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, Inc. is a specialized cannabis company that is developing state-of-the-art product manufacturing and greenhouse cultivation facilities. Our business plan is based on the continued growth of the regulated marijuana market in the United States.

 

AmeriCann uses greenhouse technology which is superior to the current industry standard of growing cannabis in warehouse facilities under artificial lights. According to industry experts, by capturing natural sunlight, greenhouses use 25 percent fewer light bulbs, and utility bills are up to 75 percent less than in typical warehouse cultivation facilities. As such, AmeriCann’s Cannopy System enables cannabis to be produced with a greatly reduced carbon footprint, making the final product less expensive. Additionally, greenhouse construction costs are nearly half of warehouse construction costs. AmeriCann’s business is committed to sustainable, clean cultivation of medical cannabis and to social and environmental ethics, transparency and accountability.

 

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

 

AmeriCann’s flagship project is the Massachusetts Cannabis Center. The Massachusetts Cannabis Center (“MCC”) is being developed on a 52-acre parcel located in Southeastern Massachusetts. AmeriCann’s MCC project is permitted for 987,000 sq. ft. of cannabis cultivation and processing infrastructure, which is being developed in phases to support both the existing medical cannabis and the newly emerging adult-use cannabis marketplace.

 

The first phase of the million square foot project, Building 1, a 30,000 square foot cultivation and processing facility, is complete and the building is currently 100% leased by a vertically-integrated Massachusetts cannabis company.

 

See “Massachusetts Cannabis Center” below for more information.

 

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.

 

Massachusetts Cannabis Center

 

On October 17, 2016, we closed on the acquisition of the 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. We are developing the property as the Massachusetts Cannabis Center (“MCC”). 

 

As part of a simultaneous transaction, we 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 us 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 are 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.

 

 

We received a credit for the $925,000 paid towards the purchase price of the land in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments are reduced by $1,542 each month.

 

In connection with the sale of the property to MMP and the lease, we entered into a Share Purchase Agreement pursuant to which we issued to MMP 100,000 shares of our 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 before October 17, 2021. The warrant does not contain a cashless exercise provision.

 

Under the terms of the lease, we had six (6) months to obtain $2.6 million in capital funding for the construction of the first phase building. In the event that the Company was unable to raise these funds within the six (6) month period, the Company had an additional six (6) month period to do so; provided, that the Company has paid accrued lease payments and closing costs. If the Company was then unable to raise these funds on or before twelve (12) months from October 17, 2016, the lease would terminate. On October 17, 2017, the lease agreement was amended to provide that the Company will have until 16 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP warrants to purchase up to 100,000 shares of Common Stock at an exercise price of $1.50 per share. The warrants can be exercised at any time on or after October 17, 2017 and on or before October 17, 2022. In February and April, 2018, the lease agreement was amended to provide that the Company will have until 20 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrants can be exercised at any time on or before October 17, 2022. The Company recognized an expense of $0 during the three months ended December 31, 2018 related to those warrants. In July 2018, the Company fulfilled the $2.6 million capital funding commitment.

 

The MCC, is a one million square foot sustainable greenhouse facility in Freetown, Mass which we are developing. Plans for the MCC include the construction of sustainable greenhouse cultivation and processing facilities that will be leased to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana and Adult Use Programs. Once fully developed, the MCC design calls for a research facility, a training center, corporate offices, a quality-assurance laboratory, and a facility for manufacturing cannabis-infused food, nutraceuticals and consumer packaged cannabis goods. We intend to open similar facilities in states in which cannabis is legal for medical and adult use.

 

The Town of Freetown Planning Board has approved our site plan application for the MCC. 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. 

 

We have a Host Community Agreement in place with the Town of Freetown for Building 2 and have initiated the application process to receive provisional licenses from the Massachusetts Cannabis Control Commission for a Marijuana Product Manufacturing and Marijuana Cultivation license.

 

We are developing MCC in phases that will consist of three different buildings. The buildings have been approved for the following approximate sizes:

 

Building 1: 30,000 square feet

Building 2: 345,000 square feet

Building 3: 600,000 square feet.

 

Building 1 is a state-of-the-art greenhouse cultivation facility which received a Certificate of Occupancy in August, 2019.

 

On July 26, 2019 we entered into a Triple Net Lease for Building 1 with BASK, Inc. ("BASK"), a related party. Building 1, an Adult-Use and Medical cannabis cultivation and processing facility, is the first phase of the MCC and is scheduled for occupancy in August of 2019. BASK is licensed by the Massachusetts Cannabis Control Commission to cultivate, process and sell medical marijuana.

