Quarterly Report (10-q)

 

 

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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, 2020

 

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: 000-54231

 

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.)
1555 Blake Street, Unit 502 Denver, CO	80202
(Address of principal executive offices)	(Zip Code)

 

[phone]

(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 11, 2021, the registrant had 23,696,310 shares of common stock outstanding.

 

 

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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, 2020 and September 30, 2020	3
		Consolidated Statements of Operations for the Three Months Ended December 31, 2020 and 2019	4
		Consolidated Statements of Changes in Stockholders' Equity for the Three Months Ended December 31, 2020 and 2019	5
		Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2020 and 2019	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 4.	Controls and Procedures	18
PART II  OTHER INFORMATION
	Item 6.	Exhibits	19
	SIGNATURES		20

 

 

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Part I:  FINANCIAL INFORMATION

 

Item 1.      UNAUDITED Financial Statements

 

 

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 

		December 31, 2020				September 30, 2020
Assets
Current Assets:
Cash and cash equivalents		$	448,263			$	183,009
Restricted cash			10,590				10,150
Tenant receivable - related party			140,791				124,617
Prepaid expenses and other current assets			2,500				2,500
Current portion of note receivable - related party			38,753				37,165
Total current assets			640,897				357,441
Property, Plant and Equipment, net			7,399,788				7,512,421
Operating lease - right-of-use asset			6,897,250				6,914,080
Note receivable - related party			72,642				82,347
Total assets		$	15,010,577			$	14,866,289
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses		$	337,553			$	276,155
Accounts payable - related party			85,000				65,000
Interest payable (including $39,440 and $26,246 to related parties)			86,847				72,895
Other payables			5,196				20,571
Operating lease liability, short term			2,387				4,728
Notes payable			301,000				150,250
Total current liabilities			817,983				589,599
Notes payable (net of unamortized discounts of $503,295 and $571,483)			3,996,705				3,578,517
Notes payable - related party			581,646				581,646
Operating lease liability, long term			4,243,224				4,243,224
Total liabilities			9,639,558				8,992,986
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; 23,696,310 shares issued and outstanding as of December 31, 2020 and September 30, 2020			2,370				2,370
Additional paid in capital			24,593,485				24,593,485
Accumulated deficit			(19,224,836	)			(18,722,552	)
Total stockholders' equity			5,371,019				5,873,303
Total liabilities and stockholders' equity		$	15,010,577			$	14,866,289

 

See accompanying notes to unaudited consolidated financial statements.

 

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AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

		Three Months Ended December 31,
		2020				2019
Revenues:
Rental income - related party		$	271,585			$	34,691
Total revenues			271,585				34,691
Operating expenses:
Advertising and marketing			1,426				36,126
Professional fees			96,856				86,609
General and administrative expenses			475,881				456,348
Recovery of loss from provision for doubtful accounts			-				(1,761,675	)
Total operating expenses			574,163				(1,182,592	)
(Loss) income from operations			(302,578	)			1,217,283
Other income (expense):
Interest income			5,148				-
Interest expense			(191,659	)			(159,449	)
Interest expense - related party			(13,195	)			(39,849	)
Total other income (expense)			(199,706	)			(199,298	)
Net (loss) income		$	(502,284	)		$	1,017,985
Basic and diluted (loss) income per common share		$	(0.02	)		$	0.04
Weighted average common shares outstanding			23,696,310				23,504,820

 

See accompanying notes to unaudited consolidated financial statements.

 

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AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

 

		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

 

		Preferred Stock								Common Stock								Paid In				Accumulated
		Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balances, September 30, 2020			-			$	-				23,696,310			$	2,370			$	24,593,485			$	(18,722,552	)		$	5,873,303
Net loss			-								-				-				-				(502,284	)			(502,284	)
Balances, December 31, 2020			-			$	-				23,696,310			$	2,370			$	24,593,485			$	(19,224,836	)		$	5,371,019

 

See accompanying notes to unaudited consolidated financial statements. 

 

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AMERICANN, INC.

consolidated STATEMENTS OF CASH FLOWS

(unaudited)

 

