Company Quick10K Filing
Americann
Price-0.00 EPS-0
Shares23 P/E0
MCap-0 P/FCF0
Net Debt-0 EBIT-1
TEV-0 TEV/EBIT0
TTM 2019-06-30, in MM, except price, ratios
10-Q 2019-12-31 Filed 2020-02-19
10-K 2019-09-30 Filed 2020-01-14
S-1 2019-09-27 Public Filing
10-Q 2019-06-30 Filed 2019-08-19
10-Q 2019-03-31 Filed 2019-05-20
10-Q 2018-12-31 Filed 2019-02-19
10-K 2018-09-30 Filed 2019-01-15
S-1 2018-09-18 Public Filing
10-Q 2018-06-30 Filed 2018-08-14
S-1 2018-04-12 Public Filing
10-Q 2018-03-31 Filed 2018-05-15
10-Q 2017-12-31 Filed 2018-02-20
10-K 2017-09-30 Filed 2017-12-04
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-15
10-Q 2016-12-31 Filed 2017-02-14
10-K 2016-09-30 Filed 2017-01-12
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-10
10-Q 2015-12-31 Filed 2016-02-16
10-K 2015-09-30 Filed 2016-01-13
10-Q 2015-06-30 Filed 2015-08-18
10-Q 2015-03-31 Filed 2015-06-15
10-Q 2014-12-31 Filed 2015-02-23
10-K 2014-09-30 Filed 2015-02-18
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-20
10-Q 2013-12-31 Filed 2014-02-19
10-K 2013-09-30 Filed 2013-12-30
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-Q 2012-12-31 Filed 2013-02-14
8-K 2020-04-21 Other Events, Exhibits
8-K 2020-02-27 Other Events
8-K 2020-02-24 Exhibits
8-K 2020-02-10 Other Events
8-K 2020-01-27 Other Events
8-K 2019-11-25 Exhibits
8-K 2019-10-14 Other Events
8-K 2019-10-07 Other Events, Exhibits
8-K 2019-08-02 Other Events, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-02-07 Enter Agreement, Exhibits
8-K 2019-01-30
8-K 2019-01-30 Exhibits
8-K 2019-01-17 Other Events, Exhibits
8-K 2018-08-06 Other Events, Exhibits
8-K 2018-08-06 Other Events
8-K 2018-07-10 Sale of Shares
8-K 2018-04-24 Other Events, Exhibits
8-K 2018-02-12
8-K 2018-01-18
8-K 2017-12-29

ACAN 10Q Quarterly Report

Part I: Financial Information
Item 1. Unaudited Financial Statements
Note 1. Nature of Business and Basis of Presentation
Note 2. Going Concern
Note 3. Notes and Other Receivables
Note 4. Notes Payable
Note 5. Related Party Transactions
Note 6. Income/Loss per Share
Note 7. Leases, Commitments and Contingencies
Note 8. Shareholders' Equity
Note 9. Income Taxes
Note 10. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II Other Information
Item 6. Exhibits
EX-31.1 ex_172876.htm
EX-31.2 ex_172877.htm
EX-32 ex_172878.htm

Americann Earnings 2019-12-31

Balance SheetIncome StatementCash Flow
151185202012201420172020
Assets, Equity
0.1-0.2-0.5-0.8-1.1-1.42014201620182020
Rev, G Profit, Net Income
1.80.90.0-0.9-1.8-2.72012201420172020
Ops, Inv, Fin

10-Q 1 acan20191231_10q.htm FORM 10-Q acan20191231_10q.htm
 

 


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

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

 

For the quarterly period ended December 31, 2019

 

OR

 

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

 

For the transition period from __________________ to _________________

 

Commission file number: 001-35902

 

AMERICANN, INC

(Exact name of registrant as specified in its charter)

 

Delaware

27-4336843

(State or other jurisdiction of incorporation or

organization)

(IRS Employer Identification No.)

  

  

1550 Wewatta St, Denver, CO

80202

(Address of principal executive offices)

(Zip Code)

 

(303) 862-9000

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class Trading Symbol(s)

Name of each exchange on which

registered

     
None N/A N/A

 

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

 

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

 

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

 

 

Large accelerated filer

 

Accelerated filer

 

Non-accelerated filer

 

Smaller reporting company

   

 

 

Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑ 

 

As of February 17, 2020, the registrant had 23,504,820 shares of common stock outstanding.

 

 

 

 

 

AmeriCann, Inc.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

PAGE NO.

PART I   FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Unaudited Financial Statements:

 

 

 

Consolidated Balance Sheets as of December 31, 2019 and September 30, 2019

3

 

 

Consolidated Statements of Operations for the Three Months Ended December 31, 2019 and 2018

4

 

 

Consolidated Statement of Changes in Stockholders' Equity for the Three Months Ended December 31, 2019 and 2018

5
    Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2019 and 2018 6

 

 

Notes to Consolidated Financial Statements

7

 

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

  

  

  

  

 

Item 4.

Controls and Procedures

19

 

 

 

 

PART II  OTHER INFORMATION

 

 

 

 

 

 

Item 6.