 

The 15-year lease for Building 1 with BASK will provide a Revenue Participation Fee to us of 15% of all gross monthly sales of cannabis, cannabis-infused products and non-cannabis products produced at Building 1. The facility is projected to annually produce 7,500 pounds of dry flower cannabis and over 400,000 units of infused product.

 

We project a 1.5 year payback on our investment in Building 1 of approximately $7,500,000.

 

 

Building 2 is the next phase of the MCC development. In conjunction with our architect RKB Architects, Inc., we updated the design to include the following three distinct units for Building 2:

 

Unit A: 184,720 square foot cultivation facility

Unit B: 118,580 square foot cultivation facility.

Unit C: 40,178 square foot centralized processing and product manufacturing

 

We have expanded our business model ad plan to occupy Unit B. Unit B will be designed as a 118,580 square foot cannabis cultivation facility and will meet all canopy limits prescribed by the Massachusetts Cannabis Control Commission. We plan to apply for Marijuana Product Manufacturing and Cultivation licenses to produce bulk and prepackaged dry flower cannabis at Unit B. The byproduct, or trim, of the dry flower will be extracted by us and the oil will be used in the production of infused products.

 

Unit C is being designed as a large-scale, GMP Certified cannabis product manufacturing facility. We plan to occupy Unit C and produce branded cannabis beverages, vaporizer products, edible products, non-edible products and concentrates. Our operation of Unit C may provide an essential service for all of MCC's future occupants, as well as licensed cannabis cultivators throughout Massachusetts.

 

Unit A will be developed as a future phase of construction.

 

We intend to enter into agreements with other licensed cannabis businesses in Massachusetts to occupy space in the MCC. We will generate revenue through lease arrangements with the operators that include base rents and royalty payments up to 15% of gross revenue generated from products produced at the MCC.

 

Through our wholly owned subsidiary, AmeriCann Brands, Inc., we plan to secure licenses from the Massachusetts Cannabis Control Commission to provide extraction and product manufacturing support to the entire MCC project, as well as to other licensed cannabis farmers throughout regulated markets.

 

We plan to replicate the brands, technology and innovations developed at the MCC to new markets as a multi-state operator.

 

 

Market Conditions

 

Adult-Use marijuana is now legal in ten states and the District of Columbia, and medical marijuana is legal in 33 states.

 

While the industry is growing rapidly, the cannabis industry faces several 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 in the United States. 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 is a scarcity of experience and expertise to serve the needs of cultivators, processors and retailers in these states. As explained below, marijuana is illegal under federal law. These obstacles to the cannabis industry require financial resources, expertise and dedicated advocacy to change regulations on the state level.

 

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 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 31, 2019, 33 states and the District of Columbia allow their citizens to use Medical Marijuana. Additionally, 10 states and the District of Columbia have legalized 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 Trump administration has indicated that it is not opposed to the legalization of marijuana. Any 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

 

We were incorporated in Delaware on June 25, 2010.

 

Our offices are located at 1550 Wewatta St, Denver, CO 80202. We lease this space on a month-to-month basis at a rate of $1,230 per month.

 

As of December 31, 2019, we had four full time employees, that being Timothy Keogh, our Chief Executive Officer, Benjamin Barton, Chief Financial Officer, Doug Carr, VP of Sales & Development and Jane Roach, our Office Manager.  As of September 30, 2019, Mr. Keogh was spending approximately 90% of his time on our business, Mr. Barton was spending approximately 95% of his time on our business, Doug Carr was spending approximately 100% of his time on our business and Jane Roach was spending approximately 100% of her 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.

 

On April 7, 2017, we filed an arbitration claim against Wellness Group Pharms, LLC (“WGP”). On January 18, 2018, the arbitration panel awarded us $1,045,000, plus interest at the rate of 18% per year from April 18, 2015 to March 15, 2018 for $550,000 from WGP. In addition to the principal and interest awarded of $1,595,000, we were also awarded our attorneys’ fees and arbitration fees.

 

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 OTCQB under the trading symbol “ACAN”. Shown below is the range of high and low closing prices for our common stock as reported by the OTCQB for the periods presented:

 

Quarter Ended		High				Low
December 31, 2017		$	4.90			$	1.64
March 31, 2018		$	5.10			$	1.94
June 30, 2018		$	4.58			$	1.72
September 30, 2018		$	3.52			$	2.05
December 31, 2018		$	3.25			$	1.75
March 31, 2019		$	2.07			$	1.80
June 30, 2019		$	1.85			$	1.09
September 30, 2019		$	1.26			$	0.93

 

 

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 31, 2019, we had 140 shareholders of record and 23,504,820 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.

