AMERICANN, INC. Select Quarterly Financial Information
Quarter Ended
The Company achieved four consecutive quarters of increased operating revenue, culminating in positive net income for the quarter endingSeptember 2022 . The Company had a significant increase in year-over-year revenue, increasing over 44% for the year endedSeptember 30, 2022 relative to the year endedSeptember 30, 2021 , an increase of over$899,000 . 7 --------------------------------------------------------------------------------
The increase in financial performance is attributable to greater revenue
received from products produced and manufactured at Building 1, the Company's
initial development at its Massachusetts Cannabis Center in
AMERICANN, INC.
SELECTED QUARTERLY FINANCIAL DATA
Quarters ended Year ended
December 31, September, 30 September,
2021 March 31, 2022 June 30, 2022 2022 30 2022
Rental income $ 243,681 $ 667,366 $ 797,734 $ 811,774 2,520,555
Rental income -
related party 407,264 - - - 407,264
(Loss) income from
operations (368,619 ) 185,117 326,409 339,820 482,727
Net (loss) income (533,028 ) 24,240 162,734 172,810 (173,244 )
Basic and diluted
(loss) income per
common share $ (0.02 ) $ 0.00 $ 0.01 $ 0.01 (0.01 )
Quarters ended Year ended
December 31, September, 30 September
2020 March 31, 2021 June 30, 2021 2021 30, 2021
Rental income $ - $ - $ - $ - -
Rental income -
related party 271,585 437,344 584,546 735,076 2,028,551
Income (loss) from
operations (302,578 ) (36,295 ) 125,371 257,795 44,293
Net (loss) income (502,284 ) (304,092 ) (98,955 ) 42,438 (862,893 )
Basic and diluted
(loss) income per
common share (0.02 ) (0.01 ) $ 0.00 $ 0.00 (0.04 )
Results of Operations
Year Ended
Total Revenues During the year endedSeptember 30, 2022 , we generated$2,927,819 in revenue, as compared to$2,028,551 for the year endedSeptember 30, 2021 . The increase in revenue is due to an increase in revenue from Building 1 at the MCC. Cost of Revenues
During the year ended
Advertising and Marketing Expenses
Advertising and marketing expenses were$37,731 for the year endedSeptember 30, 2022 , as compared to$42,417 for the year endedSeptember 30, 2021 . The decrease is due to a decrease in marketing costs. 8 --------------------------------------------------------------------------------
Professional Fees
Professional fees were
General and Administrative Expenses
General and administrative expenses were$2,017,582 for the year endedSeptember 30, 2022 , as compared to$1,592,404 for the year endedSeptember 30, 2021 . The increase is primarily a result of an increase in stock compensation costs. Interest Income
Interest income was
Interest Expense Interest expense was$667,475 for the year endedSeptember 30, 2022 , as compared to$925,491 for the year endedSeptember 30, 2021 . The decrease is primarily attributable to a reduction of interest bearing debt. Net Loss We had a net loss of$173,244 for the year endedSeptember 30, 2022 , as compared to a net loss of$862,893 for the year endedSeptember 30, 2021 . The decrease in net loss is primarily the result an increase in revenues partially offset by an increase in stock compensation expense.
LIQUIDITY AND CAPITAL RESOURCES
Loans OnAugust 2, 2019 we secured a$4,000,000 loan from an unrelated third party. The loan was evidenced by a note which bears interest at the rate of 11% per year. OnDecember 4, 2020 , the loan was increased by$500,000 and the maturity date was extended fromAugust 2, 2022 toAugust 1, 2023 . The loan 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 to 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.
Sale of Common Stock and Warrants
Currently the company has 4,026,650 warrants issued and outstanding with
exercise prices ranging from
During the year ended
During the year ended
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--------------------------------------------------------------------------------Contractual obligations The Company leases land under an operating lease commencingOctober 17, 2016 , 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 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. Analysis of Cash Flows During the year endedSeptember 30, 2022 , cash flows provided in operations were$848,738 as compared to net cash flows used in operations of$275,153 for the year endedSeptember 30, 2021 . The increase is primarily due to an increase in net income and timing of working capital payments.
Cash flows used in investing activities were
Cash flows provided by financing activities were$0 for the year endedSeptember 30, 2022 . Cash flows provided by financing activities was$847,000 for the year endedSeptember 30, 2021 , consisting primarily of proceeds from note payable and the exercise of warrants, partially offset by payments on notes payable. 10 --------------------------------------------------------------------------------
Going concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of$19,758,689 and$19,585,445 atSeptember 30, 2022 and 2021, respectively, and had a net loss of$173,244 for the year endedSeptember 30, 2022 . Management believes that the actions presently being taken to further implement the Company's 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 cannabis industry; ? Revision of Federal banking regulations for the cannabis industry; and
? Legalization of the use of cannabis 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.
Use of Estimates The preparation of consolidated financial statements in conformity withU.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 accounts receivable and 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. Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at the date of purchase.
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--------------------------------------------------------------------------------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 ofSeptember 30, 2022 and 2021, 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 2019 through 2021 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, and tenant receivables. We place our cash with high credit quality financial institutions. As ofSeptember 30, 2022 , we had outstanding notes receivable of$43,185 and a tenant receivable of$251,462 with a customer, previously a related party.
Financial Instruments and Fair Value of Financial Instruments
We adopted ASC Topic 820, Fair Value Measurements, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure concerning such fair value measurements. ASC Topic 820 defines fair value as the price that would be received upon the sale of 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 notes 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, 2022 and 2021.
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--------------------------------------------------------------------------------Operating leases
Effective
Right of Use ("ROU") assets represent our right to use an underlying asset for
the lease term and lease liabilities represent our obligation to make lease
payments arising from the lease. Operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments
over the lease term. Variable lease payments are not included in the calculation
of the right-of-use asset and lease liability due to uncertainty of the payment
amount and are recorded as lease expense in the period incurred. As most of our
leases do not provide an implicit rate, we use our incremental borrowing rate
based on the information available at commencement date in determining the
present value of lease payments. We use the implicit rate when readily
determinable. Our lease terms may include options to extend or terminate the
lease when it is reasonably certain that we will exercise that option. Lease
expense for lease payments is recognized on a straight-line basis over the lease
term.
Under the available practical expedient, we account for the lease and non-lease
components as a single lease component for all classes of underlying assets as
both a lessee and lessor. Further, we elected a short-term lease exception
policy on all classes of underlying assets, permitting us to not apply the
recognition requirements of this standard to short-term leases (i.e. leases with
terms of 12 months or less).
Long-lived assets
Our long-lived assets consist of property and equipment and are reviewed for
impairment in accordance with the guidance of the Topic ASC Topic 360, Property,
Plant, and Equipment. 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, 2022 and 2021.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property,
plant 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.
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 ASU 2018-07 Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-based Payment Accounting, which
aligns the accounting for nonemployee share-based payments with accounting of
share-based payments to employees,
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--------------------------------------------------------------------------------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 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 bothSeptember 30, 2022 and 2021.
The Company also receives a revenue participation fee which is considered a variable payment and thus is recorded in the period earned in accordance with ASC 842.
Advertising Expense
Advertising, promotional and selling expenses consist of sales and marketing expenses, and promotional activity expenses. Expenses are recognized when incurred.
General and Administrative Expense
General and administrative expenses consist 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 for 2022 and 2021 because the inclusion would have been anti-dilutive.
OFF-BALANCE SHEET ARRANGEMENTS
As of
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