U.S.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,, D.C. 20549
FORM 10-Q
x ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2017ended March 31, 2021
¨ OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________.
Commission file number: 0-27246File Number: 033-33263
|
( |
Nevada |
|
|
(State or other jurisdiction of incorporation or organization) |
| ( Identification No.) |
4440 Von Karman Avenue Suite 220 Newport Beach, CA | 92660 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 20 West Park Avenue, Suite 207, Long Beach, NY 11561(800) 605-3580
Address of registrant's principal executive offices
(516) 442-1883
Issuer’s telephone numberSecurities registered pursuant to Section 12(b) of the Act:
_______________________________
(Former name, former address and former
fiscal year, if changed since last report)
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 x☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). xYes ¨☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ | Accelerated filer |
|
Non-accelerated filer |
| 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). xYes ¨☐ No ☒
StateAs of April 13, 2021, the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: At February 14, 2018 there were 33,272,311registrant had 72,973,899 shares of common stock, $0.001 par value per share, outstanding.
PART I — FINANCIAL INFORMATION
Page | ||||
PART I — FINANCIAL INFORMATION | ||||
Item 1. | Financial Statements | |||
4 | ||||
Condensed Consolidated Statements of Operations and Comprehensive Loss | 5 | |||
6 | ||||
7 | ||||
8 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
21 | ||||
21 | ||||
22 | ||||
22 | ||||
22 | ||||
22 | ||||
22 | ||||
22 | ||||
23 | ||||
24 |
Item 1. Financial Statements.
China Grand Resorts, Inc.
Balance Sheets
As of June 30, September 30, Cash Prepaid Expenses TOTAL CURRENT ASSETS TOTAL OTHER ASSETS TOTAL ASSETS Accounts Payable Accrued Interest on Loans from Related Parties Loan from Related Parties TOTAL CURRENT LIABILTIES TOTAL LIABILITIES Common stock ($0.001 par value; 100,000,000 shares authorized; 33,272,311 shares issued and outstanding at June 30, 2017 and September 30, 2016) Additional Paid in Capital Accumulated Deficit TOTAL STOCKHOLDER'S EQUITY (DEFICIT) TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY/(DEFICIT)
2017
(Unaudited)
2016
(Audited)CURRENT ASSETS $ - $ - $ 5,000 $ - 5,000 - - - $ 5,000 $ - LIABILITIES CURRENT LIABILTIES 21,187 21,187 341,770 305,248 1,219,814 1,219,814 1,582,771 1,546,249 1,582,771 1,546,249 COMMITMENTS AND CONTIGENCIES $ - $ - STOCKHOLDER'S EQUITY 33,272 33,272 10,113,764 10,105,964 (11,724,807 ) (11,685,485 ) (1,577,771 ) (1,546,249 ) $ 5,000 $ -
2 |
Table of Contents |
Forward-Looking Statements
China Grand Resorts, Inc.
StatementsFor purposes of Operations
(Unaudited)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.
For the three months For the nine months June 30, June 30, June 30, June 30, Sales Total Revenue Provision for Income Taxes Net Income/(Loss) 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.
ended
ended
2017
2016
2017
2016$ - $ - $ - $ - $ - $ - $ - $ - EXPENSES: Selling, General and Administrative - 4,281 - 4,281 Depreciation Expense - - - - Professional Fees 1,715 1,674 2,800 1,674 Stock Compensation for Consulting Services - 30,000 - 30,000 Total Expense 1,715 35,955 2,800 35,955 Loss from operations $ (1,715 ) $ (35,955 ) $ (2,800 ) $ (35,955 ) OTHER INCOME/(EXPENSES): Interest Income - - - - Interest Expense (12,174 ) (12,174 ) (36,522 ) (36,522 ) Total Other Net Income/(Expense) $ (12,174 ) $ (12,174 ) $ (36,522 ) $ (36,522 ) Loss Before Income tax $ (13,889 ) $ (48,129 ) $ (39,322 ) $ (72,477 ) - - - - $ (13,889 ) $ (48,129 ) $ (39,322 ) $ (72,477 ) Weighted average common shares outstanding, basic and diluted 33,272,311 31,294,289 33,272,311 12,578,880 Basic and fully diluted net loss per common share: Net Income/(Loss) $ (0.000 ) $ (0.002 ) $ (0.001 ) $ (0.006 )
The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties.
3 |
Table of Contents |
| ||||||||
Condensed Consolidated Balance Sheets |
| |||||||
|
| |||||||
|
| (Unaudited) |
|
| (Audited) |
| ||
|
| March 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Assets |
| |||||||
|
|
|
|
|
|
| ||
Current Assets: |
|
|
|
|
|
| ||
Cash |
| $ | 941,413 |
|
| $ | 489,560 |
|
Accounts receivable, net |
|
| 311,745 |
|
|
| 292,835 |
|
Inventory, net |
|
| 173,274 |
|
|
| 189,423 |
|
Prepaid expenses |
|
| 31,600 |
|
|
| 148,459 |
|
Total Current Assets |
|
| 1,457,999 |
|
|
| 1,120,277 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 2,844 |
|
|
| 3,348 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
| $ | 1,460,843 |
|
| $ | 1,123,625 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit | ||||||||
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
| $ | 501,584 |
|
| $ | 681,439 |
|
Deferred revenue |
|
| 1,008,788 |
|
|
| 1,024,466 |
|
Convertible notes payable, current portion (net of discount $474,157 and $239,282, respectively) |
|
| 649,731 |
|
|
| 809,242 |
|
Notes payable, current portion |
|
| 389,994 |
|
|
| 109,104 |
|
Derivative liability |
|
| 1,266,409 |
|
|
| 1,305,106 |
|
Accrued liabilities - other |
|
| 1,696,223 |
|
|
| 1,696,223 |
|
Subscription payable |
|
| 499,999 |
|
|
| 1,055,555 |
|
Total Current Liabilities |
|
| 6,012,728 |
|
|
| 6,681,135 |
|
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
| 147,133 |
|
|
| 147,942 |
|
Total Liabilities |
|
| 6,159,861 |
|
|
| 6,829,077 |
|
|
|
|
|
|
|
|
|
|
Commitment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit: |
|
|
|
|
|
|
|
|
Preferred stock - 10,000,000 authorized, $0.001 par value, 0 shares issued and outstanding |
|
| - |
|
|
| - |
|
Common stock - 170,000,000 authorized, $0.001 par value, 72,547,763 and 66,366,419 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
| 72,548 |
|
|
| 66,366 |
|
Additional paid-in capital |
|
| 5,854,132 |
|
|
| 4,708,323 |
|
Shares payable, consisting of 3,611,112 and 4,421,662 shares of common shares as of March 31, 2021 and December 31, 2020, respectively |
|
| 508,317 |
|
|
| 645,192 |
|
Accumulated deficit |
|
| (11,134,015 | ) |
|
| (11,125,333 | ) |
Total Stockholders’ Deficit |
|
| (4,699,018 | ) |
|
| (5,705,452 | ) |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit |
| $ | 1,460,843 |
|
| $ | 1,123,625 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
China Grand Resorts, Inc.