 

Total Revenues

 

During the year ended September 30, 2019, we generated $11,564 in revenue, as compared to $0 for the year ended September 30, 2018. The increase in revenues is due to the rental revenue in September due to completion of Building 1.

 

Advertising and Marketing Expenses

 

Advertising and marketing expenses were $126,993 for the year ended September 30, 2019, as compared to $36,539 for the year ended September 30, 2018. The increase is due to more advertising and marketing activities, as the Company is shifting its focus to the planning and development of the first phase building of the Massachusetts Cannabis Center.

 

Professional Fees

 

Professional fees were $866,116 for the year ended September 30, 2019, as compared to $554,673 for the year ended September 30, 2018. The increase in professional fees is primarily due to additional consulting fees and legal fees.

 

General and Administrative Expenses

 

General and administrative expenses were $1,626,596 for the year ended September 30, 2019, as compared to $1,438,215 for the year ended September 30, 2018.  The increase is attributable primarily to higher stock compensation expense in fiscal year 2019.

 

Provision for Doubtful Accounts

 

Provision for doubtful accounts was $783,905 for the year ended September 30, 2019, as compared to $0 for the year ended September 30, 2018. The increase is due to an additional reserve on the WGP receivable.

 

Interest Income

 

Interest income was $29,109 for the year ended September 30, 2019, as compared to $45,028 for the year ended September 30, 2018. The decrease is attributable to the note receivable from BASK (formerly Coastal Compassion Inc.).

 

 

Interest Expense

 

Interest expense was $560,591 for the year ended September 30, 2019, as compared to $2,445,456 for the year ended September 30, 2018. The decrease is primarily attributable to the amortization of debt discounts associated with the convertible debt offering in 2018.

 

Loss on extinguishment of debt

 

On September 30, 2019, we recognized  loss on extinguishment of debt of $977,110 representing the fair value of 1,500,000 warrants issued as part of the loan amendment and modification.

 

Net Loss

 

We had a net loss of $4,903,668 for the year ended September 30, 2019, as compared to a net loss of $4,432,716 for the year ended September 30, 2018. The decrease in net loss is attributable to changes in revenues, operating expenses, interest income and expense, and impairment loss, each of which is described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Loans

 

On August 2, 2019 we secured a $4,000,000 investment from an unrelated third party in the form of a loan. The loan was evidenced by a note which bears interest at the rate of 11% per year, is due and payable on August 2, 2022 and is secured by a first lien on Building 1 at the MCC.

 

The note holder also received a warrant which allows the holder to purchase 600,000 shares of the Company’s common stock at a price of $1.50 per share. The warrant will expire on the earlier of (i) August 2, 2024 or (ii) twenty days after written notice of the holder that the daily Volume Weighted Average Price of the Company’s common stock was at least $4.00 for twenty consecutive trading days and the average daily volume of trades of the Company’s common stock during the twenty trading days was at least 150,000 shares. GVC Capital LLC acted as placement agent for this transaction.

 

On September 30, 2019, we amended and modified two notes payable due to Strategic Capital Partners, LLC, a company controlled by Benjamin J. Barton, one of our officers and directors with balances of $1,000,000 and $756,646 into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022. Additionally, the conversion option in the first note was eliminated. The new note is secured by all amounts due from Wellness Group Pharms or its affiliates. As additional consideration for the modification of the notes, the note holders also received warrants to purchase 1,500,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.25 per share and expire on December 31, 2022. The fair value of the 1,500,000 warrants was $977,110 and was recognized as loss on extinguishment of debt.

 

During the year ended September 30, 2018, we sold convertible notes in total of $2,410,000. These notes bear interest rate of 8% per year. At the option of the note holders, the notes may be converted at any time into shares of the Company's common stock at an initial conversion price of $1.50 per share. Debt issuance costs related to these notes were $64,000.

 

The note holders also received warrants which entitle the note holders to purchase up to 1,940,000 shares of our common stock. The warrants are exercisable at a price of $1.50 per share and expire between October 17, 2022 and December 29, 2022.

 

We borrowed a total of $236,000 from an unrelated party. The loans bore an interest rate of 12% per year and were due one year from the borrowing date. This was repaid during the year prior to the due dates. The Company incurred debt issuance costs of $6,000 related to these loans.

