UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
AMERICANN, INC
(Exact name of registrant as specified in its charter)
| |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| |
(Address of principal executive offices) | (Zip Code) |
(
(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.
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).
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 | ☐ | ||
| ☑ | 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
As of August 7, 2022, the registrant had
AMERICANN, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE NO. |
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PART I FINANCIAL INFORMATION |
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Item 1. |
Unaudited Financial Statements: |
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Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021 |
3 |
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Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2022 and 2021 |
4 |
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Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended June 30, 2022 and 2021 |
5 |
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Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2022 and 2021 |
6 |
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Notes to Consolidated Financial Statements |
7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
15 |
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Item 4. |
Controls and Procedures |
19 |
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PART II OTHER INFORMATION |
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Item 6. |
Exhibits |
20 |
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SIGNATURES |
21 |
PART I: FINANCIAL INFORMATION
ITEM 1. UNAUDITED FINANCIAL STATEMENTS
AMERICANN, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, 2022 | September 30, 2021 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Tenant receivable - related party | ||||||||
Prepaid expenses and other current assets | ||||||||
Current portion of note receivable - related party | ||||||||
Total current assets | ||||||||
Construction in progress | ||||||||
Property and Equipment, net | ||||||||
Operating lease - right-of-use asset | ||||||||
Note receivable - related party | ||||||||
Total assets | $ | $ | ||||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | $ | ||||||
Accounts payable - related party | ||||||||
Interest payable (including $ and $ to related parties) | ||||||||
Other payables | ||||||||
Operating lease liability, short term | ||||||||
Notes payable | ||||||||
Total current liabilities | ||||||||
Notes payable (net of unamortized discounts of $ and $ ) | ||||||||
Notes payable - related party | ||||||||
Operating lease liability, long term | ||||||||
Total liabilities | ||||||||
Commitments and contingencies - see Note 7 | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, $ par value; shares authorized; shares issued and outstanding | ||||||||
Common stock, $ par value; shares authorized; and shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively | ||||||||
Additional paid in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders' equity | ||||||||
Total liabilities and stockholders' equity | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
AMERICANN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30, |
Nine months Ended June 30, |
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2022 |
2021 |
2022 |
2021 |
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Revenues: |
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Rental income - related party |
$ | $ | $ | $ | ||||||||||||
Cost of revenues |
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Gross profit |
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Operating expenses: |
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Advertising and marketing |
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Professional fees |
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General and administrative expenses |
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Total operating expenses |
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Income (loss) from operations |
( |
) | ||||||||||||||
Other income (expense): |
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Interest income |
||||||||||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Interest expense - related party |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Total other income (expense) |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Basic and diluted (loss) income per common share |
$ | $ | ( |
) | ( |
) | $ | ( |
) | |||||||
Weighted average common shares outstanding |
See accompanying notes to unaudited consolidated financial statements.
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, 2020 | - | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balances, December 31, 2020 | - | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||
Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
Balances, March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Stock issued for warrants exercised | ||||||||||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Balances, June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Balances, September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
Stock issued for services | ||||||||||||||||||||||||||||
Extension of warrants | - | - | ||||||||||||||||||||||||||
Balances, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||
Balances, March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
Net income | - | - | ||||||||||||||||||||||||||
Balances, June 30, 2022 | $ | $ | $ | $ | ( | ) | $ |
See accompanying notes to unaudited consolidated financial statements.
AMERICANN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Amortization of right of use assets | ||||||||
Stock based compensation and warrants revaluation expense | ||||||||
Stock issued for services | ||||||||
Amortization of debt discount | ||||||||
Changes in operating assets and liabilities: | ||||||||
Tenant receivable - related party | ( | ) | ( | ) | ||||
Prepaid expenses | ( | ) | ( | ) | ||||
Accounts payable and accrued expenses | ||||||||
Operating lease liability | ( | ) | ( | ) | ||||
Accounts payable - related party | ( | ) | ||||||
Interest payable | ( | ) | ||||||
Interest payable - related party | ( | ) | ||||||
Other payables | ( | ) | ( | ) | ||||
Net cash flows provided by (used in) operations | ( | ) | ||||||
Cash flows from investing activities: | ||||||||
Additions to construction in progress | ( | ) | ( | ) | ||||
Payments received on notes receivable - related party | ||||||||
Net cash flows (used in) investing activities | ( | ) | ( | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from note payable, net of financing costs | ||||||||
Proceeds from the exercise of warrants | ||||||||
Principal payments on notes payable | ( | ) | ||||||
Net cash flows provided by financing activities | ||||||||
Net increase in cash, cash equivalents, and restricted cash | ||||||||
Cash, cash equivalents, and restricted cash at beginning of period | ||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | $ | ||||||
Supplementary Disclosure of Cash Flow Information: | ||||||||
Cash paid for interest | $ | $ | ||||||
Cash paid for income taxes | $ | $ |
See accompanying notes to unaudited consolidated financial statements.
