UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2023

or

For the transition period from ______ to ______

Commission file number: 033-33263

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Company is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the Company is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 30, 2023, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of the Registrant computed by reference to the closing price of $0.03 per common share on June 30, 2023 was approximately $2.42 million.

As of April 15, 2024, there were 94,663,320 shares of company’s common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Not applicable.

Jacksam Corporation

Form 10-K

For the Fiscal Year Ended December 31, 2023

TABLE OF CONTENTS

 Forward-Looking Statements

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

Forward-Looking Statements

This Annual Report on Form 10-K, 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, pre-roll & cone filling machine, and cartridges, (ii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iii) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and (iv) the assumptions underlying or relating to any statement described in points (i), (ii) or (iii) above.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation:

PART I

Item 1. Business

Company and Product Overview

Jacksam Corporation dba Convectium is a technology company focused on developing and commercializing products of vaporizer cartridge filling & capping, pre-roll filling, and automation systems. We service the medical and recreational cannabis, hemp, and CBD segments of the larger e-cigarette, vaporizer, and pre-roll markets. Our product line primarily consists of the 710 Shark cartridge filling machine, the 710 Captain cartridge capping machine, the “PreRoll-ER” automated pre-roll & cone filling machine, and cartridges.

Our 710 Shark cartridge filling machine is now on its eighth version. The 710 Shark has pneumatic motor system, oil heating mechanics, and automation software system. It can inject oil into various cartridges (glass, plastic and PODS), while also having the capability to fill bottles and other form factors. It can fill 100 traditional cartridges in approximately 60 seconds. The 710 Shark is currently produced in China and can be upgraded in our California facility to an UL Certification version. UL stands for Underwriter Laboratories, a third party product safety certification company in the U.S.

Our 710 Captain cartridge capping machine is designed to affix caps to the cartridges filled by our 710 Shark filling machines and matches their production capacity of 100 cartridges in approximately 30 seconds. It is pneumatically operated.

In 2019, we entered into a strategic partnership with Jupiter Research, a subsidiary of TILT Holdings. This partnership enabled our company to distribute Jupiter Research’s C-Cell cartridges and enabled Jupiter Research to distribute our filling and capping machines under a profit-sharing agreement.

In 2019, as the first company in our industry, we introduced a pre-racked tray solution to the market. Our customers will receive boxes of trays preloaded with empty cartridges. Using our automated machines, our customers can finish filling and capping 100 cartridges in less than 2 minutes. As the last step, our customers made new orders, and boxed of pre-racked cartridges will be delivered to their facilities. Customers using our pre-racked tray solution together with our automated capping and filling machines can save significant production time and labor cost, compared to using the traditional hand filling method or using our competitors’ machines.

In 2020, we entered into a strategic partnership with 14th Round Inc, a California based leading cartridge company specialized in high-end and customizable cartridges. The partnership highlights the sales force collaboration, equipment R&D collaboration, and marketing collaborations.

In 2020, we also introduced the PreRoll-Er pre-roll filling machine to the U.S. market. The PreRoll-ER is the result of 30 months of research and development. Capable of replacing the work of 10-15 employees, the PreRoll-ER can produce up to 900 cones per hour. The machine has a highly sophisticated system of tamping, twisting, weighing and cutting the cones to a precise and uniform specification. It is manufactured in Montreal, Canada and is one of the leading automated pre-roll machines in the marketplace.

Our customers are primarily businesses operating in jurisdictions that have some form of cannabis legalization. These businesses include, but not limited to, medical and recreational cannabis multi-state operators (MSOs), dispensaries, large and small-scale processors, growers, and distributors. We expect continued growth as we take measures to invest in our intellectual property. We utilize our direct sales force, our strategic partners’ sales force, independent sales representatives, our website, and a wide range of referral network to sell our products.

Our marketing efforts include attending industry trade shows and advertising on social media, industry magazines, and other regional events where both B2B and B2C opportunities exist. We plan to expand our marketing efforts to new jurisdictions as they pass medical and recreational cannabis-use laws.

