Other Income (Expense)	28,004	(12,432)
Net Income (Loss)	29,384	(8,682)
Preferred stock dividends	(22,833)	0
Net Income (Loss) Available to Common Shareholders	$ 6,551	$ (8,682)
Net loss per share
Basic	$ 0.00	$ (0.00)
Diluted	$ 0.00	$ (0.00)
Weighted average shares outstanding
Basic	75,090,147	69,346,528
Diluted	103,955,268	69,346,528

XML

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited)) - USD ($)	Total	Series A Preferred Stock	Series B Preferred Stock	Common Stock $0.001 Par Value	Paid-In Capital	Shares Payable	Accumulated Deficit
Balance, shares at Dec. 31, 2020				66,366,419
Balance, amount at Dec. 31, 2020	$ (5,705,452)	$ 0	$ 0	$ 66,366	$ 4,708,323	$ 645,192	$ (11,125,333)
Common stock issued for debt conversion, shares				3,086,420
Common stock issued for debt conversion, amount	614,198	0	0	$ 3,087	611,111	0	0
Common stock issued for deferred finance cost, shares				200,000
Common stock issued for deferred finance cost, amount	72,000	0	0	$ 200	71,800	0	0
Sale of common stock units, shares				2,479,994
Sale of common stock units, amount	187,800	0	0	$ 2,480	322,195	(136,875)	0
Common stock and warrants issued for settlement of notes payable, shares				414,930
Common stock and warrants issued for settlement of notes payable, amount	141,118	0	0	$ 415	140,703	0	0
Net loss	(8,682)	0	0	$ 0	0	0	(8,682)
Balance, shares at Mar. 31, 2021				72,547,763
Balance, amount at Mar. 31, 2021	(4,699,018)	$ 0	$ 0	$ 72,548	5,854,132	508,317	(11,134,015)
Balance, shares at Dec. 31, 2021		2,800,000	2,000,000	74,490,147
Balance, amount at Dec. 31, 2021	(4,514,303)	$ 259,422	$ 0	$ 74,490	6,210,414	331,600	(11,130,807)
Net loss	29,384						29,384
Issuance of Series B Preferred Stock, net of fees, shares			1,000,000
Issuance of Series B Preferred Stock, net of fees, amount	890,000	0	$ 100	$ 0	889,900	0
Common Stock and Warrants issued in connection with preferred stock, shares				76,490,147
Common Stock and Warrants issued in connection with preferred stock, amount				$ 2,000	(2,000)
Dividends on Series A Preferred Stock, amount	(22,833)	$ 3,107	$ 0	$ 0	(22,833)	0	0
Balance, shares at Mar. 31, 2022		2,800,000	1,000,000	76,490,147
Balance, amount at Mar. 31, 2022	$ (3,617,752)	$ 262,529	$ 100	$ 76,490	$ 7,075,481	$ 331,600	$ (11,101,423)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash Flows from Operating Activities
Net loss	$ 29,384	$ (8,682)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation expense	364	504
Loss on settlement of notes payable	0	137,506
Loss on conversion of notes payable		58,642
Amortization of debt discount	49,980	292,549
Amortization of right-of-use assets	4,945	0
Interest expense from derivative issuance	141,020	0
Derivative (gain) loss	(287,098)	(532,367)
Inventory impairment	18,000	0
Net change in:
Accounts receivable	(299,827)	(18,910)
Inventory	(36,539)	16,182
Prepaid expenses	(2,020)	116,859
Right-of-use liabilities	(3,142)	0
Accounts payable and accrued expenses	244,926	(168,775)
Deferred revenue	2,115	(15,678)
Net cash used in operating activities	(137,892)	(122,170)
Cash Flows from Financing Activities
Proceeds from convertible notes payable	0	570,000
Payments on convertible notes payable	(300,000)	(526,058)
Proceeds from notes payable	81,671	296,524
Payments on notes payable	(71,576)	(16,443)
Proceeds from sale of common stock units	0	250,000
Proceeds from issuance of Series A preferred stock	890,000	0
Net cash provided by financing activities	600,095	574,023
Net Change in Cash	462,203	451,853
Cash, Beginning of Period	344,811	489,560
Cash, End of Period	807,014	941,413
Cash Paid For:
Income Taxes	0	0
Interest	3,049	48,444
Non-cash transactions:
Right of use asset and liability recognized, operating leases	105,822	0
Common stock issued to settle convertible notes payable	0	614,198
Derivative liability recognized at issuance of warrants and conversion option	0	493,670
Common stock issued for deferred finance costs	$ 0	$ 72,000

XML

Organization and Nature of Operations

3 Months Ended

Mar. 31, 2022

Organization and Nature of Operations

Note 1 Organization and Nature of Operations

Note 1: Organization and Nature of Operations

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

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

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

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

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

XML

Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Significant Accounting Policies

Note 2 Significant Accounting Policies

Note 2: Significant Accounting Policies

Basis of Preparation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021 in the Form 10-K filed on March 31, 2022. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.

Principles of Consolidation

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

Use of Estimates

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

Risks and Uncertainties

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. The Company has experienced, and in the future, expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold, (iii) general economic conditions, and (iv) the related volatility of prices pertaining to the cost of sales.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and consist of cash on hand and demand deposits placed with banks or other financial institutions, and all highly liquid investments with an original maturity of three months or less. Federal Deposit Insurance Corporation (“FDIC”) deposit insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. As of March 31, 2022 and December 31, 2021, the Company had recorded an allowance for doubtful accounts of $74,000.