 

Sale of Common Stock and 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 proceeds from the placement were used for the MCC development, and for general corporate purposes. During 2018, to encourage holders to exercise their Series I Warrants, we agreed to issue one Series IX Warrant to each person that exercised a Series I warrant on or before July 10, 2018. Each Series IX Warrant is exercisable at a price of $1.00 per share at any time on or before July 10, 2021. A total of 1,273,000 Series I Warrants were exercised (resulting in proceeds of $3,819,000) and we issued 1,273,000 shares of its common stock (as a result of the exercise of the Series I Warrants) and 1,273,000 Series IX Warrants to the persons that exercised the Series I Warrants.

 

During June 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. As of September 30, 2019, none of the Series V Warrants had been exercised.

 

During the year ended September 30, 2019, we converted debt and interest of $261,513 into 174,342 shares of common stock.

 

During the year ended September 30, 2018, we converted debt and interest of $1,192,445 into 794,962 shares of common stock.

 

During the year ended September 30, 2019, we issued 119,734 shares of stock for services valued $154,998.

 

During the year ended September 30, 2018, we issued 25,000 shares of common stock and received $18,750 as a result of the exercise of stock options. These options were fully vested and expensed at the time of exercise.

 

 

Equity line agreement

 

On December 12, 2017, we entered into an amended and restated equity line agreement with Mountain States Capital, LLC (MSC). Under the equity line agreement, MSC agreed to provide us with up to $10,000,000 of funding through the purchase of shares of the Company's common stock.

 

The equity line agreement terminated in August 2019.

 

During the year ended September 30, 2019, we submitted Put Notices for a total of 715,981 shares and received $1,211,000 from the sale of these shares.

 

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

 

Contractual obligations

 

The Company leases land under an operating lease commencing October 17, 2016, for an initial term of fifty (50) years and. 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 are 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 Company received a credit for the $925,000 paid towards the purchase price of the land in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments are reduced by $1,542 each month. The lease expense was $399,459 and $399,459 for the years ended September 30, 2019 and 2018, respectively.   

 

At September 30, 2019, the future rental payments required under operating lease are as follows:

 

Fiscal year
2020		$	341,496
2021			341,496
2022			341,496
2023			341,496
2024			341,496
Thereafter			14,343,032
Total		$	16,050,512

 

 

Analysis of Cash Flows

 

During the year ended September 30, 2019, our cash flows used in operations were $2,188,594 as compared to net cash used in operations of $2,403,321 for the year ended September 30, 2018. The decrease is primarily due to a decrease in the change of net working capital (including accounts payable, interest payable, interest receivable, and other) of $761,837, partially offset by an increase in net loss of 470,952, and a decrease in non-cash transactions (including amortization of debt discount, extinguishment of debt, provision for doubtful account, stock based compensation, and stock issued for services) of $290,276.

 

Cash flows used in investing activities were $5,861,793 for the year ended September 30, 2019, consisting primarily of additions to construction in progress. Cash flows used in investing activities was $712,702 for the year ended September 30, 2018, consisting primarily of additions to construction in progress.

 

Cash flows provided by financing activities were $5,325,500 for the year ended September 30, 2019, consisting primarily of net proceeds from note payable, the exercise of warrants and stock options and proceeds from common stock issued for cash, partially offset by payments on notes payable. Cash flows provided by financing activities was $7,131,345 for the year ended September 30, 2018, consisting primarily of net proceeds from the exercise of warrants and stock options and proceeds from convertible notes payable, partially offset by payments on notes payable.

 

 

Going concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $18,013,209 and $13,109,541 at September 30, 2019 and 2018, respectively, and had a net loss of $4,903,668 for the year ended September 30, 2019. Further, the amount due from WGP of $1,761,675 (before an allowance of $1,761,675) 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. On January 18, 2018, the arbitration panel awarded the Company $1,045,000 plus interest at the rate of 18% per year from April 18, 2015 to March 18, 2018 for $550,000. In addition to the principal and interest awarded of $1,595,000, the Company was also awarded its attorneys’ fees and arbitration fees. The Company has not collected on the award as of the filing date of this report.

 

Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

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.

 

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements which may be applicable to us are described in Note 1 to the Consolidated 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 Consolidated Financial Statements.