Corporate History and Background

The Company was originally incorporated under the laws of the State of Nevada on September 21, 1989, under the name of Fulton Ventures, Inc. On September 19, 2002, management at that time changed the name of Fulton Ventures, Inc. to Asia Premium Television Group, Inc. On November 16, 2009, management at that time changed the name of Asia Premium Television Group, Inc. to China Grand Resorts, Inc. to reflect their new business efforts more accurately. Commencing in 2002, management at that time acquired and sold a series of subsidiary entities that were incorporated in various foreign jurisdictions, including the People’s Republic of China, or PRC, Macau, Hong Kong and the British Virgin Islands. From 2002 to 2009, these subsidiaries engaged in a variety of businesses, including, principally, marketing, brand management, advertising, media planning, public relations and direct marketing services to clients in the PRC.

Management at that time discontinued filing periodic reports under the Exchange Act, after it filed a quarterly report on Form 10-Q for the period ended June 30, 2014 (the “June 2014 10-Q”) on August 14, 2014. As reported in the Company’s annual report on Form 10-K for the year ended September 20, 2013 (the last periodic audited report filed under the Exchange Act, with which the Company furnished audited financial statements) and the June 2014 10-Q, management at that time engaged the Company, through its subsidiaries, in the provision of mobile phone based services in the PRC through Sun New Media Transaction Services Ltd., a Hong Kong corporation, and real estate investment in the PRC through Key Proper Holdings Limited, a British Virgin Islands corporation.

Since the filing of the June 2014 10-Q, current management is not aware of any contact between the Company and management at that time as of the filing of the June 2014 10-Q, nor does current management have any knowledge or information relating to the business operations conducted by the Company or its subsidiaries as of that date, other than as reported in the periodic reports filed with the SEC.

On April 4, 2016, Mr. Bryan Glass was appointed to serve as the custodian of the Company, which was under the name of China Grand Resorts, Inc. at that time, pursuant to an order of the District Court of Clark County, Nevada. During the course, Mr. Glass was issued 30 million shares of common stock and became the controlling owner of the Company. Current management does not have any records of the Company prior to Mr. Glass became the controlling owner of the Company in April 2016, other than the documents filed with or furnished to the SEC.

Jacksam was a company originally founded in August 2013, as a Delaware corporation, under the name of Jacksam Corporation. On September 14, 2018, current management entered into an Agreement and Plan of Merger and Reorganization (the “Merger”) that resulted in the acquisition of the operational business of Jacksam, by the Jacksam Acquisition Corp, or the Acquisition Sub, a corporation formed in the State of Nevada on September 11, 2018.

Prior to the Merger, the Company was a dormant company without any active operation and was a “shell company” as such term is defined in Exchange Act Rule 12b-2.

On November 5, 2018, current management merged Jacksam Acquisition Corp into the parent Company, China Grand Resorts, Inc, or the Company. In connection with the transaction, current management amended the articles of incorporation of the Company and changed its name from China Grand Resorts, Inc. to Jacksam Corporation dba Convectium.

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

Products Details

Our principal products include the 710 Shark cartridge filling machine, 710 Captain cartridge capping machine, PreRoll-ER pre-roll filling machine, and cartridges.

710 Shark Cartridge Filling Machine

Details:

710 Captain Cartridge Capping Machine

Details:

PreRoll-ER Pre-roll Filling Machine

Details:

Cartridges and Pre-Racked Trays

We currently distribute C-Cell cartridges under a profit-sharing agreement with Jupiter Research and customizable cartridges under a profit-sharing agreement with 14^th Round Inc. Our cartridges are shipped directly to customers with the option to pre-racked them in customizable trays, which are under additional charge.

Our Business Strategy

Our overall goal is to become a leading technology company in the segment of the vaporizer cartridge filling & capping, pre-roll filling, and automation systems. We focus on serving the medical and recreational cannabis, hemp and CBD industries. We develop and commercialize products utilizing an open-source platform.

Our immediate term goals are:

Existing or Probable Governmental Regulation

Because cannabis remains illegal under U.S. federal law and our products are primarily purchased by providers of cannabis to consumers in those states that have legalized medical or recreational cannabis, a change in U.S. federal enforcement priorities could adversely affect our customers and our business.