Statements of Cash Flows
(unaudited)
For the nine months ended 2017 2016 Changes in Assets and Liabilities: Increase (decrease) in Accounts Payable and Other Accruals Increase (decrease) in Prepaid Expense Capital Contributions CASH PAID DURING THE PERIOD FOR: Interest Taxes
June 30,CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (39,322 ) $ (42,477 ) Amortization and Depreciation - - Interest Expense for Loans from Related Parties 36,522 36,522 Adjustments to reconcile net (loss) to net cash provided by (used in) operations: - (969 ) (5,000 ) - NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (7,800 ) (6,924 ) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES - FINANCING ACTIVITIES 7,800 6,924 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,800 6,924 NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS - - CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD - - END OF THE PERIOD $ - $ - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: $ - $ - $ - $ -
4 |
Table of Contents |
Condensed Consolidated Statements of Operations |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) |
|
| Three Months Ended |
|
| Three Months Ended |
| ||
|
| March 31, 2021 |
|
| March 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Sales |
| $ | 1,770,966 |
|
| $ | 653,222 |
|
|
|
|
|
|
|
|
|
|
Cost of Sales |
|
| 1,256,973 |
|
|
| 308,018 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 513,993 |
|
|
| 345,204 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
Salaries and wages (including contractors) |
|
| 329,083 |
|
|
| 253,129 |
|
Other selling, general and administrative expenses |
|
| 181,160 |
|
|
| 154,859 |
|
Total Operating Expenses |
|
| 510,243 |
|
|
| 407,988 |
|
|
|
|
|
|
|
|
|
|
Income (loss) from Operations |
|
| 3,750 |
|
|
| (62,784 | ) |
|
|
|
|
|
|
|
|
|
Other Expense |
|
|
|
|
|
|
|
|
Derivative gain (loss) |
|
| 532,367 |
|
|
| (3,742,107 | ) |
Interest expense |
|
| (348,651 | ) |
|
| (1,457,644 | ) |
Loss on conversion of notes payable |
|
| (58,642 | ) |
|
| - |
|
Loss on settlement of notes payable |
|
| (137,506 | ) |
|
| - |
|
Total Other Expense |
|
| (12,432 | ) |
|
| (5,199,751 | ) |
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (8,682 | ) |
| $ | (5,262,535 | ) |
|
|
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
Basic and diluted |
| $ | (0.00 | ) |
| $ | (0.08 | ) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
|
| 69,346,528 |
|
|
| 62,294,474 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
5 |
Table of Contents |
Condensed Consolidated Statements of Stockholders’ Deficit |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) |
|
| Common Stock, $.001 Par Value |
|
| Paid-In |
|
| Shares |
|
| Accumulated |
|
| Stockholders’ |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Payable |
|
| Deficit |
|
| Deficit |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, December 31, 2019 |
|
| 62,871,972 |
|
| $ | 62,872 |
|
| $ | 3,396,369 |
|
| $ | - |
|
| $ | (8,066,784 | ) |
| $ | (4,607,543 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt imputed interest |
|
| - |
|
|
| - |
|
|
| 151 |
|
|
| - |
|
|
| - |
|
|
| 151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion |
|
| 476,191 |
|
|
| 476 |
|
|
| 166,191 |
|
|
| 1,333,333 |
|
|
| - |
|
|
| 1,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock units |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 356,470 |
|
|
| - |
|
|
| 356,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Extinguishment of derivative liability due to conversion |
|
| - |
|
|
| - |
|
|
| 606,048 |
|
|
| - |
|
|
| - |
|
|
| 606,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,262,535 | ) |
|
| (5,262,535 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 |
|
| 63,348,163 |
|
| $ | 63,348 |
|
| $ | 4,168,759 |
|
| $ | 1,689,803 |
|
| $ | (13,329,319 | ) |
| $ | (7,407,409 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020 |
|
| 66,366,419 |
|
| $ | 66,366 |
|
| $ | 4,708,323 |
|
| $ | 645,192 |
|
| $ | (11,125,333 | ) |
| $ | (5,705,452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion |
|
| 3,086,420 |
|
|
| 3,087 |
|
|
| 611,111 |
|
|
| - |
|
|
| - |
|
|
| 614,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for deferred finance cost |
|
| 200,000 |
|
|
| 200 |
|
|
| 71,800 |
|
|
| - |
|
|
| - |
|
|
| 72,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of common stock units |
|
| 2,479,994 |
|
|
| 2,480 |
|
|
| 322,195 |
|
|
| (136,875 | ) |
|
| - |
|
|
| 187,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrants issued for settlement of notes payable |
|
| 414,930 |
|
|
| 415 |
|
|
| 140,703 |
|
|
| - |
|
|
| - |
|
|
| 141,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debt imputed interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (8,682 | ) |
|
| (8,682 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 |
|
| 72,547,763 |
|
| $ | 72,548 |
|
| $ | 5,854,132 |
|
| $ | 508,317 |
|
| $ | (11,134,015 | ) |
| $ | (4,699,018 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements
6 |
Table of Contents |
Condensed Consolidated Statements of Cash Flows |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) |
|
| Three Months Ended March 31, 2021 |
|
| Three Months Ended March 31, 2020 |
| ||
Cash Flows from Operating Activities |
|
|
|
|
|
| ||
Net loss |
| $ | (8,682 | ) |
| $ | (5,262,535 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation expense |
|
| 504 |
|
|
| 267 |
|
Loss on settlement of notes payable |
|
| 137,506 |
|
|
| - |
|
Loss on conversion of notes payable |
|
| 58,642 |
|
|
| - |
|
Imputed interest |
|
| - |
|
|
| 151 |
|
Amortization of debt discount |
|
| 292,549 |
|
|
| 1,426,698 |
|
Derivative (gain) loss |
|
| (532,367 | ) |
|
| 3,742,107 |
|
Net change in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (18,910 | ) |
|
| (33,808 | ) |
Inventory |
|
| 16,182 |
|
|
| 33,099 |
|
Prepaid expenses |
|
| 116,859 |
|
|
| 102,926 |
|
Right-of-use asset |
|
| - |
|
|
| 9,299 |
|
Accounts payable and accrued expenses |
|
| (168,775 | ) |
|
| (12,349 | ) |
Right-of-use liability |
|
| - |
|
|
| (9,837 | ) |
Other long-term liabilities |
|
| - |
|
|
| (41,250 | ) |
Deferred revenue |
|
| (15,678 | ) |
|
| (376,800 | ) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
| (122,170 | ) |
|
| (422,032 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from convertible notes payable |
|
| 570,000 |
|
|
| - |
|
Payment on convertible notes payable |
|
| (526,058 | ) |
|
| (70,000 | ) |
Proceeds from notes payable |
|
| 296,524 |
|
|
| 43,000 |
|
Payment on notes payable |
|
| (16,443 | ) |
|
| - |
|
Proceeds from sale of common stock units |
|
| 250,000 |
|
|
| 430,000 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
| 574,023 |
|
|
| 403,000 |
|
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
| 451,853 |
|
|
| (19,032 | ) |
|
|
|
|
|
|
|
|
|
Cash Balance, Beginning of Period |
|
| 489,560 |
|
|
| 453,623 |
|
|
|
|
|
|
|
|
|
|
Cash Balance, End of Period |
| $ | 941,413 |
|
| $ | 434,591 |
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
Income taxes |
| $ | - |
|
| $ | - |
|
Interest |
| $ | 48,444 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
Non-cash transactions: |
|
|
|
|
|
|
|
|
Common stock issued to settle convertible notes payable |
| $ | 614,198 |
|
| $ | 1,500,000 |
|
Derivative liability recognized at issuance of warrants and conversion option |
| $ | 493,670 |
|
| $ | 75,530 |
|
Extinguishment of derivative to conversion |
| $ | - |
|
| $ | 608,328 |
|
Common stock issued for deferred finance costs |
| $ | 72,000 |
|
| $ | - |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
7 |
Table of Contents |
NOTE A – BUSINESS ACTIVITYNotes to Condensed Consolidated Financial Statements
China Grand Resorts, Inc. (the "Company”)Note 1: Organization and Nature of Operations
Jacksam Corporation dba Convectium is a technology company focused on developing and commercializing products of vaporizer cartridge filling & capping, pre-roll filling, and other automation systems. The Company’s product line primarily consisted of the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, the “PreRoll-ER” pre-roll & cone filling machine, and customizable and C-Cell cartridges. The Company’s customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include medical and recreational dispensaries, large and small-scale processors and growers, multi-state operators, and distributors. The Company utilizes its direct sales force, website, strategic partners’ sales force, independent sales representatives, and a wide range of referral network to sell its products.