Exhibits

20

 

 

 

 

 

SIGNATURES

21

 

2

 

 

Part I:  FINANCIAL INFORMATION

 

Item 1.      UNAUDITED Financial Statements

 

 

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)  

 

   

December 31, 2019

   

September 30, 2019

 
                 

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 62,078     $ 465,843  

Restricted cash

    326,222       826,219  

Tenant receivable

    1,524       11,564  
Note and other receivables                                                                                 1,757,257       -  

Current portion of prepaid land lease

    -       57,959  

Prepaid expenses and other current assets

    32,447       13,632  

Current portion of note receivable - related party

    29,512       32,270  

Total current assets

    2,209,040       1,407,487  
                 

Construction in progress

    107,579       -  

Property, plant and equipment, net

    7,661,672       7,572,788  

Operating lease - right-of-use asset

    6,964,302       -  

Notes and other receivables (net of allowance of $1,761,675 as of September 30, 2019)

    -       -  

Note receivable - related party

    114,444       116,493  

Prepaid land lease and related deposits, net of current portion

    -       2,666,129  

Security deposit and other assets

    3,110       3,110  

Total assets

  $ 17,060,147     $ 11,766,007  
                 

Liabilities and Stockholders' Equity

               

Current Liabilities:

               

Accounts payable and accrued expenses

  $ 129,408     $ 265,276  

Interest payable (including $13,428 and $12,283 to related parties)

    95,445       121,883  

Other payables

    7,031       9,129  

Operating lease liability, short term

    9,093       -  

Notes payable (net of discount of $0 and $0)

    385,000       385,000  

Total current liabilities

    625,977       781,288  
                 

Notes payable (net of discounts $805,271 and $882,603)

    3,194,729       3,117,397  

Notes payable - related party (inclusive of premium of $0 and $0)

    1,756,646       1,756,646  

Operating lease liability, long term

    4,245,612       -  
                 

Total liabilities

    9,822,964       5,655,331  
                 

Commitments and contingencies - see Note 7

               
                 

Stockholders' Equity:

               

Preferred stock, $0.0001 par value; 20,000,000 shares authorized; no shares issued and outstanding

    -       -  

Common stock, $0.0001 par value; 100,000,000 shares authorized; 23,504,820 shares issued and outstanding as of December 31, 2019 and September 30, 2019

    2,351       2,351  

Additional paid in capital

    24,230,056       24,121,534  

Accumulated deficit

    (16,995,224 )     (18,013,209 )

Total stockholders' equity

    7,237,183       6,110,676  
                 

Total liabilities and stockholders' equity

  $ 17,060,147     $ 11,766,007  

 

See accompanying notes to unaudited consolidated financial statements.

 

3

 

 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   

Three months ended December 31,

 
   

2019

   

2018

 
                 

Revenues:

               

Rental income - related party

  $ 34,691     $ -  

Total revenues

    34,691       -  
                 
                 

Operating expenses:

               

Advertising and marketing

    36,126       16,856  

Professional fees

    86,609       128,933  

General and administrative expenses

    456,348       212,112  

Recovery of loss from provision for doubtful accounts

    (1,761,675 )     -  

Total operating expenses

    (1,182,592 )     357,901  
                 

Income (loss) from operations

    1,217,283       (357,901 )
                 

Other income (expense):

               

Interest income

    -       7,672  

Interest expense

    (159,449 )     (151,388 )

Other income (expense)

    -       (3,030 )

Interest expense - related party

    (39,849 )     (33,861 )

Total other income (expense)

    (199,298 )     (180,607 )
                 

Net income (loss)

  $ 1,017,985     $ (538,508 )
                 

Basic and diluted income (loss) per common share

  $ 0.04     $ (0.02 )
                 

Weighted average common shares outstanding

    23,504,820       22,568,375  

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid In

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balances, September 30, 2018

    -     $ -       22,106,763     $ 2,211     $ 19,937,606     $ (13,109,541 )   $ 6,830,276  

Stock issued for cash

    -       -       311,816       31       649,969       -       650,000  

Conversion of debt

    -       -       31,328       3       46,989               46,992  

Stock issued for warrants exercised, net

    -       -       308,000       31       395,469       -       395,500  

Stock issued for services

    -       -       25,000       3       64,997               65,000  

Net loss

    -       -       -       -       -       (538,508 )     (538,508 )

Balances, December 31, 2018

    -     $ -       22,782,907     $ 2,279     $ 21,095,030     $ (13,648,049 )   $ 7,449,260  

 

 

   

Preferred Stock

   

Common Stock

   

Paid In

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balances, September 30, 2019

    -     $ -       23,504,820     $ 2,351     $ 24,121,534     $ (18,013,209 )   $ 6,110,676  

Stock-based compensation

    -               -       -       108,522       -       108,522  

Net income

    -               -       -       -       1,017,985       1,017,985  

Balances, December 31, 2019

    -     $ -       23,504,820     $ 2,351     $ 24,230,056     $ (16,995,224 )   $ 7,237,183  

 

See accompanying notes to unaudited consolidated financial statements. 

 

5

 

 

 

AMERICANN, INC.

consolidated STATEMENTS OF CASH FLOWS

(unaudited)

 

   

Three months ended December 31,

 
   

2019

   

2018

 
                 

Cash flows from operating activities:

               

Net income (loss)

  $ 1,017,985     $ (538,508 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Depreciation and amortization

    108,558       461  

Amortization of right of use assets

    16,655       -  

Recovery of loss from provision for doubtful accounts

    (1,761,675 )     -  

Stock based compensation and option expense

    108,522       -  

Stock issued for services

    -       65,000  

Loss on disposal of fixed assets

    -       3,030  

Amortization of equity instruments issued to lessor

    -       9,865  

Amortization of debt discount/(premium)

    77,332       133,409  

Changes in operating assets and liabilities:

               

Tenant receivable

    14,458       -  

Prepaid expenses

    (18,815 )     150  

Accounts payable and accrued expenses

    (135,868 )     (203,813 )

Notes receivable - related party

               

Operating lease liability

    (2,164 )     -  

Interest payable

    (27,582 )     (10,531 )

Interest payable - related party

    1,144       10,409  

Other payables

    (2,098 )     (3,881 )

Net cash flows used in operations

    (603,548 )     (534,409 )
                 

Cash flows from investing activities:

               

