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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

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

 

For the quarterly period ended June 30, 2017

 

OR

 

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

 

For the transition period from __________________ to _________________

 

Commission file number: 001-35902

 

AMERICANN, INC

(Exact name of registrant as specified in its charter)

 

Delaware	27-4336843
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
3200 Brighton Blvd. Unit 114, Denver, CO	80216
(Address of principal executive offices)	(Zip Code)
(303) 862-9000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by a checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted 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 and post such files). Yes ☑ No ☐

 

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

 

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐		Smaller reporting company	☑
(Do not check if a smaller reporting company)			Emerging growth company	☐

 

If an emerging growth company, indicate by check mark 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 August 9, 2017, the registrant had 19,366,000 shares of common stock outstanding.

 

 

AmeriCann, Inc.

FORM 10-Q

 

TABLE OF CONTENTS

 

			PAGE NO.
PART I	FINANCIAL INFORMATION
	Item 1.	Unaudited Financial Statements:
		Balance Sheets as of June 30, 2017 and September 30, 2016	1
		Statements of Operations for the Three and Nine Months Ended June 30, 2017 and 2016	2
		Statements of Cash Flows for the Nine Months Ended June 30, 2017 and 2016	3
		Notes to Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 4.	Controls and Procedures	15
PART II	OTHER INFORMATION
	Item 6.	Exhibits	17
	SIGNATURES		18

 

 

Part I:  FINANCIAL INFORMATION

 

Item 1.      UNAUDITED Financial Statements

  

AMERICANN, INC.

BALANCE SHEETS

 

		June 30, 2017				September 30, 2016
Assets
Current Assets:
Cash and cash equivalents		$	10,418			$	24
Interest receivable			-				2,521
Current portion of prepaid land lease			57,959				-
Prepaid expenses and other current assets			31,726				11,726
Note receivable			-				247,378
Total current assets			100,103				261,649
Land held for use			2,250,809				2,250,809
Construction in progress			638,683				-
Furniture and equipment (net of depreciation of $3,423 and $2,581)			4,434				5,276
Notes and other receivables (net of allowance of $469,699)			780,315				780,315
Note receivable - related party			125,327				57,693
Website development costs (net of amortization of $25,361 and $14,986)			16,139				26,514
Prepaid land lease and related deposits, net of current portion			2,796,537				925,000
Security deposit			3,110				3,110
Total assets		$	6,715,457			$	4,310,366
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses		$	391,381			$	385,380
Interest payable (including $0 and $109,825 to related parties)			-				118,749
Other payables			14,650				14,927
Notes payable (net of discount of $0 and $35,250)			990,000				1,157,997
Total current liabilities			1,396,031				1,677,053
Notes payable - related party (inclusive of premium of $52,378 and $72,651)			1,984,024				2,024,297
Total liabilities			3,380,055				3,701,350
Commitments and contingencies - see Note 10			-				-
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; 19,366,000 and 17,031,000 shares issued and outstanding as of June 30, 2017 and September 30, 2016, respectively			1,937				1,703
Additional paid in capital			10,736,200				6,512,244
Accumulated deficit			(7,402,735	)			(5,904,931	)
Total stockholders' equity			3,335,402				609,016
Total liabilities and stockholders' equity		$	6,715,457			$	4,310,366

 

See accompanying notes to unaudited financial statements.

 

 

AMERICANN, INC.

STATEMENTS OF OPERATIONS

(unaudited)

 

		Three Months Ended June 30,								Nine Months Ended June 30,
		2017				2016				2017				2016
Revenues:
Consulting fees		$	10,000			$	45,000			$	40,000			$	75,000
Total revenues			10,000				45,000				40,000				75,000
Operating expenses:
Advertising and marketing			1,945				14,990				9,165				17,338
Professional fees			50,405				140,369				251,488				493,449
General and administrative expenses			344,710				124,571				997,960				462,116
Provision for doubtful accounts			-				3,290				-				9,904
Total operating expenses			397,060				283,220				1,258,613				982,807
Loss from operations			(387,060	)			(238,220	)			(1,218,613	)			(907,807	)
Other income (expense):
Interest income			327				44,482				11,086				138,269
Interest expense			(44,413	)			(48,826	)			(183,750	)			(113,031	)
Loss on extinguishment of debt			-				(90,000	)			-				(90,000	)
Interest expense - related party			(36,925	)			(23,814	)			(106,527	)			(69,266	)
Total other income (expense)			(81,011	)			(118,158	)			(279,191	)			(134,028	)
Net loss		$	(468,071	)		$	(356,378	)		$	(1,497,804	)		$	(1,041,835	)
Basic and diluted loss per common share		$	(0.02	)		$	(0.02	)		$	(0.08	)		$	(0.06	)
Weighted average common shares outstanding			19,239,465				16,631,000				18,886,513				16,631,000

 

See accompanying notes to unaudited financial statements.

