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 2020-03-31 Filed 2020-05-14
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
8-K 2020-02-27
8-K 2020-02-24
8-K 2020-02-10
8-K 2020-01-27
8-K 2019-11-25
8-K 2019-10-14
8-K 2019-10-07
8-K 2019-08-02
8-K 2019-02-07
8-K 2019-01-30
8-K 2019-01-30
8-K 2019-01-17
8-K 2018-08-06
8-K 2018-08-06
8-K 2018-07-10
8-K 2018-04-24
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. Loss per Share
Note 7. 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_144613.htm
EX-31.2 ex_144614.htm
EX-32 ex_144615.htm

Americann Earnings 2019-03-31

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 acan20190331_10q.htm FORM 10-Q acan20190331_10q.htm
 

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

[X]

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

 

For the quarterly period ended March 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)

 

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 May 10, 2019, the registrant had 23,059,516 shares of common stock outstanding.

 

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

 

 

 
 

 

AmeriCann, Inc.

FORM 10-Q

 

TABLE OF CONTENTS

 

 

 

 

PAGE NO.

PART I

FINANCIAL INFORMATION

F-1

 

 

 

 

 

Item 1.

Unaudited Financial Statements:

F-1

 

 

Consolidated Balance Sheets as of March 31, 2019 and September 30, 2018

F-1

 

 

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

F-2

 

 

Consolidated Statements of Changes in Stockholders' Equity for The Six Months Ended March 31, 2019 and 2018

F-3
    Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2019 and 2018 F-4

 

 

Notes to Consolidated Financial Statements

F-5

 

 

 

 

 

Item 2.

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

14

  

  

  

  

 

Item 4.

Controls and Procedures

17

 

 

 

 

PART II

OTHER INFORMATION

18

 

 

 

 

 

Item 6.

Exhibits

18

 

 

 

 

 

SIGNATURES

19

 

 

 

 

Part I:  FINANCIAL INFORMATION

 

Item 1.      UNAUDITED Financial Statements

 

 

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

   

March 31, 2019

   

September 30, 2018

 
                 

Assets

               

Current Assets:

               

Cash and cash equivalents

  $ 7,217     $ 198,144  

Restricted cash

    1,763,964       3,818,805  

Current portion of prepaid land lease

    57,959       57,959  

Prepaid expenses and other current assets

    7,260       7,470  

Current portion of note receivable - related party

    25,811       -  

Total current assets

    1,862,211       4,082,378  
                 

Construction in progress

    4,383,914       1,681,382  

Furniture and equipment (net of depreciation of $691 and $4,827)

    2,073       5,794  

Notes and other receivables (net of allowance of $977,770)

    783,905       783,905  

Note receivable - related party

    139,508       176,764  

Prepaid land lease and related deposits, net of current portion

    2,695,108       2,724,088  

Security deposit and other assets

    3,110       3,110  

Total assets

  $ 9,869,829     $ 9,457,421  
                 

Liabilities and Stockholders' Equity

               

Current Liabilities:

               

Accounts payable and accrued expenses

  $ 242,902     $ 268,065  

Interest payable (including $0 and $12,742 to related parties)

    31,796       46,605  

Other payables

    22,153       8,906  

Notes payable (net of discount of $0 and $138,750)

    550,000       521,250  

Notes payable - related party (inclusive of premium of $14,991 and $0)

    1,771,637       -  

Total current liabilities

    2,618,488       844,826  
                 

Notes payable - related party (inclusive of premium of $0 and $25,673)

    -       1,782,319  
                 

Total liabilities

    2,618,488       2,627,145  
                 

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; 23,004,516 and 22,106,763 shares issued and outstanding as of March 31, 2019 and September 30, 2018, respectively

    2,301       2,211  

Additional paid in capital

    21,454,009       19,937,606  

Accumulated deficit

    (14,204,969 )     (13,109,541 )

Total stockholders' equity

    7,251,341       6,830,276  
                 

Total liabilities and stockholders' equity

  $ 9,869,829     $ 9,457,421  

 

See accompanying notes to unaudited consolidated financial statements.