		Three months ended
		December 31,
		2020				2019
Cash flows from operating activities:
Net (loss) income		$	(502,284	)		$	1,017,985
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			112,633				108,558
Amortization of right of use assets			16,830				16,655
Recovery of loss provision for doubtful accounts			-				(1,761,675	)
Stock based compensation and option expense			-				108,522
Amortization of debt discount			68,938				77,332
Changes in operating assets and liabilities:
Tenant receivable - related party			(16,174	)			14,458
Prepaid expenses			-				(18,815	)
Accounts payable and accrued expenses			61,398				(135,868	)
Operating lease liability			(2,341	)			(2,164	)
Related party payables			20,000				-
Interest payable			758				(27,582	)
Interest payable - related party			13,194				1,144
Other payables			(15,375	)			(2,098	)
Net cash flows used in operations			(242,423	)			(603,548	)
Cash flows from investing activities:
Additions to construction in progress			-				(107,579	)
Additions to property, plant and equipment			-				(197,442	)
Payments received on notes receivable - related party			8,117				4,807
Net cash flows provided by (used in) investing activities			8,117				(300,214	)
Cash flows from financing activities:
Proceeds from note payable			500,000				-
Net cash flows provided by financing activities			500,000				-
Net change in cash, cash equivalents, and restricted cash			265,694				(903,762	)
Cash, cash equivalents, and restricted cash at beginning of period			193,159				1,292,062
Cash, cash equivalents, and restricted cash at end of period		$	458,853			$	388,300
Supplementary Disclosure of Cash Flow Information:
Cash paid for interest		$	121,964			$	77,470
Cash paid for income taxes		$	-			$	-
Non-Cash Investing and Financing Activities:
ROU asset and operating lease obligation recognized under the adoption of Topic 842		$	-			$	6,980,957

 

See accompanying notes to unaudited consolidated financial statements.   

 

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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 the potential failure to secure funding to continue its operations.

 

Basis of Presentation

 

The (a) consolidated balance sheet as of September 30, 2020, which has been derived from audited financial statements, and (b) the unaudited financial statements as of and for the three months ended December 31, 2020 and 2019, 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 December 21, 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 2020 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, 2020				September 30, 2020
Cash and cash equivalents		$	448,263			$	183,009
Restricted cash			10,590				10,150
Total cash, cash equivalents, and restricted cash shown in the cash flow statement		$	458,853			$	193,159

 

Amounts included in restricted cash represent those required to be set aside by the Cannabis Control Commission in Massachusetts as well as 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. Property, plant and equipment consist of:

 

		December 31, 2020				September 30, 2020
Buildings and improvements		$	7,608,087			$	7,608,087
Computer equipment			349,576				349,576
Furniture and equipment			2,764				2,764
Total			7,960,427				7,960,427
Accumulated depreciation			(560,639	)			(448,006	)
Property, plant and equipment, net		$	7,399,788			$	7,512,421

 

Depreciation expenses for the three months ended December 31, 2020 and December 31, 2019 amounted to $112,633 and $108,558, respectively.

 

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Leases

 

Effective October 1, 2019, we adopted Topic 842, Lease Accounting 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).

 

 

 

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 $19,224,836 and $18,722,552 at December 31, 2020 and September 30, 2020, respectively, and had a net loss of $502,284 for the three months ended December 31, 2020. 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.

 

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NOTE 3. NOTES AND OTHER RECEIVABLES

 

Notes and other receivables as of December 31, 2020 and September 30, 2020, consisted of the following: 

 

		December 31, 2020				September 30, 2020
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.		$	111,395			$	119,512
			111,395				119,512
Less: Current portion			(38,753	)			(37,165	)
		$	72,642			$	82,347

 

 

 

NOTE 4.  NOTES PAYABLE

 

Unrelated

 

On August 25, 2020, the Company borrowed $153,000 from an unrelated party. The loan is unsecured, bears interest at a rate of 10% and is due and payable on August 25, 2021.  After February 21, 2021, the Company may not repay the loan without the consent of the lender. At any time after February 21, 2021, 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 $1.10, the greater of (1) the variable conversion price (defined as market price multiplied by 65 percent) and (2) $0.72, and (b) if the market price is less than $1.10, the lesser of (1) the variable conversion price and (2) $0.72. The Company incurred debt issuance costs of $3,000 which was recorded as a debt discount.  Amortization expense related to the debt discount was $750 during the three months ended December 31, 2020.

 

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.

 

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The broker for the loan 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. 

 

On December 4, 2020, the loan was modified and increased by $500,000. The maturity date of the loan was extended to August 1, 2023. All other provisions of the original loan remain the same. The debt modification was deemed not substantial and was accounted for as a debt modification. The broker for the loan received a cash commission of $40,000 which was expensed when incurred.

 

At December 31, 2020, the outstanding principal on this note was $4,500,000 and the unamortized debt discount was $503,295. All debt discounts are being amortized on a straight-line basis over the term of the modified note. Amortization expense related to the debt discounts was $68,188 and $77,332 for the three months ended December 30, 2020 and 2019, 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 are unsecured and bear interest at 8% per year.  At December 31, 2020 and September 30, 2020, the outstanding principal on these notes was $150,000.  On October 12, 2020, this remaining note was extended to mature on December 31, 2021.