The Company was originally organized under the laws of the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. Effective on November 16, 2009, management at that time changed the name was changedof Fulton Ventures, Inc. to China Grand Resorts, Inc. After the JuneSeptember 30, 2014 10-Q filing, the management of the CompanyChina Grand Resorts, Inc. abandoned the Company and theits subsidiaries were taken back by the PRCChinese national companies in China who owned them. The remaining parent company, China Grand Resorts, Inc., became a dormant company until 2016 when a new shareholder acquired stock to becomeBryan Glass became the majority shareholder and owner of the Company. The Company’s fiscal year end is September 30th.
NOTE B – GOING CONCERNOn September 14, 2018, 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 on a going concern basis, which assumes the Company will realize its assets and discharge its liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company has a deficit accumulated of $11,724,807 and cash used in operations of $7,800 at June 30, 2017.
The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might arise because of this uncertainty.
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements included herein were prepared under Generally Accepted Accounting Principles (GAAP).
All adjustments have been made which in the opinion of management are necessary for presentation.
Interim filings should be read in conjunction with the Company’s annual report as of September 30, 2016.
Cash and Cash Equivalents - For purposes of the Statement of Cash Flows, the Company considers liquid investments with an original maturity of three months or less to be cash equivalents.
Management’s Use of Estimates - The preparation of financial statements in conformityaccordance 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 US dollars and are prepared on a historical cost basis, except for certain financial instruments which are carried at fair value.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Jacksam Corporation and its wholly owned subsidiary. All intercompany transactions and balances are eliminated in consolidation.
Use of Estimates
The preparation of financial statements is in conformity with U.S. GAAP and requires management to make estimates and assumptions that affect the amounts reported amounts ofin 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 disclosuresinventory, 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.
8 |
Table of Contents |
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.
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, 2021 and December 31, 2020, the Company had recorded an allowance for doubtful accounts of $74,000.
Inventory
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method or net realizable value. Cost principally consists of the purchase price (adjusted for lower of cost or market), customs, duties, and freight. The Company periodically reviews historical sales activity to determine potentially obsolete items and evaluates the impact of any anticipated changes in future demand.
The March 31, 2021 and December 31, 2020 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 24-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of March 31, 2021 and December 31, 2020, the Company has determined that no inventory allowance 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 the date of financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The financial statements above reflect all of the costs of doing business.
Revenue Recognition - The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all the following criteria are met:
Comprehensive Income (Loss) - The Company reports Comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the period covered in the financial statements.
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONT’D
Net Income per Common Share- Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were no potentially dilutive shares outstanding as of June 30, 2017.
Deferred Taxes- The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Fair Value of Financial Instruments- The carrying amounts reported in the balance sheet for cash, accounts receivable and payable approximate fair value based on an expected exit price as defined by the short-term maturity of these instruments.
Accounts Receivable- Accounts deemed uncollectible are written off in the year they become uncollectible. As of June 30, 2017 the balance in Accounts Receivable was $0.
Impairment of Long-Lived Assets- The Company evaluates the recoverability of its fixed assets and other assets in accordance with section 360-10-15 of the FASB Accounting Standards Codification for disclosures about Impairment or Disposal of Long-Lived Assets. Disclosure requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds its expected cash flows. If so, it is considered to be impaired and is written down toauthoritative guidance on fair value measurements, which is determinedrepresents 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 either discounted future cash flowsassumptions that market participants would use in pricing an asset or appraised values.liability. The Company adopted the statementauthoritative guidance on inception. No impairments of these types of assets were recognized during the periods ended June 30, 2017.
Stock-Based Compensation- The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requiresmeasurements establishes a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.
Fair Value for Financial Assets and Financial Liabilities- The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes aconsistent framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establisheson either a fair value hierarchy which prioritizes therecurring or nonrecurring basis whereby inputs, toused in valuation techniques, usedare assigned a hierarchical level.
9 |
Table of Contents |
The following are the hierarchical levels of inputs to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:value:
· | Level 1 |
|
|
| |
· | Level 2 |
|
|
| |
· | Level 3 |
|
NOTE C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONT’D
The carrying amounts of the Company’s financial assets and liabilities, such as cash, andprepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and an approximate of their fair values because of the short maturity of these instruments. The Company’s note payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangement at June 30, 2017.
Binomial Calculation Model
The Company does not have any assets oruses a binomial calculator model to determine fair market value of derivative liabilities, measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assetswarrants and liabilities measured at fair value at June 30, 2017, nor gains or losses are reported in the statement of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date for the periods ended June 30, 2017.options issued.
Recently Issued Accounting PronouncementsRevenue Recognition
In May 2014,The Company derives revenues from the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance requires an entity to recognizesale of machines and consumable products. Revenues are recognized when control of the revenue to depict the transfer of promised goods or services is transferred to customersthe customer in an amount that reflects the consideration to which the entityCompany 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 consumable products are recognized when all the following criteria are satisfied: (i) a contract with an end user exists which has commercial substance; (ii) it is probable the Company will collect the amount charged to the end user; and (iii) the Company has completed its performance obligation whereby the end user has obtained control of the product. A contract with commercial substance exists once the Company receives and accepts a purchase order or once it enters into a contract with an end user. If collectability is not probable, the sale is deferred and not recognized until collection is probable or payment is received. Control of products typically transfers when title and risk of ownership of the product has transferred to the customer. The customer has a 10-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 consumable products.
10 |
Table of Contents |
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, 2021, none of the Company’s contracts contained a significant financing component.
The Company elected the practical expedient to not adjust the amount of revenue to be recognized under a contract with an end user for the effects of time value of money when the timing difference between receipt of payment and recognition of revenue is less than one year.
The majority of the Company’s contracts offer an assurance-type warranty of the products at no additional cost for a period of 3 years. Assurance-type warranties provide a customer with assurance that the related product will function as the parties intended because it complies with agreed-upon specifications. Such warranties do not represent a separate performance obligation. At the time a sale is recognized, the Company estimated future warranty costs, which were trivial.
Transaction Price Allocated to the Remaining Performance Obligations
At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of March 31, 2021, $1,008,788 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 new guidance supersedes the revenue requirements inCompany reviews and updates these estimates regularly.
Disaggregation of Revenue Recognition (Topic 605)
All machine sales and most industry-specific guidance throughoutconsumable products sales are completed in North America.
|
| Three Months Ended March 31, 2021 |
|
| Three Months Ended March 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Machine sales |
| $ | 1,658,668 |
|
| $ | 568,204 |
|
Consumable product sales |
|
| 112,298 |
|
|
| 85,018 |
|
Total sales |
| $ | 1,770,966 |
|
| $ | 653,222 |
|
11 |
Table of Contents |
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the Industry Topicsweighted-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. During the three months ended March 31, 2021 and 2020, common stock equivalents were excluded from the calculation of diluted net loss per common share, as their effect was anti-dilutive due to the net loss incurred. Therefore, basic and diluted net loss per share was the same in all periods presented.
The Company had 13,434,326 and 23,814,676 potentially dilutive securities that have been excluded from the computation of diluted weighted-average shares outstanding as of March 31, 2021 and 2020, respectively, as they would be anti-dilutive. Additionally, 1,443,333 shares of common stock issued during the year ended December 31, 2020 under a share lending arrangement, 2,777,778 shares related to conversions of notes payable in fiscal year 2020 that have not yet been issued, and 3,611,112 shares to be issued as part of the Codification. share payable equity balance are excluded from the calculation of weighted-average shares outstanding.
