10-K: Jacksam Corporation Reports Full Year 2023 Results, Revenue Declines Amidst Operational Challenges

Jacksam Corporation's 2023 annual report reveals a decrease in revenue and a net loss, alongside ongoing concerns about the company's ability to continue as a going concern.

Summary

• Jacksam Corporation, operating as Convectium, reported a total revenue of $1,455,880 for the year ended December 31, 2023, a significant decrease from $4,128,456 in 2022.
• Machine sales contributed $606,000 to the 2023 revenue, while non-machine sales accounted for $849,880.
• The company's cost of goods sold was $1,216,845 in 2023, compared to $3,297,955 in 2022, resulting in a gross margin of 16% in 2023, down from 20% in 2022.
• Operating expenses decreased to $557,774 in 2023 from $1,931,336 in 2022, with salaries and wages accounting for $201,731 and other SG&A expenses at $356,043.
• The company experienced a loss from operations of $318,739 in 2023, compared to a loss of $1,100,835 in 2022.
• Interest expense was $255,278 in 2023, down from $422,158 in 2022, primarily due to decreased debt amortization.
• A derivative loss of $711,401 was recorded in 2023, compared to a derivative gain of $1,515 in 2022, mainly due to stock price changes.
• The net loss for 2023 was $1,259,191, compared to a net loss of $1,521,478 in 2022.
• The company's accumulated deficit reached $13,911,476 by the end of 2023.
• Jacksam had cash and cash equivalents of $145,521 as of December 31, 2023.
• The company has financed its operations through debt, equity, convertible debt, preferred stock, and customer payments.
• The report indicates that the company needs additional financing to continue operations over the next 12 months and may raise capital through equity or debt financing, which could dilute existing shareholders.
• The company estimates needing $1,500,000 in funding over the next twelve months for general operating expenses, additional staff, and increased marketing and advertising costs.
• The company's financial statements are prepared under the assumption of a going concern, but the company's negative working capital, recurring losses, and insufficient revenue raise substantial doubt about its ability to continue as a going concern.

Sentiment

Score: 3

Explanation: The document presents a concerning financial picture with declining revenue, significant losses, and doubts about the company's ability to continue as a going concern. While there are some positive aspects like reduced operating expenses, the overall sentiment is negative due to the substantial financial challenges and risks.

Positives

• Operating expenses decreased significantly year-over-year, indicating cost-cutting measures.
• Interest expense decreased due to reduced debt amortization.
• The company is actively seeking to raise additional capital to support its business plan.

Negatives

• Revenue decreased significantly year-over-year.
• Gross margin declined, indicating reduced profitability on sales.
• The company experienced a substantial net loss for the year.
• The company has a significant accumulated deficit.
• There is substantial doubt about the company's ability to continue as a going concern.
• The company is in default on a line of credit agreement.
• The company has a pending lawsuit with a previous supplier.
• The company has identified a material weakness in internal control over financial reporting.

Risks

• The company's ability to continue as a going concern is uncertain due to negative working capital, recurring losses, and insufficient revenue.
• The company may not be able to raise sufficient capital to implement its business plan.
• The company's business is subject to risks related to the cannabis industry, including regulatory changes and market competition.
• The company's products are manufactured in China, which could be affected by supply chain disruptions.
• The company has a pending lawsuit with a previous supplier, which could result in financial losses.
• The company has identified a material weakness in internal control over financial reporting, which could affect the reliability of its financial statements.

Future Outlook

The company anticipates needing additional financing to continue as an ongoing entity over the next 12 months and plans to raise capital through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of its shares. There is no assurance that the company will be able to maintain operations at a level sufficient for an investor to obtain a return on their investment or that it will be able to raise sufficient capital required to implement its business plan on acceptable terms, if at all.

Management Comments

• Management believes the relevant statute of limitations has passed and that no enforceable legal claim exists in relation to these liabilities of $1,642,269 but does not believe that is sufficient to remove the liability from the financial statements.
• Management does not intend to remove these liabilities of $1,642,269 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.

Industry Context

The company operates in the nascent automated cartridge filling and packaging industry within the cannabis, hemp, and CBD markets. The report notes that the company believes it is the largest manufacturer of cannabis-focused filling machines, with an approximately 50% market share by units sold. The company faces competition from both smaller regional players and the potential entry of large tobacco and medical equipment manufacturers.

Comparison to Industry Standards

• The report states that Jacksam believes it is the largest manufacturer of cannabis-focused filling machines, with an approximately 50% market share by units sold, suggesting a leading position in this niche market.
• The company claims its automated filling machine is designed to fill 100 cartridges per minute, while most hand-filling operations have a throughput rate of approximately 5 per minute, indicating a significant efficiency advantage.
• The report mentions competitors such as Thompson-Duke, ATG Pharma, Vape-Jet, and Cooljarz, but states that none of these competitors appear to offer filling and capping machines that can match the production capability of Jacksam's machines.
• The company also claims to be the first company offering a pre-roll automated filling machine and pre-racked tray solution to customers in the U.S. market, indicating a potential first-mover advantage.
• However, the report also acknowledges the potential threat from large tobacco e-cigarette manufacturers and medical equipment manufacturers, which possess substantially greater resources, should they decide to enter the market.

Management Changes

Corporate Governance

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.

Related Party Transactions

• Mark Adams, CEO, invested $250,000 in the June 2019 Notes and converted his debt during the year ended December 31, 2020 into shares of common stock of 1,388,885, which have yet to be issued for a conversion value of $277,778.
• Mark Adams will also receive an additional 154,321 shares of common stock once the shares are issued.
• The Company's former VP of sales also invested $100,000 in the June 2019 Notes and converted his debt during the year ended December 31, 2020 into shares of common stock of 555,556, which have yet to be issued for a conversion value of $111,111.
• The former VP of sales will also receive an additional 61,728 shares of common stock once the shares are issued.
• On November 8, 2018, we entered into a Line of Credit Agreement with Bass Point Capital, LLC, a Massachusetts limited liability company controlled by Doug Leighton, who is also a principal in Altar Rock Capital, one of our stockholders and the holder of the Altar Rock Warrant.
• Mark Adams invested $126,000 in the 2021 Series A Preferred Stock.

Stakeholder Impact

• Shareholders face potential dilution from future capital raises.
• Shareholders face the risk of loss due to the company's financial instability and going concern issues.
• Employees may be affected by potential cost-cutting measures or restructuring.
• Customers may be impacted by potential supply chain disruptions or changes in product availability.
• Creditors face the risk of non-payment due to the company's financial difficulties.

Next Steps

• The company plans to raise capital to support its business plan through equity financing, debt financing, or other sources.
• The company intends to continue to develop increasing efficient and faster iterations of its filling and capping machines.
• The company intends to continue to develop and introduce new automation solutions to the market.
• The company intends to focus on the plan and execution for the best utilization of the sales force and other resources of both parties of a strategic partnership.
• The company plans to hire additional sales personnel where appropriate to take advantage of the new markets.
• The company plans to continue to grow its distributor and affiliate networks to meet expected additional demand for its products.

Key Dates

Keywords

cannabis, vaporizer, cartridge filling machine, capping machine, pre-roll filling machine, automation, financial results, revenue, net loss, going concern, debt, equity, internal control, manufacturing, China