CEN BIOTECH, INC. The accompanying condensed consolidated financial statements have been prepared in contemplating continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of$43,176,727 atJune 30, 2021 and had no committed source of additional debt or equity financing. The Company has not had any operating revenue and does not foresee any operating revenue in the near term. The Company has relied on the issuance of loans payable and convertible debt instruments to finance its expenses, including notes that are in default, as described in Notes 5, 6, 7, and 8. The Company will continue to raise additional capital through placement of our common stock, notes or other securities in order to implement its business plan or additional borrowings, including from related parties. The COVID-19 pandemic has hindered the Company's ability to raise capital. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. 9
-------------------------------------------------------------------------------- The Company's cash position may not be sufficient to support the Company's daily operations or its ability to undertake any business activity that will generate net revenue.
NOTE 3 - ADVANCES TO CEN BIOTECH
AtDecember 31, 2020 , the Company had an outstanding loan receivable of$17,901 from Emergence Global Enterprises Inc. ("Emergence Global"), a related party (see Note 11). The loan was made for the purpose of funding the operations of Emergence Global. The loan was unsecured, non-interest bearing, and was due onDecember 31, 2021 . At the time the loan was made,Joseph Byrne , the CEO of Emergence Global was not an officer or director of the Company. He was at that time a 5% shareholder and former CEO of the Company. He was then appointed as the President and a director of the Company onApril 19, 2021 . Additionally, our CEO,Bill Chaaban was appointed as the President of Emergence Global onApril 12, 2021 . In light of Section 402 of the Sarbanes-Oxley Act of 2002, the Company and Emergence Global entered into that certain Loan Repayment Agreement dated as ofMay 6, 2021 , pursuant to which Emergence Global agreed to repay to the Company$17,901 , representing the total amount outstanding under the loan agreement, by issuing 21,830 shares of Emergence Global common stock,$0.82 par value per share. Such shares were issued to the Company onMay 6, 2021 . As the value of the common shares is not material, it has been presented within prepaid expenses and other assets. AtJune 30, 2021 andDecember 31, 2020 , the Company had advances of$1,299,328 and$1,179,328 , respectively, toCEN Biotech Ukraine, LLC , a related party (see Note 11). The advances were for the purpose of funding the operations ofCEN Biotech Ukraine, LLC .Bahige (Bill) Chaaban , our Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned byBahige (Bill) Chaaban and Usamakh Saadikh.Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CEN Ukraine is operated and controlled by its sole director. Pursuant to Ukrainian law, shareholders of a company do not have the ability to control the company or the actions of its director. CENUkraine is operated under the direction of its management pursuant to the guidelines of Ukrainian law. These loans are unsecured, non-interest bearing, and are due on demand. NOTE 4 - INTANGIBLE ASSETS
On
Material consideration given by Company was: (a) Shares of CEN common stock equal to$5 million upon commencement of public trading (b) The transfer of real properties located at135 North Rear Road , Lakeshore,Ontario, Canada having a fair value of$2,161,467 and1517-1525 Ridge Road having a purchase cost (including other related disbursements) to the Company of$202,666 . The patent remains in the name ofTesla Digital, Inc. until full settlement of the terms of the agreement. In the interim, pursuant to an updated agreement executed onApril 15, 2019 between the Company and the Sellers, CEN has reaffirmed the rights to use the patented technology. In addition, the Company agreed to employStevan Pokrajac , by an LED subsidiary that the Company plans to form, but which has not yet been formed, in connection with the development of the acquired technology with compensation equal to$200,000 per year, commencing with the start of operations. 10 -------------------------------------------------------------------------------- InMarch 2018 , the Tesla agreement was amended to replace the$5 million stock consideration commitment with a commitment to issue one million registered shares of CEN common stock with a closing date ofSeptember 30, 2018 . OnOctober 4, 2018 , this agreement was amended to extend the closing date toDecember 15, 2018 . OnApril 3, 2019 , the Company entered into an amendment which extended the closing date of the agreement toDecember 31, 2019 . OnMarch 16, 2020 the Company entered into an amendment extending the closing date untilDecember 31, 2021 . TheMarch 2018 modification of the agreement converted a fixed value of shares to a fixed number of shares. Accordingly, the liability was reduced and additional paid in capital was increased by$4,380,000 to reflect the fair value of the shares committed at the date of the amendment. As ofJune 30, 2021 andDecember 31, 2020 , the value of this liability was$302,000 and$1,380,000 , respectively. This liability will be remeasured at each reporting date using the current fair value of CEN's common shares. The Company intends to explore using the patented LED Lighting Technology across manufacturing operations and licensing opportunities across multiple industries such as horticultural, automotive, industrial and commercial lighting. The assets acquired, other than the patent, included certain machinery and raw materials, which were old and non-functioning and accordingly, had no fair value.
The intangible asset consists of the following at:
June 30, December 31,
2021 2020
Lighting patent $ 6,797,000 $ 6,797,000
Accumulated amortization (2,053,259 ) (1,840,853 )
Net $ 4,743,741 $ 4,956,147
As of June 30, 2021 and December 31, 2020 , there is no impairment expense
recognized based on the Company's expectations that it will be able to monetize
the patent. The lighting patent is being amortized straight-line over 16 years.
Expected amortization expense is $424,812 per year through 2031, with the
remaining $283,215 to be amortized in 2032.
NOTE 5 - LOANS PAYABLE
Loans payable consist of the following at:
June 30, December 31,
2021 2020
Loan payable to Global Holdings International,
LLC , which bears interest at 15% per annum after
defaulting on the maturity date of June 30, 2016 .
This note was previously secured by equipment that
the Company disposed of on August 1, 2020. $ 75,000 $ 75,000
Mortgage payable in default toARG & Pals, Inc. , for the original amount ofCAD 385,000 . The mortgage bears interest at 22% per annum, is unsecured, and matured onNovember 21, 2018 . 310,618
302,379
Loan payable to an individual, issuedJanuary 17, 2018 with a 30-day maturity, bearing share interest of 2,000 common shares per 30-day period. This is an unsecured loan which matures onAugust 16, 2021 . 50,000
50,000
Loan payable to an individual, issuedApril 13, 2018 , with a 30-day maturity, bearing share interest of 4,000 common shares per 30-day period. This is an unsecured loan which matures onAugust 16, 2021 . 100,000
100,000
Loans payable in default to multiple private investors bearing an interest at rates of up to 5% per annum, maturing at various dates betweenJune 2018 andMay 2021 . 250,000
-
Total loans payable (all current)$ 785,618 $ 527,379 During each of the three-month periods endedJune 30, 2021 and 2020, 18,000 common shares were issued to individuals in connection with interest terms of the above loans. Accordingly, during the three-month periods endedJune 30, 2021 and 2020,$16,500 and$12,960 in interest expense and additional paid-in capital was recorded, respectively. During each of the six-month periods endedJune 30, 2021 and 2020, 36,000 common shares were issued to individuals in connection with interest terms of the above loans. Accordingly, during the six-month periods endedJune 30, 2021 and 2020,$41,340 and$25,920 in interest expense and additional paid-in capital was recorded, respectively. During the three-month period endedJune 30, 2021 , certain private investors amended their convertible notes payable totaling$250,000 , which were convertible into 128,125 common shares. As a result of the amendments, these notes no longer contain a conversion feature and have been reclassified to loans payable from convertible notes payable. 11 --------------------------------------------------------------------------------
NOTE 6 - LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following at:
June 30 ,
2021 2020
Loans payable in default to the spouse ofBill Chaaban , CEO of CEN, for the original amounts ofCAD 48,630 and USD$198,660 , bear interest at 10% per annum. These are unsecured loans that matured on December 31, 2018.$ 237,895 $
236,854
Loans payable in default to a former director of
Creative, former parent company, bear interest at 10%
per annum. This are unsecured loans that matured on
601,500 601,500
Loan payable in default to
300,000 300,000
Loan payable to the spouse ofJoseph Byrne , a 5% shareholder and former CEO, and current President and member of the board of CEN, issuedJanuary 12, 2018 with a 30-day maturity, bearing share interest of 4,000 common shares per 30-day period. This is an unsecured loan that matures onAugust 16, 2021 . 100,000
100,000
Loan payable to
75,000 75,000
Loan payable to
- 50,000
Total loans payable - related party (all current)
1,363,354 Attributable related party accrued interest was$617,832 and$568,969 as ofJune 30, 2021 andDecember 31, 2020 , respectively. Interest expense attributable to related party loans was$51,662 and$46,188 for the three-months endedJune 30, 2021 and 2020, respectively, and was$115,524 and$91,771 for the six-months endedJune 30, 2021 and 2020, respectively. During both three-month periods endedJune 30, 2021 and 2020, 27,000 common shares were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during the three-month periods endedJune 30, 2021 and 2020,$24,750 and$19,440 in related party interest expense and additional paid-in capital was recorded, respectively. During both six-month periods endedJune 30, 2021 and 2020, 54,000 common shares were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during the six-month periods endedJune 30, 2021 and 2020,$62,010 and$38,880 in related party interest expense and additional paid-in capital was recorded, respectively. 12 --------------------------------------------------------------------------------
NOTE 7 - CONVERTIBLE NOTES
Convertible notes payable consists of the following at:
June 30 ,December 31, 2021 2020
Convertible note payable, due on demand, for the
original amount of
$ 891,282 $
867,641
Convertible notes payable to multiple private investors, including certain notes in default, bearing interest at 5% per annum with conversion rights for 776,467 common shares, maturing at various dates betweenMay 2018 andSeptember 2022 . 1,236,794
5,862,807
Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 91,877 common shares, maturing at various dates inJune 2022 . 30,562
-
Total convertible notes payable 2,158,638
6,730,448
Less unamortized debt discount 19,248
-
Total convertible notes payable, net of unamortized debt discount 2,139,390 6,730,448 Less current portion 2,115,390 6,652,448
Convertible notes payable, less current portion
78,000
The Company issues convertible notes as a method to raise operating capital.
