AmeriCann, Inc. - Quarter Report: 2023 June (Form 10-Q)

PART I:  FINANCIAL INFORMATION

ITEM 1.      UNAUDITED FINANCIAL STATEMENTS

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

See accompanying notes to unaudited consolidated financial statements.

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

See accompanying notes to unaudited consolidated financial statements.

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

See accompanying notes to unaudited consolidated financial statements. 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See accompanying notes to unaudited consolidated financial statements.   

AMERICANN, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

AmeriCann, Inc. ("the Company", “we”, “our” or "the Issuer") was organized under the laws of the State of Delaware on June 25, 2010. The Company changed its corporate domicile to Colorado in 2022.

The Company designs, develops, leases and plans to operate state-of-the-art cannabis cultivation, processing and manufacturing facilities.

The Company's activities are subject to significant risks and uncertainties including the potential failure to secure funding to continue its operations.

Basis of Presentation

The (a) consolidated balance sheet as of September 30, 2022, which has been derived from audited financial statements, and (b) the unaudited financial statements as of and for the nine months ended June 30, 2023 and 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Form 10-K filed with the SEC on December 29, 2022. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2022 as reported in the Form 10-K have been omitted.

Certain prior period amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on net income or loss.

Significant Accounting Policies

Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statements of cash flows:

Amounts included in restricted cash represent those required to be set aside by the Cannabis Control Commission in Massachusetts.

Property and Equipment, net

Property and equipment are stated at cost. Depreciation of property and equipment begins in the month following the month when the asset is placed into service and is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to twenty years. Property and equipment consist of:

Depreciation expense for the nine months ended June 30, 2023 and June 30, 2022 amounted to $341,355 and $337,442.

Leases

Effective October 1, 2019, we adopted Topic 842, Lease Accounting using the effective date method. Under this method, periods prior to adoption remain unchanged. We determine if an arrangement is a lease at inception.

Right-of-Use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

NOTE 2. GOING CONCERN 

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $19,705,247 and $19,758,689 at June 30, 2023 and September 30, 2022, respectively. 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 may raise additional funds through the sale of its securities or borrowings from third parties.

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

NOTE 3. NOTE RECEIVABLE

Notes and other receivables as of June 30, 2023 and September 30, 2022, consisted of the following:

NOTE 4.  NOTES PAYABLE

Unrelated

On August 2, 2019 the Company 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 bore interest at the rate of 11% per year, was due and payable on August 2, 2022 and was secured by a first lien on Building 1 at the Company’s Massachusetts Cannabis Center (“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 trading volume of the Company’s common stock during the twenty trading days was at least 150,000 shares.

The broker for the loan received a cash commission of $320,000 plus warrants to purchase 48,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on August 2, 2024. The cash commission and the fair value of the warrants amounting to $52,392 were recognized as a discount to the note.

The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 600,000 warrants was $562,762 which was recognized as additional paid in capital and a corresponding debt discount.

On December 4, 2020, the loan was modified and increased by $500,000 and the maturity date of the loan was extended to August 1, 2023. In July 2023, the maturity date was further extended to December 1, 2023 (see Note 10). All other provisions of the original loan remain the same. The debt modification was deemed not substantial and was accounted for as a debt modification. The broker for the loan received a cash commission of $40,000 which was expensed when incurred.

At June 30, 2023, the outstanding principal on this note was $4,500,000 and the unamortized debt discount was $16,235. All debt discounts are being amortized on a straight-line basis over the term of the modified note. Amortization expense related to the debt discounts was $146,118 and $77,929 for the nine months ended June 30, 2023 and 2022, respectively. See Note 10.

The modified note is secured by a first lien on Building 1 at the Company’s Massachusetts Cannabis Center (“MCC”).

February 2018 Convertible Note Offering

On February 12, 2018, the Company sold convertible notes in the principal amount of $810,000 to a group of accredited investors. The notes were unsecured and bore interest at 8% per year. On October 12, 2020, this remaining note was extended to mature on December 31, 2021. On December 15, 2021, the remaining note of $150,000 was extended to mature on December 31, 2022. On October 5, 2022, the Company paid $159,140 to fully repay the $150,000 note including $9,140 of interest. At June 30, 2023 and September 30, 2022, the outstanding principal on this note was $0 and $150,000, respectively.