  

 

AMERICANN, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

 

		Nine Months Ended June 30,
		2017				2016
Cash flows from operating activities:
Net loss		$	(1,497,804	)		$	(1,041,835	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			11,217				11,217
Provision for doubtful accounts			-				9,904
Stock based compensation and option expense			37,450				121,524
Loss on extinguishment of debt			-				90,000
Amortization of debt discount/(premium)			14,977				-
Changes in operating assets and liabilities:
Interest receivable			2,521				(93,831	)
Prepaid expenses			23,470				24,030
Accounts payable and accrued expenses			(160,659	)			195,867
Interest payable			(8,924	)			30,780
Interest payable - related party			(109,825	)			45,452
Other payables			(277	)			(1,779	)
Net cash flows used in operations			(1,687,854	)			(608,671	)
Cash flows from investing activities:
Additions to construction in progress			(472,023	)			-
Purchase of fixed assets			-				(4,328	)
Deposit on land			-				(525,000	)
Payments received on notes receivable			277,378				250,401
Advances made on notes receivable - related party			(67,634	)			(55,630	)
Advances made on notes receivable			(30,000	)			-
Net cash flows used in investing activities			(292,279	)			(334,557	)
Cash flows from financing activities:
Common stock issued for cash, net			2,176,274				-
Proceeds from exercise of stock options			37,500				-
Proceeds from note payable			24,657				521,297
Proceeds from note payable - related party			-				227,500
Payments on note payable - related party			(20,000	)			-
Payments on notes payable			(227,904	)			-
Net cash flows provided by financing activities			1,990,527				748,797
Net increase (decrease) in cash and cash equivalents			10,394				(194,431	)
Cash and cash equivalents at beginning of period			24				201,353
Cash and cash equivalents at end of period		$	10,418			$	6,922
Supplementary Disclosure of Cash Flow Information:
Cash paid for interest (including $236,625 to related parties)		$	394,049			$	57,431
Cash paid for income taxes		$	-			$	-
Non-Cash Investing and Financing Activities:
Shares and warrants issued to lessor as consideration for land lease			1,972,966				-
Construction in progress expenditures incurred but not yet paid			166,660				-

 

See accompanying notes to unaudited financial statements.

  

 

AMERICANN, INC.

Notes To Unaudited 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 offer a comprehensive, turnkey package of services that includes consulting, design, construction and financing to approved and licensed marijuana operators throughout the United States. The Company's business plan is based on the anticipated growth of the regulated marijuana market in the United States.

 

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

 

Basis of Presentation

 

The (a) balance sheet as of September 30, 2016, which has been derived from audited financial statements, and (b) the unaudited financial statements as of and for the three and nine months ended June 30, 2017 and 2016, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Form 10-K filed with the SEC on January 12, 2017. 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 2016 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.

 

Recent Accounting Pronouncements

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. The ASU was issued to address the complexity associated with applying generally accepted accounting principles (GAAP) for certain financial instruments with characteristics of liabilities and equity. The ASU, among other things, eliminates the need to consider the effects of down round features when analyzing convertible debt, warrants and other financing instruments.  As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. The amendments are effective for fiscal years beginning after December 15, 2018, and should be applied retrospectively. Early adoption is permitted, including adoption in an interim period. The Company plans to early adopt the ASU, and is currently evaluating implementation date and the impact of this amendment on its financial statements.

 

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

  

 

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, to amend the amortization period for certain purchased callable debt securities held at a premium. The ASU shortens the amortization period for the premium to the earliest call date. Under current Generally Accepted Accounting Principles (“GAAP”), entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The amendments should be applied on a modified retrospective basis, and are effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this amendment on its financial statements.

 

In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which is the same time as the amendments in ASU No. 2014-09, and early adoption is permitted. The Company is currently evaluating the impact of this amendment on its financial statements.

 

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250). The ASU adds SEC disclosure requirements for both the quantitative and qualitative impacts that certain recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. Specially, these disclosure requirements apply to the adoption of ASU No. 2014- 09, Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.   The Company is currently evaluating the impact of these amendments on its financial statements.

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

 

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flow. The amendments should be applied using a retrospective transition method, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of these amendments on its financial statements.