Additions to construction in progress

    (107,579 )     (26,733 )
Additions to property, plant and equipment                    (197,442 )     -  

Payments received on notes receivable

    4,807       5,595  

Net cash flows used in investing activities

    (300,214 )     (21,138 )
                 

Cash flows from financing activities:

               

Common stock issued for cash, net

    -       650,000  

Proceeds from the exercise of warrants

    -       395,500  

Net cash flows provided by financing activities

    -       1,045,500  
                 

Net (decrease) increase in cash, cash equivalents, and restricted cash

    (903,762 )     489,953  
                 

Cash, cash equivalents, and restricted cash at beginning of period

    1,292,062       4,016,949  
                 

Cash, cash equivalents, and restricted cash at end of period

  $ 388,300     $ 4,506,902  
                 
                 
                 

Supplementary Disclosure of Cash Flow Information:

               
                 

Cash paid for interest

  $ 77,470     $ 51,959  

Cash paid for income taxes

  $ -     $ -  
                 

Non-Cash Investing and Financing Activities:

               

Shares issued for conversion of debt and accrued interest

  $ -     $ 46,992  

 

See accompanying notes to unaudited consolidated financial statements.   

 

6

 

 

AMERICANN, INC.

Notes To Unaudited consolidated Financial Statements

 

 

 

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

 

AmeriCann, Inc. ("the Company", “we”, “our” or "the Issuer") was organized under the laws of the State of Delaware on June 25, 2010.

 

On January 17, 2014, a privately held limited liability company acquired approximately 93% of the Company's outstanding shares of common stock from several of the Company's shareholders, which resulted in a change in control of the Company.

 

The Company's business plan is to design, develop, lease and operate state-of-the-art cultivation, processing and manufacturing facilities for licensed cannabis businesses throughout the United States.

 

The Company's activities are subject to significant risks and uncertainties including potential failure to secure funding to properly expand its operations.

 

Basis of Presentation

 

The (a) consolidated balance sheet as of September 30, 2019, which has been derived from audited financial statements, and (b) the unaudited financial statements as of and for the three months ended December 31, 2019 and 2018, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Form 10-K filed with the SEC on January 14, 2020. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for future quarters or for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2019 as reported in the Form 10-K have been omitted.

 

Certain prior period amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on net loss.

 

Significant Accounting Policies

 

Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statements of cash flows:

 

   

December 31,
2019

   

September 30,

2019

 
                 

Cash and cash equivalents

  $ 62,078     $ 465,843  

Restricted cash

    326,222       826,219  

Total cash, cash equivalents, and restricted cash shown in the cash flow statement

  $ 388,300     $ 1,292,062  

 

 

Amounts included in restricted cash represent those required to be set aside by a contractual agreement with a lender for the payment of specific construction related expenditures as part of the Company’s property development in Massachusetts.

 

Property, Plant and Equipment, net

 

Property and equipment are stated at cost. Depreciation of property and equipment begins in the month following the month when the asset is placed into service and is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to twenty years. Land is classified as held for sale when management has the ability and intent to sell, in accordance with ASC Topic 360-45. Property, plant and equipment consist of:

 

   

December 31,
2019

   

September 30,

2019

 
                 

Buildings and improvements

  $ 7,419,051     $ 7,571,176  

Computer equipment

    349,576       -  

Furniture and equipment

    2,764       2,764  

Total

    7,771,391       7,573,940  

Accumulated depreciation

    (109,719 )     (1,152 )

Property, plant and equipment, net

  $ 7,661,672     $ 7,572,788  

 

7

 

 

Leases

 

Effective October 1, 2019, we adopted Topic 842 using the effective date method. Under this method, periods prior to adoption remain unchanged. We determine if an arrangement is a lease at inception.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

 

Recent Accounting Pronouncements

 

Recently Adopted Standards

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which provides guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The Company adopted Topic 842 effective October 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company’s contracts are or contain leases, (2) lease classification and (3) initial direct costs. In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements - Leases (Topic 842)." The Company did not elect the hindsight practical expedient. This update provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years presented. If this adoption method is elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company elected this adoption method on October 1, 2019 and the adoption did not result in any cumulative impact to retained earnings.

 

Additionally, the Company’s adoption of Topic 842 did not have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the consolidated statements of operations or the consolidated statements of cash flows. The Company’s adoption of Topic 842 did not have a material impact on the timing or amount of the Company’s lease revenue as a lessor in its sublease agreement.  The Company’s prepaid land lease balance that was recorded in current and other assets in the Company’s September 30, 2019 balance sheet has been classified as a component of the Company’s right-of-use assets effective October 1, 2019. The consolidated financial statements for the three months ended December 31, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. See Note 7, Leases, Commitments and Contingencies, for more information.

 

 

 

 

NOTE 2. GOING CONCERN 

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $16,995,224 and $ 18,013,209 at December 31, 2019 and September 30, 2019, respectively, and negative operating cash flows. These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern. While the Company is attempting to increase operations and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds through the sale of its securities. 