Related Party

SCP. On September 30, 2019, we entered into an amended note with Strategic Capital Partners, LLC (“SCP”), in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022. During the year ended September 30, 2022, the maturity of the note was extended to December 31, 2023.

Accrued interest on the note was $0 and $4,303 at June 30, 2023 and September 30, 2022, respectively.

At June 30, 2023 and September 30, 2022, the outstanding principal on this note was $581,646.

During the year ended September 30, 2022, the Company also incurred $180,000 of consulting expenses with SCP and paid $195,000. As of September 30, 2022, $82,500 remained unpaid. During the nine months ended June 30, 2023, the Company incurred $135,000 of consulting expenses with SCP and paid $217,500. As of June 30, 2023, $0 remains outstanding.

NOTE 5. TENANT RECEIVABLE

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

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

On August 15, 2018, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 into a new loan with payments over 5 years with 18% interest. At June 30, 2023 and September 30, 2022, the outstanding balance on the note receivable was $8,779 and $43,185, respectively.

On July 26, 2019, the Company entered into a 15-Year Triple Net lease of Building 1 of the MCC with BASK. The lease commenced on September 1, 2019 and includes an annual base rent of $138,762 plus turnover rent of 15% of gross revenues from products produced at Building 1 of the MCC. The BASK tenant receivable balance was $219,806 and $251,462 as of June 30, 2023 and September 30, 2022, respectively.

Tim Keogh, our Chief Executive Officer, was a Board Member of BASK between August 2013 and November 2021.

NOTE 6. INCOME/LOSS PER SHARE

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

As of June 30, 2023 we excluded 1,700,000 of stock options, 2,211,650 of warrants and 100,000 shares that would be issued from conversion of outstanding convertible notes from the computation of diluted net income (loss) per share since the intrinsic value of these instruments was zero with the effect being anti-dilutive.

As of June 30, 2022 we excluded 1,700,000 of stock options, 7,666,650 of warrants and 100,000 shares that would be issued from conversion of outstanding convertible notes from the computation of diluted net income (loss) per share since the intrinsic value of these instruments was zero with the effect being anti-dilutive.

NOTE 7.  COMMITMENTS AND CONTINGENCIES

Operating Leases

Land

On October 17, 2016, the Company closed the acquisition of the 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. The Company is developing the property as the Massachusetts Center (“MCC”). Plans for the property include the construction of sustainable greenhouse cultivation and processing facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program.

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

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

Effective October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $6,980,957 and $4,256,869, respectively. As part of the adoption, the prepaid land lease balance of $2,724,088 was classified as a component of the Company’s ROU assets.

The Company completed the construction of Building I on the leased land and on September 1, 2019, BASK, commenced its 15-year sublease of Building I which includes an annual base rent of $138,762 plus 15% of BASK’s gross revenues from products produced at the MCC. This sublease income is recorded as Rental income on the Company’s consolidated statements of operations.

As of June 30, 2023, the Company’s right-of-use assets were $6,726,237, the Company’s current maturities of operating lease liabilities were $11,967 and the Company’s noncurrent lease liabilities were $4,207,532. During the nine months ended June 30, 2023, the Company had operating cash flows from operating leases of $295,062.

The table below presents lease related terms and discount rates as of June 30, 2023.

The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of June 30, 2023 are as follows:

Office space

The Company leases its office space located at 1555 Blake St., Unit 502, Denver, CO 80202 for $2,500 per month with a lease term of less than 12 months.

Lease expense for office space was $22,500 for the nine months ended June 30, 2023 and 2022.

Aggregate rental expense under all leases totaled $361,031 and $354,905 for the nine months ended June 30, 2023 and 2022, respectively.

NOTE 8.  STOCKHOLDERS’ EQUITY

Common Stock. There was no common stock activity during the nine months ended June 30, 2023.