 

F-1

 
 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   

Three Months Ended March 31,

   

Six Months Ended March 31,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Revenues:

                               

Consulting fees

  $ -     $ -     $ -     $ -  

Total revenues

    -       -       -       -  
                                 
                                 

Operating expenses:

                               

Advertising and marketing

    44,190       2,787       61,046       3,749  

Professional fees

    170,310       118,128       299,243       270,115  

General and administrative expenses

    305,091       357,592       517,203       792,454  

Total operating expenses

    519,591       478,507       877,492       1,066,318  
                                 

Loss from operations

    (519,591 )     (478,507 )     (877,492 )     (1,066,318 )
                                 

Other income (expense):

                               

Interest income

    7,417       17,309       15,089       25,386  

Interest expense

    (11,736 )     (424,609 )     (163,124 )     (1,178,988 )

Other income (expense)

    -       -       (3,030 )     (2,861 )

Interest expense - related party

    (33,010 )     (36,461 )     (66,871 )     (73,851 )

Total other income (expense)

    (37,329 )     (443,761 )     (217,936 )     (1,230,314 )
                                 

Net loss

  $ (556,920 )   $ (922,268 )   $ (1,095,428 )   $ (2,296,632 )
                                 

Basic and diluted loss per common share

  $ (0.02 )   $ (0.05 )   $ (0.05 )   $ (0.12 )
                                 

Weighted average common shares outstanding

    22,913,023       19,376,278       22,738,806       19,371,082  

 

See accompanying notes to unaudited consolidated financial statements.

 

F-2

 
 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

    Preferred Stock     Common Stock    

Additional

Paid In

    Accumulated          
    Shares     Amount     Shares     Amount     Capital     Deficit     Total  
                                                         

Balances, September 30, 2017

    -     $ -       19,366,000     $ 1,937     $ 10,959,188     $ (8,676,825 )   $ 2,284,300  

Stock-based compensation

    -               -       -       171,307       -       171,307  

Benefical conversion feature and warrants

    -               -       -       1,487,438       -       1,487,438  

Net loss

    -               -       -       -       (1,374,364 )     (1,374,364 )
Balances, December 31, 2017     -     $ -       19,366,000     $ 1,937     $ 12,617,933     $ (10,051,189 )   $ 2,568,681  

Stock issued for options exercised

    -       -       25,000       3       18,747       -       18,750  

Shares and warrants issued to lessor warrant expense

    -       -       -       -       135,354       -       135,354  

Benefical conversion feature and warrants

    -       -       -       -       810,000       -       810,000  

Net loss

    -       -       -       -       -       (922,268 )     (922,268 )
Balances, March 31, 2018     -     $ -       19,391,000     $ 1,940     $ 13,582,034     $ (10,973,457 )   $ 2,610,517  

 

    Preferred Stock     Common Stock    

Additional

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, net

    -       -       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  

Stock issued for cash, net

    -       -       176,609       17       303,984       -       304,001  

Conversion of debt

    -       -       20,000       2       29,998       -       30,000  

Stock issued for warrants exercised, net

    -       -       25,000       3       24,997       -       25,000  

Net loss

    -       -       -       -       -       (556,920 )     (556,920 )
Balances, March 31, 2019     -     $ -       23,004,516     $ 2,301     $ 21,454,009     $ (14,204,969 )   $ 7,251,341  

 

See accompanying notes to unaudited consolidated financial statements. 

