UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the fiscal year ended September 30, 2016

 

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

 

 For the transition period from _____________ to ______________

 

Commission file number:  000-54231

 

AMERICANN, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	27-4336843
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

3200 Brighton Blvd., Unit 114 Denver, CO 80216

(Address of Issuer's Principal Executive Offices, Zip Code)

 

Issuer’s telephone number, including area code:  (303) 862-9000

 

Securities registered under section 12(g) of the Exchange Act: Common Stock, ($0.001 Par Value)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ☐     No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   Yes ☐     No ☒

 

Indicate by check mark whether the registrant (1) has filed all reports 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 check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,  and will not be contained,  to the best of Registrant's  knowledge,  in definitive proxy or information  statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☒

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange).  Yes ☐     No ☒

 

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on March 31, 2016, was approximately $3,555,000.

 

As of December 28, 2016, the registrant had 19,131,000 outstanding shares of common stock.

 

 

 

PART I

 

Forward-Looking Statements

 

This report contains or incorporates by reference forward-looking statements, concerning our financial condition, results of operations and business.  These statements include, among others:

 

	●	statements concerning the benefits that we expect will result from the business activities that we contemplate; and
	●	statements of our expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts.

 

You can find many of these statements by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report.

 

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements.  Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied.  We caution you not to put undue reliance on these statements, which speak only as of the date of this report.

 

ITEM 1.  BUSINESS.

 

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 provide initial and on-going training, policies, practices and procedures to operate the state-of-the-art 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.

 

Company History

 

AmeriCann, Inc. ("the Company" or "the Issuer") was organized under the laws of the State of Delaware on June 25, 2010. The Company was established as part of the Chapter 11 reorganization of AP Corporate Services, Inc. ("AP"). Under AP's Plan of Reorganization, as confirmed by the U.S. Bankruptcy Court for the Central District of California, the Company was incorporated to: (i) receive and own any interest which AP had in the development of an MRI scanning facility; and (ii) issue shares of its common stock to AP's general unsecured creditors, to its administrative creditors, and to its shareholders.

 

Lacking the resources to effectively develop an MRI facility, in June 2012 the Company decided to promote medical tourism by providing information on a website for those seeking to travel abroad for healthcare services. The Company planned to generate revenue by selling advertising to healthcare providers and related businesses including hotels and travel agencies.

 

 

 

In September 2013, the Company abandoned its business plan relating to promoting medical tourism.

 

On January 17, 2014, Strategic Capital Partners, LLC (“SCP”) a firm controlled by Benjamin J. Barton, one of our officers and directors, acquired 14,950,000 shares of our outstanding common stock from a group of our shareholders.

 

On February 21, 2014, we changed our name from Nevada Health Scan, Inc. to AmeriCann, Inc. and declared a stock dividend in the amount of four shares of common stock for each issued and outstanding share of common stock.

 

On February 24, 2014, SCP returned 65,750,000 shares of our common stock to us. These shares were cancelled and returned to the status of authorized and unissued shares.

 

During March and April 2014, we sold 1,000,000 shares of our common stock to private investors at a price of $0.75 per share. Benjamin J. Barton, one of our officers and directors, purchased 400,000 shares as an investment.

 

During July 2014, we raised $2,373,000 through a private sale of 791,000 Units at a price of $3.00 per Unit. Each Unit consisted of one share of common stock and one warrant. Each warrant allows the holder to purchase one share of our common stock at a price of $8.00 per share anytime on or before April 30, 2018. Benjamin J. Barton purchased 666,667 Units for cash as an investment. We have offered the holders of the Series A Warrants 1.5 shares of common stock in exchange for each Series A Warrant. If all Series A Warrants are exchanged, the total shares outstanding will increase by 1,186,500. As of December 28, 2016, no shares of common stock had been issued in exchange for the Series A Warrants.

 

4900 Jackson, LLC

 

During the summer of 2014 we entered into a Financing and Consulting Agreement with a licensed Colorado cannabis cultivator. The agreements called for us to loan $1,000,000 to the Preferred Partner, 4900 Jackson, LLC, to convert an existing 15,000 square foot warehouse into a new cannabis growing and processing facility.  The growing and processing facility was completed in 2015.  As of September 30, 2016, we have received $1,158,000 in principal, interest and consulting payments from the operator of the facility. These payments are scheduled to continue through May of 2017. 

 

Monaco Street Property

 

On July 31, 2014, we closed on an all cash purchase of a five-acre parcel of land located in north central Denver, Colorado. The total purchase price for the property was $2,250,000.  The property is currently zoned for cannabis cultivation and processing by the City and County of Denver. We received concept approval from the City and County of Denver for the construction of a 125,000 square foot cannabis cultivation, processing, and administration facility on this property.  We estimate the cost to construct this facility will be approximately $12,500,000.  This property serves as collateral for a $990,000 loan which is due and payable on March 15, 2017. This property is held for resale, and we have no plans to develop on it.

 

Massachusetts Medical Cannabis Center

 

On January 14, 2015, we entered into an agreement to purchase a 52.6 acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. We plan to develop the property as the Massachusetts Medical Cannabis Center "MMCC". Plans for the MMCC include the construction of sustainable greenhouse cultivation and processing facilities that will be leased to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program. Additional plans for the MMCC may include a testing laboratory, a research facility, a training center, an infused product production facility and corporate offices. 

 

On December 8, 2015, The Town of Freetown Planning Board unanimously approved our site plan application for the MMCC.  The site plan application requested 977,000 square feet of infrastructure for medical marijuana cultivation, processing, testing and associated administration in Freetown's Industrial Park. 