Stock Options. There was no stock option activity during the nine months ended June 30, 2023.

Stock option details are as follows:

Stock option-based compensation expense associated with stock options was $0 and $119,346 for the nine months ended June 30, 2023 and 2022, respectively.

Warrants. Warrant activity as of and for the three months ended June 30, 2023 is as follows:

NOTE 9. INCOME TAXES

We did not record any income tax expense or benefit for the nine months ended June 30, 2023 or 2022. We increased our valuation allowance and reduced our net deferred tax assets to zero. Our assessment of the realization of our deferred tax assets has not changed, and as a result we continue to maintain a full valuation allowance for our net deferred tax assets as of June 30, 2023 and September 30, 2022.

As of June 30, 2023, we did not have any unrecognized tax benefits. There were no significant changes to the calculation since September 30, 2022.

NOTE 10. SUBSEQUENT EVENTS

On July 31, 2023, the maturity date of the $4,500,000 loan due August 1, 2023, was extended to December 1, 2023. All other provisions of the original loan remain the same.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended September 30, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K

Forward-Looking Statements

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

OVERVIEW

AmeriCann designs, develops, leases and operates state-of-the-art cannabis cultivation, processing and manufacturing facilities. AmeriCann’s team includes board members, consultants, engineers and architects who specialize in real estate development, traditional horticulture, lean manufacturing, medical research, facility construction, regulatory compliance, security, marijuana cultivation and genetics, extraction processes, and infused product development.

AmeriCann’s flagship project is the Massachusetts Cannabis Center. The Massachusetts Cannabis Center (“MCC”) is being developed on a 52-acre parcel located in southeastern Massachusetts. AmeriCann’s MCC project is permitted for over 800,000 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 project, Building 1, a 30,000 square foot cultivation and processing facility, is fully-operational and is currently 100% leased by a vertically-integrated Massachusetts cannabis company. AmeriCann generates revenue through lease arrangements with the operators that includes base rent and turnover rent.  The decrease in operating revenue for the quarter ending June 30, 2023 compared to the quarter ending June 30, 2022 is partly the result of pricing compression of cannabis products in Massachusetts.

AmeriCann, through a 100% owned subsidiary, AmeriCann Brands, Inc., has received two licenses from the Massachusetts Cannabis Control Commission to cultivate cannabis and provide extraction and product manufacturing support to the entire MCC project, as well as to other licensed cannabis farmers throughout regulated markets. AmeriCann Brands plans to operate in Building 2 at the MCC. In addition to large-scale extraction of cannabis plant material, AmeriCann Brands plans to produce branded consumer packaged goods including cannabis beverages, vaporizer products, edible products, non-edible products and concentrates at the state-of-the-art facility.

AmeriCann may replicate the brands, technology and innovations developed at its MCC project to additional markets.

COVID-19 Pandemic

The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company’s business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.

The Company has established policies to monitor the pandemic and has taken a number of actions to protect its employees, including restricting travel, encouraging quarantine and isolation when warranted, and directing most of its employees to work from home.

SIGNIFICANT ACCOUNTING POLICIES

Leases

Effective October 1, 2019, we adopted ASC 842, Lease Accounting using the effective date method. We determine if an arrangement is a lease at inception. 

Right-of-Use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

RESULTS OF OPERATIONS 

Total Revenues

During the three months ended June 30, 2023 and 2022, we generated $582,881 and $797,734 in revenue, respectively. The decrease in revenue is due to pricing compression of cannabis products in Massachusetts. During the nine months ended June 30, 2023 and 2022, we generated $2,066,053 and $1,708,781 in revenue, respectively. The increase in revenues is due to higher rental revenue and participation fee revenues as a result of increased cultivation yields and increases in the production and sale of manufactured goods from the Massachusetts Cannabis Center.

Cost of Revenues

During the three months ended June 30, 2023 and 2022, we incurred $0 and $12,000 of costs of revenue, respectively. During the nine months ended June 30, 2023 and 2022, we incurred $13,615 and $33,950 of cost of revenue, respectively. The decrease in cost is due to conclusion of a facilities maintenance agreement.