 

NOTE 2. GOING CONCERN

 

The accompanying unaudited 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 $7,402,735 and $5,904,931 at June 30, 2017 and September 30, 2016, respectively, and had a net loss of $1,497,804 for the nine months ended June 30, 2017. Further, the amount due from Wellness Group Pharms, LLC (“WGP”) of $1,250,014 (before an allowance of $469,699) may not be collectible. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to 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. The Company filed a Demand for Arbitration against WGP on April 7, 2017. There are no indicators to suggest that the amounts due from WGP will not be collectible. The arbitration hearing is scheduled to occur on January 8, 2018.

  

 

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 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, 2017, and September 30, 2016, consisted of the following: 

 

		June 30, 2017				September 30, 2016
Note receivable from 4900 Jackson, LLC, a licensed dispensary, interest rate of 12.0%; monthly principal and interest payments of $50,000, with a balloon payment of $182,531 due on May 1, 2017; collateralized by the borrower's assets.		$	-			$	247,378
Notes and other receivables from WGP, a licensed medical marijuana cultivator; $673,294 note secured by real and personal property of the borrower, interest rate of 18.0%; accrued consulting fees of $40,000, construction advances of $332,357 and accrued interest of $204,363. Net of reserves of $469,699. All amounts are due and payable immediately.			780,315				780,315
Related party note receivable from CCI, a non-profit corporation, financing of up to $2.5 million through April 2021, interest rate of 18.0%; monthly principal and interest payments commencing the sixth month after CCI begins to generate sales; construction and working capital advances of $119,635, and accrued interest of $5,692; unsecured.			125,327				57,693
			905,642				1,085,386
Less: Current portion			-				247,378
		$	905,642			$	838,008

 

The notes and other receivables from WGP are classified as long-term due to ongoing disputes between the Company and WGP. The Company filed a Demand for Arbitration against WGP on April 7, 2017. There are no indicators to suggest that the amounts due from WGP will not be collectible. The arbitration hearing is scheduled to occur on January 8, 2018.

 

NOTE 4. LAND

 

On July 31, 2014, the Company purchased a five-acre parcel of land located at 4200 Monaco Street, Denver, Colorado for $2,250,809. The property is currently zoned for cannabis cultivation and processing by the City and County of Denver. In 2015, the Company signed an agreement to sell the land for a total purchase price of $2.5 million, but the buyer failed to close the purchase of the property and the agreement with the buyer was terminated. The Company has classified the land as held for use as of June 30, 2017, in accordance with ASC 360-10-45-9, due to the fact that an active program to locate a buyer is not currently in place.

  

 

NOTE 5.  NOTES PAYABLE

 

Unrelated

 

On September 15, 2015, an unrelated third party loaned the Company $900,000. The loan bore interest at 12% per year and was due and payable on March 16, 2016. The Company used $650,000 of the proceeds to repay existing loans that were secured by the land that is classified as held for sale. On April 6, 2016, the loan was modified to increase the principal balance to $990,000, increase the interest rate to 18% per year, and extend the due date to March 15, 2017. On March 15, 2017, the maturity date of the loan was extended to March 15, 2018, and the interest rate remained the same at 18% per year. The Company may repay the loan at any time without penalty. The loan is secured by a first lien on the five-acre parcel of land in Denver. During the nine months ended June 30, 2017, we received advances of $24,657 and made payments of $227,904. Accrued interest on this note payable at June 30, 2017 and September 30, 2016 was $0 and $8,924, respectively.

 

In September 2016, we had borrowed funds from various unrelated parties. The interest rates on these notes ranged from 8% to 18%, due dates ranged from December 14, 2016, through January 15, 2017, and $75,000 was convertible into the Company’s common stock at a conversion price of $0.75. In addition to the notes, we issued warrants to purchase 75,000 shares of our common stock, exercisable at a price of $0.75 per share, and warrants to purchase an additional 75,000 shares of common stock, exercisable at a price of $1.25 per share. Both sets of warrants expire on September 15, 2020. We allocated the new proceeds to the warrants, stock options, and the convertible debt based on their relative fair values, as determined by the Black Scholes option pricing model. Based on the Black Scholes option pricing model, $35,250 was allocated to the warrants which are reflected in additional paid-in-capital and $35,250 was allocated to a debt discount. The debt discount is being amortized on a straight-line basis over the term of the note. At June 30, 2017, there was no outstanding principal or interest, and no unamortized debt discount due to the full payment of the notes.

 

Related Party

 

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

 

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

 

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

 

The remaining $1,931,646 owed to SCP was divided into two promissory notes.