 

On March 29, 2016, the Department of Public Health (“DPH”) for the Commonwealth of Massachusetts approved our consulting agreement and development agreement relating to the MMCC's first tenant and Preferred Partner, Coastal Compassion, Inc.

 

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 pay us $10,000 each month for these consulting services. The DPH has approved our agreement with CCI relating to the consulting, the loan, and the development and lease terms for Building A of the MMCC.

 

  

On October 17, 2016, we closed the acquisition of the 52.6-acre parcel of land in Freetown, Massachusetts. The deposits of $925,000 previously paid by us 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”).

 

As part of a simultaneous transaction, we assigned the property rights to MMP for a nominal fee, and entered into a lease agreement in which MMP agreed to lease the property to us for an initial term of fifty years. We have the option to extend the term of the lease for four additional ten year periods. The lease is a triple net lease, whereby we will pay 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 us, any of our assignees, or any of our subtenants. The lease payments will be adjusted up (but not down) every five 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.

 

Under the terms of the lease, we have six months to obtain capital funding for the construction of the first phase building. In the event that we are unable to raise these funds within this six month period, we have an additional six month period to do so; provided, that we have paid accrued lease payments and closing costs. If we are then unable to raise the funds on or before twelve months from October 17, 2016, the lease will terminate.

 

We will receive credit for the $925,000 paid towards the purchase price in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments will be reduced by $1,541.67 each month.

 

B Corp Certification

 

We received B Corp certification in June 2016. This certification is an acknowledgment of our commitment to social and environmental ethics, transparency and accountability.

 

We join over 1,700 Certified B corporations globally, including 71 others in Colorado, that have met the rigorous standards that measure a company’s impact on its employees, suppliers, community, and the environment. Notable B corporations include Ben & Jerry’s, Patagonia, Warby Parker, and Etsy, Inc.

 

The B Corp certification was granted by B Lab, a nonprofit organization that serves a global movement of people using business as a force for good. Its vision is that one day all companies will compete to be best for the world and that society will enjoy a more shared and durable prosperity.

 

B Lab promotes robust standards that can be used by policymakers, investors and the general public to evaluate companies and their business practices. B Corp certification is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.

 

We successfully completed a rigorous application and review process in obtaining this prestigious certification.

 

We believe that this certification, and its endorsement of our environmental standards, community focus and ethics, will provide us with a competitive advantage over potential competitors that lack this accreditation.

 

Concurrent with receiving B Corp certification, we committed to become a Public Benefit Corporation within two years. If we do not accomplish this, we may lose our B Corp certification.

  

Market Conditions

 

According to ArcView Market Research’s 4^th Edition of The State of Legal Marijuana Markets report, “The strong growth in demand for legal cannabis over the past two years is expected to continue in the years ahead. Twenty-eight states already permit medical cannabis use and eight states and the District of Columbia have passed ballot measures to allow for full adult use of cannabis. With 8 of 9 ballot measures for medical and adult-use cannabis laws passing in November, 2016 has proven to be a significant year for the cannabis industry. A majority of U.S. states have transitioned from cannabis prohibition to some form of regulated legal markets.”   Sales of legal medical and adult use marijuana were $4.6 billion in 2014, $5.7 billion in 2015 and are expected to grow to $22.8 billion by 2020. The cannabis industry was the fastest growing industry in the United States between 2014 and 2015 (74% growth) and is projected to grow faster than any other industry in the country over the next decade.

 

 

 

While the industry is growing rapidly, the cannabis industry faces four major obstacles that challenge its growth and profitability. First, the cultivation of cannabis is a very capital-intensive enterprise. Many cannabis entrepreneurs do not have access to the capital required to build the infrastructure required to meet growing demand and sales projections. Traditional sources of financing, such as banks, are not available currently to cannabis producers and retailers. Second, there is a significant shortage of knowledge related to virtually all areas of the cannabis business. When new states are added to the list of regulated cannabis markets, there will be a scarcity of experience and expertise to serve the needs of growers and retailers in these states. Third, the majority of states do not allow access to medical cannabis for its patients. This presents an obstacle to the medical cannabis industry and requires financial resources and dedicated advocacy to change regulations on the state level. Fourth, as explained below, marijuana is illegal under federal law.

 

Government Regulation

 

Marijuana is a Schedule-I controlled substance and is illegal under federal law.  Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law.

 

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse.  The Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.”  If the federal government decides to enforce the Controlled Substances Act in Colorado with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

 

As of December 28, 2016, 28 states and the District of Columbia allow their citizens to use Medical Marijuana.  Additionally, voters in the states of Colorado, Washington, Alaska, Oregon, Nevada, California, Massachusetts, Maine and the District of Columbia approved ballot measures to legalize cannabis for recreational use by adults.  The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. The Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical marijuana.   However, there is no guarantee that the administration will not change its stated policy regarding the low-priority enforcement of such federal laws. Additionally, the Trump administration that follows could change this policy and decide to enforce the federal laws strongly.  Any such change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.  While we do not intend to harvest, distribute or sell cannabis, we may be irreparably harmed by a change in enforcement by the federal government or the enactment of new and more restrictive laws.

 

Competition

 

Currently, there are a number of other companies that are involved in the marijuana industry, many of which we consider to be our competition. Many of these companies provide services similar to those which we provide or plan to provide.  We expect that other companies will recognize the value of serving the marijuana industry and become our competitors.

 

General

 

Our offices are located at 3200 Brighton Blvd., Unit 144 Denver, CO 80216. We lease this space located on a month-to-month basis at a rate of $2,870 per month.