Going Concern
The new guidanceCompany’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 apply to lease contracts within the scope of Leases (Topic 840). In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), which delayed the effective date of the new guidance by one year, which will result in the new guidance being effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted, but can be no earlier than the original public entity effective date of fiscal years, and interim periods within those years, beginning after December 15, 2016. The Company is evaluating the impact of adopting the new guidance on its financial statements, but does not expect the adoption to have a material impact onsource of revenues sufficient to cover its financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, that requires management to evaluate whether there are conditions and events thatoperating costs. These factors raise substantial doubt about an entity’sthe Company’s ability to continue as a going concern. Until now, the requirement to perform a going concern evaluation existed only in auditing standards.
The new guidance requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable asability of the evaluation date when determining whether substantial doubt about an entity’s abilityCompany to continue as a going concern exists. Management willis 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 required to make this evaluation for both annual and interim reporting periods. The standard states substantial doubt about an entity’s abilitynecessary if the Company is unable to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The guidance is effective for annual periods ending after December 15, 2016 and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.concern.
In February 2016,the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the SEC, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.
Historically, it has mostly relied upon convertible notes payable and cash flows from operations to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse effect upon it and its shareholders.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued ASU 2016-02, Leases, amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheetsthat are not yet effective and making targeted changes to lessor accounting. The new standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The guidance will be effective in the first quarter of 2019 and allows for early adoption. The Company is assessing whether the new standard willnot have a material effect on its consolidated financial position or results of operations.operations upon adoption.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash ReceiptsNote 3: Property and Cash Payments (a consensus of the Emerging Issues Task Force), that clarifies how certain cash receipts and cash payments should be classified on the statement of cash flows. This ASU addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company does not expect there to be a material impact from adopting this new guidance.
NOTE D – SEGMENT REPORTING
The Company follows the guidance set forth by section 280-10 of the FASB Accounting Standards Codification for reportingProperty and disclosure on operating segments of the Company. It also requires segment disclosures about products and services, geographic areas, and major customers. The Company determined that it did not have any separately reportable operating segments as of June 30, 2017.
NOTE E – ACCOUNTS PAYABLE PRIOR TO COMPANY BEING ABANDONED
Other payablesequipment consist of the following:
|
| June 30, |
| |
Professional Fees |
| $ | 2,000 |
|
Office Expenses |
| $ | 19,187 |
|
Total |
| $ | 21,187 |
|
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Furniture and fixtures |
| $ | 10,425 |
|
| $ | 10,425 |
|
Equipment |
|
| 7,579 |
|
|
| 7,579 |
|
Trade show display |
|
| 2,640 |
|
|
| 2,640 |
|
Total |
|
| 20,644 |
|
|
| 20,644 |
|
Less: Accumulated depreciation |
|
| (17,800 | ) |
|
| (17,296 | ) |
Property and equipment, net |
| $ | 2,844 |
|
| $ | 3,348 |
|
NOTE F – RELATED PARTY TRANSACTIONS PRIOR TO COMPANY BEING ABANDONEDDepreciation expense amounted to $504 and $267 for the three months ended March 31, 2021 and 2020, respectively.
|
| June 30, |
| |
Redrock Capital Venture Limited (a) |
| $ | 100,281 |
|
Beijing Hua Hui Hengye Investment Limited (b) |
|
| 1,119,533 |
|
Total |
| $ | 1,219,814 |
|
12 |
Table of Contents |
Note 4: Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 176,714 |
|
| $ | 279,207 |
|
Credit cards payable |
|
| - |
|
|
| 23,445 |
|
Accrued interest |
|
| 4,762 |
|
|
| 4,931 |
|
Sales tax payable |
|
| 140,386 |
|
|
| 141,803 |
|
Accrued officer consulting cost |
|
| 137,500 |
|
|
| 178,750 |
|
Other |
|
| 42,222 |
|
|
| 53,303 |
|
Total Accounts payable and Accrued expenses |
| $ | 501,584 |
|
| $ | 681,439 |
|
Note 5: Notes Payable
A summary of Notes Payable are as follows:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
Note payable December 2019 |
|
| 90,703 |
|
|
| 107,146 |
|
SBA loan May 2020 |
|
| 149,900 |
|
|
| 149,900 |
|
SBA loan February 2021 |
|
| 296,524 |
|
|
| - |
|
Total notes payable |
|
| 537,127 |
|
|
| 257,046 |
|
Less: current portion |
|
| (389,994 | ) |
|
| (109,104 | ) |
Long-term portion of notes payable |
| $ | 147,133 |
|
|
| 147,942 |
|
The Company received a loan of $296,524 from the Small Business Administration in February 2021.
Note 6: Convertible Notes Payable and Derivative Liabilities
Convertible Notes Payable
The following table summarizes outstanding convertible notes as of March 31, 2021 and December 31, 2020:
|
| March 31, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
|
| ||
June 2019 Notes, maturing March 25, 2020 |
|
| 448,888 |
|
|
| 448,888 |
|
June 2020 Note 1, maturing June 4, 2021 |
|
| - |
|
|
| 119,078 |
|
June 2020 Note 2, maturing June 24, 2021 |
|
| - |
|
|
| 87,779 |
|
June 2020 Note 3, maturing June 24, 2021 |
|
| - |
|
|
| 87,779 |
|
November 2020 Note, maturing November 23, 2021 |
|
| - |
|
|
| 305,000 |
|
February 2021 Note, maturing February 15, 2022 |
|
| 675,000 |
|
|
| - |
|
Total |
|
| 1,123,888 |
|
|
| 1,048,524 |
|
Less: Debt discount and deferred finance costs on short-term convertible notes |
|
| (474,159 | ) |
|
| (239,282 | ) |
Less: Current convertible notes payable, net of discount |
|
| (649,731 | ) |
|
| (809,242 | ) |
|
|
|
|
|
|
|
|
|
Total long-term convertible notes payable, net |
| $ | - |
|
| $ | - |
|
13 |
Table of Contents |
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 March 31, 2021 and 2,777,778 were part of subscriptions payable liability balance of $499,999.
On May 19, 2020, the holder of $444,444 of the notes agreed to extend the repayment period to December 31, 2020. On January 29, 2021, the holder of $444,444 of the notes agreed to extend the repayment period to June 30, 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 balance of this note was $675,000 as of March 31, 2021. The Company used proceeds from this note payable to pay in full the June 2020 Notes and the November 2020 Note.
On February 22, 2021, the Company entered into a settlement agreement with the holder of the June 2020 Note 2. The agreement allowed for the holder to convert all principal into 414,930 shares of common stock in full settlement of the note. The holder also received 207,465 warrants to purchase shares of common stock at an exercise price of $0.18 per share. The warrants had a fair value of $55,273 and were recorded as a derivative liability due to the variable number of shares to be issued under the Company’s dilutive instruments. The Company recognized a loss of $137,506 under this settlement agreement.
The Company amortized $292,549 and $1,426,698 of debt discount and deferred finance costs to interest expense related to convertible notes payable during the three months ended March 31, 2021 and 2020, respectively. Accrued interest on notes payable and convertible notes payable was $4,762 and $4,931 as of March 31, 2021 and December 31, 2020, respectively.