Inventory

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

The March 31, 2022 and December 31, 2021 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of March 31, 2022 and December 31, 2021, the Company has determined that an inventory allowance of $18,800 is required.

Property and Equipment

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

Fair Value of Financial Instruments

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

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

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

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

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and an approximate of their fair values because of the short maturity of these instruments.

Binomial Calculation Model

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

Revenue Recognition

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

Revenue is recognized based on the following five step model:

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

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

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

Performance Obligations

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

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of March 31, 2022, none of the Company’s contracts contained a significant financing component.

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

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

Transaction Price Allocated to the Remaining Performance Obligations

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of March 31, 2022, $173,886 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The Company expects to recognize all of our unsatisfied (or partially unsatisfied) performance obligations as revenue in the next twelve months.

Contract Costs

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

Critical Accounting Estimates

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

Disaggregation of Revenue

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Machine sales	$	1,033,123	$	1,658,668
Non-machine sales		743,952		112,298
Total sales	$	1,777,075	$	1,770,966

Net Loss Per Common Share

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

The following table presents the effect of potential dilutive issuances for the three months ended March 31, 2022 and 2021:

	Three Months Ended
	March 31, 2022			March 31, 2021
Net income (loss) attributable to common stockholders	$	6,551		$	(8,682	)
Preferred stock dividends		22,833			-
Derivative gain		(287,098	)		-
Interest expense associated with convertible debt		43,270			-
Net income (loss) for dilutive calculation	$	(214,444	)	$	(8,682	)
Weighted average shares outstanding		75,090,147			69,346,528
Dilutive effect of preferred stock		18,066,667			-
Dilutive effect of convertible debt		10,798,454			-
Dilutive effect of common stock warrants		-			-
Weighted average shares outstanding for diluted net income (loss) per share		103,955,268			69,346,528

During the three months ended March 31, 2022, the impact of 15,189,056 warrants to purchase common stock were excluded from the calculation above as their impact would be dilutive. During the three months ended March 31, 2021, the impact of 7,565,499 warrants to purchase common stock and 5,868,827 shares issuable under convertible debt were excluded from the calculation above as their impact would be dilutive.

Additionally, 2,222,223 and 3,611,112 shares to be issued as part of the share payable equity balance as of March 31, 2022 and March 31, 2021, respectively, are excluded from the calculation of weighted-average shares outstanding.

Going Concern

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

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

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

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

Recently Issued Accounting Pronouncements

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

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

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Property and Equipment

3 Months Ended

Mar. 31, 2022

Property and Equipment

Note 3 Property and Equipment

Note 3: Property and Equipment

Property and equipment consist of the following:

	March 31, 2022			December 31, 2021
Furniture and fixtures	$	10,425		$	10,425
Equipment		7,579			7,579
Trade show display		2,640			2,640
Total		20,644			20,644
Less: Accumulated depreciation		(19,536	)		(19,172	)
Property and equipment, net	$	1,108		$	1,472

Depreciation expense amounted to $364 and $504 for the three months ended March 31, 2022 and 2021, respectively.

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Accounts Payable and Accrued Expenses

3 Months Ended

Mar. 31, 2022

Accounts Payable and Accrued Expenses

Note 4 Accounts Payable and Accrued Expenses

Note 4: Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2022		December 31, 2021
Accounts payable	$	674,523	$	382,925
Accrued dividends on preferred stock		19,726		-
Accrued interest		69,533		4,338
Sales tax payable		144,553		144,541
Accrued officer consulting cost		-		13,750
Other		42,223		42,221
Total Accounts payable and Accrued expenses	$	950,558	$	641,690

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Notes Payable

3 Months Ended

Mar. 31, 2022

Notes Payable

Note 5 Notes Payable

Note 5: Notes Payable

A summary of Notes Payable are as follows:

	March 31, 2022			December 31, 2021
Note payable April 2020		14,508			35,245
SBA loan May 2020		147,133			148,093
Note payable September 2021		697,987			730,783
Note payable March 2022		64,588			-
Total notes payable		924,216			914,121
Less: discount and deferred finance costs		(114,599	)		(121,309	)
Less: current portion		(184,819	)		(87,774	)
Long-term portion of notes payable	$	624,798			705,038

On December 31, 2019, the Company entered into an inventory financing arrangement with a single lender, whereby $150,000 was paid by the lender directly to a vendor to secure inventory for the sales to customers in January 2020. The Company will repay $164,835 of principal and interest by February 29, 2020. The interest and fees of $14,835 were recorded as debt discount and were amortized through the maturity date. The Company also paid a deferred finance cost of $5,000 which was amortized through the maturity date. The Company entered into a second agreement on February 6, 2020 with the same lander for an additional $43,000 of funding. The Company will repay $47,253 at maturity on April 6, 2020. On April 22, 2020, these two notes payable were refinanced with the lender into a single agreement whereby the Company will make an initial repayment of $74,231 and 24 monthly payments of $7,467, for total payments of $253,439. This amendment was accounted for as a modification of the debt. The note payable matures on April 22, 2022.

On June 2, 2020, the Company received $150,000 under the Small Business Administration’s Economic Injury Disaster Loan. The loan bears interest at a fixed rate of 3.75%, and matures on May 26, 2050, payable monthly with payments of $731 beginning twelve months after issuance. The loan gives the Small Business Administration a security interest in all assets of the Company.