 

As of September 30, 2016, we had two full time employees, that being Timothy Keogh, our Chief Executive Officer and Jane Roach, our Office Manager.  As of September 30, 2016, Mr. Keogh was spending approximately 90% of his time on our business and Jane Roach was spending approximately 100% of her time on our business.  Ben Barton, our Chief Financial Officer, plans to spend approximately 95% of his time on our business.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, our activities are subject to significant risks and uncertainties including failure to secure funding to properly fund our business plan. 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

 

 

ITEM 2.  PROPERTIES.

 

See Item 1. Business.

 

ITEM 3.  LEGAL PROCEEDINGS.

 

Beginning September 21, 2014, we entered into a series of agreements with Wellness Group Pharms, LLC (“WGP”), an entity that was pursuing licenses to operate marijuana cultivation facilities under the Illinois Compassionate Use of Medical Cannabis Pilot Program Act.  As amended on February 22, 2015, these agreements provided for the following:

 

●

We were to replace WGP as the purchasing party under an existing contract to acquire a 16.1 acre parcel in Anna, Illinois as WGP was to take the necessary legal steps to assign to us the right to acquire ownership to the property. Subsequent to the amendment WGP purchased the land. To date we have not received title to the land.

●

We were to construct on this parcel a marijuana cultivation facility (consisting of a 27,000 square foot warehouse and a total developable footprint of 285,000 square feet which would be built in future phases according to demand) in accordance with terms specified in WGP’s license application with the State of Illinois.

●	WGP was to lease and operate the facility from us at a base monthly rent of $6.00 per square foot plus 25% of gross monthly sales of cannabis and 20% of gross monthly sales of cannabis infused products.

●

We were to provide working capital advances up to a maximum borrowing amount of $2,772,724, with any advances accruing interest at a rate of 18% per annum.  No principal or interest payments were due until WGP had cash on hand of $250,000, but in any event all principal and interest is due December 31, 2017.

●	We were to receive consulting fees of $20,000 per month, with any unpaid amounts accruing interest at a rate of 18% per annum.

 

Between February 2015 and April 2015, both parties operated under this agreement.  We made working capital advances totaling $673,294 (inclusive of the deposit of $100,000 made under the initial WGP agreements) and we recognized consulting revenues of $40,000.  We also incurred construction costs totaling $332,357 to begin developing the facility in connection with its obligations under the amended agreement.  However, WGP did not assign its rights to acquire the 16.1 acre parcel to us as required under the amended agreement.  Instead, WGP acquired the property directly.  We have notified WGP that we have fulfilled our obligations pursuant to our agreements with WGP but due to WGP's breach of contract, and repeated lack of good faith and fair dealing, the agreement was terminated.  WGP has claimed that our construction costs were unauthorized.  We dispute WGP’s claim.

 

Included in Note and Other Receivables – WGP in our balance sheet at September 30, 2016 are working capital advances of $673,294, accrued consulting fees of $40,000, construction advances of $332,357 and accrued interest of $204,363 for a total of $1,250,014. 

 

We have a formal security agreement covering $600,000 of the advances made to WGP (and related interest), whereby the indebtedness is secured by all real and personal property of WGP.  We believe all other amounts owed by WGP are due and payable.  However, given the current dispute with WGP, we have established a provision for doubtful accounts of $469,699 as of September 30, 2016, representing all amounts owed by WGP (including related interest) that are not covered by a formal security agreement.  This provision is reflected as a separate component of operating expense within our accompanying statement of operations.

 

We have not filed any formal litigation but have provided legal notice that our loans to WGP are immediately due and payable.  By contract, our process for resolving any disputes with WGP is to be resolved via binding arbitration.  We are aggressively pursuing collection of all amounts owed by WGP.  See Note 3 in the Notes to the Financial Statements for a discussion regarding our ongoing dispute with WGP.

 

In October 2016, we were named as a Defendant in an arbitration proceeding brought by Jay Czarkowski, one of our former officers and directors. In his claim, Mr. Czarkowski claims that we failed to grant him stock options to purchase 200,000 shares of the Company’s common stock pursuant to our March 2014 settlement agreement with Mr. Czarkowski. We have denied Mr. Czarkowski claim since our 10-K reports have disclosed that we have granted these options to Mr. Czarkowski.

 

Other than the foregoing, we are not involved in any legal proceedings and we do not know of any legal proceedings which are threatened or contemplated. 

 

ITEM 4.  MINE SAFETY DISCLOSURES.

 

None.

 

 

      

PART II

 

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Our common stock is quoted on the OTCQX and OTC Bulletin Board under the trading symbol “ACAN”.  There has been limited trading of our common stock since trading began on July 10, 2014.

 

Shown below is the range of high and low closing prices for our common stock as reported by the OTCQX or OTC Bulletin Board for the periods presented: 

 

Quarter Ended		High				Low
December 31, 2014		$	1.45			$	0.55
March 31, 2015		$	1.01			$	0.55
June 30, 2015		$	0.96			$	0.30
September 30, 2015		$	0.90			$	0.40
December 31, 2015		$	0.74			$	0.46
March 31, 2016		$	0.55			$	0.40
June 30, 2016		$	1.21			$	0.55
September 30, 2016		$	1.16			$	0.52

 

 

Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors.  Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend.  No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid.  We currently intend to retain any future earnings to finance future growth.  Any future determination to pay dividends will be at the discretion of our directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of directors considers relevant.