These notes convert to a fixed number of shares specified in the convertible
note, at the option of the note holder. Certain of these notes are considered to
contain a beneficial conversion feature if in-the-money at the time of issuance.
The Company has determined the value associated with the beneficial conversion
feature in connection with the notes issued during both the three and six-month
periods ended June 30, 2021 to be $93,164 . This value has been recorded as a
component of equity during 2021 and the aggregate original issue discount is
accreted and charged to interest expense as a financing expense from the date of
issuance until maturity. Upon conversion, any remaining unaccreted discount is
charged to interest expense. No convertible notes with beneficial conversion
features were issued during the three or six-month periods ended June 30, 2020 .
These notes may be converted at the option of the note holder upon written notice by the note holder. These notes are convertible into a total of 1,204,177 common shares.
During the three-month period endedJune 30, 2021 , certain private investors elected to exercise their convertible notes payable totaling$4,855,861 in exchange for 3,290,180 common shares. As a result, the associated convertible notes have been extinguished and reclassified as additional paid in capital. 13
-------------------------------------------------------------------------------- During the three-month period endedJune 30, 2021 , certain private investors elected to convert$78,893 of accrued interest owed on convertible notes into 94,357 shares of common stock.
As of
NOTE 8 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties consists of the following at:
June 30 ,December 31, 2020 2020
Convertible note in default due to the spouse of
1,388,122
Convertible notes in default due toHarold Aubrey de Lavenu , a Vice President and Director of CEN, bearing interest at 5% per annum. These notes are convertible to 548,980 common shares and matured onMarch 31, 2019 . 878,368
878,368
Convertible notes in default due toJoseph Byrne , former CEO, and current President and member of the board of CEN, bearing interest at 12% per annum. This note is convertible to 76,123 common shares and matured onAugust 17, 2020 . 121,796
224,191
Convertible notes with beneficial conversion features due to the parents ofJeffery Thomas , a Director of CEN, bearing interest at 5% per annum. These notes are convertible to 48,000 common shares with a maturity date ofMay 24, 2022 . 48,000
-
Convertible note in default due toAlex Tarrabain , CFO and a Director of CEN, bearing interest at 5% per annum. OnApril 10, 2021 , this note was converted to 30,000 common shares. -
48,000
Convertible note due toDarren Ferris , brother ofAmeen Ferris , a Vice President and a Director of CEN, bearing interest at 5% per annum. OnApril 26, 2021 , this note was converted to 12,500 common shares. -
20,000
Total convertible notes payable - related parties 2,436,286
2,558,681
Less unamortized debt discount 16,303
-
Total convertible notes payable - related parties (all current)$ 2,419,983 $ 2,558,681 14
-------------------------------------------------------------------------------- Attributable related party accrued interest was$1,102,743 and$1,046,911 as ofJune 30, 2021 andDecember 31, 2020 , respectively. Interest expense attributable to related party convertible notes was$61,752 , and$59,871 for the three months endedJune 30, 2021 and 2020, respectively, and was$121,126 and$119,739 for the six-months endedJune 30, 2021 and 2020, respectively. The Company issues convertible notes to related parties as a method to raise operating capital. These notes convert to a fixed number of shares specified in the convertible note, at the option of the note holder. Certain of these notes are considered to contain a beneficial conversion feature if in-the-money at the time of issuance. The Company has determined the value associated with the beneficial conversion feature in connection with the notes issued to related parties during both the three and six-month periods endedJune 30, 2021 to be$18,142 . This value has been recorded as a component of equity during 2021 and the aggregate original issue discount is accreted and charged to interest expense as a financing expense from the date of issuance until maturity. Upon conversion, any remaining unaccreted discount is charged to interest expense. No convertible notes to related parties with beneficial conversion features were issued during the three or six-month periods endedJune 30, 2020 .
These notes may be converted at the option of the note holder upon written notice by the note holder. These notes are convertible into a total of 1,587,167 common shares.
During the three-month period ended
As of
NOTE 9 - INCOME TAXES A reconciliation of the effective tax rate of the income tax benefit and the statutory income tax rates applied to the loss before income taxes is as follows for the three and six-months endedJune 30 : 2021 2020 Income tax benefit at Canadian statutory rate 26.5 % 26.5 % Valuation allowance (26.5 %) (26.5 %) Effective income tax rate 0 % 0 % 15
-------------------------------------------------------------------------------- As ofJune 30, 2021 , the Company has net operating loss carry forwards of approximately$28,900,000 that may be available to reduce future years' taxable income. Such carry forwards typically expire after 20 years. The Company currently has carry forwards that begin to expire in 2034. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, because the Company believes that it is more likely than not that the carryforwards will expire unused and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. The deferred tax asset and associated valuation allowance are as follows for the period endedJune 30, 2021 and the year endedDecember 31, 2020 :June 30 ,December 31, 2021 2020
Deferred tax asset - net operating losses
Net deferred tax asset $ - $ - The valuation allowance increased$4,100,000 and$600,000 for the three-months endedJune 30, 2021 and 2020, respectively, and$4,200,000 and$700,000 for the six-months endedJune 30, 2021 and 2020, respectively. All other temporary differences are immaterial both individually and in the aggregate to the condensed consolidated financial statements. Company management analyzes its income tax filing positions in Canadian federal and provincial jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions. As ofJune 30, 2021 , there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the condensed consolidated financial statements. The Company is subject to routing audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Generally, the Company is no longer subject to income tax examinations for years prior to 2017.
NOTE 10 - SHAREHOLDERS' DEFICIT / STOCK ACTIVITY
The Company is authorized to issue an unlimited number of common shares and an unlimited number of special voting shares. Common shares have no stated par value.
As of
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company has received loans from several related parties, as described above in Notes 6 and 8.