 

The first note, in the principal amount of $1,000,000, bears interest at 9.5% per year and matures on December 31, 2019. Interest is payable quarterly. The note can be converted at any time, at the option of the lender, into shares of our common stock, initially at a conversion price of $1.25 per share. The conversion price will be proportionately adjusted in the event of any stock split or capital reorganization. The note is not secured. Accrued interest on this note payable at June 30, 2017 and September 30, 2016 was $0 and $20,301, respectively.

 

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

 

The second note, in the principal amount of $931,646, bears interest at 8% per year and matures on December 31, 2019. Interest is payable quarterly. The note is not convertible into shares of our common stock. The note is secured by a second lien on our property in Denver, Colorado and a first lien on all amounts due to us by WGP. Any payments received from the sale, lease or commercialization of the property in Denver, and any amounts received from WGP, will be applied to the principal amount of the note. Otherwise, all unpaid principal and interest will be due on December 31, 2019. Accrued interest on this note payable at June 30, 2017 and September 30, 2016 was $0 and $15,297, respectively.

 

In connection with the debt modification agreement, we issued SCP warrants to purchase 800,000 shares of our common stock, exercisable at a price of $1.50 per share, and warrants to purchase an additional 800,000 shares of common stock, exercisable at a price of $3.00 per share. Both sets of warrants expire on June 30, 2020. We allocated the relative fair values to the warrants, stock options, and convertible debt, as determined by the Black Scholes option pricing model. Based on the Black Scholes option pricing model, a net debt premium of $72,651 was allocated to the warrants which are reflected in additional paid-in-capital. The debt premium is being amortized on a straight-line basis over the term of the notes. At June 30, 2017, the outstanding principal on these notes was $1,984,024, and the unamortized debt premium was $52,378. Amortization of debt premium was $5,341 and $20,273 for the three and nine months ended June 30, 2017. There was no such amortization for the three and nine months ended June 30, 2016.

 

  

NOTE 6. RELATED PARTY TRANSACTIONS

 

Strategic Capital Partners. At June 30, 2017 and September 30, 2016, we had outstanding notes and accrued interest payable, inclusive of premium, to SCP of $1,984,024 and $2,024,297, respectively.

 

Interest expense was $36,925 and $23,814 for the three months ended June 30, 2017 and 2016, respectively; and $106,527 and $69,266 for the nine months ended June 30, 2017 and 2016. There was no interest payable to related parties at June 30, 2017. Interest payable – related party of $109,825 was included in the accompanying balance sheets at September 30, 2016.  We made interest payments of $236,625 during 2017, and made no interest payments during 2016 associated with this related party notes payable.  During the nine months ended June 30, 2017, we received advances of $0 and made payments of $20,000. During the nine months ended June 30, 2016, we received advances of $227,500 and made no payments.

 

Coastal Compassion. On April 7, 2016, we signed agreements with Coastal Compassion Inc. (“CCI”). CCI is one of a limited number of non-profit organizations that has received a provisional or final registration to cultivate, process and sell medical cannabis by the Massachusetts Department of Public Health. CCI has agreed to become the initial tenant in our planned Massachusetts Medical Cannabis Center (“MMCC”). Tim Keogh, our Chief Executive Officer, is a Board Member of CCI.

 

Pursuant to the agreements, we agreed to provide CCI with financing of up to $2.5 million for a five-year term at 18% interest per year for construction and working capital required for CCI’s approved dispensary and cultivation center in Fairhaven, MA. For a three-year period beginning April 1, 2016, we agreed to consult with CCI in the design, construction and operation of the Fairhaven facility. CCI will owe us $10,000 each month for these consulting services, but is not required to pay until six months after generating certain revenues. Although the DPH has approved our agreement with CCI relating to the development and lease terms of the MMCC, the actual lease agreement with CCI has not been finalized or approved by the DPH. We will need to secure significant capital to provide the financing to CCI.

 

As of June 30, 2017, we have provided financing to CCI of $125,327, which includes construction and working capital advances of $119,635 and accrued interest of $5,692.

 

NOTE 7. LOSS PER SHARE

 

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

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2017				2016				2017				2016
Net loss attributable to common stockholders		$	(468,071	)		$	(356,378	)		$	(1,497,804	)		$	(1,041,835	)
Basic weighted average outstanding shares of common stock			19,239,465				16,631,000				18,886,513				16,631,000
Dilutive effects of common share equivalents			-				-				-				-
Dilutive weighted average outstanding shares of common stock			19,239,465				16,631,000				18,886,513				16,631,000
Basic and diluted net loss per share of common stock		$	(0.02	)		$	(0.02	)		$	(0.08	)		$	(0.06	)

 

We have excluded 1,155,000 of stock options and 10,166,000 of warrants from the computation of diluted net loss per share since the effects are anti-dilutive.