 

F-3

 
 

 

AMERICANN, INC.

consolidated STATEMENTS OF CASH FLOWS

(unaudited)

 

   

Six Months Ended March 31,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net loss

  $ (1,095,428 )   $ (2,296,632 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Depreciation and amortization

    691       7,478  

Stock based compensation and option expense

    -       306,661  

Stock issued for services

    65,000       -  

Loss on disposal of land

    -       2,861  

Loss on disposal of fixed assets

    3,030       -  

Amortization of equity instruments issued to lessor

    19,730       28,979  

Amortization of debt discount/(premium)

    128,068       1,121,652  

Changes in operating assets and liabilities:

               

Interest receivable

    -       (25,385 )

Prepaid expenses

    210       (59,970 )

Accounts payable and accrued expenses

    (15,913 )     (597,593 )

Notes receivable - related party

    -       (10,000 )

Interest payable

    (75 )     9,059  

Interest payable - related party

    (12,742 )     (42,996 )

Other payables

    13,247       (11,704 )

Net cash flows used in operations

    (894,182 )     (1,567,590 )
                 

Cash flows from investing activities:

               

Additions to construction in progress

    (2,702,532 )     (19,272 )

Payments received on notes receivable

    11,445       -  

Net cash flows used in investing activities

    (2,691,087 )     (19,272 )
                 

Cash flows from financing activities:

               

Common stock issued for cash, net

    954,001       -  

Proceeds from note payable, net of financing costs

    -       2,536,000  

Proceeds from the exercise of warrants

    420,500       -  

Proceeds from the exercise of stock options

    -       18,750  

Principal payments on notes payable

    (35,000 )     (80,000 )

Net cash flows provided by financing activities

    1,339,501       2,474,750  
                 

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

    (2,245,768 )     887,888  
                 

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

    4,016,949       1,627  
                 

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

  $ 1,771,181     $ 889,515  
                 

Supplementary Disclosure of Cash Flow Information:

               
                 

Cash paid for interest

  $ 114,745     $ 165,124  

Cash paid for income taxes

  $ -     $ -  
                 

Non-Cash Investing and Financing Activities:

               
                 

Proceeds from sale of land used to satisfy debt obligations

    -       1,608,451  

Debt discount related to warrants issued with debt and Beneficial Conversion Feature

    -       2,297,438  

Shares issued for conversion of debt and accrued interest

    76,992          

 

See accompanying notes to unaudited consolidated financial statements. 

  

F-4

 

 

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 failure to secure funding to properly expand its operations.

 

 

Basis of Presentation

 

The (a) consolidated balance sheet as of September 30, 2018, which has been derived from audited financial statements, and (b) the unaudited consolidated financial statements as of and for the six months ended March 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 consolidated financial statements and notes thereto contained in the Company's Form 10-K filed with the SEC on January 15, 2019. 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 2018 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.

 

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:

 

   

March 30,
2019

   

September 30,

2018

 
                 

Cash and cash equivalents

  $ 7,217     $ 198,144  

Restricted cash

    1,763,964       3,818,805  

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

  $ 1,771,181     $ 4,016,949  

 

 

Amounts included in restricted cash represent amounts 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.

 

Recent Accounting Pronouncements

 

In January 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-01, LEASES (TOPIC 842): LAND EASEMENT PRACTICAL EXPEDIENT FOR TRANSITION TO TOPIC 842; On February 25, 2016, the FASB issued Accounting Standards Update No. 2016- 02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The FASB has been assisting stakeholders with implementation questions and issues as organizations prepare to adopt Topic 842. In connection with the FASB’s transition support efforts, a number of stakeholders inquired about the application of the new lease requirements in Topic 842 to land easements. Land easements (also commonly referred to as rights of way) represent the right to use, access, or cross another entity’s land for a specified purpose. The amendments in this Update affect the amendments in Update 2016-02, which are not yet effective but may be early adopted, and Example 10 of Subtopic 350- 30. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance. The Company does not expect this amendment to have a material impact on its financial statements.

 

F-5

 

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments.  As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company adopted the changes effective October 1, 2018 and the changes did not have a material impact on its financial statements.