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.
The Company designs, develops, leases and plans to operate state-of-the-art cannabis cultivation, processing and manufacturing facilities.
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, 2021, which has been derived from audited financial statements, and (b) the unaudited financial statements as of and for the nine months ended June 30, 2022 and 2021, 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 6, 2021. 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 2021 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 income or 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:
June 30, 2022 | September 30, 2021 | |||||||
Cash and cash equivalents | $ | $ | ||||||
Restricted cash | ||||||||
Total cash, cash equivalents, and restricted cash shown in the cash flow statement | $ | $ |
Amounts included in restricted cash represent those required to be set aside by the Cannabis Control Commission in Massachusetts.
Property 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
to years. Property and equipment consist of:
June 30, 2022 | September 30, 2021 | |||||||
Buildings and improvements | $ | $ | ||||||
Computer equipment | ||||||||
Furniture and equipment | ||||||||
Total | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Propertyand equipment, net | $ | $ |
Depreciation expenses for the nine months ended June 30, 2022 and June 30, 2021 amounted to $
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.
Right-of-Use (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 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 $
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.
NOTE 3. NOTES AND OTHER RECEIVABLES
Notes and other receivables as of June 30, 2022 and September 30, 2021, consisted of the following:
June 30, 2022 | September 30, 2021 | |||||||
Related party note receivable from BASK, interest rate of | %; monthly principal and interest payments of $ , maturing in 2023.||||||||
Less: Current portion | ( | ) | ( | ) | ||||
$ | $ |
NOTE 4. NOTES PAYABLE
Unrelated
On February 25, 2021, the Company borrowed $
On August 25, 2020, the Company borrowed $
On August 2, 2019 the Company secured a $
The note holder also received a warrant which allows the holder to purchase
The broker for the loan received a cash commission of $
The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the
On December 4, 2020, the loan was modified and increased by $
At June 30, 2022, the outstanding principal on this note was $
The note is secured by a first lien on Building 1 at the Company’s Massachusetts Cannabis Center (“MCC”).
February 2018 Convertible Note Offering
On February 12, 2018, the Company sold convertible notes in the principal amount of $
Related Party
SCP. On February 1, 2016, we entered into an agreement with an unrelated party which provided us with borrowing capacity of $
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, $
The remaining $
The first note, in the principal amount of $
The second note, in the principal amount of $
On September 30, 2019, both notes were amended and combined into one note, in the principal amount of $
The Company made principal payments on the note of $
At June 30, 2022 and September 30, 2021, the outstanding principal on this note was $
During the year ended September 30, 2021, the Company also incurred $
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 $
On July 26, 2019, the Company entered into a
Tim Keogh, our Chief Executive Officer, was a Board Member of BASK between August 2013 and November 2021.
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 | Nine Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Net income (loss) attributable to common stockholders | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
Basic weighted average outstanding shares of common stock | ||||||||||||||||
Dilutive effects of common share equivalents | ||||||||||||||||
Dilutive weighted average outstanding shares of common stock | ||||||||||||||||
Basic and diluted net income (loss) per share of common stock | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) |
As of June 30, 2022 we excluded
As of June 30, 2021 we excluded
NOTE 7. COMMITMENTS AND CONTINGENCIES
Massachusetts Cannabis Center. On January 14, 2015, we entered into an agreement to purchase a
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 $
Operating Leases
Land
On October 17, 2016, the Company closed the acquisition of the
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 (
The lease payments will be the greater of (a) $
In connection with the sale of the property to MMP and the lease, we entered into a Share Purchase Agreement pursuant to which we issued to MMP
Effective October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $
In August 2019, the Company completed the construction of Building 1 on the leased land and on September 1, 2019, BASK commenced its
As of June 30, 2022, the Company’s right-of-use assets were $
The table below presents lease related terms and discount rates as of June 30, 2022.