 

Use of Estimates

 

The preparation of consolidated 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 consolidated 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 4 in the Notes to the Consolidated 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 ASC Topic 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 consolidated balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the consolidated 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 consolidated 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, 2019 and 2018, 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 our inception. To date, we have not incurred any interest or tax penalties.

 

For federal tax purposes, our 2017 through 2019 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, tenant receivables and notes receivable. We place our cash with high credit quality financial institutions. As of September 30, 2019, we had outstanding notes receivable of $148,763 and a tenant receivable of $11,564 with BASK (formerly Coastal Compassion Inc), a related party, and a note and a receivable in the amount of $1,761,675 with WGP (exclusive of provision for doubtful accounts of $1,761,675).  See Note 4 for a discussion of our provision for doubtful accounts for amounts owed from WGP.

 

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 Topic 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. We had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. The carrying value of short-term financial instruments, including cash, tenant and note receivable, accounts payable and accrued expenses, and short-term borrowings approximate fair value due to the relatively short period to maturity for these instruments. The long-term borrowings approximate fair value since the related rates of interest approximates current market rates.

 

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 consolidated 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 consolidated 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, 2019 and 2018.

 

 

Long-Lived Assets

 

Our long-lived assets consisted of property, equipment and real estate and are reviewed for impairment in accordance with the guidance of the Topic ASC Topic 360, Property, Plant, and Equipment, and ASC Topic 205, Presentation of Consolidated 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. There were no impairment losses recognized for the years ended September 30, 2019 and 2018.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation of property and equipment begins in the month following the month when the asset is placed into service and is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to twenty years. Land is classified as held for sale when management has the ability and intent to sell, in accordance with ASC Topic 360-45.

 

Construction in progress (CIP)

 

CIP consists of initial costs associated with construction of manufacturing facilities, including material, equipment and interest expenses. When CIP is finished the assets are transferred to property and equipment. No provision for depreciation is made on CIP until such time that the relevant assets are available and ready to use. During the year ended September 30, 2019, Building 1 of the Company's flagship project, the Massachusetts Cannabis Center, was completed and CIP of $7,571,176 was reclassified to buildings and improvements.

 

Capitalized Interest

 

The Company capitalizes interest to construction in progress made in connection with facility construction that are not subject to current depreciation. Interest is capitalized only for the period that activities are in progress to bring the projects to their intended use. Capitalized interest was $$0 and $129,528 for the years ended September 30, 2019, and 2018, respectively.

 

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 consolidated 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 Topic 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 Topic 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

 

Effective October 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) when the performance obligations are satisfied. Currently, we derive all of our revenues from property leases. Property leases are not within the scope of ASC 606.

 

Property lease revenue is earned through annual leases for facilities used in agricultural/manufacturing activities and the Company records revenues on a straight-line basis over the term of these leases.  Property lease revenues from these sources are recurring on an annual basis.  Unearned property lease revenues were $0 at both September 30, 2019 and 2018.

 

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 ASC Topic 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, 2019, we did not have any off-consolidated balance sheet arrangements.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Attached.

 

ITEM 9.

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

 

None.

 

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, 2019, 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 consolidated 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 consolidated 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 consolidated 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, 2019, the end of the period covered by this Annual Report on Form 10-K for the year ended September 30, 2019. 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 2019 fiscal year at the reasonable assurance level, as a result of material weaknesses related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP, limited or no segregation of duties, and lack of independent directors. 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 consolidated 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 consolidated 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 material weaknesses that existed in fiscal 2019 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. 2201), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. While management believes that the Company’s consolidated 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 2020.

 

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		39		Chief Executive Officer and a Director
Benjamin J. Barton		54		Chief financial and Accounting Officer and a Director
Douglas Carr		59		Vice President of Sales and Business Development
J. Tyler Opel		30		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 Bask, Inc (f/k/a 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, Bask, Inc. received a limited number Final Certificates for cultivation, processing and dispensing medical cannabis 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 was recognized by Marijuana Business Daily as one of the top entrepreneurs in the cannabis industry, is a board member of the Responsible Regulation Alliance in Massachusetts, and continues to be an invited speaker at investment and cannabis industry event throughout the United States.  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.

 

On March 28, 2019 Douglas Carr was appointed as our Vice President of Sales and Business Development. Mr. Carr brings more than 25 years of combined experience as a national manager of consumer packaged goods and commercial real estate. Prior to his appointment as our Vice President of Sales and Business Development, Mr. Carr had been a Broker Associate at Coldwell Banker Premier Properties since July 2013, located in St. Augustine Florida. He has extensive experience in multi-unit development and commercial real estate. Previously, Mr. Carr had worked for several Fortune 500 companies, including RJ Reynolds/Nabisco, Inc. and General Mills, Inc., where he led national sales efforts launching new products to chains and buying groups. In addition to his considerable consumer products background, Carr has experience in commercial real estate acquisition, development and sales.