A loan totaling$17,901 was made to Emergence Global as ofDecember 31, 2020 . The loan was made for the business purpose of assisting Emergence with operating expenses. Emergence Global's Chief Executive Officer isJoseph Byrne , a 5% shareholder and former CEO, and current President and member of the board of CEN.Joseph Byrne , previously served as the Chief Executive Officer and member of the Board of Directors of the Company fromJuly 2017 untilNovember 13, 2019 . This note was repaid onMay 6, 2021 , see Note 3. There are advances of$1,299,328 and$1,179,328 to CEN Biotech Ukraine as ofJune 30, 2021 andDecember 31, 2020 , respectively. Such advances were made for the purpose of funding the operations of CEN Ukraine as summarized in Note 4. CEN Ukraine was founded byBill Chaaban . Prior toDecember 3, 2017 ,Bill Chaaban directly owned 51% of CEN Ukraine. CEN Ukraine was founded to seek agricultural and pharmaceutical opportunities inUkraine .Bill Chaaban personally funded the establishment and initial phases of CEN Ukraine. OnDecember 14, 2017 , the Company entered into a controlling interest purchase agreement withBill Chaaban , our Chief Executive Officer and member of our board of directors, and another shareholder of CEN Ukraine, Usamakh Saadikh, a member of our board of directors, for 51% of the outstanding equity interests of CEN Ukraine. The consideration will be paid by issuing common shares of the Company. The agreement, which is subject to certain conditions, has not closed as ofAugust 12, 2021 , as the Company needs to raise additional funds in order to proceed with the closing.Bahige (Bill) Chaaban , our Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned byBahige (Bill) Chaaban and Usamakh Saadikh.Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CEN Ukraine is operated and controlled by its sole director. Pursuant to Ukrainian law, shareholders of a company do not have the ability to control the company or the actions of its director. CEN Ukraine is operated under the direction of its management per the guidelines of Ukrainian law. 16 -------------------------------------------------------------------------------- OnJuly 12, 2017 , the Company's Shareholders elected individuals to serve as Directors on the Board. These individuals hold long-term convertible notes payable issued prior to the election. All notes payable bear interest at 5% per annum and are convertible to common shares with various maturity dates. They became related parties when they were elected. During the three-months endedJune 30, 2021 and 2020, the Company incurred payroll and consulting expenses of$46,800 and$31,200 , respectively, and$78,000 and$62,400 during the six-months endedJune 30, 2021 and 2020, respectively, with certain Board Members and Officers. As ofJune 30, 2021 andDecember 31, 2020 ,$408,200 and$330,200 , respectively, was payable to these related parties for payroll and consulting charges, which are included within accrued expenses. During 2017, the Company purchased equipment fromR&D Labs Canada, Inc. , whose president isBill Chaaban , in exchange for a$300,000 note payable. This equipment was then sold to CEN Ukraine for a loss of$255,141 in exchange for a$44,859 note receivable, payable in 10 equal installments beginning in 2017 through 2026. No payments have been received as ofJune 30, 2021 , however, management expects this balance to be collectible.Jamaal Shaban ("Lessor"), cousin ofBill Chaaban , leased20 North Rear Road , a 10.4 acre site of land inCanada which included two buildings and a security vault, to the Company under an agreement effectiveJanuary 2017 for monthly rental payments ofCAD 4,000 plus taxes for a period of five years. This lease was assigned by the Lessor toJamsyl Group , a third-party, whenJamsyl Group purchased the property fromJamaal Shaban inOctober 2019 . EffectiveAugust 1, 2020 , the Company entered into a mutual termination and release agreement withJamsyl Group in exchange for 36,500 shares of CEN common stock, valued at$50,700 , which vested immediately, based upon remaining lease payments owed. The lease had been accounted for as an operating lease utilizing an 8% discount rate. All remaining associated right-of-use assets as ofAugust 1, 2020 of$48,110 and associated liabilities of$45,118 were written off in conjunction, resulting in a loss on lease termination of$53,692 . During the three and six-months endedJune 30, 2020 , lease expenses of$8,690 and$17,409 , respectively, related to this agreement were recognized within general and administrative expenses. The Company also leased office space inWindsor, Ontario fromR&D Labs Canada, Inc. , whose president isBill Chaaban . This lease was subsequently assigned toRN Holdings Ltd , a third-party, onMay 8, 2019 when RN holdings purchased the building. Under the lease agreement effectiveOctober 1, 2017 , monthly rents ofCAD 2,608 are due throughSeptember 2022 , at which point monthly rents ofCAD 3,390 are due. EffectiveAugust 1, 2020 , the Company ceased making payments and abandoned the leased space. Accordingly, the Company determined that there was no future economic value to the associated right-of-use asset and recognized a full impairment loss of$146,795 onAugust 1, 2020 . As ofAugust 12, 2021 , the Company has not reached an agreement withRN Holdings Ltd to modify or to settle the remaining contractual liability, which therefore remains recorded as ofJune 30, 2021 under its original contractual terms. The associated liability as ofJune 30, 2021 andDecember 31, 2020 was$175,746 and$164,997 , respectively, utilizing an 8% discount rate. During the three-months endedJune 30, 2021 and 2020, lease expenses of$5,577 and$6,928 , respectively, and during the three-months endedJune 30, 2021 and 2020, lease expenses of$10,749 and$13,253 , respectively, related to this agreement were recognized within general and administrative expenses. 17
--------------------------------------------------------------------------------
Effective with the
Maturities of the operating lease liability for the 12 months subsequent toJune 30, 2021 was as follows: Amount 2022$ 48,392 2023 30,927 2024 32,820 2025 32,820 2026 32,820 Thereafter 41,025 Total lease payments$ 218,804 Less imputed interest 43,058
Present value of lease liability
NOTE 12 - STOCK BASED COMPENSATION
Adoption of Equity Compensation Plan
OnNovember 29, 2017 , the Board adopted the 2017 Equity Compensation Plan (the "Plan") providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants. The Company reserved 20,000,000 shares of common stock for issuance under the Plan. The Plan is intended to provide equity incentives to persons retained by our Company. OnApril 2, 2021 , the Board of Directors of the Company adopted the 2021 Equity Compensation Plan (the "2021 Plan") providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants of the Company and reserved an additional 20,000,000 shares of the Company's common stock for issuance under the 2021 Plan. Equity Compensation Grants OnNovember 30, 2017 , the Company granted a one-time equity award ("Equity Award") of restricted shares of the Company's common stock pursuant to a Restricted Stock Agreement to certain executives and directors of the company.Donald Strilchuck , Director, received 1,000,000 restricted shares of the Company's common stock for security consulting services, of which 550,000 vested immediately and the remaining vesting ratably each month over the next 36 months. Other individuals received a total of 1,870,000 restricted shares of the Company's common stock for consulting services performed, of which 1,330,000 vested immediately and the remaining vesting ratably each month over the next 36 months. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date. OnOctober 1, 2019 , the Company entered into an agreement with a communications and branding firm for the payment of its services under which the Company issued 50,000 shares of its common stock. This award vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date. 18 -------------------------------------------------------------------------------- OnApril 17, 2020 , the Company entered into agreements with three individuals for the payment of business consulting services under which the Company issued 225,000 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of$162,000 was recognized on the grant date. OnAugust 27, 2020 andSeptember 25, 2020 , the Company entered into agreements with two individuals for the payment of business consulting services under which the Company issued an aggregate of 162,500 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of$117,000 was recognized on the grant date. OnApril 2, 2021 , a consulting agreement with CONFIEN SAS for business coaching was entered into for a period of 12 months. As payment for these services, 650,000 restricted shares, subject to applicable securities laws and regulations as set forth in the Restricted Stack Agreement, of the Company's common stock were granted. Such shares vested immediately. The expense related to the restricted stock awarded to non-employees for services previously rendered of$897,000 was recognized on the grant date. Employment Agreements
On
? Under the Employment Agreement with
the Company,
annual salary of
of the Company, of which 7,400,000 vested immediately and the remaining vested
ratably each month over the next 36 months until November 2020 .
? Under the Employment Agreement with
Officer of the Company,
of a base annual salary of
restricted stock of the Company, of which 325,000 vested immediately and the
remaining vesting ratably each month over the next 36 months until November
2020. Effective
which point additional vesting and salary accruals ceased. As of
2020, the accrued salaries owed to
settled by allowing
shares that had not vested. On
President and a member of the board of directors of the Company.