Our products and business are not otherwise subject to material governmental regulation other than those laws and regulations of general application.

Market Competition

The automated cartridge filling and packaging industry in the cannabis, hemp and CBD marketplace is relatively nascent. We believe that we are the largest manufacturer of cannabis-focused filling machines, with an approximately 50% market share by units sold. Our automated filling machine is designed to fill 100 cartridges per minute. Most cartridge filling operations are still done by using the hand filling method at present, with a throughput rate of approximately 5 per minute. Hand-filling remains our largest competitor. We also believe we offer the highest efficient automated capping machine in the marketplace. Our automated capping machine is designed to cap 100 cartridges per minute, matching the production capability of our filling machines. Lastly, we believe we are the first company offering pre-roll automated filling machine and pre-racked tray solution to customers in the U.S. market.

The competition in the cannabis-focused filling machine market consists of a few players that are focused on regional markets and small growers. Our most direct competitors include Thompson-Duke in Oregon, ATG Pharma in Canada, Vape-Jet in Oregon, and Cooljarz in California. We estimate that none of these competitors appears to offer filling and capping machines that can match the production capability of our machines.

Additionally, there are a few manufacturers that manufacture and distribute machines directly from China, none of which appears to have gained significant market share.

Our most substantial competitive threat would be from the large tobacco e-cigarette manufacturers and the large medical equipment manufacturers, should either decide to enter the automated cartridge filling and packaging industry for cannabis, hemp and CBD products. Many of these companies possess substantially greater manufacturing, sales, marketing, research and development, and financial resources. As of the date of this report, however, none has entered the market, nor are we aware of any with immediate plans to do so. We believe the changing Federal and state laws that regulate the cannabis industry have an impact on the decisions of those larger manufacturers. Were any large tobacco or e-cigarette manufacturer or medical equipment manufacturer to enter the market, our business and prospects would be adversely affected.

Intellectual Property Rights

We currently have one U.S. patent filed with the United States Patent and Trademark Office (USPTO), number 16682977, issued on November 13, 2019 and valid for 20 years. We also have one Certificate of Design Patent from the People’s Republic of China, number ZL201630571863.4, issued on May 31, 2017 and valid for 10 years. We have not filed for any other patent, but continue to examine whether, and where, it may be advantageous for us to do so.

In addition, we also rely upon trade secrets, know-how, trademarks, copyright protection, and continuing technological opportunities to develop and maintain our competitive position. We have periodically monitored and continue to monitor the activities of our competitors and other third parties with respect to their use of our intellectual property. We require our employees, consultants, and third-party collaborators to execute confidentiality and invention assignment agreements upon commencing employment or consulting relationships with us.

Research and Development

Our research and development team was originally formed by Jacksam’s founder, Daniel Davis, and three employed engineers. The founder and three engineers separated from the Company.

Employees

Presently, we have seven full-time employees and hire consultants and outsourced service providers. Two employees are engaged in sales and business development, two employees are engaged in research and development and engineering, and three are engaged in business operations including project management, manufacturing, logistics, marketing, finance and accounting, and general management and administration.

Item 1A. Risk Factors

As a smaller reporting company, we are not required to include Risk Factors in our 10-K filing.

Item 1B. Unresolved Staff Comments

None.

Item 1C. Cybersecurity

Cybersecurity Risk Management and Strategy. We depend on software applications, information technology systems, computing infrastructure and cloud service providers to operate our business. These systems are managed, hosted, provided or used by third parties, to assist in conducting our business and which have their own cyber security measures in place. We implement generally applicable industry standards and best practices processes for the assessment, identification, and management of material risks from cybersecurity threats to our information technology systems. Our management team oversees our information security policies and procedures. Our maintains a cyber incident reporting and response process and provides management notifications based on the seriousness of any incident. Our information security policies and procedures are required to be reviewed on a regular basis.

We have not experienced a cybersecurity incident that resulted in a material adverse impact to our business or operations; however, there can be no guarantee that we will not experience such an incident in the future. If our security measures are breached and an unauthorized party obtains access to our proprietary business information, our information systems may be perceived as being unsecure, which could harm our business and reputation, and our proprietary business information could be misappropriated which could have an adverse effect on our business and results of operations."