Advertising and Marketing Expenses

Advertising and marketing expenses were $646 and $9,968 for the three months ended June 30, 2023 and 2022, respectively. During the nine months ended June 30, 2023 and 2022, the advertising and marketing expenses were $6,017 and $33,106 , respectively. The decrease is due to lower social media and marketing expenses in 2023.

Professional Fees  

Professional fees were $73,509 and $71,226 for the three months ended June 30, 2023 and 2022, respectively. The increase is primarily due to an increase in legal fees. During the nine months ended June 30, 2023 and 2022, the professional fees were $277,361 and $282,462, respectively. The decrease is primarily due to a decrease in legal fees.

General and Administrative Expenses

General and administrative expenses were $380,060 and $378,131 for the three months ended June 30, 2023 and 2022, respectively. The increase is primarily due to increase in depreciation expense. During the nine months ended June 30, 2023 and 2022, the general and administrative expenses were $1,163,323 and $1,623,620, respectively. The decrease is primarily due to stock option compensation expense in 2022.

Interest Income

Interest income was $578 and $1,822 for the three months ended June 30, 2023 and 2022, respectively.  During the nine months ended June 30, 2023 and 2022, the interest income was $3,374 and $8,502, respectively. The decrease is a result of a decline in the principal balance of the BASK note receivable.

Interest Expense

Interest expense was $185,169 and $165,497 for the three months ended June 30, 2023 and 2022, respectively. The increase is primarily attributable to amortization of debt discounts. During the nine months ended June 30, 2023 and 2022, the interest expense was $555,669 and $497,463, respectively.

Net Operating Income/Loss 

We had a net loss of $(55,925) and net income of $162,734 for the three months ended June 30, 2023 and 2022, respectively. The increase in net loss is attributed primarily to the decrease in revenue as a result of pricing compression of cannabis products in Massachusetts. We had a net income of $53,442 and net loss of $(346,054) for the nine months ended June 30, 2023 and 2022, respectively. The increase in net income is primarily due to an increase in revenues and decrease in stock option compensation expense. 

LIQUIDITY AND CAPITAL RESOURCES 

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had an accumulated deficit of $19,705,247 and $19,758,689 at June 30, 2023 and September 30, 2022, respectively.

The Company is continuing to support the optimization of operations and generate additional revenues from its Massachusetts Cannabis Center (MCC).  The Company's cash position and quarterly revenue is currently significant enough to support the Company's daily operations. The Company is not obligated to raise additional funds for the expansion of the MCC.  When Management determines expansion opportunities exist the Company may finance construction with cash from operations, a sale-lease-back, refinancing and expand existing debt, issuance of new debt, or sales of equity. 

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

Notes Payable

See Notes 4 of the unaudited consolidated financial statements filed with this report for information concerning our notes payable.

Analysis of Cash Flows 

During the nine months ended June 30, 2023, our net cash flows provided by operations were $445,595 as compared to net cash flows provided by operations of $484,493 for the nine months ended June 30, 2022. The decrease is primarily due to an increase in our net income during the nine months ended June 30, 2023 offset by timing of working capital payments, and non-cash stock-based compensation expense during the nine months ended June 30, 2022.

Cash flows used by investing activities were $(244,760) and $(195,436) for the nine months ended June 30, 2023 and 2022, respectively, consisting of payments received on notes receivable offset by additions to property and equipment and construction in progress.

Cash flows used by financing activities were $150,000 and $0 for the nine months ended June 30, 2023 and 2022, respectively, consisting of principal payments on notes payable.

We do not have any firm commitments from any person to provide us with any additional capital.

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2023, we did not have any off-balance sheet arrangements.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Internal Control over Financial Reporting

As indicated in our Form 10-K filed on December 29, 2022, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective as of September 30, 2022 at the reasonable assurance level, as a result of a material weaknesses primarily related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP, limited or no segregation of duties, and lack of independent directors.

We are currently in the process of evaluating the steps necessary to remediate these material weaknesses.

Change in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarterly period ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

PART II OTHER INFORMATION

ITEM 6. EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.