? Under the Employment Agreement with
President and then Chief Financial Officer of the Company,
to receive compensation in the form of a base annual salary of
grant of 4,500,000 shares of restricted stock of the Company, of which
4,140,000 vested immediately and the remaining vested ratably each month over
the next 36 months until November 2020 .
? Under the Employment Agreement with Brian Payne , Vice President of the
Company,
salary of
Company, of which 300,000 vested immediately and the remaining vested ratably
each month over the next 36 months until November 2020 .
19-------------------------------------------------------------------------------- OnMay 16, 2019 , the Board appointedAlex Tarrabain , one of the members of the Company's Board to serve as the Company's Chief Financial Officer and as one of the Vice Presidents of the Company effectiveMay 21, 2019 (the "Effective Date").Richard Boswell ,who served as the Company's Chief Financial Officer sinceJuly 2017 , resigned from his position as the Company's Chief Financial Officer as of the Effective Date, continues to serve in his position as the Company's Senior Executive Vice President going forward focusing on the Company's strategic activities and will also continue to serve as a member of the Company's Board.
In conjunction with the above, on
? Under the Employment Agreement with
and as one of the Vice Presidents of the Company, Mr. Tarrabain agreed to
receive compensation in the form of a base annual salary of $31,200 and agrant of 1,250,000 shares of restricted stock of the Company, of which 350,000
vested immediately and the remaining vesting ratably each month over the next
36 months until May 2022 .
On April 2, 2021 , the Board of Directors appointed Ameen Ferris and Harold
Aubrey De Lavenu to serve as Vice Presidents of the Company. Under the
associated Executive Employment Agreements, they will each receive compensation
in the form of a base annual salary of $31,200 . In addition, Ameen Ferris was
granted 1,000,000 and Harold Aubrey De Lavenu was granted 1,041,250 restricted
shares, subject to applicable securities laws and regulations, as set forth in
the Restricted Stock Agreement, of the Company's common stock. Such shares
vested immediately. The expense related to the restricted stock awarded to
employees for services previously rendered of $2,816,925 was recognized on the
grant date.
On April 2, 2021 , the Company entered into an RSA (the "Boswell RSA") with
Richard Boswell . Pursuant to the Boswell RSA, the Company granted Mr. Boswell
2,185,679 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$3,016,237 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Chaaban RSA") with
Bahige Chaaban . Pursuant to the Chaaban RSA, the Company granted Mr. Chaaban
3,106,122 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$4,286,435 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Payne RSA") with Brian
Payne . Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000
restricted shares of the Company's common stock under the 2021 Plan to vest
immediately on the grant date. The shares issued are restricted shares that are
subject to applicable securities laws and regulations. The expense related to
the restricted stock awarded to employees for services previously rendered of
$1,980,300 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Saadikh RSA") with
Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh
1,000,000 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$1,380,000 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Strilchuck RSA") with
Donald Strilchuck . Pursuant to the Strilchuck RSA, the Company granted Mr.
Strilchuck 341,250 restricted shares of the Company's common stock under the
2021 Plan to vest immediately on the grant date. The shares issued are
restricted shares that are subject to applicable securities laws and
regulations. The expense related to the restricted stock awarded to employees
for services previously rendered of $470,925 was recognized on the grant date.
On April 2, 2021 and June 25, 2021 , the Company entered into an RSA (the
"Tarrabain RSA") with Alex Tarrabain . Pursuant to the Tarrabain RSA, the Company
granted Mr. Tarrabain 300,000 and 1,000,000, respectively, restricted shares of
the Company's common stock under the 2021 Plan to vest immediately on the grant
date. The shares issued are restricted shares that are subject to applicable
securities laws and regulations. The expense related to the restricted stock
awarded to employees for services previously rendered of $899,000 was recognized
on the grant date.
20--------------------------------------------------------------------------------
Restricted Stock Awards
Restricted stock awards relate to common shares that are subject to applicable securities laws and regulations as set forth in the RSAs and other equity compensation grants.
The total grant-date fair value of the restricted shares noted in the employment agreements and equity compensation grants sections above was$28,760,063 and$13,013,241 as ofJune 30, 2021 andDecember 31, 2020 , respectively. During the three and six-month periods endedJune 30, 2021 , 12,059,291 restricted shares with a grant date fair value of$15,746,822 were awarded. During the three and six-month periods endedJune 30, 2020 , 225,000 restricted shares with a grant date fair value of$162,000 were awarded. Prior to the start of trading onApril 5, 2021 via the OTC Link alternative trading system (operated by OTC Markets Group Inc.), the grant-date fair value was calculated utilizing an enterprise valuation model as of the date the awards are granted. BeginningApril 5, 2021 , the grant-date fair value is calculated utilizing the daily closing price as published via the OTC Link. With the exception of immediately vesting portions of awards, shares typically vest pro-rata over the requisite service period, which is generally three years from the grant-date. Non-vested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period. During the three-month periods endedJune 30, 2021 and 2020, 12,134,291 and 900,000, respectively, and during the six-month periods endedJune 30, 2021 and 2020, 12,209,291 and 1,237,500, respectively, of these shares vested. The fair value of the restricted stock which vested amounted to$15,822,572 and$459,000 for the three-months endedJune 30, 2021 and 2020, respectively, and$15,898,322 and$697,500 for the six-months endedJune 30, 2021 and 2020, respectively. Compensation expense recognized in connection with the restricted stock awards was$14,925,572 and$196,650 for the three-months endedJune 30, 2021 and 2020, respectively, and$15,001,322 and$393,300 for the six-months endedJune 30, 2021 and 2020, respectively. Consulting expense recognized in connection with the restricted stock awards was$897,000 and$162,000 for the three and six-months endedJune 30, 2021 and 2020, respectively. 21 -------------------------------------------------------------------------------- Non-vested restricted stock award activity for the six-months endedJune 30, 2021 and 2020 are as follows: Weighted- Average Weighted- Remaining Average Grant Contractual Date Fair Value Term Number of Shares per Share (Years) Non-vested at January 1, 2020 2,025,000 $ 0.76 1.54 Granted 225,000 0.72 - Vested (1,237,500 ) 0.68 - Forfeited - - - Non-vested at June 30, 2020 1,012,500 $ 0.84 1.35 Non-vested at January 1, 2021 425,000 $ 1.01 1.50 Granted 12,059,291 1.31 - Vested (12,209,291 ) 1.30 - Forfeited - - - Non-vested at June 30, 2021 275,000 $ 1.01 1.00 The fair value of the restricted stock grants was based on the valuation of a third-party specialist prior toApril 5, 2021 . BeginningApril 5, 2021 , the fair value of the restricted stock grants is based upon the daily closing price per the OTC Link. As ofJune 30, 2021 , unrecognized compensation expense totaled$277,750 , which will be recognized on a straight-line basis over the vesting period or requisite service period throughMay 2022 .
NOTE 13 - NET LOSS PER SHARE
During periods when there is a net loss, all potentially dilutive shares are anti-dilutive and are excluded from the calculation of diluted net loss per share. Based on the Company's application of the as-converted and treasury stock methods, all common stock equivalents were excluded from the computation of diluted earnings per share due to net losses as ofJune 30, 2021 and 2020. Common stock equivalents that were excluded for the three and six-month periods endedJune 30, 2021 and 2020 are as follows: Three-months Ended Six-months Ended June 30, June 30, 2021 2020 2021 2020 Convertible debt 2,657,697 5,482,166 2,631,484 5,376,040 NOTE 14 - CONTINGENCY In connection with the distribution by Creative of CEN's common stock onFebruary 29, 2016 and the Form 10 registration statement filed by CEN to register its shares of common stock under the Exchange Act, CEN received comments by the Staff of theSecurities and Exchange Commission , including a letter datedMay 4, 2016 in which the Staff noted that they "…continue to question the absence of Securities Act registration of the spin-off distribution". In the event that the distribution of shares of CEN's common stock was a distribution that required registration under the Securities Act, then the Company could be subject to enforcement action by theSEC that claims a violation of Section 5 of the Securities Act and could be subject to a private right of action for rescission or damages. Based on management's estimate, any potential liability related to this matter would not be material. 22 --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUE DISCLOSURES
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date.U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.