 

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company adopted the changes effective October 1, 2018 and the changes did not have a material impact on its financial statements.

  

In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which is the same time as the amendments in ASU No. 2014-09, and early adoption is permitted. The Company adopted the changes effective October 1, 2018 and the changes did not have a material impact on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250). The ASU adds SEC disclosure requirements for both the quantitative and qualitative impacts that certain recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. Specially, these disclosure requirements apply to the adoption of ASU No. 2014- 09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.   The Company adopted ASU No. 2014-09 effective October 1, 2018 and the adoption did not have a material impact on its revenue recognition as it pertains to current revenue streams.

 

Between May 2014 and December 2016, the FASB issued several ASU’s on Revenue from Contracts with Customers (Topic 606). These updates will supersede nearly all existing revenue recognition guidance under current U.S. generally accepted accounting principles (GAAP). The core principle is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. A five-step process has been defined to achieve this core principle, and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standards are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standards in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the standards recognized at the date of adoption (which includes additional footnote disclosures). The Company adopted Topic 606, effective October 1, 2018 and the adoption did not have a material impact on its revenue recognition as it pertains to current revenue streams.

 

F-6

 

 

 

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 $14,204,969 and $13,109,541 at March 31, 2019 and September 30, 2018, respectively, and had a net loss of $556,920 and $1,095,428 for the three and six months ended March 31, 2019, respectively. Further, the amount due from Wellness Group Pharms (“WGP”) of $1,761,675 (before an allowance of $977,770) may not be collectible. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to generate revenue, 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. On January 18, 2018, an arbitration panel awarded the Company $1,045,000 plus interest at the rate of 18% per year from April 18, 2015 to March 15, 2018 ($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. Although there are no indicators to suggest that the amounts due from WGP will not be collectible, the Company has not collected on the award as of the filing date of this report.

 

Management believes that the actions presently being taken to further implement its business plan and generate revenue provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate revenue 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 revenue. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

 

NOTE 3. NOTES AND OTHER RECEIVABLES

 

Notes and other receivables as of March 31, 2019 and September 30, 2018, consisted of the following: 

 

   

March 31,
2019

   

September 30, 2018

 
                 
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. Net of reserves of $977,770. All amounts are due and payable immediately.     783,905       783,905  
                 
Related party note receivable from BASK, a non-profit corporation, interest rate of 18.0%; monthly principal and interest payments of $11,925, maturing in 2023.     165,319       176,764  
      949,224       960,669  

Less: Current portion

    (25,811 )     -  
                 
    $ 923,413     $ 960,669  

 

 

The notes and other receivables from WGP are classified as long term due to ongoing disputes between the Company and WGP. The Company recently won an arbitration hearing against WGP, but will not reclassify the amounts from long-term until such time that actual payment is made or becomes known.

 

F-7

 

 

 

NOTE 4.  NOTES PAYABLE

 

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. 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 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.

 

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 $51,749 and $187,859 for the six months ended March 31, 2019 and 2018, respectively.

 

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.

 

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.

 

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 $87,001 and $162,000 for the six months ended March 31, 2019 and 2018, respectively.

 

F-8

 

 

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 March 31, 2019 and September 30, 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. At March 31, 2019, the outstanding principal on these notes was $1,756,646, and the unamortized debt premium was $14,991. Amortization of debt premium was $10,682 for the six months ended March 31, 2019 and 2018.

  

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

Strategic Capital Partners. At March 31, 2019 and September 30, 2018, we had outstanding notes payable to SCP of $1,771,637 and $1,782,319, respectively.

 

Interest expense was $33,010 and $36,461 for the three months ended March 31, 2019 and 2018, respectively; and $66,871 and $73,851 for the six months ended March 31, 2019 and 2018, respectively. Interest payable – related party of $0 and $12,742 was included in the accompanying consolidated balance sheets at March 31, 2019 and September 30, 2018, respectively.  We made interest payments of $38,569 during the quarter ended March 31, 2019, and $90,295 during the six months ended March 31, 2019.