 

NOTE 8. INCOME TAXES

 

We did not record any income tax expense or benefit for the three or nine months ended June 30, 2017. 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, 2017.

  

 

As of June 30, 2017, we did not have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2016.

 

NOTE 9. STOCK BASED COMPENSATION

 

Restricted Stock Awards. We use restricted stock awards to compensate certain key executives and other individuals. At June 30, 2017, we had no outstanding unvested restricted stock awards. Stock-based compensation expense associated with restricted stock awards was $0 and $18,725 for the three months ended June 30, 2017 and 2016, respectively, and $37,450 and $112,351 for the nine months ended June 30, 2017 and 2016, respectively. As of June 30, 2017, there is no remaining unrecognized stock-based compensation associated with restricted stock awards.

 

Stock Options. Stock option activity as of and for the nine months ended June 30, 2017 is as follows: 

 

										Weighted
						Weighted				Average
						Average				Contractual				Aggregate
		Number of				Exercise				Term				Intrinsic
		Shares				Price				(Years)				Value
Outstanding at September 30, 2016			1,205,000			$	8.70				1.5			$	-
Granted			-				-				-				-
Cancelled			-				-				-				-
Exercised			50,000			$	0.75				2.0				-
Outstanding as of June 30, 2017			1,155,000			$	9.04				0.7			$	-
Vested and expected to vest at June 30, 2017			1,155,000			$	9.04				0.7			$	-
Exercisable at June 30, 2017			1,155,000			$	9.04				0.7			$	-

 

Stock-based compensation expense associated with stock options totaled $0 for the three months ended June 30, 2017 and 2016, respectively; and $0 and $9,173 for the nine months ended June 30, 2017 and 2016, respectively. At June 30, 2017, there is no remaining unrecognized stock-based compensation associated with stock options. During the three and nine months ended June 30, 2017, we received proceeds of $0 and $37,500, respectively, from stock option exercises.

 

NOTE 10.  COMMITMENTS AND CONTIGENCIES

 

Coastal Compassion. On April 7, 2016, we signed agreements with Coastal Compassion Inc. (“CCI”). CCI is one of a limited number of non-profit organizations that has received a provisional or final registration to cultivate, process and sell medical cannabis by the Massachusetts Department of Public Health. CCI has agreed to become the initial tenant in our planned MMCC. Tim Keogh, our Chief Executive Officer, is a Board Member of CCI.

 

Pursuant to the agreements, we agreed to provide CCI with financing of up to $2.5 million for a five-year term at 18% interest per year for construction and working capital required for CCI’s approved dispensary and cultivation center in Fairhaven, MA. For a three-year period beginning April 1, 2016, we agreed to consult with CCI in the design, construction and operation of the Fairhaven facility. CCI will owe us $10,000 each month for these consulting services, but is not required to pay until six months after generating certain revenues. Although the DPH has approved our agreement with CCI relating to the development and lease terms of the MMCC, the actual lease agreement with CCI has not been finalized or approved by the DPH. We will need to secure significant capital to provide the financing to CCI.

 

As of June 30, 2017, we have provided financing to CCI of $125,327, which includes construction and working capital advances of $119,635 and accrued interest of $5,692.

 

 

Operating Leases

 

Land

 

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

 

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. We have the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.

 

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

 

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

 

Under the terms of the lease, the Company has six (6) months to obtain $2.6 million in capital funding for the construction of the first phase building. In the event that the Company is unable to raise these funds within the six (6) month period, the Company will have an additional six (6) month period to do so; provided, that the Company has paid accrued lease payments and closing costs. If the Company is then unable to raise these funds on or before twelve (12) months from October 17, 2016, the lease will terminate. Management expects to obtain full funding in advance of the October 17, 2017 deadline.  As of June 30, 2017, the Company has paid all accrued lease payments and closing costs.

 

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

 

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

 

●

Risk-free interest rate – 1.12 percent

 

●

Expected term – 4.0 years

 

●

Volatility – 115 percent

 

The Company allocated $1,899,966 to the warrant which is reflected in additional paid-in-capital and was allocated to prepaid land lease. The fair value of the common stock on the date of the agreement was $73,000, which is also reflected in additional paid-in-capital and was allocated to prepaid land lease. The prepaid land lease is being amortized on a straight-line basis over the term of the lease.

 

The lease expense was $99,865 and $406,901 for the three and nine months ended June 30, 2017. No such expense was incurred in the three and nine months ended June 30, 2016.  At June 30, 2017, the future rental payments required under this lease are $85,374 for the remainder of fiscal 2017, $341,496 for fiscal years 2018 through 2021, and $15,367,520 thereafter.