As of June 30,, 2022 |
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Weighted average remaining lease term |
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Operating leases |
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Weighted average discount rate |
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Operating leases |
% |
The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of June 30, 2022 are as follows:
2022 |
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2023 |
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2024 |
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2025 |
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2026 |
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Thereafter |
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Total lease payments |
||||
Less: Interest |
( |
) | ||
$ | ||||
Less: operating lease liability, current portion |
( |
) | ||
Operating lease liability, long term |
$ |
Office space
The Company leases its office space located at 1555 Blake St., Unit 502, Denver, CO 80202 for $
Lease expense for office space was $
Aggregate rental expense under all leases totaled $
NOTE 8. STOCKHOLDERS’ EQUITY
Common Stock. During the nine months ended June 30, 2022, the Company issued
Stock Options. In December 2021, the Company extended the expiration date of some stock options and recorded an additional stock option-based compensation expense of $119,346 based on the fair value established using the Black Scholes option pricing model.
Stock option details are as follows:
Weighted |
||||||||||||||||
Weighted |
Average |
|||||||||||||||
Average |
Contractual |
Aggregate |
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Number of |
Exercise |
Term |
Intrinsic |
|||||||||||||
Shares |
Price |
(Years) |
Value |
|||||||||||||
Exercisable at September 30, 2021 |
$ | $ | - | |||||||||||||
Outstanding as of June 30, 2022 |
$ | $ | - | |||||||||||||
Vested and expected to vest at June 30, 2022 |
$ | $ | - | |||||||||||||
Exercisable at June 30, 2022 |
$ | $ | - |
Stock option-based compensation expense associated with stock options was $
Warrants. Warrant activity as of and for the nine months ended June 30, 2022 is as follows:
Weighted |
||||||||||||||||
Weighted |
Average |
|||||||||||||||
Average |
Contractual |
Aggregate |
||||||||||||||
Number of |
Exercise |
Term |
Intrinsic |
|||||||||||||
Shares |
Price |
(Years) |
Value |
|||||||||||||
Outstanding as of September 30, 2021 |
$ | - | ||||||||||||||
Expired |
( |
) | ||||||||||||||
Outstanding as of June 30, 2022 |
$ | - | ||||||||||||||
Exercisable at June 30, 2022 |
$ | - |
NOTE 9. INCOME TAXES
We did
record any income tax expense or benefit for the nine months ended June 30, 2022 or 2020. 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 June 30, 2022 and September 30, 2021.
As of June 30, 2022, we did
have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2021.
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, 2021 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.
The increase in Operating Revenue for the quarter ending June 30, 2022 is result of increased cultivation yields and increases in the production and sale of manufactured goods from the Massachusetts Cannabis Center.
A summary of operational highlights included the following:
● |
AmeriCann’s operating revenue for the quarter ended June 30, 2022, increased over 36% from the quarter ended June 30, 2021. |
● |
The manufacturing of cannabis-infused products, including the 1906 branded “Drops,” Howl’s Tincture, and Harpoon Extracts, has increased dramatically at the Massachusetts Cannabis Center. Sales of manufactured infused products are expected to be even stronger as continual increases in production and sales for 1906 “Drops” are realized. |
● |
The 1906 branded “Drops” has been the top-selling edible product in the Massachusetts market. Howl’s Tincture was the top-selling brand in the tincture category. |
● |
For the first five months of 2022, the total cannabis sales revenue for the Massachusetts market was $708 million, which was 16% greater than the first five months of 2021. The annualized revenue estimate based on the first five months of 2022 is approximately $1.7 billion. Experts believe the market will exceed $1.8 billion annually. |
● |
The total Massachusetts market has sold $3.2 billion since the inception of the Commonwealth’s regulated cannabis program |
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. The outlook for new states continues to improve with legislation recently passing in New York, New Jersey, Connecticut, Virginia and New Mexico. Several additional states are expected to pass adult use regulations including Pennsylvania and Rhode Island in the near term which will create additional opportunities for AmeriCann’s business model.
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.
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.
Right-of-Use (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 June 30, 2022 and 2021, we generated $797,734 and $584,546 in revenue, respectively. During the nine months ended June 30, 2022 and 2021, we generated $2,116,045 and $1,293,475 in revenue, respectively. The increase in revenues is due to higher rental revenue and participation fee revenues as a result of increased cultivation yields and increases in the production and sale of manufactured goods from the Massachusetts Cannabis Center.
Advertising and Marketing Expenses
Advertising and marketing expenses were $9,968 and $16,451 for the three months ended June 30, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, the advertising and marketing expenses were $33,106 and $25,080, respectively. The increase is due to additional social media and marketing expenses in 2022.
Professional Fees
Professional fees were $71,226 and $71,335 for the three months ended June 30, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, the professional fees were $282,462 and $253,607, respectively.