 

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Related Party

 

SCP. 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 was due and payable on December 31, 2019. Interest is payable quarterly. The note can be converted at any time, at the option of SCP, into shares of our common stock, initially at a conversion price of $1.25 per share.

  

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 was not convertible into shares of our common stock. All unpaid principal and interest was due on December 31, 2019.

 

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. SCP 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 during the year ended September 30, 2019.

 

The Company made principal payments on the note of $1,175,000 during the year ended September 30, 2020. Accrued interest on the note payable was $39,440 and $26,246 at December 31, 2020 and September 30, 2020, respectively. 

 

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At December 31, 2020 and September 30, 2020, the outstanding principal on this note was $581,646.

 

During the year ended September 30, 2020, the Company also incurred $180,000 of consulting expenses with SCP of which $65,000 remained outstanding at September 30, 2020. During the three months ended December 31, 2020, the Company incurred $45,000 of consulting expenses with SCP and paid $25,000. As of December 31, 2020, $85,000 remains outstanding.  

 

 

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

BASK (formerly Coastal Compassion, Inc). 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 into a new loan with payments over 5 years with 18% interest. At December 31, 2020 and September 30, 2020, the outstanding balance on the note receivable was $111,395 and 119,512, 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, 2020, the BASK tenant receivable balance was $140,791.

 

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

 

 

 

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,
		2020				2019
Net (loss) income attributable to common stockholders		$	(502,284	)		$	1,017,985
Basic weighted average outstanding shares of common stock			23,696,310				23,504,820
Dilutive effects of common share equivalents			-				-
Dilutive weighted average outstanding shares of common stock			23,696,310				23,504,820
Basic and diluted net (loss) income per share of common stock		$	(0.02	)		$	0.04

 

As of December 31, 2020, we excluded 1,850,000 of stock options and 8,911,650 of warrants and 100,000 shares that would be issued from conversion of outstanding convertible notes from the computation of diluted net income (loss) per share since the intrinsic value of these instruments was zero with the effect being anti-dilutive. 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.

 

 

 

NOTE 7.  COMMITMENTS AND CONTINGENCIES

 

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 are developing 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.

 

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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 acquisition of the 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. In August 2019, the Company completed construction of Building 1 at MCC.

 

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.

 

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, 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 statements of operations.

 

As of December 31, 2020, the Company’s right-of-use assets were $6,897,250, the Company’s current maturities of operating lease liabilities were $2,387, and the Company’s noncurrent lease liabilities were $4,243,224. During the three months ended December 31, 2020, 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, 2020.

 

		As of December 31, 2020
Weighted average remaining lease term
Operating leases (in years)			45.75
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, 2020 are as follows:

 

2021			256,125
2022			341,500
2023			341,500
2024			341,500
2025			341,500
Thereafter			14,001,500
Total lease payments			15,623,625
Less: Interest			(11,378,014	)
		$	4,245,611
Less: operating lease liability, current portion			(2,387	)
Operating lease liability, long term		$	4,243,224

 

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Office space

 

The Company leases its office space located at 1555 Blake St., Unit 502, Denver, CO 80202 for $2,500 per month with a lease term of less than 12 months.

 

Lease expense for office space was $7,500 and $3,801 for the three months ended December 31, 2020 and 2019, respectively.

 

Aggregate rental expense under all leases totaled $107,365 and $103,666 for the three months ended December 31, 2020 and 2019, respectively.

 

 

 

NOTE 8.  STOCKHOLDERS’ EQUITY

 

Stock Options. There was no stock option activity for the three months ended December 31, 2020. 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, 2020			1,850,000			$	1.99				4.2			$	-
Outstanding as of December 31, 2020			1,850,000			$	1.99				4.0			$	-
Vested and expected to vest at December 31, 2020			1,850,000			$	1.99				4.0			$	-
Exercisable at December 31, 2020			1,850,000			$	1.99				4.0			$	-

 

Stock option-based compensation expense associated with stock options was $0 and $108,522 for the three months ended December 31, 2020 and 2019, respectively.

 

Warrants. Warrant activity as of and for the three months ended December 31, 2020 is as follows:

 

										Weighted
						Weighted				Average
						Average				Contractual				Aggregate
		Number of				Exercise				Term				Intrinsic
		Shares				Price				(Years)				Value
Outstanding as of September 30, 2020			9,638,650			$	1.39				1.50			$	-
Expired			(727,000	)		$	3.00
Outstanding as of December 31, 2020			8,911,650			$	1.26				1.40			$	-
Exercisable at December 31, 2020			8,911,650			$	1.26				1.40			$	-

 

 

 

NOTE 9. INCOME TAXES

 

We did not record any income tax expense or benefit for the three months ended December 31, 2020 or 2019. 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, 2020 and 2019.