14 |
Table of Contents |
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, 2021 |
| |||||
|
| Conversion Option |
|
| Warrants |
| ||
|
|
|
|
| ||||
Volatility |
| 132.74-147.00 | % |
| 117.47-126.64 | % | ||
Dividend Yield |
|
| 0 | % |
|
| 0 | % |
Risk-free rate |
| 0.05-0.07 | % |
|
| 0.17 | % | |
Expected term |
| 0.50-1 year |
|
| 2-4 years |
| ||
Stock price |
| $ | 0.178 |
|
| $ | 0.178 |
|
Exercise price |
| $0.18-$0.20 |
|
| $ | 0.44 |
| |
Derivative liability fair value |
| $ | 408,933 |
|
| $ | 857,476 |
|
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, 2021:
Fair value as of December 31, 2020 |
| $ | 1,305,106 |
|
Fair value on the date of issuance of new derivatives |
|
| 493,670 |
|
Gain on change in fair value of derivatives |
|
| (532,367 | ) |
Fair value as of March 31, 2021 |
| $ | 1,266,409 |
|
Note 7: Equity
Common Stock
During the three months ended March 31, 2021, the Company issued 414,930 shares of common stock related to the conversion of $73,578 of Convertible Notes Payable.
During the three months ended March 31, 2021, the Company received $250,000 of cash proceeds related to sale of 1,388,889 common stock units at $0.18 per unit. Each $0.18 unit consists of a share of common stock and a warrant to purchase half a share of common stock at an exercise price of $0.27, for a period of three years from issuance. These shares have not yet been issued. In January and February 2021, the Company issued 2,479,994 shares related to common stock unit subscriptions from the year ended December 31, 2020, with 2,222,223 shares remaining to be issued.
The Company also issued 3,086,420 shares related to conversions of notes payable during the year ended December 31, 2020 associated with the subscription payable liability balance, and recognized a loss of $58,642. As of March 31, 2021, there are 2,777,778 shares remaining to be issued related to 2020 debt conversions, with 2,160,494 of those shares remaining to be issued to Mr. Mark Adams and Mr. David Hall.
During the three months ended March 31, 2021, the Company issued a total of 200,000 shares of common stock to a lender in connection with the convertible notes payable issued during the period. These shares had a fair value of $72,000 and were recorded as deferred finance costs.
15 |
Table of Contents |
Stock Warrants
A summary of stock warrant information is as follows:
|
| Aggregate Number |
|
| Aggregate Exercise Price |
|
| Weighted Average Exercise Price |
| |||
|
|
|
|
|
|
|
|
|
| |||
Outstanding at December 31, 2020 |
|
| 9,378,056 |
|
| $ | 1,921,200 |
|
| $ | 0.20 |
|
Granted |
|
| 1,668,954 |
|
|
| 562,343 |
|
|
| 0.34 |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited and cancelled |
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding at March 31, 2021 |
|
| 11,047,010 |
|
| $ | 2,483,543 |
|
| $ | 0.22 |
|
The weighted average remaining contractual life is approximately 2.95 years for stock warrants outstanding with no intrinsic value of as of March 31, 2021. All of the above warrants were fully vested.
Note 8: Related Party
Mark Adams, CEO, and David Hall, EVP of Sales invested in the June 2019 Notes. Mr. Adams and Mr. 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. Mr. Adams and Mr. 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.
Note 9: Commitments
Employment Agreement
In December 2017, the Company entered into an employment agreement with Daniel Davis and Mark Adams. As of the Effective Date, and for one year of the date therefrom, the Executive’s annual salary shall be equal to $180,000 and $120,000, respectively, per annum (the “Annual Salary”). The Annual Salary shall be paid to the Executive in equal installments in accordance with the Company’s usual payroll practices.
Executive’s Annual Salary shall increase automatically at the rate of five percent (5%) per year for four years, beginning on the anniversary date of the Effective Date. In addition to the automatic raises set forth above, the Annual Salary may also be increased from time to time by merit and general increases in amounts determined by the Board.
Performance Bonus. In addition to the Annual Salary, the Executive is eligible to earn an annual bonus of up to thirty percent (30%) of Executive’s Annual Salary (the “Performance Bonus”). The amount of the Performance Bonus will be determined in good faith by the Board, based upon the following factors:
(a) | Fifty percent (50%) of the |
|
|
(b) | Fifty percent (50%) of the Performance Bonus shall be based upon the achievement of Company |
The initial set of performance objectives, both for Executive individually and for the Company, will be reasonably established by the Board within sixty (60) days of the Effective Date of this Agreement. Subsequent performance objectives, both for Executive individually and for the Company, will be reasonably established by the Board within sixty (60) days of the beginning of the calendar year to which the Performance Bonus relates. The Performance Bonus shall be paid to Executive in the first regular payroll period after the Board makes a good faith determination that such Performance Bonus has been earned, but in no event shall the Performance Bonus be paid later than March 1 of the calendar year immediately following the calendar year in which the bonus was earned.
In addition to salary, the agreement provided for the option of 1,000,000 common shares of the Company, which shall vest at a rate of 28,000 share for each full one-month period worked from the Effective Date. If this Agreement is terminated pursuant to written notice by the Company to the Executive on or before the date that is one year after the Effective Date, all the options shall vest and the Executive shall retain the options subject to their terms and the terms hereof. The options may contain terms providing the issuer the right to accelerate vesting and/or require the exercise of options prior to the initial public offering and listing of the issuer. The Company may arrange for the grant of additional options to the Executive from time to time based on the Executive’s performance and other relevant factors as the Board may determine in its discretion.
NOTE G – CAPITAL STOCKAll options to purchase Holdings Shares granted to the Executive shall be subject to the terms of the stock option agreement pursuant to which they are granted and the terms of the stock option plan under which they are granted in effect from time to time. Shares issuable on exercise of the options shall be subject to any escrow, trading restriction, or other requirement imposed by any stock exchange or securities regulatory authority upon initial public offering or listing of the shares. The Executive shall take such steps and execute and deliver such documents as may be required to affect the foregoing.
The Company may terminate Executive’s employment for Cause immediately upon Notice from the Company to Executive. For purposes of this Agreement, “Cause” shall mean the occurrence of any of the following: (i) Executive’s conviction of or plea of nolo contendere to any felony crime involving fraud, dishonesty, or moral turpitude; (ii) Executive’s commission of, or participation in, a fraud against the Company. In the event Executive’s employment is authorizedterminated for Cause, the Company shall have no further obligations to issue 100,000,000 Common Shares at $.001 par value per share.the Executive other than to pay all compensation and expense reimbursements owing for services rendered and reasonable business expenses incurred by Executive prior to the effective date of such termination.
In April 2016, 30,000,000 shares were issuedUpon termination of this agreement pursuant, the Company shall provide to new owner, Bryan Glass at par.the Executive:
Total issued and outstanding shares as of June 30, 2017 were 33,272,311.
Majority shareholder, Bryan Glass contributed $14,724 for expenses and fees to reinstate the Company, as indicated in the table below. This money is booked as a capital contribution.
April 2016: |
|
| $ | 6,924 |
|
December 2016: |
|
|
| 450 |
|
February 2017 |
|
|
| 355 |
|
March 2017 |
|
|
| 280 |
|
April 2017 |
|
|
| 385 |
|
May 2017 |
|
|
| 586 |
|
June 2017 |
|
|
| 5,744 |
|
Total: |
|
| $ | 14,724 |
|
NOTE H – INCOME TAX
The Company provides for income taxes under (now included under Accounting Standards Codification (ASC), 740), Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.
ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. For Federal income tax purposes, the Company has net operating loss carry forwards that expire through 2030. The net operating loss as of June 30, 2017 is approximately $39,300 and as of June 30, 2016 is $42,400 approximately
No tax benefit has been reported in the financial statements because after evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 34% to the net loss before provision for income taxes for the following reasons:
|
| For the periods |
| |||||
Net Change in Deferred Tax Asset: |
| June 30, |
|
| June 30, |
| ||
NOL Carry Forward |
| $ | 39,322 |
|
| $ | 42,477 |
|
Valuation Allowance |
| $ | (39,322 | ) |
| $ | (42,477 | ) |
Deferred Tax Asset: |
| $ | - |
|
| $ | - |
|
The Company is not obligated to pay State Income Taxes because it is a Nevada corporation.