On September 29, 2021, the Company entered into a Revenue Loan and Security Agreement with an investor for up to a total amount of $1,000,000. Upon drawing from the facility and continuing thereafter until maturity or earlier prepayment in full, the Company shall pay monthly to the lender an amount equal to the product of (i) all revenue of the Company for the immediately preceding month multiplied by (ii) an applicable revenue percentage. On September 29, 2021, the Company borrowed $750,000 under the agreement and received initial cash proceeds of $727,500. The Company also paid an additional $5,000 in fees to the investor to secure the loan for total deferred financing fees of $27,500. On November 12, 2021, the Company issued a total of 843,750 shares of common stock to a lender in connection with the note payable issued. These shares had a fair value of $100,744 and were recorded as deferred finance costs. As of March 31, 2022 and December 31, 2021, the Company owed a principal amount of $697,987 and $730,783 under this loan, with remaining unamortized discount of $114,599 and $121,309, respectively.

In March 2022, the Company received cash proceeds of $81,671 under an unsecured short term financing agreement. The Company repays $5,694 per week until paid in full. This note was paid in full subsequent to March 31, 2022.

The Company amortized $6,710 and $0 of debt discount and deferred finance costs to interest expense related to notes payable during the three months ended March 31, 2022 and 2021, respectively.

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Convertible Notes Payable and Derivative Liabilities

3 Months Ended

Mar. 31, 2022

Convertible Notes Payable and Derivative Liabilities

Note 6 Convertible Notes Payable and Derivative Liabilities

Note 6: Convertible Notes Payable and Derivative Liabilities

Convertible Notes Payable

The following table summarizes outstanding convertible notes as of March 31, 2022 and December 31, 2021:

	March 31, 2022			December 31, 2021
June 2019 Notes, due December 21, 2022	$	444,444		$	444,444
February 2021 Note, maturing February 15, 2022		-			300,000
Total		444,444			7,444,444
Less: Debt discount and deferred finance costs on short-term convertible notes		-			(43,269	)
Less: Current convertible notes payable, net of discount		(444,444	)		(701,175	)
Total long-term convertible notes payable, net	$	-		$	-

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

During the year ended December 31, 2020, $1,500,000 of the principal on the June 2019 Notes was converted into the right to receive 7,883,599 shares of common stock, of which 5,105,821 were issued by December 31, 2021 and 2,777,778 were part of subscriptions payable liability balance of $499,999. See Note 7.

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

On February 15, 2021, the Company entered into a convertible note agreement with an institutional investor for a principal amount of $675,000 (the “February 2021 Note”) bearing interest at 10% with an original issue discount of $67,500 and a maturity date of February 15, 2022. The Company paid $37,500 of deferred finance costs and issued 200,000 shares of common stock to the lender of the February 2021 Note as deferred finance costs, valued at $72,000 based on the closing price of the stock at the date of borrowing. This lender also received 767,045 common stock warrants with an exercise price of $0.44 and a term of 3 years valued at $179,699. If the note is in default, the holder has the right to convert the outstanding principal and accrued interest balance into shares of common stock at the closing bid price of the Company’s common stock immediately prior to conversion. As a result of the variable conversion price on the Company’s outstanding notes payable and reset provisions, the conversion option and the warrants were accounted for as a derivative liability. The original balance of this note was $675,000. The Company used proceeds from this note payable to pay in full the June 2020 Notes and the November 2020 Note. The Company repaid the remaining $300,000 of principal on this note during the three months ended March 31, 2022.

The Company amortized $0 and $43,269 of debt discount and deferred finance costs to interest expense related to convertible notes payable during the three months ended March 31, 2022 and 2021, respectively. Accrued interest on notes payable and convertible notes payable was $69,533 and $4,338 as of March 31, 2022 and December 31, 2021, respectively.

Derivative Liabilities

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

	As of March 31, 2022
	Conversion Option			Warrants
Volatility		67.36	%	67.36-109.92		%
Dividend Yield		0	%		0	%
Risk-free rate		1.40	%	1.40-2.33		%
Expected term	1 year			1-5 years
Stock price	$	0.0488		$	0.0488
Exercise price	$	0.18		$	0.18-0.30
Derivative liability fair value	$	594		$	179,136

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

The table below presents the change in the fair value of the derivative liability during the three months ended March 31, 2022:

Fair value as of December 31, 2021	$	325,808
Fair value on the date of issuance of new derivatives		141,020
Extinguishment due to repayment of debt		(7,655	)
Gain on change in fair value of derivatives		(279,443	)
Fair value as of March 31, 2022	$	179,730

The total impact of derivative liabilities recognized in the Company’s consolidated statements of operations includes extinguishments due to repayments and the change in fair value of derivatives, with the Company recognizing a total gain of $287,098 and $532,367 during the three months ended March 31, 2022 and 2021, respectively. The increase of $141,020 was due to the 4 million warrants granted as part of Series B subscription.

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Equity

3 Months Ended

Mar. 31, 2022

Equity

Note 7 Equity

Note 7: Equity

Common Stock

On December 31, 2021, the Board of Directors of the Company and shareholders holding a majority of the voting power of the Company both approved an amendment to the Company’s Article of Incorporation to increase the total number of authorized shares that the Company shall have authority to issue from 100,000,000 shares to 230,000,000 shares, consisting of two classes to be designated respectively, “Common Stock” and “Preferred Stock”, with all such shares having a par value of $0.001 per share, of which 200,000,000 shall be designated as Common stock and 30,000,000 designated as Preferred stock.

During the years ended December 31, 2021 and 2020, the Company sold common stock units at $0.18 per unit. Each $0.18 unit consists of a share of common stock and a warrant to purchase half a share of common stock at an exercise price of $0.27, for a period of three years from issuance. As of March 31, 2022 and December 31, 2021 there were 2,222,223 shares remaining to be issued related to common stock units.