 

Office space

 

The Company leases its office space located at 3200 Brighton Boulevard, Denver, Colorado for $2,870 per month under a month-to-month lease.

  

 

The Company leases an automobile under an operating lease commencing October 4, 2014 for 39 months at $611 per month. At June 30, 2017, the future rental payments required under this lease are $1,833 for the remainder of fiscal 2017 and $910 for fiscal 2018.

Except as described above, the Company has no other non-cancelable lease commitments.

 

NOTE 11.  SHAREHOLDERS’ EQUITY

 

Sale of Equity Securities.  During the quarter ended June 30, 2017, we sold 185,000 Units at a price of $2.00 per Unit. The Units were sold in a private offering to a group of accredited investors. Each Unit consisted of one share of our common stock and one Series V Warrant. Each Series V Warrant allows the Holder to purchase one share of our common stock at a price of $5.00 per share at any time on or before May 18, 2021. The relative fair value of the warrants issued was approximately 48% of the proceeds received. The offering provided us with $370,000 in gross proceeds and the potential for an additional $925,000 in proceeds with the exercise of the Series V Warrants.

 

On November 7, 2016, we sold 2,000,000 Units at a price of $1.00 per Unit. The Units were sold in a private offering to a group of accredited investors. Each Unit consisted of one share of our common stock and one Series I Warrant. Each Series I Warrant allows the Holder to purchase one share of our common stock at a price of $3.00 per share at any time on or before November 4, 2020. The relative fair value of the warrants issued was approximately 43% of the proceeds received. The offering provided us with $2,000,000 in gross proceeds and the potential for an additional $6,000,000 in proceeds with the exercise of the Series I Warrants. The proceeds from the placement will be utilized for the MMCC development, to pursue new opportunities in California, Pennsylvania, Florida and other states, and general corporate purposes.

 

Shares issued to lessor. As described in Note 10, we entered into a Share Purchase Agreement with MMP pursuant to which we issued to MMP 100,000 shares of our common stock at par value of $0.0001 (“Common Stock”), and a warrant to purchase up to 3,640,000 shares of Common Stock at an exercise price of $1.00 per share. The warrant can be exercised at any time on or after October 17, 2018 and on or before October 17, 2020. The warrant does not contain a cashless exercise provision.

 

Warrants. Warrant activity as of and for the nine months ended June 30, 2017 is as follows: 

 

										Weighted
						Weighted				Average
						Average				Contractual				Aggregate
		Number of				Exercise				Term				Intrinsic
		Shares				Price				(Years)				Value
Outstanding at September 30, 2016			4,341,000			$	6.19				2.1			$	-
Granted			5,825,000			$	1.81				3.3			$	-
Cancelled			-				-				-				-
Exercised			-				-				-				-
Outstanding as of June 30, 2017			10,166,000			$	3.68				2.6			$	-
Vested and expected to vest at June 30, 2017			10,166,000			$	3.68				2.6			$	-
Exercisable at June 30, 2017			6,526,000			$	5.18				2.2			$	-

 

 

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, 2016 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K.

  

 

Forward-Looking Statements

 

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

 

OVERVIEW

 

AmeriCann's business plan is to offer a comprehensive, turnkey package of services that includes consulting, design, construction and financing to approved and licensed marijuana operators throughout the United States. Our business plan is based on the anticipated growth of the regulated marijuana market in the United States.

 

AmeriCann’s team includes board members, consultants, engineers and architects who specialize in real estate development, traditional horticulture, lean manufacturing, medical research, facility construction, regulatory compliance, security, marijuana cultivation and genetics, extraction processes, and infused product development.

 

To support local businesses that seek to serve cannabis patients in their communities we initiated the AmeriCann Preferred Partner Program. Currently, we have one Preferred Partner in Colorado, which is 4900 Jackson, LLC and one Preferred Partner in Massachusetts, which is Coastal Compassion, Inc. Through this program, we plan to provide an essential set of resources including advanced cultivation facilities, access to a team of experts and in certain cases, capital for our partner’s businesses. In addition, AmeriCann’s team has assisted applicants in obtaining cannabis licenses in competitive application processes in Massachusetts and Illinois. This support is designed to assist our Preferred Partners in newly regulated markets.

 

AmeriCann plans to lease facilities to its Preferred Partners that will be designed with AmeriCann’s propriety cultivation and processing system called “Cannopy.” AmeriCann developed Cannopy with experts from traditional horticulture, lean manufacturing, regulatory compliance and cannabis cultivation. Cannopy includes automation throughout the production life-cycle, customized workflow processes, monitoring and controls, and top-line security systems. Cannopy empowers Preferred Partners to consistently produce medical marijuana for patients at the lowest cost in the most efficient, compliant manner. We plan to provide initial and on-going training, policies, practices and procedures to operate the facilities.