The fair value of the Company's financial instruments are as follows at:
Fair Value Measured at Reporting Date Using
Carrying
Amount Level 1 Level 2 Level 3 Fair Value
At June 30, 2021 :
Cash and cash equivalents $ 10,840 $ - $ 10,840 $ - $ 10,840
Other receivables $ 24,629 $ - $ - $ 24,629 $ 24,629
Note receivable - CEN Biotech
Ukraine, LLC - related party $ 44,859 $ - $ - $ 44,859 $ 44,859
Advances to CEN Biotech
Ukraine, LLC - related party $ 1,299,328 $ - $ - $ 1,299,328 $ 1,299,328
Loans payable $ 785,618 $ - $ - $ 785,618 $ 785,618
Loans payable - related parties $ 1,314,395 $ - $ - $ - $ -
Patent acquisition liability $ 302,000 $ 302,000 $ - $ - $ 302,000
Convertible notes payable $ 2,139,390 $ - $ - $ 3,328,714 $ 3,328,714
Convertible notes payable -
related parties $ 2,419,983 $ - $ - $ - $ -
Carrying
Amount Level 1 Level 2 Level 3 Fair Value
At December 31, 2020 :
Cash and cash equivalents $ 1,908 $ - $ 1,908 $ - $ 1,908
Other receivables $ 113,999 $ - $ - $ 113,999 $ 113,999
Note receivable - CEN Biotech
Ukraine, LLC - related party $ 44,859 $ - $ - $ 44,859 $ 44,859
Advances to Emergence Global -
related party $ 17,901 $ - $ - $ 17,901 $ 17,901
Advances to CEN Biotech
Ukraine, LLC - related party $ 1,179,328 $ - $ - $ 1,179,328 $ 1,179,328
Loans payable $ 527,379 $ - $ - $ 527,379 $ 527,379
Loans payable - related parties $ 1,363,354 $ - $ - $ - $ -
Patent acquisition liability $ 1,380,000 $ - $ - $ 1,380,000 $ 1,380,000
Convertible notes payable $ 6,730,448 $ - $ - $ 7,766,663 $ 7,766,663
Convertible notes payable -
related parties $ 2,558,681 $ - $ - $ - $ -
23-------------------------------------------------------------------------------- The fair values of other receivables (including related accrued interest), note receivable -CEN Biotech Ukraine, LLC , and advances to Emergence Global andCEN Biotech Ukraine, LLC approximate carrying value due to the terms of the instruments.
The fair value of the loans payable approximates carrying value due to the terms of such instruments and applicable interest rates.
The fair value of convertible notes payable is based on the par value plus accrued interest through the date of reporting due to the terms of such instruments and interest rates.
It is not practicable to estimate the fair value of loans payable - related parties and convertible notes payable - related parties due to their related party nature.
The fair value of the patent acquisition liability is based upon the fair value of the common stock, which was obtained from a 3rd party valuation specialist prior toApril 5, 2021 . This valuation report utilized a cash-free asset value model to estimate enterprise value based upon similar companies. BeginningApril 5, 2021 , the fair value of the patent acquisition liability is based upon the OTC closing price and accordingly was transferred from Level 3 to Level 1 due to the availability of published prices for CEN's common stock.
NOTE 16 - SUBSEQUENT EVENTS
FromJuly 1, 2021 toAugust 12, 2021 , the Company authorized the issuance of 18,873 shares of its common stock upon conversion of the principal amount due under 4 notes, to 4 persons. The aggregate principal amount of the notes prior to conversion was$30,196.80 . FromJuly 1, 2021 toAugust 12, 2021 , the Company issued 1 new convertible notes totaling$20,000 with conversion rights of 52,631 shares of the Company common stock. OnJuly 13, 2021 , the Company entered into an RSA (the "Keane RSA") withPatrick Keane . Pursuant to the Keane RSA, the Company grantedMr. Keane 200,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date. OnJuly 13, 2021 , the Company entered into an RSA (the "Scott RSA") withDaniel Scott . Pursuant to the Scott RSA, the Company grantedMr. Scott 300,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date. OnApril 20, 2021 , the Company entered into a Share Exchange Agreement (the "Agreement") withClear Com Media Inc. , anOntario, Canada corporation ("CCM"), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the "CCM Shareholders") andLawrence Lehoux as the Representative of the CCM Shareholders (the "Shareholders' Representative", each of CCM and the CCM Shareholders may be referred to collectively herein as the "CCM Parties"). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is 10,000 shares of CCM common shares (the "CCM Stock") held by the CCM Shareholders in exchange (the "Exchange") for the issuance by the Company to the CCM Shareholders of 4,000,000 restricted shares of the Company's common stock, no par value per share (the "Company Common Stock"). The Agreement closed onJuly 9, 2021 (the "Closing"). At Closing, the CCM Shareholders delivered the CCM Stock to the Company and the Company delivered the Company Common Stock to the CCM Shareholders, and CCM became a wholly owned subsidiary of the Company. At Closing, the Company increased the number of members on its Board of Directors (the "Board") by one and to appoint and named the Shareholder Representative as a member of the Board of the Company. Additionally, at Closing, the Company appointed and named the Shareholder Representative as the Company's Chief Technology Officer. At Closing, the Company entered into an employment agreement (the "Employment Agreement") withMr. Lehoux . Pursuant to the Employment Agreement, during the term of the Employment Agreement, the Company agreed to employ, andMr. Lehoux agreed to accept employment with the Company as the Company's Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to payMr. Lehoux an annual base salary of$31,200 . 24 --------------------------------------------------------------------------------
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
Notes to those financial statements that are included elsewhere in this
Quarterly Report on Form 10-Q. Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under Special Note Regarding Forward-Looking Statements. We use words
such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing,"
"expect," "believe," "intend," "may," "will," "should," "could," and similar
expressions to identify forward-looking statements.
Background and Overview
CEN Biotech, Inc. ("we," "us," "our" or "CEN" or the "Company") is a Canadian
holding company, incorporated in Canada on August 4, 2013 as a subsidiary of
Creative Edge Nutrition, Inc. ("Creative"), a Nevada corporation. Creative
separated its planned specialty pharmaceutical business located in Canada by
transferring substantially all of the assets and liabilities of the planned
specialty pharmaceutical business to CEN and effecting a distribution (the
"Spin-Off Distribution") of CEN common stock to Creative shareholders on
February 29, 2016 . The Spin-Off Distribution was intended to be tax free for
U.S. federal income tax purposes.
Prior to the Spin Off Distribution, the Company initially pursued the cannabis
business in Canada and obtained funding to build the initial phase of its
comprehensive seed-to-sale facility and applied to obtain a license in Canada to
begin operating its state-of-the-art medical marijuana cultivation, processing,
and distribution facility in Lakeshore, Ontario . On March 11, 2015 , the
Company's application for a license to produce marijuana for medical purposes
was formally rejected by Canadian regulatory authority. On February 1, 2016 the
Company commenced legal action against the Attorney General of Canada in the
Ontario Superior Court of Justice for damages for detrimental reliance, economic
loss, and prejudgment and post judgment interest, costs of the proceeding and
other relief that the court may seem just. As of August 12, 2021 the action in
the Ontario Superior Court of Justice is still ongoing. In the meantime the
Company decided to develop and pursue other businesses that are related to Light
Emitting Diode ("LED") lighting and hemp-based industrial, medical and food
products that have a tetrahydrocannabinol ("THC") that is below 0.3%.
We are currently focused on the manufacturing, production and development
of LED lighting technology and hemp-based products. The Company intends to
continue to explore the usage of hemp, which it now intends to cultivate for
usage in industrial, medical and food products. We also plan to expand our
business to include Cannabis, Psychedelic Mushrooms, and Digital Communities.