As of March 31, 2022 and December 31, 2021, there are 2,777,778 shares remaining to be issued related to 2020 debt conversions of $499,999, which is included in Subscription Payable on the consolidated balance sheets, with 2,160,494 of those shares remaining to be issued to Mark Adams, CEO, and David Hall, EVP of Sales. See Note 6.

Series A Redeemable Preferred Stock

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

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

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

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

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

Scott Wessler, Chairman of Board of Directors of the Company, paid $126,000 to purchase 1,400,000 shares of the Series A Preferred Stock, at a price per share of $0.09.

The Company accrued $3,107 in dividends on the Series A Preferred Stock for the three months ended March 31, 2022. The redemption value of the Series A Preferred Stock as of March 31, 2022 and December 31, 2021 was $262,529 and $259,422, reflected as temporary equity on the Company’s consolidated balance sheet.

Series B Convertible Preferred Stock

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

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

During the three months ended March 31, 2022, the Company sold a total of 1,000,000 shares of Series B to two investors for net cash proceeds of $890,000 after closing costs of $110,000 and issued warrants to purchase 4,000,000 shares of common stock at $0.20 per share for a period of five years. The Company also issued 2,000,000 shares of common stock with a fair value of $69,990 to the investors, which were recorded as a cost of capital. The Company granted to the investors the piggy-back registration rights.

Stock Warrants

A summary of stock warrant information is as follows:

	Aggregate Number		Aggregate Exercise Value		Weighted Average Exercise Price
Outstanding at December 31, 2021		11,189,056	$	2,646,044	$	0.24
Granted		4,000,000		800,000		0.20
Exercised		-		-		-
Forfeited and cancelled		-		-		-
Outstanding at March 31, 2022		15,189,056	$	3,446,044	$	0.23

The weighted average remaining contractual life is approximately 2.67 years for stock warrants outstanding with no intrinsic value of as of March 31, 2022. All of the above warrants were fully vested.

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Related Party

3 Months Ended

Mar. 31, 2022

Related Party

Note 8 Related Party

Note 8: Related Party

Mark Adams, CEO, and David Hall, EVP of Sales invested in the June 2019 Notes. Mark Adams and David Hall contributed $250,000 and $100,000 respectively, and converted their debt during the year ended December 31, 2020 into shares of common stock of 1,388,885 and 555,555, respectively, that have not yet to be issued. Mark Adams and David Hall will also receive an additional 154,321 and 61,728 shares of common stock once the shares are issued. Those shares were in subscriptions payable and presented on the balance sheet. See note 6 and 7.

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

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Commitments

3 Months Ended

Mar. 31, 2022

Commitments

Note 9 Commitments

Note 9: Commitments

Employment Agreement

On May 31, 2019, the Company entered into a consulting agreement with its founder Daniel Davis related to his departure from employment with the Company. The agreement requires Daniel Davis to provide limited consulting services to the Company for a period of up to three years beginning May 1, 2019 in exchange for $165,000 per year. As of March 31, 2022, the Company has paid off the amount due to Daniel Davis.

Leases

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

The components of lease cost for operating leases for the three months ended March 31, 2022 and 2021 were as follows:

	Three months ended
	March 31,  2022		March 31,  2021
Operating lease cost	$	6,703	$	-
Short-term lease cost		28,655		20,629
Variable lease cost		—		—
Sublease income		—		—
Total lease cost	$	35,358	$	20,629

The following table summarizes the lease-related assets and liabilities recorded in the consolidated balance sheets at March 31, 2022 and December 31, 2021:

Lease Position	March 31, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	100,877	$	-
Right of use liability operating lease current portion	$	30,431	$	-
Right of use liability operating lease long term		72,249		-
Total operating lease liabilities	$	102,680	$	-

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company estimated its incremental borrowing rate to be 10%. The lease has a remaining term of 2.9 years.

The following table provides the maturities of lease liabilities at March 31, 2022:

	Operating
	Leases
2022 (Nine months remaining)	$	29,403
2023		40,511
2024		42,123
2025		7,065
2026 and thereafter		-
Total future undiscounted lease payments		119,102
Less: Interest		(16,422	)
Present value of lease liabilities	$	102,680

Lawsuit

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

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Accrued Liabilities Other

3 Months Ended

Mar. 31, 2022

Accrued Liabilities Other

Note 10 Accrued Liabilities - Other

Note 10: Accrued Liabilities – Other

Prior to the Merger, China Grand Resorts, Inc. recorded various liabilities that were incurred by former related parties. The current management team is not aware of any written agreements in place governing the terms of the loans nor have they been in contact with the debt holders however recognizes that China Grand Resorts, Inc. previously reported these amounts as liabilities of the Company. In accordance with ASC 405-20-40, the liabilities may only be removed from the Company’s financial statements if they are paid, formally settled or judicially released. Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities of $1,696,374, but does not believe that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,696,374 from the Company’s financial statements until such time that the liability is formally settled or judicially released in accordance with ASC 405-20-40. Due to the lack of written agreements and other factors noted above, management concluded to no longer accrue interest on these loans. The balance of Accrued Liabilities, Other includes $577,906 and $622,121 of liabilities related to unfulfilled performance obligations that the Company does not expect to complete within the foreseeable future.

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Subsequent Events

3 Months Ended

Mar. 31, 2022

Subsequent Events

Note 11 Subsequent Events

Note 11: Subsequent Events

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

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Significant Accounting Policies

Basis of Preparation

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting. These financial statements are presented in U.S. dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value. The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 2021 in the Form 10-K filed on March 31, 2022. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the Form 10-K have been omitted.