General and Administrative Expenses
General and administrative expenses were $378,131 and $363,888 for the three months ended June 30, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, the general and administrative expenses were $1,623,620 and $1,202,439, respectively. The increase is primarily a result of an increase in stock option compensation.
Interest Income
Interest income was $1,822 and $4,392 for the three months ended June 30, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, the interest income was $8,502 and $14,320, respectively. The decrease is a result of a decline in the principal balance of the BASK note receivable.
Interest Expense
Interest expense was $152,445 and $215,667 for the three months ended June 30, 2022 and 2021, respectively. During the nine months ended June 30, 2022 and 2021, the interest expense was $458,309 and $666,995, respectively. The decrease is primarily attributable to amortization of debt discounts.
Net Operating Income/Loss
We had a net income of $162,734 and a net loss of $(98,955) for the three months ended June 30, 2022 and 2021, respectively. We had a net loss of $(346,054) and $(905,331) for the nine months ended June 30, 2022 and 2021, respectively. The increase in net income and decline in net loss is primarily due to higher revenues.
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 $19,931,499 and $19,585,445 at June 30, 2022 and September 30, 2021, respectively, and had a net loss of $(346,054) and $(905,331) for the nine months ended June 30, 2022 and 2021, respectively. 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 nine months ended June 30, 2022, our net cash flows provided by operations were $484,493 as compared to net cash flows used in operations of $423,232 for the nine months ended June 30, 2021. The increase is primarily due to a decrease in our net loss during the nine months ended June 30, 2022.
Cash flows (used) provided by investing activities were $(195,436) and $(9,196) for the nine months ended June 30, 2022 and 2021, respectively, consisting of payments received on notes receivable offset by additions to construction in progress.
Cash flows provided by financing activities were $0 for the nine months ended June 30, 2022. Cash flows provided by financing activities were $1,147,000 for the nine months ended June 30, 2021, consisting of proceeds from note payable offset by principal payments on notes payable.
We do not have any firm commitments from any person to provide us with any additional capital.
OFF-BALANCE SHEET ARRANGEMENTS
As of June 30, 2022, 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 was not effective.
Internal Control over Financial Reporting
As indicated in our Form 10-K filed on December 6, 2021, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective as of September 30, 2021 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 June 30, 2022 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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 9, 2019, Bask, Inc. filed a complaint against two former employees for Tortious Interference, Conversion, Civil Conspiracy, Unjust Enrichment, Trade Secret Violations and violations of G.L. C. 93A 11. In response to Bask, Inc.’s complaint, the two former Bask, Inc. employees filed a Counterclaim naming 17 Counterclaim Defendants.
AmeriCann, Inc., AmeriCann Massachusetts, Inc. and Timothy Keogh, the Company’s Chief Executive Officer and a director (collectively, the “AmeriCann Entities”), are Counterclaim Defendants in the Action, having been impleaded into the case by the former employees of Bask, Inc.
The litigation, styled Bask, Inc. et al. v. Adam DiOrio et al., is pending in the Commonwealth of Massachusetts Superior Court in and for Bristol County as Docket No. 1973-CV-00742 (the “Action”).
In their Counterclaim in the Action, the two former Bask, Inc. employees claim that they somehow were also employees of one or both of AmeriCann, Inc. or AmeriCann Massachusetts, Inc. and that the AmeriCann Entities allegedly had some managerial responsibility for Bask.
The two former Bask, Inc. employees have alleged causes of action against the AmeriCann Entities (and others) for: purported violations of the Fair Labor Standards Act (29 U.S.C. § 215(a)(3)); purported violations of M.G.L. c. 149, §§ 148 & 148A and M.G.L. c. 151, § 19; retaliatory termination; unjust enrichment; and misrepresentation.
The AmeriCann Entities contest the Counterclaim and have asserted defenses, inter alia, based on the lack of any employer-employee relationship with the two former Bask, Inc. employees, the fact that the two former Bask, Inc. employees never provided anything of value to the Americann Entities – thereby precluding any unjust enrichment claim – and AmeriCann Entities never having made any representations of any kind to the two former Bask, Inc. employees at any time. The case is presently in the discovery process.
ITEM 6. EXHIBITS
Exhibit |
Description of Document |
31.1 |
|
31.2 |
|
32 |
|
101.INS |
Inline XBRL Instance Document. |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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. |
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Dated: August 15, 2022 |
By: |
/s/ Timothy Keogh |
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Timothy Keogh |
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Principal Executive Officer |
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By: |
/s/ Benjamin Barton |
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Benjamin Barton |
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Principal Financial and Accounting Officer |