 

Our Articles of Incorporation authorize the Board of Directors to issue up to 20,000,000 shares of preferred stock.  The provisions in the Articles of Incorporation relating to the preferred stock allow our directors to issue preferred stock with multiple votes per share and dividend rights, which would have priority over any dividends paid to the holders of our common stock.  The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by management.

 

As of December 28, 2016, we had 163 shareholders of record and 19,131,000 outstanding shares of common stock.

 

ITEM 6.  SELECTED FINANCIAL DATA.

 

Not applicable.

  

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

RESULTS OF OPERATIONS

 

Total Revenues

 

During the year ended September 30, 2016, we generated $60,000 in revenue, as compared to $140,000 for the year ended September 30, 2015. The reduction in revenues reflects our amendment to reduce our consulting fees for 4900 Jackson, LLC (and its predecessor) from $10,000 per month to $5,000 per month in May 2015, and the cessation of consulting fee revenues from WGP in 2015.

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were $21,312 for the year ended September 30, 2016, as compared to $15,172 for the year ended September 30, 2015. The increase is due to increased print marketing and advertising efforts to raise the profile and awareness of the company and pursue new opportunities in our national expansion program. 

 

 

 

Professional Fees

 

Professional fees were $571,141 for the year ended September 30, 2016, as compared to $640,326 for the year ended September 30, 2015. The decrease in professional fees is primarily due to a decrease in legal expenses associated with our operations, partially offset by an increase in planning, design, and permitting costs associated with the Massachusetts Medical Cannabis Center.  

 

General and Administrative Expenses

 

General and administrative expenses were $583,739 for the year ended September 30, 2016, as compared to $835,501 for the year ended September 30, 2015.  The decrease is attributable primarily to a decrease in stock based compensation and option expense as many of our stock-based awards were granted in 2014 and were subject to short vesting periods.  This decrease was partially offset by increases in salaries and other general and administrative expenses as we continue to develop our business and expand our operations.

 

Provision for Doubtful Accounts

 

Provision for doubtful accounts was $13,229 for the year ended September 30, 2016, as compared to $456,470 for the year ended September 30, 2015.  The provision was established in 2015 and represented all amounts owed by WGP at that time (including related interest) that are not covered by a formal security agreement. Activity in 2016 represents additional reserves on related accrued interest owed by WGP.

 

Interest Income

 

Interest income was $183,255 for the year ended September 30, 2016, as compared to $213,665 for the year ended September 30, 2015. The decrease is attributable to decreases in amounts owed on our notes receivable. 

 

Interest Expense

 

Interest expense was $272,659 for the year ended September 30, 2016, as compared to $135,540 for the year ended September 30, 2015. The increase is attributable to the financing of our recent investing and operating activities primarily with debt.

 

Loss on Extinguishment of Debt

 

Loss on extinguishment of debt was $991,939 for the year ended September 30, 2016, as compared to $0 for the year ended September 30, 2015. The loss recognized in the current year is a result of the debt modifications discussed in Note 4 to the financial statements which are a part of this report.

 

Net Loss

 

We had a net loss of $2,210,764 for the year ended September 30, 2016, as compared to a net loss of $1,729,344 for the year ended September 30, 2015. The increase in net loss is attributable to changes in revenues, operating expenses, interest income and expense, and loss on extinguishment of debt, each of which is described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Sources of Liquidity

 

As of September 30, 2016, we had borrowed $2,024,297 from a Company controlled by Benjamin J. Barton, one of our officers and directors. The balance consists of two separate notes, as follows:

 

●

Convertible note of $1,000,000, net of premium of $284,229. Bears interest at 9.5% payable quarterly. The total outstanding principal balance and any accrued and unpaid interest is due on December 31, 2019. SCP has the option to convert all or any part of the principal amount into fully paid and non-assessable shares of the Company’s common stock at a conversion price of $1.25.

 

●

Secured note of $931,646, net of discount of $211,578. Bears interest at 8% payable quarterly. The total outstanding principal balance and any accrued and unpaid interest is due on December 31, 2019. The note is secured by: 1) a second lien on the Company’s property in Denver, Colorado, and 2) the Company’s claims against WGP.

 

As of September 30, 2016, we had borrowed $990,000 from a third party. The loan bears interest at 18% and is due March 15, 2017.

 

As of September 30, 2016, we had borrowed $203,247 from various third parties. The interest rates on these notes range from 8% to 18%, due dates range from December 14, 2016, through January 15, 2016, and $75,000 is convertible into the Company’s common stock at a conversion price of $0.75.

 

 

 

In November 2016, we raised $2,000,000 in equity financing through the sale of 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 consists 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 from the exercise of the Series I Warrants. The proceeds from the placement will be used for our MMCC development, to pursue new opportunities in California, Pennsylvania, Florida and other states, and for general corporate purposes.

 

Analysis of Cash Flows

 

During the year ended September 30, 2016, our cash used in operations was $540,863 as compared to net cash used in operations of $792,534 for the year ended September 30, 2015. This was primarily due to an increase in accounts payable and accrued expenses.

 

Cash flows used in investing activities were $632,510 for the year ended September 30, 2016, consisting primarily of deposits on land and advances made on related party notes receivable, offset by payments received from notes receivable. Cash flows used in investing activities were $849,075 for the year ended September 30, 2015, consisting of deposits on land, advances made on notes receivable and website development expenditures, partially offset by payments received from notes receivable.

 

Cash flows from financing activities were $972,044 for the year ended September 30, 2016, consisting of proceeds from notes payable and notes payable - related parties. Cash flows from financing activities were $1,669,006 for the year ended September 30, 2015, consisting of proceeds from notes payable, partially offset by payments on notes payable.