 

During the six months ended March 31, 2019, the Company incurred $45,000 of consulting expenses with SCP of which $29,000 remains outstanding as of March 31, 2019. 

  

In October 2018, the Company paid SCP $30,000 to reimburse for travel expenses incurred on the Company’s behalf.
 
In October 2018, the Company issued 65,000 shares for stock in exchange for consulting services.

 

Bask, Inc. On April 7, 2016, we signed agreements with Bask Inc. (formerly Coastal Compassion Inc.) (“BASK”). BASK is one of a limited number of non-profit organizations that has received a Final Certificate of Registration to cultivate, process and sell medical cannabis by the Massachusetts Cannabis Control Commission (formerly Massachusetts Department of Public Health). BASK has agreed to become the initial tenant in our planned MMCC.

 

Tim Keogh, our Chief Executive Officer, has been a Board Member of BASK since August of 2013. On November 7, 2012, Massachusetts voters approved a measure to legalize medical marijuana. At that time, Massachusetts law required Registered Marijuana Dispensaries (RMDs) to form and operate as nonprofit corporations pursuant to Massachusetts General Law (M.G.L.) .c.180.

 

In October 2017, the Massachusetts Department of Public Health released guidance outlining the steps by which a nonprofit RMD may convert to a for-profit entity. The guidance provides a straight-forward process to follow in order to complete the required paperwork with the Secretary of State’s Office. 

 

Existing RMDs with a Final Certificate of Registration may complete the non-profit conversion documents provided by the Secretary of State, submit the completed conversion documents to the RMD Program for certification, and then file the certified documents with the Secretary of State. The non-profit conversion may not occur, however, in the event that Bask, Inc. converts to a for-profit entity, Mr. Keogh would own less than 10% of the Bask, Inc. for-profit entity.

 

F-9

 

 

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. The financing accrued interest of 18% until 6-months after BASK opened its dispensary at which point the financing would be repaid over a five year term at 18%.

 

On August 15, 2018, which was 6-months after the first sales by BASK, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 with a payment schedule created for the 5 years with 18% interest as stipulated in the original agreement. The outstanding balance was $165,319 and $176,764 as of March 31, 2019 and September 30, 2018, respectively. As of March 31, 2019, there is additional interest income of $15,089.

 

For a three- year period beginning April 1, 2016, we agreed to consult with BASK in the design, construction and operation of the Fairhaven facility. BASK will owe us $10,000 each month for these consulting services, but is not required to pay until six months after generating certain revenues. Although the DPH has approved our agreement with BASK relating to the development and lease terms of the MCCC, the actual lease agreement with BASK has not been finalized or approved by the DPH. We will need to secure significant capital to provide the financing to BASK. 

 

 

NOTE 6. LOSS PER SHARE

 

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

 

   

Three Months Ended

   

Six Monthds Ended

 
   

March 31,

   

March 31,

 
   

2019

   

2018

   

2019

   

2018

 
                                 
                                 

Net loss attributable to common stockholders

  $ (556,920 )   $ (922,268 )   $ (1,095,428 )   $ (2,296,632 )
                                 

Basic weighted average outstanding shares of common stock

    22,913,023       19,376,278       22,738,806       19,371,082  

Dilutive effects of common share equivalents

    -       -       -       -  

Dilutive weighted average outstanding shares of common stock

    22,913,023       19,376,278       22,738,806       19,371,082  
                                 

Basic and diluted net loss per share of common stock

  $ (0.02 )   $ (0.05 )   $ (0.05 )   $ (0.12 )

 

As of March 31, 2019, we have excluded 150,000 of stock options and 9,145,650 of warrants from the computation of diluted net loss per share since the effects are anti-dilutive. As of March 31, 2018, we have excluded 180,000 of stock options and 10,306,000 of warrants from the computation of diluted net loss per share since the effects are anti-dilutive.