Our mission is to strive to be an agriculture based mindful provider of Phyto
medical solutions developed to help improve "your" state of health and
well-being.
Our principal office is located at
We have not yet generated any revenues, and at present we are not able to
estimate if or when we will be able to generate any revenues. Our consolidated
financial statements have been prepared assuming that we will continue as a
going concern; however, given our recurring losses from operations, management,
as well as our auditors, have determined there is substantial doubt about our
ability to continue as a going concern.
25
--------------------------------------------------------------------------------
At June 30, 2021 and December 31, 2020 , the Company had advances of $1,299,328
and $1,179,328 , respectively, to CEN Ukraine which is a related party. The
advances were for the purpose of funding the operations of CEN Ukraine. These
advances were substantially used as follows:
? Approximately $420,000 to operate its office in Kiev ;
? Approximately $445,328 to employ several workers;
? Approximately $350,000 for performing multiple test crops;
? Approximately $75,000 for oil processing activities; and
? Approximately $9,000 for payment of rent.
Plan of Operations
Plan of Operations of
Our monthly "burn rate," the amount of expenses we expect to incur on a monthly basis, is approximately$100,000 for a total of$1,200,000 for the maximum of 12 months. We have relied and will continue to rely on capital raised from third parties to fund our operating expenses during the following 12 months.
In order to complete our plan of operations, we estimate that
Generally, the funds are planned to be invested as follows:$2.3 million in hemp activities,$2.5 million in LED lighting manufacturing,$200,000 to obtain quotation on OTCQB,$2.5 million to complete acquisitions in the phyto medical space including cannabis and psychedelic mushrooms and$1.2 million in general operating costs. There can be no assurance that the Company will be able to raise the foregoing funds or proceed as planned.
We hope to reach the following milestones in the next 12 months:
?
the phyto medical space and we estimate the cost of this to be
?
phyto medical space and we estimate the cost of this to be $1,250,000 .
? October 2021 - The Company intends to obtain quotation on OTCQB and we
estimate the costs of this to be $200,000 .
?
and we estimate the costs of this to be $300,000 .
?
hemp, which it intends to cultivate for usage in industrial, medical and food
products through CEN Ukraine as follows:
? Secure lease of processing facility expected to take place in November, 2021
and we estimate the costs of this to be $400,000 annually.
? Purchase of seeds for production crop expected to take place in November, 2021
and we estimate the costs of this to be $100,000 annually.
26--------------------------------------------------------------------------------
? Hire farming and production staff expected to take place in March, 2022 and we
estimate the costs of this to be $600,000 annually.
? Rent farming equipment, purchase fuel, irrigation, and nutrients expected to
take place in April, 2022 and we estimate the costs of this to be
annually.
? Market, package and ship product expected to take place in July, 2022 and we
estimate the costs of this to be $300,000 annually.
?
this to be $300,000 .
?
lighting patent across manufacturing operations and licensing opportunities
across multiple industries such as the horticultural industry, as well as the
automotive, industrial and commercial lighting industries as follows:
? Lease production facility expected to take place in
estimate the costs of this to be $400,000 annually.
? Lease equipment expected to take place in December, 2021 and we estimate the
costs of this to be $400,000 annually.
? Hire staff expected to take place in December, 2021 and we estimate the costs
of this to be $600,000 annually.
? Initial raw materials expected to take place in December, 2021 and we estimate
the costs of this to be $500,000 one time.
? Marketing and delivery expected to take place in April, 2022 and we estimate
the costs of this to be $300,000 annually.
Achievement of the milestones will depend highly on our funds and the availability of those funds. There can be no assurance that we will be able to successfully complete such milestones.
Plan of Operations of
The current burn rate for CCM inclusive of all wages and operating costs are approximately$120,000 CDN per month or$1,440,000 CDN per year (Approx.$1,152,000 USD ) per year. We anticipate an increase of 40% in this burn rate for wages for senior software developers and network engineers as well as a modest marketing spend for the launch of one of CCM's new products and services anticipated for commercialization in Q4 of 2021.
The following highlights the major goals and activities planned for the next twelve months:
? Expansion of CCM's enterprise hosting infrastructure for CCM's client services
and CCM products to address the ongoing growth needs of the business.
? Completion of the Chatter product and service that is expected to launch in Q4
of 2021. This product in currently in the final stages of development and is
expected to be completed in the end of Q3 with testing and marketing to
commence on the final quarter of 2021.
27--------------------------------------------------------------------------------
? Continued development on the BIO Blockchain permission platform that will
continue for the next twelve months and beyond. The ongoing development cost
of this project is estimated to be $25,000 per month until completed.
? Continued development of internal efficiency processes and automated systems
for tasks such as workflow, billing, subscriptions, security and internal
cloud computing.
? Development, deployment and management of a modest online marketing campaign
for the launch of the Chatter service which is expected to commence in Q4 of
2021 and continue on a more aggressive path after month 12 and onward.
? Continued development of the digital community project (Project Juno) that is
expected to continue well into 2022 with an estimated completion date of Q4
2022. This project will require the hiring of additional skilled developers
and software engineers to focus on new R&D initiatives for a future consumer
and business focused product and service. The development cost of this project
is estimated to be
costs of $40,000 per month in perpetuity.
? Continued support and a modest expansion of the core services offered by to
our key business partners and direct customers. These services include but are
not limited to software and web development. SEO, social media marketing,
mobile app development and online digital marketing.
Continue to investigate potential strategic acquisitions to add to the organization that can assist in accelerating and amplifying the goals of the organization.
--------------------------------------------------------------------------------
Recent Developments
The outbreak of a novel coronavirus (COVID-19), which theWorld Health Organization declared inMarch 2020 to be a pandemic, continues to spread throughoutthe United States of America and the globe. Many State Governors issued temporary Executive Orders that, among other stipulations, effectively prohibit in-person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. The extent of the ultimate impact of the pandemic on the Company's operational and financial performance will depend on various developments, including the duration and spread of the outbreak, and its impact on potential customers, employees, and vendors, all of which cannot be reasonably predicted at this time. While management reasonably expects the COVID-19 outbreak to negatively impact the Company's financial condition, operating results, and timing and amounts of cash flows, the related financial consequences and duration are highly uncertain. OnApril 2, 2021 , the Board of Directors of the Company adopted the 2021 Equity Compensation Plan (the "2021 Plan") providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants of the Company and reserved 20,000,000 shares of the Company's common stock for issuance under the 2021 Plan. OnApril 2, 2021 , the Board of Directors appointedAmeen Ferris andHarold Aubrey De Lavenu to serve as Vice Presidents of the Company. Under the associated Executive Employment Agreements, they will each receive compensation in the form of a base annual salary of$31,200 . In addition,Ameen Ferris was granted 1,000,000 andHarold Aubrey De Lavenu was granted 1,041,250 restricted shares of the Company's common stock subject to applicable securities laws and regulations. Such shares vested immediately. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date. 28
-------------------------------------------------------------------------------- OnApril 2, 2021 , the Company entered into an RSA (the "Boswell RSA") withRichard Boswell . Pursuant to the Boswell RSA, the Company grantedMr. Boswell 2,185,679 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. OnApril 2, 2021 , the Company entered into an RSA (the "Chaaban RSA") withBahige Chaaban . Pursuant to the Chaaban RSA, the Company grantedMr. Chaaban 3,106,122 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. OnApril 2, 2021 , the Company entered into an RSA (the "Payne RSA") withBrian Payne . Pursuant to the Payne RSA, the Company grantedMr. Payne 1,435,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. OnApril 2, 2021 , the Company entered into an RSA (the "Saadikh RSA") with Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh 1,000,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. OnApril 2, 2021 , the Company entered into an RSA (the "Strilchuck RSA") withDonald Strilchuck . Pursuant to the Strilchuck RSA, the Company grantedMr. Strilchuck 341,250 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. OnApril 2, 2021 , the Company entered into an RSA (the "Tarrabain RSA") withAlex Tarrabain . Pursuant to the Tarrabain RSA, the Company grantedMr. Tarrabain 300,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. The shares issued pursuant to the RSAs are restricted shares and are subject to applicable securities laws and regulations as set forth in the RSAs. The shares were issued for services previously rendered was recognized on the applicable grant dates. OnApril 2, 2021 , a consulting agreement with CONFIEN SAS for business coaching was entered into for a period of 12 months. As payment for these services, 650,000 restricted shares subject to applicable securities laws and regulations of the Company's common stock were granted. Such shares vested immediately. The expense related to the restricted stock awarded to non-employees for services previously rendered was recognized on the grant date.