 

Trends

 

The factors that will most significantly affect our future operating results, liquidity and capital resources will be:

 

	●	Government regulation of the marijuana industry;
	●	Revision of Federal banking regulations for the marijuana industry; and
	●	Legalization of the use of marijuana for medical or recreational use in other states.

 

Other than the foregoing, we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on:

 

	●	revenues or expenses;
	●	any material increase or decrease in liquidity; or
	●	expected sources and uses of cash.

 

Capital requirements

 

Our material capital commitments for the year ending September 30, 2017 are:

 

Description		Amount			Due Date
Repayment of loan		$	990,000		03/15/17
First phase of construction at MMCC		$	2,600,000		04/17/17

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements which may be applicable to us are described in Note 1 to the Financial Statements included as part of this report.

 

SIGNIFICANT ACCOUNTING POLICIES

 

Our significant accounting policies are set forth below. We have consistently applied these policies in all material respects. We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgment, or estimates, to any significant degree, except as it pertains to our provision for doubtful accounts associated with amounts due from WGP described in the Notes to the Financial Statements.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent  assets and  liabilities at the date of the financial  statements and the  reported  amounts of revenues  and expenses  during the  reporting  period. The more significant estimates and assumptions made by management are valuation of equity instruments, deferred tax asset valuation and allowance and collectability of long-lived assets. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.  See Note 3 in the Notes to the Financial Statements included as part of this report for a discussion of our provision for doubtful accounts for amount amounts owed from WGP.

 

 

 

Cash and Cash Equivalents

 

Cash and cash equivalents includes cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at the date of purchase.

 

Income Taxes

 

In accordance with Accounting Standards Codification (ASC) 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements.  The resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur.  A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.

 

We expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of September 30, 2016, we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. We currently have no federal or state tax examinations nor have we had any federal or state examinations since ours inception. To date, we have not incurred any interest or tax penalties.

 

For federal tax purposes, our 2012 through 2015 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations.

 

Concentration of Credit Risks and Significant Customers

 

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, notes receivables, deposits, accounts receivables and notes receivable. We place our cash with high credit quality financial institutions. As of September 30, 2016, we had outstanding notes receivable of $247,378 with 4900 Jackson, LLC, notes receivable of $117,693 with Coastal Compassion Inc., and notes and other receivables in the amount of $1,250,014 with WGP (exclusive of provision for doubtful accounts of $469,699).  See Note 3 in the Notes to the Financial Statements included as part of this report for a discussion of our provision for doubtful accounts for amounts owed from WGP.

 

For the year ended September 30, 2016, all of the Company’s revenue was earned from one customer, 4900 Jackson, LLC. For the year ended September 30, 2015, revenue earned from 4900 Jackson, LLC was $100,000, or 71% of total revenues.

 

Financial Instruments and Fair Value of Financial Instruments

 

We adopted ASC Topic 820, Fair Value Measurements and Disclosures, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure about such fair value measurements. 

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. We had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.

 

Derivative Liabilities

 

We evaluate stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. We determined that none of our financial instruments meet the criteria for derivative accounting as of September 30, 2016 and 2015.

 

 

 

Fixed Assets

 

Our long-lived assets consisted of property and equipment and are reviewed for impairment in accordance with the guidance of the FASB Topic ASC 360, Property, Plant, and Equipment, and FASB Topic ASC 205, Presentation of Financial Statements. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through September 30, 2016, we had not experienced impairment losses on our long-lived assets. However, there can be no assurances that demand for our products or services will continue, which could result in an impairment of long-lived assets in the future.

 

Website Development Costs

 

We recognized the costs associated with developing a website in accordance with ASC Subtopic 350-50, Website Development Cost. The website development costs are divided into three stages, planning, development and production. The development stage can further be classified as application and infrastructure development, graphics development and content development. In short, website development cost for internal use should be capitalized except content input and data conversion costs in content development stage. Costs associated with the website consist of website development costs paid to third parties. Website development amortization expense was $13,833 for the year ended September 30, 2016, and $1,153 for the year ended September 30, 2015.

 

Deferred Financing Costs

 

Deferred financing costs represent costs incurred in the connection with obtaining debt financing. These costs are amortized ratably and charged to financing expenses over the term of the related debt.

 

Equity Instruments Issued to Non-Employees for Acquiring Goods or Services

 

Issuances of our common stock or warrants for acquiring goods or services are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment for performance to earn the equity instruments is reached (a "performance commitment" which would include a penalty considered to be of a magnitude that is a sufficiently large disincentive for nonperformance) or (ii) the date at which performance is complete.  

 

Although situations may arise in which counter performance may be required over a period of time, the equity award granted to the party performing the service is fully vested and non-forfeitable on the date of the agreement. As a result, in this situation in which vesting periods do not exist if the instrument is fully vested on the date of agreement, we determine such date to be the measurement date and will record the estimated fair market value of the instruments granted as a prepaid expense and amortize such amount to general and administrative expense in the accompanying statement of operations over the contract period. When it is appropriate for us to recognize the cost of a transaction during financial reporting periods prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at the then-current fair values at each of those interim financial reporting dates.

 

Non-Cash Equity Transactions

 

Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received, whichever is more readily determinable.

 

Stock-Based Compensation

 

We account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related services are rendered.

 

 

 

Related Parties

 

A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests, is also a related party.

 

Revenue Recognition

 

We recognize revenue on consulting at the time the service is rendered and collectability is reasonably assured.