 

J. Tyler Opel was appointed to the Board of Directors of AmeriCann, Inc. in January of 2019. Prior to joining AmeriCann, Mr. Opel received his business administration degree from the University of Missouri. After working as a financial analyst in the bulk commodity industry, Mr. Opel received his Juris Doctorate from the Southern Illinois School of Law with a specialization in Business and Transactional Law. Mr. Opel is licensed to practice law in Colorado and Missouri and has represented clients in various real estate, construction, administrative, and transactional proceedings.

 

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.

 

 

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

J. Tyler Opel – experience in business and transaction law

 

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 consolidated 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.

The Company’s directors received the following compensation during the year ended September 30, 2019:

 

Name		Paid in Cash				Stock Awards (1)				Options Awards (2)
Timothy Keogh		$	-			$	30,000			$	244,397
Benjamin J. Barton		$	-			$	30,000			$	244,397
J. Tyler Opel		$	-			$	30,000			$	240,602

 

(1)	The fair value of stock issued for services computed on the date of grant.

 

(2)	The fair value of options granted computed on the date of grant.

 

During the year ended September 30, 2018 we did not compensate any person for serving as a director.

 

 

ITEM 11.

EXECUTIVE COMPENSATION.

 

During the years ended September 30, 2019 and 2018 we paid the following compensation to our officers:

 

Name		Year		Salary				Bonus				Stock Awards (1)				Stock Options Awards (2)				Total
Timothy Keogh		2019		$	180,000			$	-			$	30,000			$	244,397			$	454,397
Chief Executive Officer		2018		$	144,000			$	-											$	144,000
Benjamin J. Barton		2019		$	-			$	-			$	30,000			$	244,397			$	274,397
Chief Financial Officer		2018		$	-			$	-											$	-
Douglas Carr		2019		$	90,000			$	-							$	240,602			$	330,602
Vice President of Sales and
Business Development

 

(1)	The value of all stock awarded during the periods covered by the table calculated according to ASC 718-10-30-3, which represented the grant date fair value.
(2)	The fair value of all stock options granted during the periods covered by the table calculated on the grant date in accordance with ASC 718-10-30-3, which represented the grant date fair value.  Amount represents the value of options to purchase 300,000 shares of our Common Stock at a price of $1.50 per share.  Options have a five year term.

     

 

The following shows the amounts we expect to pay to our officers during the year ended September 30, 2019 and the amount of time these persons expect to devote to us.

 

Name		Projected Compensation				Percentage of time to be devoted to the Company's business
Timothy Keogh		$	180,000				90	%
Benjamin J. Barton		$	-				95	%
Douglas Carr		$	90,000				100	%

 

Our executive officers are compensated through the following three components:

 

●

base salary;

●

long-term incentives (stock options and/or grants of stock); and

●

benefits.

 

These components provide a balanced mix of base compensation and compensation that is contingent upon the executive officer’s individual performance. A goal of the compensation program is to provide executive officers with a reasonable level of security through base salary and benefits. We want to ensure that our compensation program is appropriately designed to encourage executive officer retention and motivation to create shareholder value. Salaries generally have been targeted to be competitive when compared to the salary levels of persons holding similar positions in other publicly traded companies of comparable size. The executive officer’s responsibilities, experience, expertise and individual performance are considered.

 

On August 18, 2017, the Company’s board of directors adopted a Stock Incentive Plan (“the plan”) that provides for the grant of Incentive Stock Options, Non-Qualified Stock Options or Stock Bonuses to persons who are employees of the Company, employees of subsidiaries of the Company, directors, officers, and consultants. Under the plan, the Company may grant up to 1,500,000 options, each to purchase one share of common stock, subject to an exercise price and vesting schedule to be established by the board of directors at the time of the grant. On August 18, 2017, the Company awarded a total of 150,000 options to four consultants at an exercise price of $2.50 per share under the plan. The options vested immediately and can be exercised at any time on or before August 15, 2021.

 

The Plan is administered by our Board of Directors which has the authority to determine the number of shares to be issued as a stock bonus, and the number of shares issuable upon the exercise of options, the exercise price and expiration date of options, and when, and upon what conditions options granted under the Plan will vest or otherwise be subject to forfeiture and cancellation.