 

Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

8

 

 

 

NOTE 3. NOTES AND OTHER RECEIVABLES

 

Notes and other receivables as of December 31, 2019 and September 30, 2019, consisted of the following: 

 

   

December 31,
2019

   

September 30,

2019

 
                 
Notes and other receivables from WGP, a licensed medical marijuana cultivator; $673,294 note secured by real and personal property of the borrower, interest rate of 18.0%; accrued consulting and legal fees of $206,675, construction advances of $332,357 and accrued interest of $549,349 at December 31, 2019 and September 30, 2019. Net of reserves of $0 and $1,761,675 as of December 31, 2019 and September 30, 2019, respectively. All amounts are due and payable immediately.   $ 1,757,257     $ -  
                 
Related party note receivable from BASK, a non-profit corporation, interest rate of 18.0%; monthly principal and interest payments of $4,422, maturing in 2023.     143,956       148,763  
      1,901,213       148,763  

Less: Current portion

    (1,786,769 )     (32,270 )
                 
    $ 114,444     $ 116,493  

 

The notes and other receivables from Wellness Group Pharms (“WGP”) were fully reserved as of September 30, 2019 due to ongoing disputes between the Company and WGP. The Company filed a Demand for Arbitration against WGP on April 7, 2017. On January 18, 2018, the arbitration panel awarded the Company $1,045,000 plus interest at the rate of 18% per year from April 18, 2015 to March 18, 2018 for $550,000. In addition to the principal and interest awarded of $1,595,000, the Company was also awarded its attorneys’ fees and arbitration fees. The Company as of December 31, 2019, reversed the previously recorded reserve on the receivable with WGP in the amount of $1,761,675 as the amount was collected subsequent to December 31, 2019. See Note 10.

 

 

 

 

NOTE 4.  NOTES PAYABLE

 

Unrelated

 

On August 2, 2019 the Company secured a $4,000,000 investment from an unrelated third party in the form of a loan. The loan was evidenced by a note which bears interest at the rate of 11% per year, is due and payable on August 2, 2022 and is secured by a first lien on Building 1 at the Company’s Massachusetts Cannabis Center (“MCC”).

 

The note holder also received a warrant which allows the holder to purchase 600,000 shares of the Company’s common stock at a price of $1.50 per share. The warrant will expire on the earlier of (i) August 2, 2024 or (ii) twenty days after written notice of the holder that the daily Volume Weighted Average Price of the Company’s common stock was at least $4.00 for twenty consecutive trading days and the average daily trading volume of the Company’s common stock during the twenty trading days was at least 150,000 shares.

 

9

 

 

The placement agent for the offering received a cash commission of $320,000 plus warrants to purchase 48,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on August 2, 2024. The cash commission and the fair value of the warrants amounting to $52,392 were recognized as a discount to the note.

 

The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 600,000 warrants was $562,762 which was recognized as additional paid in capital and a corresponding debt discount. 

 

At December 31, 2019, the outstanding principal on these notes was $4,000,000 and the unamortized debt discount was $805,271. All debt discounts are being amortized on a straight-line basis over the terms of the notes. Amortization expense related to the debt discounts was $77,332 for the three months ended December 31, 2019.

 

 

December 2017 Convertible Note Offering

 

On December 29, 2017 the Company sold convertible notes in the principal amount of $800,000 to a group of accredited investors. The notes bear interest at 8% per year, are unsecured, and were due and payable on December 31, 2018. On December 31, 2018, the notes were extended to mature on December 31, 2019. The notes fully were paid off in January 2020.

 

The original notes included a provision to be converted at any time into shares of the Company's common stock at an initial conversion price of $1.50 per share.

 

The note holders also received warrants which entitle the note holders to purchase up to 533,333 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on October 17, 2022.

 

The placement agent for the offering received a cash commission of $64,000, plus warrants to purchase 106,667 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on December 29, 2022.

 

The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 640,000 warrants was $607,024 which was recognized as additional paid in capital and a corresponding debt discount. After such allocation, the effective conversion price on the issuance date was less than the fair value of the stock into which the note is convertible, giving rise to a beneficial conversion feature of $128,976 which is recognized as additional paid in capital and a corresponding debt discount.

 

The $64,000 paid to the placement agent was allocated on a pro-rata basis to the warrants and the debt which was recorded as an offset to additional paid in capital and an increase in debt discount of $48,562 and $15,438, respectively.

 

During February 2019, a loan in the principal amount of $30,000 was converted into 20,000 shares of common stock.

 

During May 2018, a loan in the principal amount of $575,000 was converted into 383,333 shares of common stock. In addition, interest payable in the amount of $15,233 was converted into 10,155 shares.

 

At December 31, 2019 and September 30, 2019, the outstanding principal on these notes was $195,000. All debt discounts are being recognized on a straight-line basis over the terms of the notes. Amortization expense related to the debt discounts were $0 and $51,749 for the three months ended December 31, 2019 and 2018, respectively. The outstanding balance on these notes was paid off in January 2020.

 

February 2018 Convertible Note Offering

 

On February 12, 2018 the Company sold convertible notes in the principal amount of $810,000 to a group of accredited investors. The notes bear interest at 8% per year, are unsecured, and are due and payable on December 31, 2018. On December 31, 2018, the notes were extended to mature on December 31, 2019. At the option of the note holders, the notes may be converted at any time into shares of the Company's common stock at an initial conversion price of $1.50 per share.

 

The note holders also received warrants which entitle the note holders to purchase up to 540,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on October 17, 2022.

 

The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 540,000 warrants was $523,013 which was recognized as additional paid in capital and a corresponding debt discount. After such allocation, the effective conversion price on the issuance date was less than the fair value of the stock into which the note is convertible, giving rise to a beneficial conversion feature of $286,987 which is recognized as additional paid in capital and a corresponding debt discount.

 

10

 

 

During January 2019, a loan in the amount of $35,000 was repaid in cash.

 

In October 2018, a loan in the principal amount of $45,000 was converted into 30,000 shares of common stock. In addition, interest payable in the amount of $1,992 was converted into 1,328 shares.

 

During July 2018, loans in the principal amount of $375,000 were converted into 250,000 shares of common stock. In addition, interest payable in the amount of $14,704 was converted into 9,802 shares.

 

In May 2019, loans in the principal amount of $150,000 were converted into 100,000 shares of common stock. In addition, interest payable in the amount of $19,521 was converted into 13,014 shares.