 

Advertising Expense

 

Advertising, promotional and selling expenses consisted of sales and marketing expenses, and promotional activity expenses. Expenses are recognized when incurred.

 

General and Administrative Expense

 

General and administrative expenses consisted of professional service fees, rent and utility expenses, meals, travel and entertainment expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.

 

Loss per Share

 

We compute net loss per share in accordance with the FASB ASC 260. The ASC specifies the computation, presentation and disclosure requirements for loss per share for entities with publicly held common stock.

 

Basic loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Shares issuable upon the exercise of equity instruments such as warrants and options were not included in the loss per share calculations because the inclusion would have been anti-dilutive.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of September 30, 2016, we did not have any off-balance sheet arrangements.

 

CONTRACTUAL OBLIGATIONS

 

The Company leases an automobile under an operating lease commencing October 4, 2014 for 39 months at $611 per month. The lease expense was $7,483 and $7,953 for the year ended September 30, 2016 and 2015, respectively.  At September 30, 2016, the future rental payments required under operating leases are as follows:

 

2017		$	7,483
2018			910
2019			-
2020			-
2021			-
Total		$	8,393

 

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Attached.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND   FINANCIAL DISCLOSURE.

 

On January 19, 2016, we dismissed Hartley Moore Accountancy Corporation (“Hartley Moore”) as our independent registered accounting firm. There were no disagreements with Hartley Moore on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to Hartley Moore's satisfaction, would have caused them to refer to the subject matter of the disagreement(s) in connection with their reports; and there were no "reportable events" as defined in Item 304(a)(1) of Regulation S-K of the Securities and Exchange Commission. On January 19, 2016, we engaged Malone Bailey, LLP as our independent registered public accounting firm. The change in our independent accountants was approved by our Board of Directors.

 

 

 

ITEM 9A.  CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedure

 

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-K.  Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on that evaluation, our management concluded that, as of September 30, 2016, our disclosure controls and procedures were not effective for the same reasons that our internal control over financial reporting were not adequate.

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as required by Sarbanes-Oxley (SOX) Section 404.A. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

 

	(1)	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets;
	(2)	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors; and
	(3)	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the issuer’s financial statements.

 

We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our internal control over financial reporting as of September 30, 2016, the end of the period covered by this Annual Report on Form 10-K for the year ended September 30, 2016. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework, published in 2013. Based on that evaluation, 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. As a result, we did not adequately document or test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. In addition, we did not properly evaluate the accounting and valuation for certain equity instruments. While Management has reviewed the financial statements and underlying information included in this Annual Report on Form 10-K in detail and believes the procedures performed are adequate to fairly present our financial position, results of operations and cash flows for the periods presented in all material respects, the deficiency in accounting personnel that existed in fiscal 2016 could have led to an error in the original accounting of the estimated fair market value of certain equity instruments.

 

Remediation of Material Weaknesses. 

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management believes that the Company’s financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 

	We plan to obtain and hire additional accounting personnel, and continue to enhance our internal finance and accounting organizational structure.
	We have hired a third-party consultant who has the required background and experience in accounting principles generally accepted in the United States of America and with SEC rules and regulations.
	We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.
	We are in the process of strengthening our internal policies and enhancing our processes for ensuring consistent treatment and recording of reserve estimates and that validation of our conclusions regarding significant accounting policies and their application to our business transactions are carried out by personnel with an appropriate level of accounting knowledge, experience and training.

 

 

 

While we have not yet remediated these material weaknesses, we will continue our remediation efforts during fiscal 2017.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

No changes in our internal control over financial reporting have come to management's attention during our last fiscal quarter that have materially affected, or are likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.  OTHER INFORMATION.

 

None. 

 

PART III

 

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Name		Age		Position
Timothy Keogh		37		Chief Executive Officer and a Director
Benjamin J. Barton		52		Chief Financial and Accounting Officer and a Director

  

The following is a brief summary of the background of each officer and director including their principal occupation during the five preceding years.  All directors will serve until their successors are elected and qualified or until they are removed.

 

Timothy Keogh was appointed our Chief Executive Officer and a director on March 25, 2014. As our Chief Executive Officer, Mr. Keogh has developed sustainable practices and traditional horticultural approaches to the production of medical cannabis to benefit patients in regulated markets. Prior to joining AmeriCann, Mr. Keogh was the Chief Executive Office and a director of Coastal Compassion, Inc., a non-profit corporation that has entered the medical marijuana business in Massachusetts. This effort began in September of 2012 and was formalized under Massachusetts G.L. Chapter 180 in August of 2013.  Under the direction of Mr. Keogh, Coastal Compassion, Inc. received 1 a limited number of provisionally approved licenses in Massachusetts.

 

Between November 2010 and November 2013 Mr. Keogh owned and managed Dock Promotions, LLC, a company which provided consulting services to waterfront developments and marinas in the areas of design, construction, and operations.   Between 2003 and 2010, Mr. Keogh was the Director of Business Services for Marina Management Services, Inc., a corporation which provided management and consulting solutions to waterfront developments, marinas and boatyards throughout the Americas and the Caribbean. 

 

Mr. Keogh is an advisory board member of the Rhode Island Patient Advocacy Coalition, and an active member and invited speaker for the National Cannabis Industry Association.  Mr. Keogh holds a Bachelor of Science in Business Administration from Mount St. Mary’s College.