 

The following table shows information concerning the options granted to the Company’s officers or directors during the fiscal year ended September 30, 2019:

 

Name		Shares Issuable Upon Exercise of Options				Exercise Price			Expiration Date
Timothy Keogh			300,000			$	1.50		8/2/2024
Benjamin J. Barton			300,000			$	1.50		8/2/2024
Douglas Carr			300,000			$	1.50		8/27/2024

 

 

The following table shows the weighted average exercise price of the outstanding options granted pursuant to the Company’s Stock Incentive Plan as of September 30, 2019, the Company’s recently completed fiscal year:

 

 

Plan

Total Shares Reserved Under the Plan

Number of Securities to be Issued Upon Exercise of Outstanding Options

Weighted-Average Exercise Price of OutstandingOptions

Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

(a)

(b)

(c)

Stock Incentive Plan

1,500,000

1,050,000

1.64

450,000

 

 

The Company’s Stock Incentive Plan has not been approved by the Company’s shareholders.

 

The following shows certain information as of December 31, 2019 concerning the stock options and stock bonuses granted pursuant to the Stock Incentive Plan. Each option represents the right to purchase one share of our common stock.

 

Total Shares Reserved Under the Plan			Shares Reserved for Outstanding Options				Shares Issued As Stock Bonus				Remaining Options/Shares Under the Plan
1,500,000				1,050,000				-				450,000

 

 

ITEM 12.

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

 

The following table shows the ownership, as of December 31, 2019, 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.

 

 

Name		Shares Owned				Percentage of Outstanding shares
Timothy Keogh			1,236,578				5.4	%
Benjamin J. Barton			31,578				0.1	%
J. Tyler Opel			31,578				0.1	%
Strategic Capital Partners, LLC (1)			8,966,665				39.4	%
Douglas Carr			-				-
All officers and directors as a group (four persons)			10,266,399				45.19	%

 

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

 

 

Options and Warrants

 

The Company has issued options and warrants 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)	7/14/2016			800,000			$	1.50		6/30/2020
	7/14/2016			800,000			$	3.00		6/30/2020
	9/30/2019			1,500,000			$	1.25		12/31/2022
Massachusetts Medical Properties, LLC	10/17/2016			3,640,000			$	1.00		10/17/2021
	10/17/2017			100,000			$	1.50		10/17/2022
	2/16/2018			50,000			$	1.50		10/17/2022
	4/17/2018			50,000			$	1.50		10/17/2022
Private investors	11/7/2016			727,000			$	3.00		11/4/2020
	6/2/2017			185,000			$	5.00		5/18/2021
	10/30/2017			660,000			$	1.50		10/30/2022
	12/29/2017			483,333			$	1.50		10/17/2022
	12/29/2017			106,667			$	1.50		12/29/2022
	2/12/2018			540,000			$	1.50		10/17/2022
	7/10/2018			1,273,000			$	1.00		7/10/2021
	7/10/2018			63,650			$	1.00		7/10/2021
	8/2/2019			600,000			$	1.50		8/2/2024
	8/2/2019			21,600			$	1.50		8/2/2024
	8/2/2019			14,400			$	1.50		8/2/2024
	8/2/2019			12,000			$	1.50		8/2/2024
Brian Corr	8/18/2017			75,000			$	2.50		8/15/2021
Timothy Keogh	9/30/2019			300,000			$	1.50		8/2/2024
Ben Barton	9/30/2019			300,000			$	1.50		8/2/2024
Douglas Carr	8/27/2019			300,000			$	1.50		8/27/2024
Consultants	8/18/2017			75,000			$	2.50		8/15/2021

 

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

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

On September 30, 2019, we amended and modified two notes payable due to Strategic Capital Partners, LLC a company controlled by Benjamin J. Barton, one of our officers and directors with balances of $1,000,000 and $756,646, into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022.  Additionally, the conversion option in the first note was eliminated.  The new note is secured by all amounts due from Wellness Group Pharms or its affiliates. As additional consideration for the modification of the notes we issued SCP warrants to purchase 1,500,000 shares of our common stock.  The warrants are exercisable at a price of $1.25 per share at any time on or before December 31, 2022.

 

 

On April 7, 2016, we signed agreements with BASK (formerly Coastal Companion, Inc). BASK is one of a limited number of organizations that has received a provisional or final registration to cultivate, process and sell medical cannabis by the Massachusetts Cannabis Control Commission.