NOTE I – MATERIAL EVENT/SUBSEQUENT EVENTS
Amended and Restated Articles of Incorporation
On May 5, 2016, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of the State of Nevada. The principal amendments to the articles of incorporation, as amended through the date of the filing of the Amended and Restated Articles of Incorporation include:
| (a) | A lump sum payment equal to the |
|
|
|
| (b) | if applicable, to the |
|
|
|
| (c) | any other amounts (including but not limited to any earned Performance Bonus during the |
Related Party TransactionIf a Change of Control occurs and the Executive is not offered continued employment on a comparable basis after the Change of Control, the Executive shall be entitled to receive, within thirty (30) days after the Change of Control, a sum equivalent to twelve (12) months’ Annual Salary, plus an additional 4% of Annual Salary in lieu of benefits, and any Performance Bonus that has been earned by Executive prior to the effective date of the Executive’s termination from the Company. Thereafter, the Company shall have no further obligations to the Executive under this Agreement other than payment of any other amounts accrued as owing to the Executive under this Agreement as of the date the Change of Control occurs.
On May 6, 2016,31, 2019, the Company entered into a consulting agreement with Bryan Glass pursuantDaniel Davis related to which it retainedhis departure from employment with the Company. The agreement requires Mr. GlassDavis to identify and negotiate with persons or entities with whichprovide limited consulting services to the Company might enterfor a period of up to three years beginning May 1, 2019 in exchange for $165,000 per year. During the year ended December 31, 2020, the Company and Daniel Davis agreed to accelerate the payment of a portion of the consulting agreement, with the maturity period ending three months earlier than the original agreement. The Company made payments of $192,500 through December 31, 2020, and payments of $41,250, leaving a balance of $137,500 in accounts payable as of March 31, 2021. In addition, the Company entered into a business transactionlock up agreement with Mr. Davis that restricts the number of shares Mr. Davis can otherwise publicly sell for a period of up to create an operating entity, in considerationthree years to one third of the volume limits set forth under SEC Rule 144. Mr. Davis also agreed to a standstill agreement that provides that for which servicesa period of up to three years Mr. Davis will not seek to influence the Company issued to Mr. Glass 30 million shares of common stock. Mr. Glass has subsequently paid $14,724 on behalfgovernance of the Company, for the filing and registration feesincluding by participation in any solicitation of other shareholders, promotion of any extraordinary transaction, nomination of any candidate to the StateBoard or by seeking the removal of Nevada to reinstate the Company to active status.any existing directors.
Amended and Restated BylawsLeases
On October 24, 2017,The Company entered into a lease agreement on March 1, 2021, for a term beginning April 1, 2021 through February 28, 2022. The lease requires payments of $5,000 per month through the board of directorslease term, with no option to renew. Based on the short-term nature of the Company adopted Amended and Restated Bylaws to replace the prior bylaws in their entirety. The Amended and Restated Bylaws are intended to reflect the existing status of Nevada corporate law as of the date of their adoption and replace outdated provisions included inlease, no right-of-use asset or liability was recognized on the Company’s original bylaws.consolidated balance sheet.
The Company also maintains short-term rental agreements for certain storage facilities. Total rent expense for these rental agreements was $20,629 and $7,858 for the three months ended March 31, 2021 and 2020, respectively.
Table of Contents |
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 $1,642,118, but does not believes that is sufficient to remove the liability from the financial statements. Management does not intend to remove these liabilities of $1,642,118 from the Company’s financial statements until such time that the liability is formally settled or judicially released in accordance with ASC 405-20-40. Due to the lack of written agreements and other factors noted above, management concluded to no longer accrue interest on these loans.
Note 11: Subsequent Events
Subsequent to March 31, 2021, 860,000 shares under the share lending arrangements with debt holders were returned to the Company and cancelled in connection with retirement of the convertible notes payable during the three months ended March 31, 2021.
18 |
Table of Contents |
Statements, other than historical facts, contained in this Quarterly ReportThis 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 Form 10-Q, including statements of potential acquisitions and our strategies, plans and objectives, are "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Although we believe that our forward looking statements are based on reasonable assumptions, we caution thatwhich such statements are subject to a wide rangebased. Prospective investors are cautioned that any such forward-looking statements are not guarantees of risks, trendsfuture 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 projected. Among those risks, trends and uncertainties are important factors that could cause actual results to differ materially from the forward looking statements, including, but not limited to; the time management devotes to identifying a target business; management’s ability to consummate a business combination; the financial condition of the target company with which we may enter a business combination; the effect of existing and future laws; governmental regulations; the political and economic climate of the United States; and conditions in the capital markets.forward-looking statements. We undertake no dutyobligation to update or revise these forward-looking statements.
When used in this Form 10-Q, the words, "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate" and similar expressions are intended to identify forward-looking statements although not all forward-looking statements contain these identifying words. Because these forward-looking statements involve risksto 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 uncertainties,known about our business and operations. No assurances are made that actual results couldof operations or the results of our future activities will not differ materially from those expressed or implied by these forward-looking statementsour assumptions. Factors that could cause differences include, but are not limited to, expected market demand for a numberour products, fluctuations in pricing of important reasons.our products, and competition.
General BackgroundThe 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 Registrantconsolidated financial statements and related notes thereto included elsewhere in this report.
China Grand Resorts, Inc. (“we,” “us,” “our” or the “Company”)Overview
The Company was originally incorporated in the State of Nevada on September 21, 1989 under the name of Fulton Ventures, Inc. On September 19, 2002, we changed our name to Asia Premium Television Group, Inc. to more accurately reflect our business atSince incorporated, the time. Effective November 16, 2009, we changed our name to China Grand Resorts, Inc. to more accurately reflect its new business efforts. Commencing in 2002, we acquired and sold a series of subsidiary entities that were incorporated in various foreign jurisdictions, including the People’s Republic of China, or PRC, Macau, Hong Kong and the British Virgin Islands. Through 2009, these subsidiariesCompany has engaged in a variety of businesses, including, principally, marketing, brandbut 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 advertising, media planning, public relations and direct marketing servicescontinued to clientsoperate 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 PRC.medical and recreational cannabis, hemp, and CBD industries.
Basis of Presentation
The Company discontinued filing periodic reports under the Securities Exchange Actcondensed consolidated financial statements of 1934, as amended (the “Exchange Act”), after it filed a quarterly report on Form 10-Q for the period ended June 30, 2014 (the “June 2014 10-Q”) on August 14, 2014. As reported in the Company’s annual report on Form 10-K for the year ended September 20, 2013 (the last periodic report filed under the Exchange Act with which the Company furnished audited financial statements) and the June 2014 10-Q, the Company was engaged, through its subsidiaries, in the provision of mobile phone based services in the PRC through Sun New Media Transaction Services Ltd., a Hong Kong corporation, and real estate investment in the PRC through Key Proper Holdings Limited, a British Virgin Islands corporation.
Since the filing of the June 2014 10-Q, current management is not aware of any contact between the Company and incumbent managementJacksam Corporation as of the filing of the June 2014 10-Q, which we refer to as prior management, nor does current management have any knowledge or information relating to the business operations conducted by the Company or its subsidiaries as of that date, other than as reported in the periodic reports it filed with the SEC. Current management does not have in its possession any records of the Company prior to its taking operational control of the Company in April 2016, other than documents filed with or furnished to the SEC. The financial statements for the threeMarch 31, 2021, and nine months ended June 30, 2017 that are furnished with this report have been prepared under the assumption that prior management abandoned the business of the Company and appropriated all of the Company’s assets as of July 1, 2014, including its operating subsidiaries, all of which were organized under foreign jurisdictions.