 

The expanding cannabis industry requires extensive real estate to meet the growing needs of the market for cannabis products. AmeriCann assists our Preferred Partners with the identification, design, permitting, acquisition, development and operation of scalable infrastructure to cultivate and to dispense medical cannabis in regulated markets.

 

 

RECENT DEVELOPMENTS

 

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

  

 

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

 

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

 

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

 

Under the terms of the lease, the Company has six (6) months to obtain $2.6 million in capital funding for the construction of the first phase building. In the event that the Company is unable to raise these funds within the six (6) month period, the Company will have an additional six (6) month period to do so; provided, that the Company has paid accrued lease payments and closing costs. If the Company is then unable to raise these funds on or before twelve (12) months from October 17, 2016, the lease will terminate. Management expects to obtain full funding in advance of the October 17, 2017 deadline.  As of June 30, 2017, the Company has paid all accrued lease payments and closing costs.

 

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

 

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

 

The lease expense was $99,865 and $406,901 for the three and nine months ended June 30, 2017. No such expense was incurred in the three and nine months ended June 30, 2016.  At June 30, 2017, the future rental payments required under this lease are $85,374 for the remainder of fiscal 2017, $341,496 for fiscal years 2018 through 2021, and $15,367,520 thereafter.

 

Sale of Equity Securities. During the quarter ended June 30, 2017, we sold 185,000 Units at a price of $2.00 per Unit. The Units were sold in a private offering to a group of accredited investors. Each Unit consisted of one share of our common stock and one Series V Warrant. Each Series V Warrant allows the Holder to purchase one share of our common stock at a price of $5.00 per share at any time on or before May 18, 2021. The relative fair value of the warrants issued was approximately 48% of the proceeds received. The offering provided us with $370,000 in gross proceeds and the potential for an additional $925,000 in proceeds with the exercise of the Series V Warrants.

 

On November 7, 2016, we sold 2,000,000 Units at a price of $1.00 per Unit. The Units were sold in a private offering to a group of accredited investors. Each Unit consisted of one share of our common stock and one Series I Warrant. Each Series I Warrant allows the Holder to purchase one share of our common stock at a price of $3.00 per share at any time on or before November 4, 2020. The offering provided us with $2,000,000 in gross proceeds and the potential for an additional $6,000,000 in proceeds with the exercise of the Series I Warrants. The proceeds from the placement will be utilized for the MMCC development, to pursue new opportunities in California, Pennsylvania, Florida and other states, and general corporate purposes.

 

SIGNIFICANT ACCOUNTING POLICIES

 

There were no changes in our significant accounting policies and estimates during the nine months ended June 30, 2017 from those set forth in our Annual Report on Form 10-K for the year ended September 30, 2016 filed on January 12, 2017.

 

RESULTS OF OPERATIONS

 

Total Revenues

 

During the three and nine months ended June 30, 2017, we generated $10,000 and $40,000 in revenue, respectively. During the three and nine months ended June 30, 2016, we generated $45,000 and $75,000 in revenue, respectively. The decrease in revenues is due to the deferral of revenues from the CCI consulting agreement in fiscal 2017.

  

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were approximately $1,900 and $9,200 for the three and nine months ended June 30, 2017, respectively, as compared to approximately $15,000 and $17,000 for the three and nine months ended June 30, 2016, respectively. The decrease is due fewer advertising and marketing activities, as the Company is shifting its focus to the planning and development of the first phase building of the Massachusetts Medical Cannabis Center.

 

Professional Fees

 

Professional fees were approximately $50,000 and $251,000 for the three and nine months ended June 30, 2017, respectively, as compared to approximately $140,000 and $493,000 for the three and nine months ended June 30, 2016, respectively. The decrease in professional fees for the nine months ended June 30, 2017 as compared to the nine months ended June 30, 2016 is due to the capitalization of consulting fees associated with the planning and development of the first phase building of the Massachusetts Medical Cannabis Center.

 

General and Administrative Expenses

 

General and administrative expenses were approximately $345,000 and $998,000 for the three and nine months ended June 30, 2017, respectively, as compared to approximately $125,000 and $462,000 for the three and nine months ended June 30, 2016, respectively. The increase is attributable primarily to property taxes and lease expense associated with the land lease agreement that commenced in October 2016, partially offset by a decrease in stock based compensation.