 

In April 2019, loans in the amount of $15,000 were converted to 10,000 shares of common stock.

 

At December 31, 2019 and September 30, 2019, the outstanding principal on these notes was $190,000. All debt discounts are being recognized on a straight-line basis over the terms of the notes. Amortization expense related to the debt discounts were $0 and $87,001 for the three months ended December 31, 2019 and 2018, respectively. On December 31, 2019, a note in the amount of $150,000 was extended to mature on December 31, 2020. A loan in the amount of $40,000 was paid off in January 2020.

 

Related Party

 

On February 1, 2016, we entered into an agreement with an unrelated party which provided us with borrowing capacity of $200,000. On May 1, 2016, the agreement was amended to increase the borrowing capacity to $1,000,000. On July 14, 2016, Strategic Capital Partners (“SCP”) assumed the $521,297 loan borrowed against this credit line, increasing the total balance owed to SCP to $2,431,646. SCP is controlled by Benjamin J. Barton, one of our officers and directors and a principal shareholder. The amounts borrowed from SCP were used to fund our operations.

 

On July 14, 2016, we entered into a debt modification agreement whereby a portion of the debt was converted into common stock and the remaining debt was renegotiated into two promissory notes.

 

Of the amounts owed to SCP, $500,000 was converted into 400,000 shares of our common stock ($1.25 conversion rate).

 

The remaining $1,756,646 owed to SCP was divided into two promissory notes.

 

The first note, in the principal amount of $1,000,000, bears interest at 9.5% per year and matures on December 31, 2019. Interest is payable quarterly. The note can be converted at any time, at the option of the lender, into shares of our common stock, initially at a conversion price of $1.25 per share. The conversion price will be proportionately adjusted in the event of any stock split or capital reorganization. The note is not secured.

 

If the average closing price of our common stock is at least $2.50 for twenty consecutive trading days, and the average daily volume of trades of our common stock during the twenty trading days is at least 100,000 shares, we may, within 10 days of the end of such twenty-day period, notify SCP that its right to convert the note into shares of our common stock will end 45 days after the date of the notice to SCP.

 

The second note, in the principal amount of $756,646, bears interest at 8% per year and matures on December 31, 2019. Interest is payable quarterly. The note is not convertible into shares of our common stock but is secured by a first lien on all amounts due to us by WGP. Any payments received from the sale, lease or commercialization of the property in Denver, and any amounts received from WGP, will be applied to the principal amount of the note. Otherwise, all unpaid principal and interest will be due on December 31, 2019.

 

Accrued interest on these notes payable was $0 and $12,742 at September 30, 2019 and 2018, respectively. 

 

In connection with the debt modification agreement, we issued SCP warrants to purchase 800,000 shares of our common stock, exercisable at a price of $1.50 per share, and warrants to purchase an additional 800,000 shares of common stock, exercisable at a price of $3.00 per share. Both sets of warrants expire on June 30, 2020. We allocated the relative fair values to the warrants, stock options, and convertible debt, as determined by the Black Scholes option pricing model. Based on the Black Scholes option pricing model, a net debt premium of $72,651 was allocated to the warrants which are reflected in additional paid-in-capital. The debt premium is being amortized on a straight-line basis over the term of the notes.

 

On September 30, 2019, both notes were amended and combined into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022. Additionally, the conversion option in the first note was eliminated. The new note is secured by all amounts due from WGP or its affiliates. The note holder also received warrants to purchase 1,500,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.25 per share and expire on December 31, 2022. The debt modification was deemed substantial and was accounted for as a debt extinguishment. The fair value of the 1,500,000 warrants was $977,110 and was recognized as loss on extinguishment of debt and the remaining unamortized premium and discount was written off.

 

11

 

 

At December 31, 2019 and September 30, 2019, the outstanding principal on these notes was $1,756,646, and the unamortized debt premium was $0. Amortization of debt premium was $0 and $5,341 for the three months ended December 31, 2019 and 2018, respectively.

 

 

 

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

Coastal Compassion. On April 7, 2016, we signed agreements with BASK. BASK is one of a limited number of organizations that has received a provisional or final registration to cultivate, process and sell medical and adult use cannabis by the Massachusetts Cannabis Control Commission.

 

Pursuant to the agreements, we agreed to provide BASK with financing for construction and working capital required for BASK’s approved dispensary and cultivation center in Fairhaven, MA.

 

On August 15, 2018, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 and setup a new loan with payments over 5 years with 18% interest. At December 31, 2019 and September 30, 2019, the outstanding balance on the note receivable was $143,956 and 148,763, respectively

 

On July 26, 2019, the Company entered into a 15-Year Triple Net lease of Building 1 of the MCC with BASK. The lease commenced on September 1, 2019 and includes an annual base rent of $135,000 and a revenue participation fee equivalent to 15% of BASK's gross revenues. As of December 31, 2019, the BASK tenant receivable balance was $1,524.

 

Tim Keogh, our Chief Executive Officer, is a Board Member of BASK.

 

During the three months ended December 31, 2019, the Company incurred and paid $45,000 of consulting expenses with SCP.

 

 

 

 

NOTE 6. INCOME/LOSS PER SHARE

 

The following table sets forth the computation of basic and diluted net income (loss) per share:

 

   

Three Months Ended

 
   

December 31,

 
   

2019

   

2018

 
                 

Net income (loss) attributable to common stockholders

  $ 1,017,985     $ (538,508 )
                 

Basic weighted average outstanding shares of common stock

    23,504,820       22,568,375  

Dilutive effects of common share equivalents

    -       -  

Dilutive weighted average outstanding shares of common stock

    23,504,820       22,568,375  
                 

Basic and diluted net loss per share of common stock

  $ 0.04     $ (0.02 )

 

 

As of December 31, 2019, we have excluded 1,050,000 of stock options and 11,238,650 of warrants and 256,667 shares that would be issued from conversion of outstanding convertible notes from the computation of diluted net income (loss) per share since the effects are anti-dilutive. As of December 31, 2018, we have excluded 150,000 of stock options and 9,170,650 of warrants from the computation of diluted net loss per share since the effects are anti-dilutive.