On April 4, 2016, Bryan Glass was appointed to serve as the custodian of the Company pursuant to an order of the District Court of Clark County Nevada and was authorized to take any action on behalf of the Company for the benefit of the Company and otherwise to reinstate the Company’s corporate existence in Nevada and convene a shareholders’ meeting to elect directors of the Company.
On April 5, 2016, the Company entered into a consulting agreement with Mr. Glass under which he agreed to take all the steps reasonably necessary, beyond reinstatement of the corporation in Nevada and holding a shareholders meeting, to create an operating entity, in consideration for which services the Company issued to Mr. Glass 30 million shares of common stock.
The Company held a shareholders meeting on May 4, 2016 at which Mr. Glass was elected as the sole director of the Company and the shareholders adopted and approved Amended and Restated Articles of Incorporation After Issuance of Stock. As of the date hereof, Mr. Glass, who we refer to as management, serves as our only director and officer.
Business Objectives of the Registrant
As of the date of this report, we have no current operations. Management has determined to direct our efforts and limited resources to pursue potential new business opportunities through a combination with an operating or development stage company or an acquisition of assets. We do not intend to limit ourselves to a particular industry and we have not established any particular criteria upon which we shall consider and proceed with a business opportunity. We expect to utilize our capital stock, debt or a combination of capital stock and debt, in effecting a business transaction. It may be expected that entering into a business transaction will involve the issuance of restricted shares of capital stock. The issuance of additional shares of our capital stock:
Based on our current business activities, we are a “shell company” as defined under the Exchange Act because we have no operations and nominal assets consisting solely of cash and/or cash equivalents. We are also a “blank check” company as defined under the Exchange Act because we are a development stage company that is issuing a “penny stock” (as defined under the Exchange Act) and have no specific business plan or purpose other than to merge with an unidentified company or companies. Our status as a blank check company and a shell company will impact our company and shareholders in many ways, including:
Further, the Company’s financial condition, including current liabilities as of $1,582,771 at June 30, 2016 and $1,546,249 at September 30, 2016 (the last year for which the Company’s audited financial statements are available), may be a significant impediment to identifying and consummating a business transaction.
Our management has broad discretion with respect to identifying and selecting a prospective business opportunity. We have not established any specific attributes or criteria (financial or otherwise) for a business opportunity and we may enter into a business combination with a development stage company, a distressed company or a foreign company engaged in any industry or we may purchase raw assets. Our management has never served in any capacity as management of a development stage public company that has consummated a business transaction such as that contemplated by us. Accordingly, our management may not successfully identify a prospective business opportunity or conclude a business transaction. In addition, our management engages in other business activities and is not obligated to devote any specific number of hours to our matters. Management intends to devote only as much time as it deems necessary to our affairs.
We anticipate that the selection of an appropriate business opportunity will be complex and extremely risky and we cannot assure you that we will be successful in concluding a transaction or if we do, that we will be successful thereafter. Our lack of financial and personnel resources may negatively impact our ability to consummate an attractive transaction or cause us to discontinue operations before we enter such a transaction.
We cannot assure you that we will be successful in concluding a business transaction. We will not realize any revenues or generate any income unless and until we successfully merge with or acquire an operating business that is generating revenues and otherwise is operating profitably. Moreover, we can offer no guarantee that we will achieve long-term or immediate short-term earnings from any business transaction.
Any entity with which we enter into a business transaction will be subject to numerous risks in connection with its operations. To the extent we affect a business transaction with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of such companies. If we consummate a business transaction with a foreign entity, we will be subject to all of the risks attendant to foreign operations. Although our management will endeavor to evaluate the risks inherent in a particular opportunity, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Our management anticipates that our Company likely will affect only one business transaction, due primarily to our limited financial resources and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management's plan to offer a controlling interest to a target in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us because it will not permit us to offset potential losses from one venture against potential gains from another.
Our common stock has been subject to quotation on the pink sheets under the symbol “CGND.” There is currently no active trading market in our shares nor do we believe that any active trading market has existed for the last 3 years. There can be no assurance that there will be an active trading market for our securities following the date hereof. In the event that an active trading market commences, there can be no assurance as to the market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.
Results of Operations
Results of Operations for the three months ended June 30, 2017March 31, 2021 and 2020, include a summary of our significant accounting policies and should be read in conjunction with the discussion below. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such interim periods have been included in these financial statements. All such adjustments are of a normal recurring nature.
Components of Statements of Operations
Revenue
Product revenue consists of sales of 710 Shark filling machines, 710 Captain capping machines, “PreRoll-ER” pre-roll & cone filling machines, cartridges, accessories, warranty, service and freight charges, net of returns, discounts and allowances. Once a sales order is negotiated and received by a sales representative, we generally collect a 50% deposit from the customer. When the product is ready to be shipped, the customer will generally pay the remaining balance. We recognize the revenue when the product leaves the warehouse on the way to the customer.
For the filling and capping machines, training is coordinated with the customers in accordance with their availability but generally completed within a week or two of the shipment. Standard warranties are offered at no cost to customers to cover parts for three years, and labor and maintenance are offered for one year for product defects.
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 consist primarily of compensation, benefits, travel and other costs for our direct sales force and project managers. Sales and marketing expenses also include costs associated with our business development efforts with our distributors and partners and costs related to trade shows and other marketing programs. We expense sales and marketing costs as incurred. We expect sales and marketing expenses to increase in future periods as we expand our sales and marketing teams and increase our participation in global trade shows and other marketing programs.
General and Administrative. Our general and administrative expenses consist primarily of compensation, benefits, travel and other costs for employees with non-sales roles. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, and allocations of overhead costs, such as rent, facilities and information technology. In the near term, we expect general and administrative expenses to decrease driven by our cost reduction initiatives. In the long term, we expect general and administrative expenses to increase as we grow our business.
19 |
Table of Contents |
Interest Expense
Interest expense consists primarily of interest from notes due to debtholders.
Results of Operations – Three Month Periods
Comparison for the three-month periods ended March 31, 2021 and 2020:
Revenue
Total revenue during the three months ended March 31, 2021 increased to $1,770,966 (comprised of machine sales of $1,658,668 and consumable product sales of $112,298), compared to the three months ended June 30, 2016March 31, 2020 that generated sales of $653,222 (comprised of machine sales of $568,204 and consumable product sales of $85,018).
The increase in sales was due to our customers’ strong demand for our products, including our filling machines, capping machines, PreRoll-ER machines, and consumable products.
Cost of Revenue
Total cost of revenue increased to $1,256,973 during the three months ended March 31, 2021, compared to the three months ended March 31, 2020 that had costs of revenues of $308,018. The increase in cost of revenue was driven by increased sales.
Due to a more diversified product portfolio, our gross margin percentage decreased from 53% for the three months ended March 31, 2020 to 29% for the three months ended March 31, 2021.
Operating Expenses
Sales, Marketing and General and Administrative. Sales, Marketing and General and Administrative expenses during the three months ended March 31, 2021 increased to $510,243 (comprised of Salaries of $329,083 and other SG&A expenses of $181,160), compared to the three months ended March 31, 2020 that produced $407,988 (comprised of Salaries of $253,129 and other SG&A expenses of $154,859).
Our operating cost discipline are efficient. Despite of a significant year-over-year increase in revenue, Salaries increased moderately due to an increased amount of commission paid to sales representatives. Other SG&A expenses also increased moderately to support our overall business growth.
Income (loss) from Operations
Total income from operations was $3,750 during the three months ended March 31, 2021, compared to a loss of $62,784 for the three months ended March 31, 2020.
The increased income from operations was primarily the result of the revenue increase and operating cost discipline.