 

Provision for doubtful accounts

 

Provision for doubtful accounts was approximately $0 and $3,300 for the three months ended June 30, 2017 and 2016, respectively, and approximately $0 and $9,900 for the nine months ended June 30, 2017 and 2016, respectively. As a result of the arbitration claim filed against WGP in April 2017, the Company did not recognize interest income on the note receivable from WGP, and thus no provision was recorded against these amounts in the three and nine months ended June 30, 2017.

 

Interest Income

 

Interest income was approximately $300 and $11,000 for the three and nine months ended June 30, 2017, respectively, as compared to approximately $45,000 and $138,000 for the three and nine months ended June 30, 2016, respectively. The decrease is attributable to a decrease in the full payoff of the note receivable from 4900 Jackson, LLC, in addition to no longer recognizing interest income on the note receivable from WGP as a result of the arbitration claim filed in April 2017.

 

Interest Expense

 

Interest expense was approximately $81,000 and $290,000 for the three and nine months ended June 30, 2017, respectively, as compared to approximately $73,000 and $183,000 for the three and nine months ended June 30, 2016, respectively. The increase is primarily attributable to increased interest rates and the amortization of debt discounts that are associated with the debt modifications that occurred in July 2016.

 

Loss on Extinguishment of Debt

 

Loss on extinguishment of debt was $90,000 in the three and nine months ended June 30, 2016, respectively, as a result of a debt modification. There were no similar charges in the three and nine months ended June 30, 2017.

 

Net Operating Loss

 

We had a net loss of approximately $(468,000) and $(1,498,000) for the three and nine months ended June 30, 2017, respectively, as compared to approximately $(356,000) and $(1,042,000) for the three and nine months ended June 30, 2016, respectively. The increase in net loss is attributable to changes in revenues, operating expenses and interest income and expense, each of which is described above.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The accompanying unaudited 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 $7,402,735 and $5,904,931 at June 30, 2017, and September 30, 2016, respectively, and had a net loss of $1,497,804 for the nine months ended June 30, 2017. 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. Further, the amount due from WGP of $1,250,014 (before an allowance of $469,699) may not be collectible. The Company filed a Demand for Arbitration against WGP on April 7, 2017. The arbitration hearing is scheduled to occur on January 8, 2018. 

 

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 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 5 and 6 to the unaudited financial statements filed with this report for information concerning our notes payable.

 

Analysis of Cash Flows

 

During the nine months ended June 30, 2017, our net cash flows used in operations were approximately $1,688,000 as compared to net cash flows used in operations of $609,000 for the nine months ended June 30, 2016. The increase is primarily due to an increase in land lease expense associated with the commencement of the lease in October 2016, in addition to decreases in operating accounts payable and accrued expenses, and interest payable funded by the proceeds from our private equity offerings during the nine months ended June 30, 2017.

 

Cash flows used in investing activities were approximately $292,000 for the nine months ended June 30, 2017, consisting of additions to construction in progress of approximately $472,000, advances made on notes receivable of $30,000, advances made on notes receivable – related party of approximately $68,000, offset by approximately $277,000 of payments received from notes receivable. Cash flows used in investing activities were approximately $335,000 for the nine months ended June 30, 2016, consisting of a $525,000 deposit on land, advances made on notes receivable – related party of approximately $56,000 and minor purchases of fixed assets, offset by approximately $250,000 of payments received from notes receivable.

 

Cash flows provided by financing activities were approximately $1,991,000 for the nine months ended June 30, 2017, consisting of net proceeds from the issuance of common stock of approximately $2,214,000, proceeds from notes payable of approximately $25,000, offset by payments on notes payable to related parties of $20,000 and payments on notes payable of approximately $228,000. Cash flows provided by financing activities were approximately $749,000 for the nine months ended June 30, 2016, consisting of proceeds from notes payable and notes payable - related parties.  

 

We do not have any firm commitments from any person to provide us with any capital; however, there is a steady increase in the demand for real estate development projects in the regulated cannabis industry.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of June 30, 2017, we did not have any off balance sheet arrangements.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

  

 

Internal Control over Financial Reporting

 

As indicated in our Form 10-K filed on January 12, 2017, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective during the 2016 fiscal year at the reasonable assurance level, as a result of a material weakness 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.

 

We are currently in the process of evaluating the steps necessary to remediate this material weakness.

 

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, 2017 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 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.

 

  

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: August 14, 2017		By:		/s/ Timothy Keogh
				Timothy Keogh
				Principal Executive Officer
		By:		/s/ Benjamin Barton
				Benjamin Barton
				Principal Financial and Accounting Officer

 

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