Our Board of Directors oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives. The full Board retains oversight of cybersecurity because of its importance. In the event of an incident, we intend to follow our detailed incident response playbook, which outlines the steps to be followed from incident detection to mitigation, recovery, and notification, including notifying functional areas (e.g., legal), as well as senior leadership and the Board, as appropriate. We have implemented a governance structure and processes to assess, identify, manage, and report cybersecurity risk.

Item 2. Properties

At present, we do not hold any title to any real estate property. Our property is leased. We do not have any mortgages, liens or encumbrances against any such properties.

Lease

The Company has a single operating lease for an office and warehouse lease in Costa Mesa, California. The lease was signed on February 2, 2022, for a term beginning February 15, 2022 through February 28, 2025. The lease requires payments of $3,267 per month through the lease term, increasing by 4% each year, with an option to renew.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stocks are traded on the Pink Tier of the OTC Markets Group, Inc. under the symbol “JKSM”. The following table sets forth the high and low sale prices for our common stock for each quarterly period within the two most recent fiscal years.

Holders

As of December 31, 2023, we had 186 stockholders of record of our common stock.

Dividend Policy

We have not previously declared nor paid any cash dividend on any share of our common stock, nor have we determined to pay dividends on such shares in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business plan and objectives. The permissibility to pay dividends on our shares is restricted by Section 78.288 of the Nevada Revised Statutes, which provides that a company may not issue a dividend if the result of such dividend would be to make the company have negative retained earnings. There can be no assurance that our operations will result in sufficient revenue to enable us to operate at profitable levels or to generate positive cash flow. Furthermore, there is no assurance that our Board of Directors will declare dividends even if profitable. Our Dividend Policy is subject to the Nevada Revised Statutes and the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors that our Board of Directors considers significant.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautious Statement Concerning Forward-Looking Statements

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

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

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

Overview

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

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP). In doing so, we make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, expenses, gains and losses, as well as related disclosure of contingent assets and liabilities. Accordingly, actual results could differ materially from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. The Company recognizes an allowance for losses on accounts receivable in an amount equal to the estimated probable losses net of recoveries. The allowance is based on an analysis of historical bad debt experience, current receivables aging, and expected future bad debts, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. As of December 31, 2023 and 2022, the Company had recorded an allowance for doubtful accounts of $264,659. The Company recognized bad debt expense of $0 and $190,659 during the years ended December 31, 2023 and 2022. The net accounts receivable at December 31, 2023 and 2022 were $9,515 and $0, respectively.

Inventory

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

The December 31, 2023 and 2022 inventory consisted entirely of finished goods. The Company will maintain an allowance based on specific inventory items that have shown no activity over a 60-month period. The Company tracks inventory as it is disposed, scrapped or sold at below cost to determine whether additional items on hand should be reduced in value through an allowance method. As of December 31, 2023 and 2022, the Company’s inventory allowance was estimated at $244,658 and $18,800, respectively. the Company recognized $274,052 and $0 in inventory write downs during the year ended December 31, 2023 and 2022, respectively, which are included as part of cost of sales in the accompanying statement of operations.

Property and Equipment

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

Fair Value of Financial Instruments

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

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

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

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

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

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

Binomial Calculation model

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

Preferred Stock Subject to Possible Redemption

The Company accounts for its preferred stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity”. Preferred stock subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable preferred stock (including preferred stock that feature redemption rights that are either within the control of the holder or subject to the redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred stock is classified as stockholders’ equity.

Net Loss Per Common Share

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

Revenue Recognition

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

Revenue is recognized based on the following five step model:

Performance Obligations

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

Sales, value add, and other taxes collected concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. Payment terms between invoicing and when payment is due is less than one year. As of December 31, 2023 and 2022, none of the Company’s contracts contained a significant financing component.

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

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

Transaction Price Allocated to the Remaining Performance Obligations

At a given point in time, the Company may have collected payment for future sales of product to begin production. These transactions are deferred until the product transfers to the customer and the performance obligation is considered complete. As of December 31, 2023, $902,485 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.