 

 

 

 

NOTE 7.  LEASES, COMMITMENTS AND CONTINGENCIES

 

Officer Employment Agreement. On March 25, 2014, the Company entered into an employment agreement with Mr. Keogh. The agreement: (i) has an initial term of three years; (ii) required Mr. Keogh to devote at least 50% of his time to the Company and; (iii) provided that the Company will pay Mr. Keogh $12,000 per month during the term of the agreement. In connection with this employment agreement the Company granted Mr. Keogh shares of common stock and options.   This agreement has expired but the terms are continuing on a month to month basis.

 

MCC. On January 14, 2015, we entered into an agreement to purchase a 52.6 acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. We plan to develop the property as the MCC. Plans for the MCC include the construction of sustainable greenhouse cultivation and processing facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program. We paid the seller $100,000 upon the signing of the agreement which amount was applied toward the purchase price at the closing.

 

12

 

 

Between August 2015 and September 2016, there were several amendments to the Agreement to extend the closing date to October 14, 2016. As consideration for the extensions, the Company, agreed to increase the purchase price to $4,325,000 and paid the seller $725,000, which was applied to the purchase price of the land. As of September 30, 2016, the Company had paid $925,000 that was applied to the purchase price of the land at closing. On October 17, 2016, the Company closed on the land purchase via a sales-leaseback transaction. See ‘Operating Leases’ section below for additional information.

 

Operating Leases

 

Land

 

On October 17, 2016, the Company closed the previously announced acquisition of a 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The deposits of $925,000 previously paid by the Company to the seller, Boston Beer Company (“BBC”), were credited against the total purchase price of $4,475,000. The remaining balance of $3,550,000 was paid to BBC by Massachusetts MMP. The property is located approximately 47 miles southeast of Boston. The Company plans to develop the property as the MCC. Plans for the MCC include the construction of sustainable greenhouse cultivation, processing, and infused product facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program.

 

As part of a simultaneous transaction, the Company assigned the property rights to MMP for a nominal fee and entered a lease agreement pursuant to which MMP agreed to lease the property to the Company for an initial term of fifty (50) years. The Company has the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.

 

The lease payments will be the greater of (a) $30,000 per month; (b) $0.38 per square foot per month of any structure built on the property; or (c) 1.5% of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The lease payments will be adjusted up (but not down) every five (5) years by any increase in the Consumer Price Index.

 

Between October 17, 2016 and April 17, 2017, the monthly lease payments accrued, with all accrued lease payments paid to MMP on April 17, 2017. On April 17, 2017, the Company reimbursed MMP’s costs and expenses associated with the acquisition of the property, the lease, and the acquisition of the shares and the warrant from the Company (as further described below).

 

Under the terms of the lease, the Company had six (6) months to obtain $2.6 million in capital funding for the construction of the first phase building. In the event that the Company was unable to raise these funds within the six (6) month period, the Company had an additional six (6) month period to do so; provided, that the Company has paid accrued lease payments and closing costs. If the Company was then unable to raise these funds on or before twelve (12) months from October 17, 2016, the lease would terminate. On October 17, 2017, the lease agreement was amended to provide that the Company will have until 16 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP warrants to purchase up to 100,000 shares of Common Stock at an exercise price of $1.50 per share. The warrant can be exercised at any time on or after October 17, 2017 and on or before October 17, 2022. In February and April, 2018, the lease agreement was amended to provide that the Company will have until 20 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP a warrant to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrant can be exercised at any time on or before October 17, 2022. The Company recognized an expense of $0 during the three months ended December 31, 2018 related to those warrants. In July 2018, the Company fulfilled the $2.6 million capital funding commitment.

 

The Company received a credit for the $925,000 paid towards the purchase price of the land in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments will be reduced by $1,542 each month

 

In connection with the sale of the property to MMP and the lease, the Company and MMP entered into a Share Purchase Agreement pursuant to which the Company issued to MMP 100,000 shares of its common stock at par value of $0.0001 (“Common Stock”), and a warrant to purchase up to 3,640,000 shares of Common Stock at an exercise price of $1.00 per share. The warrant can be exercised at any time on or after October 17, 2018 and on or before October 17, 2020. The warrant does not contain a cashless exercise provision. The fair value of the warrant was established using the Black Scholes option pricing model using the following assumptions:

 

 

Risk-free interest rate – 1.12 percent

 

Expected term – 4.0 years

 

Volatility – 115 percent

  

13

 

 

The Company allocated $1,899,966 to the warrant which is reflected in additional paid-in-capital and was initially allocated to prepaid land lease. The fair value of the common stock on the date of the agreement was $73,000, which is also reflected in additional paid-in-capital and was also initially allocated to prepaid land lease. On June 26, 2019 the expiration date of warrants to purchase 3,640,000 shares of common stock was extended to October 17, 2021. In August 2019, the Company completed construction of Building 1 at MCC and on September 1st, 2019, Bask, Inc commenced its 15-year lease of Building 1 which includes a base rent plus 15% of BASK’s gross revenue. The Company has the option to extend the term of the land lease for four (4) additional ten (10) year periods.

 

Effective October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $6,980,957 and $4,256,869, respectively. As part of the adoption, prepaid land lease balance of $2,724,088 was classified as a component of the Company’s ROU assets.