In April of 2021, the Company's common stock began to be quoted on the OTC Link alternative trading system (operated by OTC Markets Group Inc.) under the trading symbol "CENBF" on the OTC Pink tier. There is no assurance that an active trading market for our shares will develop or will be sustained if developed.
OnApril 19, 2021 , the Board appointed Mr.Bahige (Bill) Chaaban to serve as Chief Executive Officer of the Company effectiveApril 19, 2021 . On the same date, the Board appointed Mr.Joseph Byrne to serve as President and a member of the Board of the Company effectiveApril 19, 2021 . On the same, date, the Board appointed Mr.Rick Purdy to serve as a member of the Board of the Company effectiveApril 19, 2021 . On the same, date, the Board appointed Mr.Jeffrey Thomas to serve as a member of the Board of the Company effectiveApril 19, 2021 . OnApril 20, 2021 , the Company entered into a Share Exchange Agreement (the "Agreement") withClear Com Media Inc. , anOntario, Canada corporation ("CCM"), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the "CCM Shareholders") andLawrence Lehoux as the Representative of the CCM Shareholders (the "Shareholders' Representative", each of CCM and the CCM Shareholders may be referred to collectively herein as the "CCM Parties"). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is 10,000 shares of CCM common shares (the "CCM Stock") held by the CCM Shareholders in exchange (the "Exchange") for the issuance by the Company to the CCM Shareholders of 4,000,000 restricted shares of the Company's common stock, no par value per share (the "Company Common Stock"). The Agreement closed onJuly 9, 2021 (the "Closing"). At Closing, the CCM Shareholders delivered the CCM Stock to the Company and the Company delivered the Company Common Stock to the CCM Shareholders, and CCM became a wholly owned subsidiary of the Company. At Closing, the Company increased the number of members on its Board of Directors (the "Board") by one and to appoint and named the Shareholder Representative as a member of the Board of the Company. Additionally, at Closing, the Company appointed and named the Shareholder Representative as the Company's Chief Technology Officer. At Closing, the Company entered into an employment agreement (the "Employment Agreement") withMr. Lehoux . Pursuant to the Employment Agreement, during the term of the Employment Agreement, the Company agreed to employ, andMr. Lehoux agreed to accept employment with the Company as the Company's Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to payMr. Lehoux a base salary of$31,200 .Clear Com Media Inc. is aWindsor, Ontario based data management, digital marketing and Ecommerce company founded on the premise that we are not satisfied until our customers are.Clear Com is entirely committed to delivering a positive customer experience while continuing to grow and gaining the trust of the online community.Clear Com seeks to let nothing stop it from delivering a positive personal experience by focusing on data driven decision making. By exemplifying professionalism and expertise in technologyClear Com seeks to ensure customer satisfaction every step of the way. 29
-------------------------------------------------------------------------------- AtDecember 31, 2020 , the Company had an outstanding loan agreement with Emergence Global Enterprises Inc. ("Emergence Global"), and advanced funds of$17,901 . At the time the loan was made,Joseph Byrne , the CEO of Emergence Global was not an officer or director of the company. He was at that time a 5% shareholder and former CEO of the Company. He was then appointed as the President and a director of the Company onApril 19, 2021 . Additionally, our CEO,Bill Chaaban was appointed as the President of Emergence Global onApril 12, 2021 . In light of Section 402 of the Sarbanes-Oxley Act of 2002, as ofMay 6, 2021 , the loan to Emergence Global has been repaid in full, through the issuance to the Company of shares of Emergence Global common stock, and is no longer outstanding. The Company and Emergence Global entered into that certain Loan Repayment Agreement dated as ofMay 6, 2021 , pursuant to which Emergence Global agreed to repay to the Company$17,901 , representing the total amount then outstanding under the loan agreement, by issuing 21,830 shares of Emergence Global common stock,$0.82 par value per share. Such shares were issued to the Company onMay 6, 2021 . OnJune 25, 2021 , the Company entered into a Restricted Stock Agreement (the "RSA") under the Company's 2021 Equity Compensation Plan (the "Plan") withAlex Tarrabain , the Company's Chief Financial Officer and a member of its board of directors. Pursuant to the RSA, the Company grantedMr. Tarrabain 1,000,000 shares of the Company's common stock under the Plan to vest immediately on the grant date. OnJuly 13, 2021 , the Company entered into an RSA (the "Keane RSA") withPatrick Keane . Pursuant to the Keane RSA, the Company grantedMr. Keane 200,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date. OnJuly 13, 2021 , the Company entered into an RSA (the "Scott RSA") withDaniel Scott . Pursuant to the Scott RSA, the Company grantedMr. Scott 300,000 restricted shares of the Company's common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date. FromJuly 1, 2021 toAugust 12, 2021 , the Company authorized the issuance of 18,873 shares of its common stock upon conversion of the principal amount due under 4 notes, to 4 persons. The aggregate principal amount of the notes prior to conversion was$30,196.80 . Results of Operations We have incurred recurring losses and have not commenced revenue generating operations to date. Our expenses to date are primarily our general and administrative expenses and fees, costs and expenses related to acquisitions and operations. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. 30
-------------------------------------------------------------------------------- The accompanying condensed consolidated financial statements have been prepared in contemplating continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of$43,176,727 atJune 30, 2021 and had no committed source of debt or equity financing. The Company has not had any operating revenue and does not foresee any operating revenue in the near term. The Company has relied on the issuance of loans payable and convertible debt instruments to finance its expenses, including a note that is in default and is secured by the Company's equipment and certain unsecured convertible notes payable. The Company will be dependent upon raising additional capital through placement of our common stock, notes or other securities in order to implement its business plan or additional borrowings, including from related parties. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Company's cash position may not be sufficient to support the Company's daily operations or its ability to undertake any business activity that will generate net revenue.
Results of Operations for the Three and Six-Months Ended
The following tables reflect our operating results for the three and six-months
ended
Three-months ended
Operating Summary June 30, 2021 June 30, 2020 Change
Revenues, net $ - $ - -
Cost of Goods Sold - - -
Gross Profit - - -
Operating Expenses (16,263,577 ) (690,447 ) 2,255.5 %
Loss from Operations (16,263,577 ) (690,447 ) 2,255.5 %
Other Income (Expense) 770,412 (969,434 ) (179.5 %)
Net Loss $ (15,493,165 ) $ (1,659,881 ) 833.4 %
Six-months ended
Operating Summary June 30, 2021 June 30, 2020 Change
Revenues, net $ - $ - -
Cost of Goods Sold - - -
Gross Profit - - -
Operating Expenses (16,608,417 ) (1,221,197 ) 1,260.0 %
Loss from Operations (16,608,417 ) (1,221,197 ) 1,260.0 %
Other Income (Expense) 492,217 (1,738,796 ) (128.3 %)
Net Loss $ (16,116,200 ) $ (2,959,993 ) 444.5 %
Revenue
We have not recognized revenue during the three or six-months ended
31
--------------------------------------------------------------------------------Operating Expenses During the three months endedJune 30, 2021 , our operating expenses were$16,263,577 compared to$690,447 during the three months endedJune 30, 2020 . During the three months endedJune 30, 2021 , our operating expenses were comprised of salary and consulting fees of$943,800 , stock-based compensation expense of$14,925,572 , and general and administrative expenses of$394,205 . By comparison, during the three months endedJune 30, 2020 , our operating expenses were comprised of salary and consulting fees of$193,200 , stock-based compensation expense of$196,650 , and general and administrative expenses of$300,597 . Expenses incurred during the three months endedJune 30, 2021 compared to three months endedJune 30, 2020 increased primarily due to increased consulting fees for business coaching for our executives, increased stock-based compensation for our executives and board members as well as increases in legal and professional fees. During the six months endedJune 30, 2021 , our operating expenses were$16,608,417 compared to$1,221,197 during the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , our operating expenses were comprised of salary and consulting fees of$975,000 , stock-based compensation expense of$15,001,322 , and general and administrative expenses of$632,095 . By comparison, during the six months endedJune 30, 2020 , our operating expenses were comprised of salary and consulting fees of$224,477 , stock-based compensation expense of$393,300 , and general and administrative expenses of$603,420 . Expenses incurred during the six months endedJune 30, 2021 compared to six months endedJune 30, 2020 increased primarily due to increased consulting fees for business coaching for our executives, increased stock-based compensation for our executives and board members as well as increases in legal and professional fees.