 

Ben Barton was appointed a director on January 14, 2014 and Chief Financial Officer on January 22, 2014. Since 1986, Mr. Barton has been active in all aspects of venture capital and public stock offerings. Since 2005, Mr. Barton has been the Managing Director of Strategic Capital Partners, LLC, a private investment company specializing in emerging companies. Mr. Barton was one of the founders of Synergy Resources Corporation, an energy company that trades on the NYSE. Prior to earning an MBA in Finance from UCLA, Mr. Barton received his Bachelor of Science degree in Political Science from Arizona State University.

 

Effective March 25, 2014, we entered into an employment agreement with Mr. Keogh.  The agreement has an initial term of three years and provides that we will pay Mr. Keogh $12,000 per month during the term of the agreement.  Pursuant to the employment agreement, Strategic Capital Partners, LLC, our largest shareholder, sold 1,200,000 shares of our common stock to Mr. Keogh at a price of $0.001 per share.

 

 

 

Of these 1,200,000 shares, 300,000 shares are subject to the following vesting requirements.  

 

Provided Mr. Keogh is employed by us as of the date of vesting, 300,000 shares will vest on the earlier March 19, 2017 or the date we receive at least $45,000,000 from the sale of our debt or equity securities.  For purposes of the foregoing, traditional financing from banks or similar financial institutions will not be given effect and the required amounts to be raised will be cumulative.

 

All shares that are not vested at the time of termination of Mr. Keogh’s employment, will be repurchased by us at a price of $0.001 per share.  Any shares which are not vested and which are purchased by us will be returned to treasury and cancelled.

 

See Item 12 of this report for information concerning options granted to Mr. Keogh.

 

Our directors serve until the next annual meeting of our shareholders and until their successors have been duly elected and qualified.  Our officers serve at the discretion of our directors.  

 

We believe our directors are qualified to act as such for the following reasons:

 

Timothy Keogh – experience in marijuana industry

Benjamin J. Barton – experience in the capital markets

 

Timothy Keogh and Benjamin J. Barton are not independent as that term is defined in Section 803 of the NYSE MKT Company Guide.

 

We do not have a financial expert as that term is defined by the Securities and Exchange Commission.

 

Our Board of Directors does not have standing audit, nominating or compensation committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required. Our Board of Directors believes that the cost of associated with such committees, has not been justified under our current circumstances.

 

Given our lack of operations to date, our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of an audit committee. None of the current Board members is an “audit committee financial expert” within the meaning of the rules and regulations of the Securities and Exchange Commission. The Board has determined that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication.

 

Our Board of Directors does not have a “leadership structure” since each board member is free to introduce any resolution at any meeting of our directors and is entitled to one vote at any meeting.

 

Holders of our common stock may send written communications to our entire board of directors, or to one or more board members, by addressing the communication to “the Board of Directors” or to one or more directors, specifying the director or directors by name, and sending the communication to our offices in Denver, Colorado.  Communications addressed to the Board of Directors as whole will be delivered to each board member.  Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified.

 

Security holder communications not sent to the Board of Directors as a whole or to specified board members will be relayed to board members.

 

During the years ended September 30, 2016 and 2015 we did not compensate any person for serving as a director.

 

ITEM 11.  EXECUTIVE COMPENSATION.

 

During the years ended September 30, 2016 and 2015 we paid the following compensation to our officers:

 

Name		Year		Salary				Bonus				Options				Total
Timothy Keogh		2016		$	144,000											$	144,000
Chief Executive Officer		2015		$	144,000				-				-			$	144,000
Benjamin J. Barton		2016			-				-				-				-
Chief Financial Officer		2015			-				-				-				-

 

 

 

The following shows the amounts we expect to pay to our officers during the year ending September 30, 2017 and the amount of time these persons expect to devote to us.

 

Name		Projected Compensation				Percent of time to be devoted to the Company's business
Timothy Keogh		$	144,000				90	%
Benjamin J. Barton			-				95	%

 

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The following table shows the ownership, as of December 28, 2016, of those persons owning beneficially 5% or more of our common stock and the number and percentage of outstanding shares owned by each of our directors and officers and by all officers and directors as a group.  Each owner has sole voting and investment power over their shares of common stock.

  

		Shares				Percent of
Name		Owned				Outstanding Shares
Timothy Keogh (1)			1,200,000				6.3	%
Benjamin J. Barton			-				0.0	%
Strategic Capital Partners, LLC (2)			8,966,667				46.9	%
All officers and directors as a group (two persons)			10,166,667				53.2	%

 

(1)	Of these 1,200,000 shares, 300,000 shares are subject to vesting requirements.  See Item 10 of this report regarding Mr. Keogh’s employment agreement for further details.
(2)	Strategic Capital Partners, LLC, is controlled by Mr. Barton.

 

  

Options and Warrants

 

The Company has issued warrants/options to the persons and upon the terms shown below:

 

Name		Date of Issuance		Shares upon exercise of warrants or options				Exercise Price			Expiration Date
Strategic Capital Partners, LLC (1)		02/14/14			1,200,000			$	8.00		01/22/18
		02/14/14			600,000			$	12.00		01/22/18
		09/09/14			666,667			$	8.00		04/30/18
		07/14/16			800,000			$	1.25		12/31/19
		07/14/16			800,000			$	1.50		06/30/20
		07/14/16			800,000			$	3.00		06/30/20
Timothy Keogh		03/25/14			800,000			$	8.00		01/22/18
		03/25/14			400,000			$	12.00		01/22/18
Former director and officer		03/19/14			100,000			$	8.00		03/28/18
		03/19/14			100,000			$	12.00		03/28/18
Massachusetts Medical Properties, LLC		10/17/16			3,640,000			$	1.00		10/17/20
Unrelated lenders		09/15/16			75,000			$	0.75		09/15/20
		09/15/16			75,000			$	1.25		09/15/20
		09/15/16			100,000			$	0.75		01/31/17

 

(1)	Strategic Capital Partners, LLC, is controlled by Mr. Barton.