 

Pursuant to the agreements, we provided BASK with financing for construction and working capital required for BASK’s approved dispensary and cultivation center in Fairhaven, MA.

 

On August 15, 2018, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 and setup a new loan with payments over 5 years with 18% interest. As of September 30, 2019, the outstanding loan balance was $148,763.

 

BASK has entered into a 15-Year NNN lease of Building 1 of the MCC. The lease commenced on September 1, 2019 and includes a base rent and a revenue participation fee. As of September 30, 2019, the BASK tenant receivable balance was $11,564.

 

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

 

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

  

For the years ended September 30, 2019 and 2018, Malone and Bailey 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 consolidated financial statements for the years ended September 30, 2019 and 2018, 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,
		2019				2018
Audit fees		$	79,000			$	64,500
Tax fees			-				-
Other			-				-
Total		$	79,000			$	64,500

 

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.

 

Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets	F-2
Consolidated Statements of Operations	F-3
Consolidated Statement of Changes in Stockholders' Equity	F-4
Consolidated Statements of Cash Flows	F-5
Notes to the Consolidated Financial Statements	F-6

 

 

Item 16. Exhibits and Financial Statement Schedules

 

The following exhibits are filed with this Registration Statement:

 

3.1.1	Certificate of Incorporation (1)
3.1.2	Certificate of Ownership and Merger (name change to AmeriCann) (2)
3.2	Bylaws (2)
4.1	Form of Series I Warrant (2)
4.2	Form of Series II Warrant (2)
4.3	Form of Series III Warrant (2)
4.4	Form of Series IV Warrant. See Exhibit 10.4
4.5	Form of Series V Warrant (2)
4.6	Form of Series VI Warrant (2)
4.7	Form of Series VII Warrant (2)
4.8	Form of Series VIII Warrant (3)
4.9	Form of Series IX Warrant (4)
4.10	Form of Series X Warrant (4)
4.11	Form of Series XI Warrant
4.12	Form of Series XII Warrant
10.1	Agreements with Wellness Group Pharms (2)
10.2	Loan Modification Agreement with Strategic Capital Partners, LLC, together with Warrants and Promissory Notes (2)
10.3	Agreements with Coastal Compassion, Inc. (2)
10.4	Share Purchase Agreement with Massachusetts Medical Properties, LLC, together with Warrant (Series IV) and Ground Lease (2)
10.5	Investment Agreement with Mountain States Capital, LLC (2)
10.6	First Amendment to Ground Lease (2)
10.7	Loan Agreement, including form of warrant (Series CL) ($800,000) (2)
10.8	Loan Agreement ($128,000) (2)
10.9	Loan Agreement ($68,000) (2)
10.10	Form of Convertible Note (December 2017 financing) (2)
10.11	Form of Convertible Note (February 2018 financing) (3)
10.12	Second Amendment to Ground Lease (3)
10.13	Third Amendment to Ground Lease (3)
10.14	Promissory Note (5)
10.15	Mortgage and Security Agreement (5)
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 the Company’s Registration Statement on Form 10.

 

(2)	Incorporated by reference to same exhibit filed with Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File #333-222207).

 

(3)	Incorporated by reference to same exhibit filed with the Company’s Registration Statement on Form S-1 (File #333-224256).

 

(4)	Incorporated by reference to the same exhibit filed with the Company’s Registration Statement on Form S-1 (File #333-227388).

 

(5)	Incorporated by reference to the same exhibit filed with the Company’s Registration Statement on Form S-1 (File # 333-233981).

 

 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and Board of Directors of

AmeriCann, Inc.

Denver, CO

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of AmeriCann, Inc and its subsidiaries (collectively, the “Company”) as of September 30, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019 and 2018, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern Matter

 

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 has suffered recurring losses from operations and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2016.

Houston, Texas

January 14, 2020 

 

 

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

 

 

See accompanying notes to consolidated financial statements. 

 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

See accompanying notes to consolidated financial statements. 

 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 

 

See accompanying notes to consolidated financial statements.

 

 

 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

See accompanying notes to consolidated financial statements. 

 

 

AMERICANN, INC.

 NOTES TO CONSOLIDATED 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 14th day of January, 2020.

 

	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 14, 2020
/s/ Benjamin J. Barton
Benjamin J. Barton		Chief Financial and Accounting Officer and a Director		January 14, 2020
/s/ J. Tyler Opel
J. Tyler Opel		Director		January 14, 2020

 

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