Principles of Consolidation

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

Use of Estimates

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

Risks and Uncertainties

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure. The Company has experienced, and in the future, expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at large national retail chains where product is expected to be sold, (iii) general economic conditions, and (iv) the related volatility of prices pertaining to the cost of sales.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and consist of cash on hand and demand deposits placed with banks or other financial institutions, and all highly liquid investments with an original maturity of three months or less. Federal Deposit Insurance Corporation (“FDIC”) deposit insurance covers $250,000 per depositor, per FDIC-insured bank, per ownership category.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. As of March 31, 2022 and December 31, 2021, the Company had recorded an allowance for doubtful accounts of $74,000.

Inventory

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

The March 31, 2022 and December 31, 2021 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of March 31, 2022 and December 31, 2021, the Company has determined that an inventory allowance of $18,800 is required.

Property and Equipment

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

Fair Value of Financial Instruments

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

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

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

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

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

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and an approximate of their fair values because of the short maturity of these instruments.

Binomial Calculation Model

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

Revenue Recognition

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

Revenue is recognized based on the following five step model:

- Identification of the contract with a customer

- Identification of the performance obligations in the contract

- Determination of the transaction price

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

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

Performance Obligations

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

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of March 31, 2022, none of the Company’s contracts contained a significant financing component.

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

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

Transaction Price Allocated to the Remaining Performance Obligations

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of March 31, 2022, $173,886 in revenue is expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period. The Company expects to recognize all of our unsatisfied (or partially unsatisfied) performance obligations as revenue in the next twelve months.

Contract Costs

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

Critical Accounting Estimates

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

Disaggregation of Revenue

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

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Machine sales	$	1,033,123	$	1,658,668
Non-machine sales		743,952		112,298
Total sales	$	1,777,075	$	1,770,966

Net Loss Per Common Share

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

The following table presents the effect of potential dilutive issuances for the three months ended March 31, 2022 and 2021:

	Three Months Ended
	March 31, 2022			March 31, 2021
Net income (loss) attributable to common stockholders	$	6,551		$	(8,682	)
Preferred stock dividends		22,833			-
Derivative gain		(287,098	)		-
Interest expense associated with convertible debt		43,270			-
Net income (loss) for dilutive calculation	$	(214,444	)	$	(8,682	)
Weighted average shares outstanding		75,090,147			69,346,528
Dilutive effect of preferred stock		18,066,667			-
Dilutive effect of convertible debt		10,798,454			-
Dilutive effect of common stock warrants		-			-
Weighted average shares outstanding for diluted net income (loss) per share		103,955,268			69,346,528

During the three months ended March 31, 2022, the impact of 15,189,056 warrants to purchase common stock were excluded from the calculation above as their impact would be dilutive. During the three months ended March 31, 2021, the impact of 7,565,499 warrants to purchase common stock and 5,868,827 shares issuable under convertible debt were excluded from the calculation above as their impact would be dilutive.

Additionally, 2,222,223 and 3,611,112 shares to be issued as part of the share payable equity balance as of March 31, 2022 and March 31, 2021, respectively, are excluded from the calculation of weighted-average shares outstanding.

Going Concern

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

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

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

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

Recently Issued Accounting Pronouncements

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

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

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Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2022

Significant Accounting Policies

Summary of effect of potential dilutive issuances

	Three Months Ended
	March 31, 2022			March 31, 2021
Net income (loss) attributable to common stockholders	$	6,551		$	(8,682	)
Preferred stock dividends		22,833			-
Derivative gain		(287,098	)		-
Interest expense associated with convertible debt		43,270			-
Net income (loss) for dilutive calculation	$	(214,444	)	$	(8,682	)
Weighted average shares outstanding		75,090,147			69,346,528
Dilutive effect of preferred stock		18,066,667			-
Dilutive effect of convertible debt		10,798,454			-
Dilutive effect of common stock warrants		-			-
Weighted average shares outstanding for diluted net income (loss) per share		103,955,268			69,346,528

Schedule of disaggregation of revenue

	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Machine sales	$	1,033,123	$	1,658,668
Non-machine sales		743,952		112,298
Total sales	$	1,777,075	$	1,770,966

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2022

Property and Equipment

Schedule of property and equipment

	March 31, 2022			December 31, 2021
Furniture and fixtures	$	10,425		$	10,425
Equipment		7,579			7,579
Trade show display		2,640			2,640
Total		20,644			20,644
Less: Accumulated depreciation		(19,536	)		(19,172	)
Property and equipment, net	$	1,108		$	1,472

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Accounts payable and accrued expenses (Tables)

3 Months Ended

Mar. 31, 2022

Accounts payable and accrued expenses (Tables)

Schedule of accounts payable and accrued expenses

	March 31, 2022		December 31, 2021
Accounts payable	$	674,523	$	382,925
Accrued dividends on preferred stock		19,726		-
Accrued interest		69,533		4,338
Sales tax payable		144,553		144,541
Accrued officer consulting cost		-		13,750
Other		42,223		42,221
Total Accounts payable and Accrued expenses	$	950,558	$	641,690

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Notes Payable (Tables)

3 Months Ended

Mar. 31, 2022

Notes Payable (Tables)

Summary of notes payable

	March 31, 2022			December 31, 2021
Note payable April 2020		14,508			35,245
SBA loan May 2020		147,133			148,093
Note payable September 2021		697,987			730,783
Note payable March 2022		64,588			-
Total notes payable		924,216			914,121
Less: discount and deferred finance costs		(114,599	)		(121,309	)
Less: current portion		(184,819	)		(87,774	)
Long-term portion of notes payable	$	624,798			705,038