Income Tax Provision

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Accrued interest and penalties are included within the related tax liability.

Going Concern

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

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

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

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

Advertising and Marketing Expenses

The Company expenses the cost of advertising and promotions as incurred. Advertising and promotions expense was $619 and $58,739 for the years ended December 31, 2023 and 2022, respectively.

Research and Development Costs

Research and development costs are expensed as incurred. The Company incurred no research and development costs during the years ended December 31, 2023 and 2022.

Lease Arrangements

The Company follows the guidance of ASC 842 for accounting for leases. Transactions give rise to leases when the Company receives substantially all the economic benefits from and has the ability to direct the use of specified property and equipment. The Company determines if an arrangement is a lease at inception. The operating lease ROU assets are included within the Company’s non-current assets and lease liabilities are included in current or non-current liabilities on the Company’s consolidated balance sheets.

ROU assets represent the Company’s right to use, or control the use of, a specified asset for the lease term. Lease liabilities are the Company’s obligation to make lease payments arising from a lease and are measured on a discounted basis. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term on the commencement date. The operating lease ROU asset includes any lease payments made and initial direct costs incurred and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments continues to be recognized on a straight-line basis over the lease term.

Recently Issued Accounting Pronouncements

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

Components of Statements of Operations

Revenue

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

For the filling and capping machines, training is coordinated with the customers in accordance with their availability but generally completed within a week or two of the shipment. Standard warranties are offered at no cost to customers to cover parts (3 years), labor and maintenance for one year for product defects.

Cost of Goods Sold

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

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of compensation, benefits, travel and other costs for our direct sales force and project managers. Sales and marketing expenses also include costs associated with our business development efforts with our distributors and partners and costs related to trade shows and other marketing programs. We expense sales and marketing costs as incurred. We expect sales and marketing expenses to increase in future periods as we expand our sales and marketing teams and increase our participation in global trade shows and other marketing programs.

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

Interest Expense

Interest expense consists primarily of interest from notes due to debtholders.

Results of Operations – Twelve Month Periods

The following set forth our results of operations for the Fiscal Years ended December 31, 2023 and 2022:

Revenue

Total revenue during the twelve months ended December 31, 2023 were $1,455,880 (comprised of $606,000 of machine sales and $849,880 of non-machine sales). Compared to the year-ended December 31, 2022 which had 4,128,456 (comprised of $2,668,102 of machine sales and $1,460,354 of non-machine sales).

Cost of Goods Sold

Total cost of goods sold was $1,216,845 during the twelve months ended December 31, 2023 compared to $3,297,955 during the twelve months ended December 31, 2022.

Gross margin decreased from 20% during the twelve months ended December 31, 2022 to 16% during the twelve months ended December 31, 2023.

Operating Expenses

Operating expenses during the during the twelve months ended December 31, 2023 decreased to $557,774 (comprised of $201,731 in salaries and $356,043 of other SG&A expenses), compared to $1,931,336 (comprised of $949,561 in salaries, bad debt expense of $190,659 and $779,608 of other SG&A expenses) during the twelve months ended December 31, 2022.

Loss from Operations

Total loss from operations was $318,739 during the twelve months ended December 31, 2023, compared to $1,100,835 during the twelve months ended December 31, 2022.

Interest Expense

Interest expense during the twelve months ended December 31, 2023 was $255,278, compared to $422,158 during the twelve months ended December 31, 2022. The decrease was mainly due to decreased debt amortization of $95,095 and $70,485, respectively, which is a non-cash expense.

Derivative Gain / (Loss)

Derivative loss, a non-cash item, during the twelve months ended December 31, 2023 was $711,401, compared to a derivative gain of $1,515 during the twelve months ended December 31, 2022. The change was mainly due to the stock price change between December 31, 2022 and December 31, 2023.

Net Loss

Net loss was $1,259,191 during the twelve months ended December 31, 2023, compared to $1,521,478 during the twelve months ended December 31, 2022.