 

The Company constructed Building 1 on the leased land and on September 1, 2019, Bask, Inc. commenced its 15-year sublease of Building 1 which includes a base rent plus 15% of BASK’s gross revenues. This sublease income is recorded as Rental income - related party on the Company’s consolidated statement of operations.

 

As of December 31, 2019, the Company’s right-of-use assets were $6,964,302, the Company’s current maturities of operating lease liabilities were $9,093, and the Company’s noncurrent lease liabilities were $4,245,612. During the three months ended December 31, 2019, the Company had operating cash flows from operating leases of 85,375.

 

The table below presents lease related terms and discount rates as of December 31, 2019.

 

   

As of December 31, 2019

 
         

Weighted average remaining lease term

       

Operating leases (in years)

    47.0  

Weighted average discount rate

       

Operating leases

    7.9 %

 

The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of December 31, 2019 are as follows:

 

2020

  $ 256,125  

2021

    341,500  

2022

    341,500  

2023

    341,500  

2024

    341,500  

Thereafter

    14,343,000  

Total lease payments

    15,965,125  

Less: Present value discount

    (11,710,420 )

 

    4,254,705  
Less: operating lease liability, short term     (9,093 )
Operating lease liability, long term   $ 4,245,612  

 

14

 

 

Office space

 

In January 2018 the Company's offices moved to 1550 Wewatta St, Denver, CO 80202. The office space lease is a month-to-month lease with an original term of less than 12 months. The leases require the Company to pay all taxes, maintenance, insurance, and other operating expenses. Lease expense for office space was $3,801 for the three months ended December 31, 2019 and December 31, 2018.

 

Aggregate rental expense under all leases totaled approximately $103,666 and $103,615 for the three months ended December 31, 2019 and 2018, respectively.

 

 

 

 

NOTE 8.  SHAREHOLDERS’ EQUITY

 

Equity Line Agreement. On December 12, 2017, the Company entered into an amended and restated equity line agreement with Mountain States Capital, LLC (MSC). Under the equity line agreement, MSC agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company's common stock.

 

The equity line agreement expired on August 14, 2019.

 

During the three months ended December 31, 2018, we sold 311,816 shares of common stock pursuant to the equity line agreement and received $650,000 in cash from the sale of these shares

 

Stock Options. There was no stock option activity for the quarter ended December 31, 2019. Stock option details are as follows: 

 

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Contractual

   

Aggregate

 
   

Number of

   

Exercise

   

Term

   

Intrinsic

 
   

Shares

   

Price

   

(Years)

   

Value

 

Exercisable at September 30, 2019

    800,000     $ 1.69       4.0     $ -  

Outstanding as of December 31, 2019

    1,050,000     $ 1.64       4.2     $ -  

Vested and expected to vest at December 31, 2019

    1,050,000     $ 1.64       4.2     $ -  

Exercisable at December 31, 2019

    800,000     $ 1.69       4.0     $ -  

 

 

Stock option-based compensation expense associated with stock options was $108,522 and $0 for the three months ended December 31, 2019 and 2018, respectively. At December 31, 2019, the remaining unrecognized stock-based compensation associated with stock options is $132,080. These expenses are expected to be recognized over a remaining weighted average period of 2.25 years.

 

Warrants. Warrant activity as of and for the three months ended December 31, 2019 is as follows: 

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Contractual

   

Aggregate

 
   

Number of

   

Exercise

   

Term

   

Intrinsic

 
   

Shares

   

Price

   

(Years)

   

Value

 

Outstanding as of September 30, 2019

    11,238,650       1.52       2.00     $ -  

Outstanding as of December 31,2019

    11,238,650       1.52       2.00     $ -  

Exercisable at December 31, 2019

    11,238,650       1.52       2.00     $ -  

 

 

NOTE 9. INCOME TAXES

 

We did not record any income tax expense or benefit for the three months ended December 31, 2019 or 2018. We increased our valuation allowance and reduced our net deferred tax assets to zero. Our assessment of the realization of our deferred tax assets has not changed, and as a result we continue to maintain a full valuation allowance for our net deferred assets as of December 31, 2019 and 2018.

 

As of December 31, 2019, we did not have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2019.

 

 

NOTE 10. SUBSEQUENT EVENTS

 

On February 5, 2020 the Company received cash of $2,069,138 from WGP as payment in full for the fully reserved notes and other receivables related to the January 18, 2018 arbitration award which include principal, interest, attorneys’ fees and arbitration fees (see Note 3). 

 

15

 

  

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended September 30, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K

 

Forward-Looking Statements

 

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

 

OVERVIEW

 

AmeriCann's business plan is to design, develop, operate and/or lease state-of-the-art cannabis cultivation, processing and manufacturing facilities throughout the United States. AmeriCann’s team includes board members, consultants, engineers and architects who specialize in real estate development, traditional horticulture, lean manufacturing, medical research, facility construction, regulatory compliance, security, marijuana cultivation and genetics, extraction processes, and infused product development.

 

AmeriCann’s flagship project is the Massachusetts Cannabis Center. The Massachusetts Cannabis Center (“MCC”) is being developed on a 52-acre parcel located in Southeastern Massachusetts. AmeriCann’s MCC project is permitted for 987,000 sq. ft. of cannabis cultivation and processing infrastructure, which is being developed in phases to support both the existing medical cannabis and the newly emerging adult-use cannabis marketplace.

 

The first phase of the million square foot project, Building 1, a 30,000 square foot cultivation and processing facility, is complete and the building is currently 100% leased by a vertically-integrated Massachusetts cannabis company.