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Convertible Notes Payable and Derivative Liabilities (Tables)

3 Months Ended

Mar. 31, 2022

Convertible Notes Payable and Derivative Liabilities

Schedule of outstanding convertible notes

	March 31, 2022			December 31, 2021
June 2019 Notes, due December 21, 2022	$	444,444		$	444,444
February 2021 Note, maturing February 15, 2022		-			300,000
Total		444,444			7,444,444
Less: Debt discount and deferred finance costs on short-term convertible notes		-			(43,269	)
Less: Current convertible notes payable, net of discount		(444,444	)		(701,175	)
Total long-term convertible notes payable, net	$	-		$	-

Schedule of fair values of conversion option and warrants

	As of March 31, 2022
	Conversion Option			Warrants
Volatility		67.36	%	67.36-109.92		%
Dividend Yield		0	%		0	%
Risk-free rate		1.40	%	1.40-2.33		%
Expected term	1 year			1-5 years
Stock price	$	0.0488		$	0.0488
Exercise price	$	0.18		$	0.18-0.30
Derivative liability fair value	$	594		$	179,136

Schedule of fair value of derivative liability

Fair value as of December 31, 2021	$	325,808
Fair value on the date of issuance of new derivatives		141,020
Extinguishment due to repayment of debt		(7,655	)
Gain on change in fair value of derivatives		(279,443	)
Fair value as of March 31, 2022	$	179,730

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Equity (Tables)

3 Months Ended

Mar. 31, 2022

Equity

Summary of stock warrant

	Aggregate Number		Aggregate Exercise Value		Weighted Average Exercise Price
Outstanding at December 31, 2021		11,189,056	$	2,646,044	$	0.24
Granted		4,000,000		800,000		0.20
Exercised		-		-		-
Forfeited and cancelled		-		-		-
Outstanding at March 31, 2022		15,189,056	$	3,446,044	$	0.23

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Commitments (Tables)

3 Months Ended

Mar. 31, 2022

Commitments (Tables)

Schedule of maturities of lease liabilities

	Operating
	Leases
2022 (Nine months remaining)	$	29,403
2023		40,511
2024		42,123
2025		7,065
2026 and thereafter		-
Total future undiscounted lease payments		119,102
Less: Interest		(16,422	)
Present value of lease liabilities	$	102,680

Schedule of operating lease cost

	Three months ended
	March 31,  2022		March 31,  2021
Operating lease cost	$	6,703	$	-
Short-term lease cost		28,655		20,629
Variable lease cost		—		—
Sublease income		—		—
Total lease cost	$	35,358	$	20,629

Summary of lease related assets and liabilities

Lease Position	March 31, 2022		December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	100,877	$	-
Right of use liability operating lease current portion	$	30,431	$	-
Right of use liability operating lease long term		72,249		-
Total operating lease liabilities	$	102,680	$	-

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Significant Accounting Policies (Details) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Significant Accounting Policies (Details)
Machine sales	$ 1,033,123	$ 1,658,668
Non-machine sales	743,952	112,298
Total sales	$ 1,777,075	$ 1,770,966

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Significant Accounting Policies (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Significant Accounting Policies (Details)
Net income (loss) attributable to common stockholders	$ 6,551	$ (8,682)
Preferred stock dividends	22,833	0
Derivative gain	287,098	0
Interest expense associated with convertible debt	43,270	0
Net income (loss) for dilutive calculation	(214,444)	(8,682)
Weighted average shares outstanding	75,090,147	69,346
Dilutive effect of preferred stock	18,066,667	0
Dilutive effect of convertible debt	10,798,454	0
Dilutive effect of common stock warrants	0	0
Weighted average shares outstanding for diluted net income (loss) per share	$ 103,955,268	$ 69,346,528

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Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Allowance for Doubtful Accounts	$ 74,000		$ 74,000
Inventory allowance	18,800		$ 18,800
Performance obligation	$ 173,886
Common stock purchase	15,189,056	7,565,499
Shares issuable under convertible debt excluded from calculation	5,868,827
FDIC insurance amount	$ 250,000
Shares payable	2,222,223	3,611,112
Minimum [Member]
Property and equipment , estimated useful lives	5 years
Maximum [Member]
Property and equipment , estimated useful lives	7 years

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Property and Equipmentt (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Total	$ 20,644	$ 7,579
Less: Accumulated Depreciation	(19,536)	(19,172)
Property and Equipment net	1,108	1,472
Furniture and Fixtures [Member]
Total	10,425	10,425
Equipments [Member]
Total	7,579	7,579
Trade Show Displays [Member]
Total	$ 2,640	$ 2,640

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Property and Equipmentt (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Property and Equipmentt (Details)
Depreciation expense	$ 364	$ 504

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Accounts Payable and Accrued Expenses (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Total Accounts payable and Accrued expenses	$ 950,558	$ 641,690
Accounts payable [Member]
Total Accounts payable and Accrued expenses	674,523	382,925
Accrued Dividends On Preferred Stock [Member]
Total Accounts payable and Accrued expenses	19,726	0
Accrued interest [Member]
Total Accounts payable and Accrued expenses	69,533	4,338
Sales tax payable [Member]
Total Accounts payable and Accrued expenses	144,553	144,541
Accrued officer consulting cost [Member]
Total Accounts payable and Accrued expenses	0	13,750
Other [Member]
Total Accounts payable and Accrued expenses	$ 42,223	$ 42,221