Derivative Gain (loss)
Derivative gain, a non-cash expense, was $532,367 during the three months ended March 31, 2021, due to the fair value change of the debt and warrants of the Notes driven by the stock price decrease between December 31, 2020 and March 31, 2021, compared to a derivative loss of $3,742,107 for the three months ended March 31, 2020.
Interest Expense
Interest expense, a non-cash expense, decreased to $348,651 during the three months ended March 31, 2021, compared to $1,457,644 for the three months ended March 31, 2020, primarily due to the amortization of debt discount of the Notes.
20 |
Table of Contents |
Liquidity and Capital Resources
At March 31, 2021, we had cash and cash equivalents of $941,413. To date, we have financed our operations principally through receipts of customer payments and borrowing on credit facilities, debt of $1.482,424, issuance of equity of $1,553,900, and issuances of convertible debt of $7,314,106.
We anticipate that we will need additional financing to continue as an ongoing entity over the next 12 months. Our future capital requirements and the adequacy of available funds will depend on many factors. There can be no assurance we will be able to obtain additional financing on favorable terms, or at all. If we are unable to obtain additional financing, our financial results and business prospects may be materially adversely affected.
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 June 30, 2017, the Company did not generate any revenue, incurred expensesMarch 31, 2021, operating activities used $122,170 in cash, a decrease of $13,889, including $1,715 of professional fees, and $12,174 of interest expense, and suffered a net loss of $13,889, as compared to$299,862 from cash used in the three months ended June 30, 2016 in which the Company incurred expensesMarch 31, 2020 of $48,129, including $1,674 of professional fees and $30,000 of stock compensation expense and $12,174 of interest expense, and suffered a net loss of $48,129.
Results of Operations for the nine months ended June 30, 2017 as compared to the nine months ended June 30, 2016Investing Activities
The Company had no investing activities in either period.
Financing Activities
During the ninethree months ended June 30, 2017,March 31, 2021, the Company did not generate any revenue, incurred operating expensesreceived $570,000 in proceeds from convertible debt, $296,524 in proceeds from non-convertible debt, and $250,000 in proceeds from sale of $39,322, including $2,800common stock units, and made payments of professional fees,$526,058 of convertible notes payable and $36,522$16,443 of interest expense, and suffered a net loss of $39,322, as compared to the nine months ended June 30, 2016, the Company did not generate any revenue, incurred operating expenses of $72,477, including $1,674 of professional fees, and $30,000 of stock compensation expense, and $36,522 of interest expense, and suffered a net loss of $72,477.
Liquidity and Capital Resources
At June 30, 2017, the Company had no assets and total current liabilities of $1,582,771, comprising $1,561,584 of loans payable to parties related to prior management and $21,187 of other payables. At September 30, 2016, the Company had no assets and total liabilities of $1,546,249, comprising $1,525,062 of loans payable to parties related to prior management (including interest accrued thereon) and $21,187 of other payables.
Prior to June 2014, the Company funded its operations from the proceeds of loans received from a party related to prior management. The Company has no present sources of capital or liquidity.
We do not expect to engage in any substantive activities unless and until such time as we enter into a business transaction, if ever. We are dependent upon interim funding provided by current management to pay the cost associated with being a public company, among other fees and expenses. Our current management has agreed orally to provide funding as may be required to pay for accounting fees and other administrative expenses of the Company until the Company enters into a business combination. The Company would be unable to continue as a going concern without interim financing provided by management. If we require additional financing, we cannot predict whether equity or debt financing will become available at terms acceptable to us, if at all. The Company depends upon services provided by management to fulfill its filing obligations under the Exchange Act. At present, the Company has no financial resources to pay for such services and may be required to issue stock in lieu of cash or, in the alternative, issue debt instruments evidencing financial obligations if and when they arise. Any funds advanced by management will be advanced as loans that will bear interest at the rate of 8% per year and which shall mature on the closing of a business transaction.non-convertible notes payable.
During the next twelvethree months we anticipate incurring costs related to:ended March 31, 2020, the Company received $43,000 in proceeds from non-convertible debt and $430,000 in proceeds from sale of common stock units, and made a payment of $70,000 of convertible notes payable.
These costs are difficult to quantify givenDuring the multitude of variables associated with such activities. Our ongoing expenses will result in continued net operating losses that will increase untilthree months ended March 31, 2021 and the year ended December 31, 2020, we can consummate a business combination with a profitable operating company, if ever. We estimate that these costs will be in the range of to six to eight thousand dollars per year, and that we will be able to meet these costs as necessary through the extension of credit advanced to us by management.
Going Concern
Our negative working capital, continuing operating losses, failure to generate revenues and lack of operating capital create 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 on its ability to obtain capital from our affiliates to fund our operations, generate cash from the sale of its securities and attain future profitable operations. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
Off-Balance Sheet Arrangements
The Company doesdid not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.applicable SEC regulations.
COVID-19 Impact
Our business and operating results for 2020 was impacted by the COVID-19 pandemic. However, we have seen improvement in our business, which we expect to continue throughout 2021.
Item 3. Quantitative and Qualitative Disclosures aboutDisclosure About Market Risk.Risk
Not applicable.We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents. We consider investments that, when purchased, have a remaining maturity of ninety (90) days or less to be cash equivalents. We do not believe that a notional or hypothetical 10% change in interest rates would have a material impact on our interest income.
Item 4. Controls and Procedures.Procedures
This report includesManagement’s Evaluation of Disclosure Controls and Procedures
Under the certificationssupervision and with the participation of our Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14 underafter evaluating the Securities Exchange Acteffectiveness of 1934 (the "Exchange Act"). See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.
Evaluation of Disclosure Controls and Procedures
Disclosureour disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under) as of the Exchange Act) are designedend of the period covered by this Form 10-Q, 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 filedthat we file or submittedsubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in SECthe SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officerour principal executive and the Principal Financial Officer,principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.disclosure.
In connection with the preparation of this report, our management, under the supervision and with participation of our Principal Executive Officer and Principal Financial Officer (the “Certifying Officers”) conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2017. Based on that evaluation, our management concluded that there are material weaknesses in our disclosure controls and procedures over financial reporting, including:
Table of Contents |
A material weakness is a deficiency, or a combination of control deficiencies, in disclosure control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We believe that the weaknesses in our disclosure controls and procedures and ICFR are a direct consequence of our size, available resources and the nature of our business. We are a “shell company,” as defined under the Securities Act, in that we have no operations and no revenues and only nominal assets. Further, we have no full-time employees. As a result, we are constrained by our lack of resources to take the types of corrective actions that would be necessary to remediate the material weaknesses, including, for example, engaging additional accounting personnel and adopting an audit committee charter and seating an audit committee with at least one independent member who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.
The Company believes that management of the Company after a business transaction will implement plans to remediate weaknesses in our internal controls. This does not include an evaluation by the Company’s registered public accounting firm regarding the Company’s internal control over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings.Proceedings
There are presently no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and no such proceedings are known to the Company to be threatened or contemplated against it.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
None.
Item 3. Defaults Upon Senior Securities.Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Item 4. Mine Safety Disclosures.
N/A
Item 5. Other Information.
None.
Table of Contents |
Exhibit Number |
| Exhibit Description |
| ||
| ||
| ||
| ||
| ||
| ||
101 | Interactive data files pursuant to Rule 405 of Regulation S-T |
| ||
23 | ||
| ||
|
| |
|
| |
|
| |
|
| |
|
|
_______________
* Pursuant to Commission Release No. 33-8238, this certification will be treated as “accompanying” this Quarterly Report on Form 10-Q and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act of 1934, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |||
|
| |||
| By: | /s/ | ||
|
|
| ||
|
|
| ||
| ||||
Dated: May 13, 2021 | By: | /s/ Michael Sakala | ||
Michael Sakala | ||||
Chief Financial Officer |
24 |
|