Other Income and Expense Items
During the three months endedJune 30, 2021 , our other income, net was$770,412 compared to other expense, net of$969,434 during the three months endedJune 30, 2020 . During the three months endedJune 30, 2021 , our other income and expense items were comprised of interest expense of$276,389 , gain on change in fair value of patent acquisition liability of$1,078,000 , and foreign exchange loss of$31,199 . By comparison, during the three months endedJune 30, 2020 , our other income and expense items were comprised of interest expense of$906,524 , interest income of$1,853 , and foreign exchange loss of$64,763 . Expenses incurred during the three months endedJune 30, 2021 compared to three months endedJune 30, 2020 decreased primarily due to a decrease in interest expense as a result of debt conversions and a favorable change in the fair value of the patent acquisition liability. During the six months endedJune 30, 2021 , our other income, net was$492,217 compared to other expense, net of$1,738,796 during the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , our other income and expense items were comprised of interest expense of$530,253 , interest income of$394 , gain on change in fair value of patent acquisition liability of$1,078,000 , and foreign exchange loss of$55,924 . By comparison, during the six months endedJune 30, 2020 , our other income and expense items were comprised of interest expense of$1,806,655 , interest income of$3,912 , and foreign exchange gain of$63,947 . Expenses incurred during the six months endedJune 30, 2021 compared to six months endedJune 30, 2020 decreased primarily due to a decrease in interest expense as a result of debt conversions and a favorable change in the fair value of the patent acquisition liability. Income Taxes As ofJune 30, 2021 , the Company has net operating loss carryforwards of approximately$28,900,000 that may be available to reduce future years' taxable income. As ofJune 30, 2021 , the Company has a deferred tax asset of approximately$7,600,000 which has been completely offset by a valuation allowance. The Company believes that it is more likely than not that the carryforwards will expire unused as the Company has not been able to commence revenue generating activities to date. 32 --------------------------------------------------------------------------------
Net Loss
Our net loss during the three months ended
Our net loss during the six months endedJune 30, 2021 was$16,116,200 compared to a net loss of$2,959,993 during the six months endedJune 30, 2020 due to the factors discussed above.
Liquidity and Capital Resources
As of
As ofJune 30, 2021 , our indebtedness includes a patent acquisition liability of$302,000 , accrued interest of$1,295,080 , accrued interest to related parties of$1,720,575 , as well as loans payable, loans payable to related parties, convertible notes and convertible notes to related parties at original issuance totaling$6,694,937 ($6,659,386 net of debt discount), with maturity dates as outlined below. The convertible notes are generally due 2 years from issuance with notes maturing in 2018 through 2023. As ofAugust 12, 2021 we are currently in default of$5,148,410 of unsecured debt. We expect our operating and administrative expenses to be at least$1,200,000 annually. Amount at Original Description Maturity Date Issuance Loan Payable Q2 2016 $ 75,000 Loan Payable Q2 2018 10,000 Loan Payable Q1 2019 53,000 Loan Payable Q4 2019 45,000 Loan Payable Q1 2020 32,000 Loan Payable Q3 2020 370,618 Loan Payable Q2 2021 50,000 Loan Payable - Related Party 12/31/2018
839,395
Loan Payable -Related Party 10/2/2019
300,000
Loan Payable - Share Interest8/16/2021
150,000
Loan Payable - Share Interest - Related Party 8/16/2021 175,000 Convertible Notes On Demand 891,282 Convertible Notes Q2 2018 4,000 Convertible Notes Q4 2018 50,000 Convertible Notes Q1 2019 137,072 Convertible Notes Q2 2019 220,000 Convertible Notes Q3 2019 75,197 Convertible Notes Q4 2019 113,600 Convertible Notes Q1 2020 122,800 Convertible Notes Q2 2020 6,000 Convertible Notes Q3 2020 163,395 Convertible Notes Q4 2020 7,000 Convertible Notes Q1 2021 11,047 Convertible Notes Q2 2021 75,000 Convertible Notes Q3 2021 26,320 Convertible Notes Q4 2021 201,360 Convertible Notes Q2 2022 30,565 Convertible Notes Q3 2022 24,000 Convertible Notes - Related Party Q1 2019
878,368
Convertible Notes -Related Party Q3 2020
1,509,918
Convertible Notes - Related Party Q2 2022 48,000 Total$ 6,694,937 33
--------------------------------------------------------------------------------
We intend to fund our expenses through the issuance and sale of additional securities. We do not have any commitments from any persons to purchase any securities and there can be no assurance that we will be able to raise sufficient funds to pay our liabilities as they become due and payable.
Six-months ended
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. During the six months endedJune 30, 2021 , we used$277,463 in operating activities compared to$245,317 used in operating activities during the six months endedJune 30, 2020 . The increase in the use of operating cash between the two periods was primarily related to increases in general and administrative expenses in conjunction with increases in cash paid for interest.
Cash Flows from Investing Activities
Our use of cash flow for investing activities during the six months endedJune 30, 2021 was$120,000 compared to$0 during the six months endedJune 30, 2020 . During the six months endedJune 30, 2021 , our use of cash flows for investing activities was comprised of advances to CEN Biotech Ukraine of$120,000 . By comparison, during the six months endedJune 30, 2020 , we did not have any cash flows from investing activities.
Cash Flows from Financing Activities
During the six months endedJune 30, 2021 , we received$456,395 through issuance of convertible notes to investors to fund our working capital requirements and repaid$50,000 of our loans payable. During the six months endedJune 30, 2020 , we received$250,000 through issuance of convertible notes to investors to fund our working capital requirements
During the six months ended
During the three-month period endedJune 30, 2021 , certain private investors elected to convert$78,893 of accrued interest owed on convertible notes into 94,357 shares of common stock. CEN has no committed source of debt or equity financing. Our Executive team and Board are seeking additional financing from their business contacts, but no assurances can be given that such financing will be obtained or, if obtained, on what terms.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a reporting company that will increase our operating costs or cash requirements in the future.
Jumpstart Our Business Startups Act of 2012
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") provides that
an emerging growth company can take advantage of certain exemptions from various
reporting and other requirements that are applicable to public companies that
are not emerging growth companies. We currently take advantage of some, but not
all, of the reduced regulatory and reporting requirements that are available to
us for as long as we qualify as an emerging growth company. Our independent
registered public accounting firm will not be required to provide an attestation
report on the effectiveness of our internal control over financial reporting for
as long as we qualify as an emerging growth company.
34
--------------------------------------------------------------------------------Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
No pronouncements were adopted by the Company during the quarter ended
Recent Accounting Pronouncements Not Yet Adopted
InAugust 2020 , theFinancial Accounting Standards Board ("FASB") issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. As a smaller reporting company, as defined by theSEC , this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning afterDecember 15, 2023 . The Company is currently evaluating the impact of this ASU on the consolidated financial statements. Critical Accounting Policies
The preparation of condensed consolidated financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements. Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made. Note 1 to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.
© Edgar Online, source