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Notes Payable (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Total notes payable	$ 924,216	$ 914,121
Less: discount and deferred finance costs	(114,599)	(121,309)
Less: current portion	(184,819)	(87,774)
Long term portion of notes payable	624,798	705,038
Note Payable April 2020 [Member]
Total notes payable	14,508	35,245
Note Payable March 2022 [Member]
Total notes payable	64,588	0
SBA loan May 2020 [Member]
Total notes payable	147,133	148,093
Note Payable September 2021 [Member]
Total notes payable	$ 697,987	$ 730,783

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Notes Payable (Details Narrative) - USD ($)			1 Months Ended				3 Months Ended		12 Months Ended
	Jun. 02, 2020	Feb. 06, 2020	Mar. 31, 2022	Sep. 29, 2021	Apr. 22, 2020	Dec. 31, 2019	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Amortization of debt discount						$ 14,835
Investor fees				$ 5,000
Financing fees				$ 27,500
Common stock to a lender				843,750
Deferred finance costs				$ 100,744
Repayment of notes							$ 71,576	$ 16,443
Payroll Protection Program [Member]
Interest rate	3.75%
Repayment of notes			$ 5,694
Debt discount and deferred finance costs to interest expense related to notes payable							6,710	$ 0
Proceeds from loan	$ 150,000			$ 1,000,000
Cash proceeds from an unsecured short term financing agreement			$ 81,671
Loan forgiveness							697,987		$ 730,783
Unamortized discount							$ 114,599		$ 121,309
Maturity date	Apr. 22, 2022
Debt description	payable monthly with payments of $731 beginning twelve months after issuance.			all revenue of the Company for the immediately preceding month multiplied by (ii) an applicable revenue percentage. On September 29, 2021, the Company borrowed $750,000 under the agreement and received initial cash proceeds of $727,500.
Inventory Financing Agreement [Member] | Lender [Member]
Maturity date					Apr. 22, 2020
Frequency of payment					monthly
Periodic payment, monthly					$ 7,467
Total outstanding payment					253,439
Deferred finance cost						$ 5,000
Repayment of debt					$ 74,231
Inventory financing arrangement, Description		The Company will repay $47,253 at maturity on April 6, 2020				The Company will repay $164,835 of principal and interest by February 29, 2020
Proceeds from lender		$ 43,000				$ 150,000

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Convertible Notes Payable and Derivative Liabilities (Details) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Total	$ 444,444	$ 7,444,444
Less: Debt discount and deferred finance costs on short-term convertible notes	0	(43,269)
Less: Current convertible notes payable, net of discount	(444,444)	(701,175)
Total long-term convertible notes payable, net	0	0
June 2019 Notes, Due December 21, 2022 [Member]
Total	444,444	444,444
February 2021 Note, Maturing February 15, 2022 [Member]
Total	$ 0	$ 300,000

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Convertible Notes Payable and Derivative Liabilities (Details 1)	3 Months Ended
	Mar. 31, 2022 USD ($) $ / shares
Exercise price	$ 0.44
Conversion Option [Member]
Volatility	67.36%
Dividend Yield	0.00%
Risk-free rate	1.40%
Expected term	1 year
Stock price	$ 0.0488
Exercise price	$ 0.18
Derivative Liability fair value | $	$ 594
Warrants [Member]
Dividend Yield	0.00%
Stock price	$ 0.0488
Derivative Liability fair value | $	$ 179,136
Warrants [Member] | Minimum [Member]
Volatility	67.36%
Risk-free rate	1.40%
Expected term	1 year
Exercise price	$ 0.18
Warrants [Member] | Maximum [Member]
Volatility	109.92%
Risk-free rate	2.33%
Expected term	5 years
Exercise price	$ 0.30

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Convertible Notes Payable and Derivative Liabilities (Details 2)	3 Months Ended
	Mar. 31, 2022 USD ($)
Fair value on the date of issuance of new derivatives	$ 141,020
Fair Value [Member]
Fair value, Beginning balance	325,808
Fair value on the date of issuance of new derivatives	141,020
Extinguishment due to repayment of debt	7,655
Gain on change in fair value of derivatives	(279,443)
Fair value, Ending balance	$ 179,730

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Convertible Notes Payable and Derivative Liabilities (Details Narrative) - USD ($)		1 Months Ended		3 Months Ended		12 Months Ended
	Jul. 09, 2021	Feb. 28, 2021	Feb. 15, 2021	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2020	Dec. 31, 2021
Fair value on the date of issuance of new derivatives				$ 141,020
Warrants granted				4,000,000
Amortization of debt discount				0	$ 43,269
Accrued interest				69,533			$ 4,338
Fair value of derivative liability				$ 287,098	532,367
Convertible notes payable	$ 444,444
Shares issued for subscriptions payable				2,800,000
Subscriptions payable liability balance				$ 499,999
Amortization of debt discount				$ 49,980	292,549
Common stock, shares par value				$ 0.001			$ 0.001
Proceeds from convertible notes payable				$ 81,671	$ 296,524
Convertible notes (June 2019 Notes) [Member]
Common stock shares issued for conversion of debt						7,883,599
Shares issued for subscriptions payable						2,777,778
Subscriptions payable liability balance				$ 499,999
Shares issued upon conversion of debt				5,105,821
Common stock shares issued for conversion of debt, Amount						$ 1,500,000
Convertible notes [Member] | Investors [Member]
Amortization of debt discount			$ 67,500
Principal amount			$ 675,000	$ 675,000
Bearing interest			10.00%
Maturity date			Feb. 15, 2022
Note balance in cash				375,000
Note balance				300,000
Deferred finance cost and issued, shares		200,000
Deferred finance cost and issued, amount		$ 72,000
Deferred finance		$ 37,500
Common stock warrants		767,045
Note defaults		$ 179,699
Convertible notes (June and July 2019 Notes) [Member]
Principal amount				$ 2,388,889
Maturity date				Mar. 25, 2020
Common stock, shares par value				$ 0.35
Proceeds from convertible notes payable				$ 1,583,333
Exercise price						$ 0.18