 

We have also granted options to a number of persons which allow for the purchase of up to 105,000 shares of common stock at a price of $0.75 per share.

 

To date, no warrants or options have been issued under shareholder approved plans and no shareholder approved plans currently exist.

 

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

As explained in Item 1 of this report, Benjamin J. Barton, one of our officers and directors, purchased shares of our common stock and warrants in two separate private placements.

 

As of September 30, 2015, the Company had borrowed $1,682,849 from SCP a Company controlled by Mr. Barton. Through June 20, 2016, we borrowed an additional $227,500 from SCP, and on July 14, 2016, SCP assumed our note payable to an unrelated third party of $521,297. Simultaneously, we modified the note payable to SCP. Principal and interest of $500,000 was converted into 400,000 shares of our common stock. In addition, 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. 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 with the first interest payment due on September 30, 2016. The Note can be converted at any time 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. 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, with the first interest payment due on September 30, 2016. The note is not convertible into shares of our common stock, and is secured by a second lien on our property in Denver, Colorado and a first lien on all amounts due to us by Wellness Group Pharms. Any payments received from the sale, lease or commercialization of the property in Denver, and any amounts received from Wellness Group Pharms, will be applied to the principal amount of the Note. Otherwise, all unpaid principal and interest will be due on December 31, 2019. The Company evaluated the debt modification and convertible debt issued in accordance with ASC 470, Debt, and recorded a loss on extinguishment of debt of $901,939, debt discount on secured notes payable – related party of $211,578, and a debt premium on convertible debt of $284,229.

 

In a separate transaction, the Company borrowed an additional $20,000 from SCP. As of September 30, 2016, the Company owed SCP $2,024,297, net of premiums and discounts.

 

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 pay us $10,000 each month for these consulting services. 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 September 30, 2016, we have provided financing to CCI of $117,693, which includes accrued consulting fees of $60,000, construction and working capital advances of $52,001, and accrued interest of $5,692.

 

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

  

For the year ended September 30, 2016, Malone and Bailey served as our independent registered public accounting firm. For the year ended September 30, 2015, Hartley Moore Accountancy Corporation served as our independent registered public accounting firm.

 

The following table sets forth the aggregate fees paid or accrued for professional services rendered by our independent accountants for the audit of our annual financial statements for the years ended September 30, 2016 and 2015, and the aggregate fees paid or accrued for audit-related services and all other services rendered by our independent accountants for those years. 

 

		Year Ended September 30,
		2016				2015
Audit fees		$	27,000			$	38,000
Tax fees			-				-
Other			-				-
Total		$	27,000			$	38,000

 

The category of “Audit fees” includes fees for our annual audit, quarterly reviews of our 10-Q reports, and services rendered in connection with statutory or regulatory filings with the SEC. “Tax fees” include fees incurred in the review and preparation of our annual income tax filings.

 

Our Board of Directors, which serves as our audit committee, pre-approves the scope and estimated costs of all services rendered by our Principal Accountants.

 

PART IV

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

Financial Statements

 

Reports of Independent Registered Public Accounting Firms	F-1
Balance Sheets	F-2
Statements of Operations	F-3
Statement of Stockholders' Equity (Deficit)	F-4
Statements of Cash Flows	F-5
Notes to the Financial Statements	F-6

 

Exhibits

 

3.1.1	Certificate of Incorporation (1)
3.2	Bylaws (2)
31.1	Rule 13a-14(a) Certifications
31.2	Rule 13a-14(a) Certifications
32	Section 1350 Certifications
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.

 

	(1)	Incorporated by reference to Exhibit 3.1 filed with Company’s registration statement on Form 10.
	(2)	Incorporated by reference to Exhibit 3.2 filed with Company’s registration statement on Form 10.

 

 

 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   

To the Board of Directors and Stockholders of AmeriCann, Inc.

 

We have audited the accompanying balance sheet of AmeriCann, Inc. (the “Company”) as of September 30, 2016, and the related statements of operations, changes in stockholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AmeriCann, Inc. as of September 30, 2016, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered recurring losses from operations and has an accumulated deficit. These conditions raise significant doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Malone Bailey, LLP

www.malonebailey.com

Houston, Texas

January 12, 2017

  

 

  

 

 

     

AMERICANN, INC.

BALANCE SHEETS

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

  

AMERICANN, INC.

STATEMENTS OF OPERATIONS

 

 

See accompanying notes to financial statements. 

 

 

   

AMERICANN, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

    

 

See accompanying notes to financial statements. 

 

 

  

AMERICANN, INC.

STATEMENTS OF CASH FLOWS

 

 

See accompanying notes to financial statements. 

 

 

 

AMERICANN, INC.

 NOTES TO FINANCIAL STATEMENTS

  

 

 

 

  

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 12th day of January, 2017.

  

 

	AMERICANN, INC.
	By:	/s/ Timothy Keogh
		Timothy Keogh, Chief Executive Officer

  

Pursuant to the requirements of the Securities Exchange Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

  

Signature		Title		Date
/s/ Timothy Keogh
Timothy Keogh		Chief Executive Officer and a Director		January 12, 2017
/s/ Benjamin J. Barton
Benjamin J. Barton		Chief Financial and Accounting Officer and a Director		January 12, 2017

 

 

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