 

 

NOTE 7.  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) requires that Mr. Keogh devote at least 50% of his time to the Company and; (iii) provides 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.

 

MMCC. 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 MMCC. Plans for the MMCC 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 will be applied toward the purchase price at the closing.

 

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, at closing, agreed to increase the purchase price to $4,325,000 and paid the seller $725,000, which was be applied to the purchase price of the land if and when the Company closed on this transaction. As of September 30, 2016, the Company had paid $925,000 that was to be 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’ 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 Medical Properties, LLC (“MMP”). The property is located approximately 47 miles southeast of Boston. The Company plans to develop the property as the Massachusetts Medical Cannabis Center (the “MMCC”). Plans for the MMCC 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.

 

F-10

 

 

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 are 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 and $0 during the three and six months ended March 31, 2019, respectively, related to those warrants. The Company recognized an expense an expense of $0 and $171,307 during the three and six months ended March 31, 2018, respectively. 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

  

The Company allocated $1,899,966 to the warrant which is reflected in additional paid-in-capital and was 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 allocated to prepaid land lease. The prepaid land lease is being amortized on a straight-line basis over the term of the lease.

 

The lease expense, which includes the amortization related to the prepaid land lease and office space, was $99,865 for each of the three months ended March 31, 2019 and 2018, and $199,730 for each of the six months ended March 31, 2019 and 2018. At March 31, 2019, the future rental payments required under this lease are $170,748 for the remainder of fiscal 2019, $341,496 for fiscal years 2020 through 2023, and $14,684,528 thereafter.

 

Office space

 

In January 2018 the Company's offices moved to 1550 Wewatta St, Denver, CO 80202. The Company leases this new space on a month-to-month basis at a rate of $1,230 per month. Lease expense for office space was $3,993 and $8,140 for the three months ended March 31, 2019 and 2018, respectively and $7,743 and $16,900 for the six months ended March 31, 2019 and 2018, respectively.

 

F-11

 

 

 

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.

 

During the term of the Agreement, the Company, at its sole discretion, may deliver a Put Notice to MSC, which will specify the dollar amount which the Company wants to draw down under the Equity Line. The amount the Company can draw down at any one time is the lesser of twice the average of the 10-day average daily trading volume (computed by multiplying the volume weighted average price for each day by the number of shares traded for that day), or $500,000.

 

A closing will occur on the date which is no earlier than five trading days following and no later than seven trading days following the applicable Put Notice. On each Closing Date, the Company will sell, and MSC will purchase, the shares of the Company's common stock specified in the Put Notice.

 

The amount to be paid by MSC on a particular Closing Date will be determined by dividing the dollar amount specified in the Put Notice by the Purchase Price. The Purchase Price is 90% of the lowest daily volume weighted average price of the Company's common stock during the Pricing Period. The Pricing Period, with respect to a particular Put Notice is the five consecutive trading days including, and immediately following, the delivery of a Put Notice. However, no Put Notice may be delivered on a day that is not a Trading Day.

 

The Company may specify a Minimum Price when submitting a Put Notice, provided however that the Minimum Price must be more than 75% of the Closing Price of the Company's Common Stock on the date immediately preceding the date of the delivery of the Put Notice. If the Purchase Price is less than the Minimum Price, the Company may, at its option, sell shares to MSC on the Closing Date using the Purchase Price. Notwithstanding the above, the Company will not sell any shares at a price below $1.00 per share.

 

The Company is under no obligation to submit any Put Notices.

 

The equity line agreement has a term of 18 months, which began on February 14, 2018.

 

During the year ended September 30, 2018, we submitted Put Notices for a total of 447,801 shares and received $1,222,412 from the sale of the shares to Mountain States.

 

During the six months ended March 31, 2019, we submitted Put Notices for the total of 488,425 shares and received $954,001 from the sale of these shares to Mountain States.