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Equity (Details)	3 Months Ended
	Mar. 31, 2022 USD ($) $ / shares shares
Aggregate Number
Aggregate number, Beginning | shares	11,189,056
Granted | shares	4,000,000
Exercised | shares	0
Forfeited and cancelled | shares	0
Aggregate number, Ending | shares	11,189,056
Aggregate Exercise Price
Aggregate exercise price, Beginning | $	$ 2,646,044
Granted | $	800,000
Exercised | $	0
Forfeited and cancelled | $	0
Aggregate exercise price, Ending | $	$ 3,446,044
Weighted average exercise price, Beginning | $ / shares	$ 0.20
Granted | $ / shares	0.41
Exercised | $ / shares	0.44
Forfeited and cancelled | $ / shares	0.00
Weighted average exercise price, Ending | $ / shares	$ 0.24

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Equity (Details Narrative) - USD ($)	1 Months Ended	2 Months Ended	3 Months Ended		12 Months Ended
	May 26, 2021	Feb. 28, 2022	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Common stock designated					200,000,000
Preferred stock designated					30,000,000
Common stock, shares par value			$ 0.001		$ 0.001
Par value, preferred stock			$ 0.001		$ 0.001
Shares remaining to be issued			2,222,223		2,222,223
Shares issued for subscriptions payable			2,800,000
Fair value of common stock			$ 69,990
Sale of common stock, shares		2,000,000
Subscriptions payable liability balance			$ 499,999
Weighted average remaining contractual life			2 years 8 months 1 day
Share price					$ 0.18
Price per unit					$ 0.18
Redemption value of series a preferred stock			$ 262,529		$ 259,422
Common stock shares issued			2,000,000
Warrants to purchase shares of common stock			4,000,000
Warrants to purchase shares of common stock, price per share			$ 0.20
Stock exercise price					$ 0.27
Proceeds from issuance of Series A preferred stock			$ 890,000	$ 0
Preferred stock values			$ 0		$ 0
Preferred stock, shares issued			0		0
Minimum [Member]
Increased the authorized common shares			230,000,000		100,000,000
Mr Mark Adamsand Mr David Hall [Member]
Shares remaining to be issued			2,777,778		2,777,778
Convertible debt converted and stock			2,160,494
Cumulative dividend percentage			5.00%
Scott Wessler [Member] | Series A Redeemable Preferred Stock [Member] | Subscription Agreement [Member]
Preferred stock values	$ 126,000
Preferred stock, shares issued	1,400,000
Price per share	$ 0.09
Preferred stock, Description	The Company created the 2,800,000 shares of Series A Preferred Stock out of the 10,000,000 shares of preferred stock authorized by the Company’s articles of incorporation by filing a certificate of designation as authorized by the Company’s board of directors (the “Certificate of Designation”).
Mr Adams [Member] | Series A Redeemable Preferred Stock [Member] | Subscription Agreement [Member]
Preferred stock values	$ 126,000
Preferred stock, shares issued	1,400,000
Price per share	$ 0.09

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Related Party (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Preferred stock values	$ 0	$ 0
Mr. Hall [Member]
Contribution amount	$ 100,000
Common stock of shares	555,555
Additonal shares receive	61,728
Preferred stock values	$ 126,000
Mr. Adams [Member]
Contribution amount	$ 250,000
Common stock of shares	1,388,885
Additonal shares receive	154,321
Preferred stock values	$ 126,000

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Commitments (Details) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Commitments (Details)
Operating lease cost	$ 6,703	$ 0
Short-term lease cost	28,655	20,629
Variable lease cost	0	0
Sublease income	0	0
Total lease cost	$ 35,358	$ 20,629

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Commitments (Details 1) - USD ($)	Mar. 31, 2022	Dec. 31, 2021
Commitments (Details)
Operating Leases	$ 100,877	$ 0
Right of use liability operating lease current portion	30,431	0
Right of use liability operating lease long term	72,249	0
Total operating lease liabilities	$ 102,680	$ 0

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Commitments (Details 2)	Mar. 31, 2022 USD ($)
Commitments (Details)
2022 (Nine months remaining)	$ 29,403
2023	40,511
2024	42,123
2025	7,065
2026 and thereafter	0
Total future undiscounted lease payments	119,102
Less: Interest	16,422
Present value of lease liabilities	$ 102,680

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Commitments (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	May 31, 2019	Mar. 31, 2022
Lease payments per month		$ 3,267
Lease payments increased percentage		4.00%
Right of use asset and lease liability		$ 105,822
Incremental borrowing rate, percentage		10.00%
Lease remaining term		2 years 10 months 24 days
Description for the extention of the lease term		February 15, 2022 through February 28, 2025
Daniel Davis [Member] | Consulting Agreement [Member] | Employment Agreement [Member]
Consulting services description	the Company for a period of up to three years beginning May 1, 2019 in exchange for $165,000 per year.

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Accrued Liabilities Other (Details Narrative)	Mar. 31, 2022 USD ($)
Significant Accounting Policies
Accrued Liabilities, Other	$ 577,906
Liabilities related to unfulfilled performance obligations	622,121
Accrued Liabilities - other	$ 1,696,374