 

AmeriCann, Inc. plans to apply for Marijuana Product Manufacturing and cultivation licenses to operate at MCC but also enter into agreements with other licensed cannabis businesses in Massachusetts to occupy space in the million square foot project. AmeriCann will generate revenue through lease arrangements with the operators that include base rents and royalty payments up to 15% of gross revenue generated from products produced at MCC.

 

AmeriCann, through a 100% owned subsidiary AmeriCann Brands, Inc., plans to secure licenses from the Massachusetts Cannabis Control Commission to provide extraction and product manufacturing support to the entire MCC project, as well as to other licensed cannabis farmers throughout regulated markets. AmeriCann Brands plans to occupy space in Building 2 at MCC which is in the final design process. In addition to large-scale extraction of cannabis plant material, AmeriCann Brands plans to produce branded consumer packaged goods including cannabis beverages, vaporizer products, edible products, non-edible products and concentrates at the state-of-the-art facility.

 

AmeriCann plans to replicate the brands, technology and innovations developed at its MCC project to new markets as a multi-state operator.

 

16

 

 

SIGNIFICANT ACCOUNTING POLICIES

 

Leases

 

Effective October 1, 2019, we adopted ASC 842 Lease Accounting using the Transition method. We determine if an arrangement is a lease at inception. 

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

 

RESULTS OF OPERATIONS

 

Total Revenues

 

During the three months ended December 31, 2019 and 2018, we generated $34,691 and $0 in revenue, respectively. The increase in revenues is due to the lease rent revenue from BASK.

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were $36,126 and $16,856 for the three months ended December 31, 2019 and 2018, respectively. The increase is due to more advertising and marketing activities, as the Company is shifting its focus to the planning and development of the first phase building of the Massachusetts Cannabis Center.

 

Professional Fees  

 

Professional fees were $86,609 and $128,933 for the three months ended December 31, 2019 and 2018, respectively. The decrease is due to a decrease in legal fees.

 

General and Administrative Expenses

 

General and administrative expenses were $456,348 and $212,112 for the three months ended December 31, 2019 and 2018, respectively. The increase is primarily a result of an increase in depreciation expense, stock compensation expense and payroll expenses.

 

Recovery of Provision for Doubtful Accounts

 

Provision for doubtful accounts was ($1,761,675) and $0 for the three months ended December 31, 2019 and 2018, respectively. The decrease is a result of a reversal of the reserve on the receivable balance with WGP, as the payment was received in February 2020.

 

Interest Income

 

Interest income was $0 and $7,672 for the three months ended December 31, 2019 and 2018, respectively. 

 

Interest Expense

 

Interest expense was $199,298 and $185,249 for the three months ended December 31, 2019 and 2018, respectively. The increase is primarily attributable to amortization of debt discounts during the three months ended December 31, 2018.

 

17

 

 

Net Operating Income/Loss 

 

We had a net income (loss) of $1,017,985 and $(538,508) for the three months ended December 31, 2019 and 2018, respectively. The decrease in net loss is attributable to collection of the arbitration award and changes in operating expenses and interest income and expense, each of which is described above.

 

LIQUIDITY AND CAPITAL RESOURCES 

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $16,995,224 and $ 18,013,209 at December 31, 2019 and September 30, 2019, respectively, and had a net income of $1,017,985 (including a reduction of a previously recorded reserve of $1,761,675) for the three months ended December 31, 2019. While the Company is attempting to increase operations and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds through the sale of its securities. 

 

Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Notes Payable

 

See Notes 4 the unaudited consolidated financial statements filed with this report for information concerning our notes payable

 

Analysis of Cash Flows 

 

During the three months ended December 31, 2019, our net cash flows used in operations were $603,548 as compared to net cash flows used in operations of $534,409 for the three months ended December 31, 2018. The increase is primarily due to the timing of working capital payments, depreciation expense during the three months ended December 31, 2019 and higher amortization of debt discounts during the three months ended December 31, 2018.

 

Cash flows used in investing activities were $300,214 for the three months ended December 31, 2019, consisting of additions to fixed assets and construction in progress and payments on notes receivables. Cash flows provided by investing activities were $21,138 for the three months ended December 31, 2018, consisting of additions to constructions in progress.

 

Cash flows provided by financing activities were $0 for the three months ended December 31, 2019. Cash flows provided by financing activities were $1,045,500 for the three months ended December 31, 2018, consisting of common stock issued for cash and proceeds from the exercise of warrants.

  

We do not have any firm commitments from any person to provide us with any capital.

 

18

 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of December 31, 2019, we did not have any off balance sheet arrangements.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q.  Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective for the same reasons that our internal control over financial reporting were not effective.

  

Internal Control over Financial Reporting

 

As indicated in our Form 10-K filed on January 15, 2019, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective during the 2018 fiscal year at the reasonable assurance level, as a result of a material weaknesses primarily related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP, limited or no segregation of duties, and lack of independent directors.

 

We are currently in the process of evaluating the steps necessary to remediate these material weaknesses.

 

Change in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the quarterly period ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

 

19

 

 

PART II OTHER INFORMATION

 

 

ITEM 6. EXHIBITS

 

 

Exhibit
Number

Description of Document

 

 

31.1

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith)

 

 

31.2

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, (filed herewith)

 

 

32

Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

 

 

 

 

101.INS

XBRL Instance Document.

 

 

101.SCH

XBRL Taxonomy Extension Schema Document.

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

 

20

 

 

SIGNATURES

 

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

 

  

 

AMERICANN, INC.

  

  

  

Dated: February 19, 2020

 

By:

/s/ Timothy Keogh

 

  

 

  

Timothy Keogh

 

  

 

  

Principal Executive Officer

 

  

  

  

  

 

By:

/s/ Benjamin Barton

 

  

 

  

Benjamin Barton

 

  

 

  

Principal Financial and Accounting Officer

 

 

21