 

In October 2018, the Company issued 65,000 shares for stock in exchange for consulting services.

 

 

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

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Contractual

   

Aggregate

 
   

Number of

   

Exercise

   

Term

   

Intrinsic

 
   

Shares

   

Price

   

(Years)

   

Value

 
                                 

Outstanding as of September 30, 2018

    150,000     $ 2.21       2.9     $ -  

Outstanding as of March 31, 2019

    150,000     $ 2.50       2.4     $ -  

Vested and expected to vest at March 31, 2019

    150,000     $ 2.50       2.4     $ -  

Exercisable at March 31, 2019

    150,000     $ 2.50       2.4     $ -  

 

There was no stock-based compensation expense associated with stock options for the three and six months ended March 31, 2019 and 2018. At March 31, 2019, there is no remaining unrecognized stock-based compensation associated with stock options.

 

F-12

 

 

Warrants. Warrant activity as of and for the six months ended March 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, 2018

    9,478,650     $ 1.55       2.6       14,510,046  

Exercised

    (333,000 )     1.26                  

Outstanding as of March 31, 2019

    9,145,650     $ 1.56       2.0     $ 4,788,094  

Exercisable at March 31, 2019

    5,505,650     $ 1.93       2.3     $ 1,803,294  

 

During the six months ended March 31, 2019, the Company issued 333,000 shares upon the exercise of warrants for total proceeds of $420,500.

 

 

NOTE 9. INCOME TAXES

 

We did not record any income tax expense or benefit for the three or six months ended March 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 March 31, 2019 and 2018.

 

As of March 31, 2019, we did not have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2018.

 

 

NOTE 10. SUBSEQUENT EVENTS

 

On May 2, 2019, the Company borrowed $153,000 from an unrelated party. The loan bears interest at a rate of 12% and is due and payable on May 2, 2020.  At any time on or before October 29, 2019 the Company may prepay the loan by paying the Lender the outstanding loan principal and accrued interest plus premiums ranging from 15% to 35%. After October 29, 2019, the Company may not repay the loan without the consent of the Lender. At any time after October 29, 2019, the full value of any unpaid principal is convertible into the Company’s common stock at a variable conversion price.  The conversion price is equal to: (a) if the market price is greater than or equal to $1.50, the greater of (1) the variable conversion price (defined as market price multiplied by 65 percent) and (2) $1.00, and (b) if the market price is less than $1.50, the lessor of (1) the variable conversion price and (2) $1.00.

 

In April, the Company issued 55,000 shares of Common Stock from the exercises of warrants for a value of $55,000.

 

F-13

 
 

 

 

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, 2018 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 Medical Cannabis Center. The Massachusetts Cannabis Center (“MMCC”) is being developed on a 52-acre parcel located in Southeastern Massachusetts. AmeriCann’s MMCC 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 is under-construction. Building 1 at MMCC is a 30,000 square foot cultivation and processing facility. Construction of the project is moving forward rapidly, with millions of dollars already invested in site preparation, concrete, and buildings. More than a dozen companies have been retained for construction of the facility which is being overseen by CBRE on behalf of AmeriCann. The building is expected to be complete by the summer of 2019.

 

AmeriCann, Inc. plans to apply for Marijuana Product Manufacturing and cultivation licenses to operate at MMCC 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 MMCC.

 

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 MMCC project, as well as to other licensed cannabis farmers throughout regulated markets. AmeriCann Brands plans to occupy space in Building 2 at MMCC 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 MMCC project to new markets as a multi-state operator.

 

14

 

 

SIGNIFICANT ACCOUNTING POLICIES

 

There were no changes in our significant accounting policies and estimates during the three and six months ended March 31, 2019 from those set forth in our Annual Report on Form 10-K for the year ended September 30, 2018 filed on January 15, 2019.