Liquidity and Capital Resources

Since Jacksam’s inception in 2013 as a Delaware corporation, we have incurred net losses and negative cash flows from operations. We had net losses of $1,521,478 during the twelve months ended December 31, 2022 and net losses of $1,259,191 during the twelve months ended December 31, 2023. At December 31, 2023, we had an accumulated deficit of $13,911,476.

On December 31, 2023, we had cash and cash equivalents of $145,521. As of the date of this report, we have financed our operations principally through borrowing on credit facilities, debt of $3,445,824, issuance of equity of $2,857,800, issuances of Convertible Debt of $14,058,212, issuance of Preferred Stocks of $1,252,000, and receipts of customer deposits for new orders and payments from customers for our products.

We anticipate that we will need additional financing to continue as an ongoing entity over the next 12 months. Over the course of the next 12 months, we plan to raise capital to support our business plan through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment in our common stock, or that we will be able to raise sufficient capital required to implement our business plan on acceptable terms, if at all. Even if we are successful in raising sufficient capital to implement our business plan, we may continue to be unprofitable.

We anticipate our cash requirements to be as follows:

*Estimated expense

Cash Flow from Operating Activities

We have historically experienced negative cash outflows as we developed and sold our 710 Shark filling machine, 710 Captain capping machine, pre-roll filling machine, and cartridges. Our net cash used in operating activities primarily results from our operating losses combined with changes in working capital components as we have grown our business and is influenced by the timing of cash payments for inventory purchases and cash receipts from our customers. Our primary source of cash flow from operating activities is cash down payments and final payments for our products. Our primary uses of cash from operating activities are employee-related expenditures and amounts due to vendors for purchased components. Our cash flows from operating activities will continue to be affected principally by our working capital requirements, the extent to which we build up our inventory balance, and increased spending on personnel and other operating activities as our business grows.

Several of our products are produced in China. We do not have firm purchase or minimum quantity commitments with any of our Chinese suppliers. Certain of our Chinese suppliers require a deposit in the range of 50% to 75% of the total cost of an order before beginning production. All of our Chinese suppliers require that the entirety of the purchase price of an order be sent prior to shipment to us. However, since we generally require that our customers make a deposit of not less than half of any order of the products, including the products produced in China, as a condition of accepting an order from our customers, we typically have on hand sufficient funds to cover the entirety of the amounts owed to our Chinese suppliers in advance. The timing of cash payment obligations is thus coordinated to not to create a cash flow or liquidity problem for us.

During the twelve months ended December 31, 2023 and 2022, cash used in operating activities was $311,419 and $370,654, respectively.

Cash Flow from Investing Activities

During the twelve months ended December 31, 2023 and 2022, cash used in investing activities were both zero.

Cash Flow from Financing Activities

During the twelve months ended December 31, 2023, cash used for financing activities was $25,968 primarily from $50,000 of proceeds from line of credit. The Company also made payments of $74,968 on Series A preferred stock and $1,000 debt issuance cost.

During the twelve months ended December 31, 2022, cash provided by financing activities was $508,751 primarily from $327,385 of proceeds from stock issuance and $890,000 of proceeds issuance of Series B Preferred Stock. The Company also made payments of $408,634 on notes payable and $300,000 on convertible notes.

Off-Balance Sheet Arrangements

During the year ended December 31, 2023, we did not have any off-balance sheet arrangements as defined by applicable SEC regulations.

Going Concern

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

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

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

Seasonality

In the past, our operating results and operating cash flows historically have not been subject to seasonal variations. At this time, we do not anticipate having any seasonal fluctuations in sales.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of Jacksam Corporation

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Jacksam Corporation and subsidiaries (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023and the related notes to the consolidated financial statements.  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has recurring net losses and negative cash flows from operations which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Going Concern

Due to the net loss, negative cash flows from operations for the year, and working capital deficiency, the Company evaluated the need for a going concern listed in note 2.

Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses, which are not able to be easily substantiated.

We evaluated the appropriateness of the going concern, we examined and evaluated the financial information along with management’s plans to mitigate the going concern and management’s disclosure on going concern.

/s/ M&K CPAS, PLLC

We have served as the Company’s auditor since 2022.

The Woodlands, TX 

April 16, 2024

Jacksam Corporation

Notes to the Consolidated Financial Statements