 

As of December 31, 2020, we did not have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2020.

 

 

 

 

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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, 2020 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 designs, develops, leases and plans to operate state-of-the-art cannabis cultivation, processing and manufacturing facilities. 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 fully-operational and is currently 100% leased by a vertically-integrated Massachusetts cannabis company. AmeriCann generates revenue through lease arrangements with the operators that includes base rent and royalty payments of 15% of gross revenue generated from products produced at the MCC.

 

AmeriCann, through a 100% owned subsidiary, AmeriCann Brands, Inc., has received two licenses from the Massachusetts Cannabis Control Commission to cultivate cannabis and 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 operate in Building 2 at the 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 throughout the country as a multi-state operator.

 

COVID-19 Pandemic

 

The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company’s business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.

 

The Company has established policies to monitor the pandemic and has taken a number of actions to protect its employees, including restricting travel, encouraging quarantine and isolation when warranted, and directing most of its employees to work from home.

 

In an effort to mitigate the COVID- 19 pandemic Massachusetts implemented a “Stay at Home Advisory.” The advisory commenced March 24, 2020 and concluded May 25, 2020. Massachusetts Governor Baker deemed medical cannabis businesses as an essential service and, therefore, Building 1 has continued to operate in a standard manner without interruption, while management implemented guidelines from the CDC and Massachusetts. Adult use recreational sales of cannabis are once again legal in Massachusetts.

 

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SIGNIFICANT ACCOUNTING POLICIES

 

Leases

 

Effective October 1, 2019, we adopted ASC 842, Lease Accounting using the effective date 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, 2020 and 2019, we generated $271,585 and $34,691 in revenue, respectively. The increase in revenues is due to the rental revenue and participation fee revenues due to completion of Building 1.

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were $1,426 and $36,126 for the three months ended December 31, 2020 and 2019, respectively. The decrease is due to a decrease in public relations costs.

 

Professional Fees  

 

Professional fees were $96,856 and $86,609 for the three months ended December 31, 2020 and 2019, respectively. The increase is due to an increase in accounting and consulting fees.

 

General and Administrative Expenses

 

General and administrative expenses were $475,881 and $456,348 for the three months ended December 31, 2020 and 2019, respectively. The increase is primarily a result of an increase in loan fees, property tax expenses and other fees offset by a decrease in stock compensation expense and payroll expenses.

 

Recovery of Provision for Doubtful Accounts

 

(Recovery) of provision for doubtful accounts was $0 and $(1,761,675) for the three months ended December 31, 2020 and 2019, respectively. The increase 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 $5,148 and $0 for the three months ended December 31, 2020 and 2019, respectively.  The increase is a result of the BASK note receivable.

 

Interest Expense

 

Interest expense was $204,854 and $199,298 for the three months ended December 31, 2020 and 2019, respectively. The increase is primarily attributable to interest on the $4,500,000 loan and the amortization of debt discounts during the three months ended December 31, 2020.

 

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Net Operating Income/Loss 

 

We had a net (loss)/income of $(502,284) and $1,017,985 for the three months ended December 31, 2020 and 2019, respectively. The decrease in net income is attributable to a one time collection of the arbitration award in 2019 partially offset by increases in revenues in 2020 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 $19,224,836 and $18,722,552 at December 31, 2020 and September 30, 2020, respectively, and had a net loss of $502,284 for the three months ended December 31, 2020. 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 of 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, 2020, our net cash flows used in operations were $242,423 as compared to net cash flows used in operations of $603,548 for the three months ended December 31, 2019. The decrease is primarily due to collection of the arbitration award, timing of working capital payments, and stock based compensation expense during the three months ended December 31, 2019.

 

Cash flows provided by investing activities were $8,117 for the three months ended December 31, 2020, consisting of payments received on notes receivable. Cash flows used in investing activities were $300,214 for the three months ended December 31, 2019, consisting of additions to constructions in progress and property, plant and equipment and payments received on notes receivable.

 

Cash flows provided by financing activities were $500,000 for the three months ended December 31, 2020, consisting of proceeds on a note payable. Cash flows provided by financing activities were $0 for the three months ended December 31, 2019.

  

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

 

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OFF-BALANCE SHEET ARRANGEMENTS

 

As of December 31, 2020, 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 December 21, 2020, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective as of September 30, 2020 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, 2020 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.

 

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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.

 

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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 16, 2021	By:	/s/ Timothy Keogh
		Timothy Keogh
		Principal Executive Officer
	By:	/s/ Benjamin Barton
		Benjamin Barton
		Principal Financial and Accounting Officer

 

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