 

RESULTS OF OPERATIONS

 

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were approximately $44,200 and $2,800 for the three months ended March 31, 2019 and 2018, respectively. During the six months ended March 31, 2019 and 2018, the advertising and marketing expenses were approximately $61,000 and $3,700, 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 Medical Cannabis Center.

 

Professional Fees  

 

Professional fees were approximately $170,000 and $118,000 for the three months ended March 31, 2019 and 2018, respectively. During the six months ended March 31, 2019 and 2018, the professional fees were approximately $299,000 and $270,000, respectively. The increase is due to an increase in consulting fees of approximately $98,000 offset with a decrease in legal fees of approximately $69,000.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $305,000 and $357,000 for the three months ended March 31, 2019 and 2018, respectively. General and administrative expenses were approximately $517,000 and $792,000 for the six months ended March 31, 2019 and 2018, respectively. The decrease is primarily a result of the stock based compensation associated with the warrant granted to our lessor in the three months ended March 31, 2018.

 

Interest Income

 

Interest income was approximately $7,000 and $17,000 for the three months ended March 31, 2019 and 2018, respectively. Interest income was approximately $15,000 and $25,000 for the six months ended March 31, 2019 and 2018, respectively. The decrease is a result of the amended BASK note receivable.

 

Interest Expense

 

Interest expense was approximately $45,000 and $461,000 for the three months ended March 31, 2019 and 2018, respectively. Interest expense was approximately $230,000 and $1,253,000 for the six months ended March 31, 2019 and 2018, respectively. The decrease is primarily attributable to amortization of debt discounts during the three months ended December 31, 2017.

 

Net Operating Loss 

 

We had a net loss of $(556,920) and $(922,268) for the three months ended March 31, 2019 and 2018, respectively. We had a net loss of $(1,095,428) and $(2,296,632) for the six months ended March 31, 2019 and 2018, respectively. The decrease in net loss is attributable to changes in operating expenses and interest income and expense, each of which is described above.

 

LIQUIDITY AND CAPITAL RESOURCES 

 

The accompanying unaudited 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 $14,204,969 and $13,109,541 at March 31, 2019, and September 30, 2018, respectively, and had a net loss of $1,095,428 for the six months ended March 31, 2019. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to generate revenue, 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. Further, the amount due from WGP of $1,761,675 (before an allowance of $977,770) may not be collectible. On January 18, 2018, an arbitration panel awarded the Company $1,045,000 plus interest at the rate of 18% per year from April 18, 2015 to January 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 has not collected on the award as of the filing date.

 

15

 

 

Management believes that the actions presently being taken to further implement its business plan and generate revenue provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of the Company’s strategy to generate revenue 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 revenue. The 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 six months ended March 31, 2019, our net cash flows used in operations were $ 894,182 as compared to net cash flows used in operations of $1,567,590 for the six months ended March 31, 2018. The decrease is primarily due to the timing of working capital payments and amortization of debt discounts during the six months ended March 31, 2019.

 

Cash flows used in investing activities were $2,691,087 for the six months ended March 31, 2019, consisting primarily of additions to construction in progress and payments received on notes receivables. Cash flows used in investing activities were $19,272 for the six months ended March 31, 2018, consisting of additions to construction in progress.

 

Cash flows provided by financing activities were $1,339,501 for the six months ended March 31, 2019, consisting of common stock issued for cash and proceeds from the exercise of warrants. Cash flows provided by financing activities were $2,474,750 for the six months ended March 31, 2018, consisting of proceeds from notes payable, proceeds for exercises of stock options and payments on note payable.

  

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

 

16

 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of March 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 have 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 March 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.

 

17

 

 

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.

 

18

 

 

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: May 15, 2019

By:

/s/ Timothy Keogh

  

  

Timothy Keogh

  

  

Principal Executive Officer

  

  

  

  

By:

/s/ Benjamin Barton

  

  

Benjamin Barton

  

  

Principal Financial and Accounting Officer

 

19