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$43,895,667 atSeptember 30, 2021 and had no committed source of additional debt or equity financing. The Company did not have any operating revenue until the acquisition ofClear Com Media, Inc. onJuly 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. 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 7, 8, 9, and 10. The Company will continue to raise additional capital through placement of 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 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 sufficient net revenue.
NOTE 3 - ACQUISTION OF CLEAR COM MEDIA, INC.
As described in Note 1, CEN acquired CCM onJuly 9, 2021 . The results of operations for CCM have been included in the accompanying consolidated financial statements from that date forward. The acquisition was made for the purpose of providing revenue to support CEN operations through the development, marketing and sales of certain digital products. Additionally, CCM will provide in-house IT support functions for CEN activities. The merger will be accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (ASC) 805, "Business Combinations" (ASC 805), with CEN representing the accounting acquirer under this guidance. ASC 805 requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired and liabilities assumed, using the bottom-up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets is to be recorded as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase consideration is recorded as a bargain purchase gain. Our estimates of fair value are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill or bargain purchase gain, as appropriate, in the period in which such revised estimates are identified. 12 --------------------------------------------------------------------------------
See Note 21 for segment reporting, which includes the specific revenue and earnings results of CCM since the date of acquisition as CCM has been determined to be a distinct operating segment.
The aggregate consideration for the acquisition of CCM was 4,000,000 restricted shares of CEN common stock, which were valued at$2,120,000 based upon the closing stock price onJuly 9, 2021 . The purchase price accounting is still in process. The following is a preliminary estimate of the fair values of the assets acquired and the liabilities assumed by CEN in the transaction: Cash$ 259,470 Accounts receivable 202,527 Property and equipment 97,911 Other assets 244,540 Identifiable intangibles 625,170 Current financial liabilities (321,251 ) Other long-term liabilities (140,078 ) Total identifiable net assets 968,289 Goodwill 1,151,711 Net assets acquired$ 2,120,000 Identified intangible assets acquired includes trade names, customer relationships, and product technology whose fair value of$625,170 is based on a provisional amount, pending receipt of additional appraisals. These assets are expected be amortized over useful-lives ranging from 3 to 7 years and will reviewed for impairment at least annually or more frequently if indicators of impairment exist.
Amounts recognized as goodwill are expected to be fully deductible for Canadian income tax purposes.
Costs related to the acquisition, which include legal, accounting, and valuation fees, in the amount of approximately$80,000 have been charged directly to operations and are included in general and administrative expenses in the 2021 consolidated statement of operations. 13 --------------------------------------------------------------------------------
Supplemental proforma financial information
The unaudited financial information in the table below summarizes the combined results of operations of CEN and CCM on a pro forma basis, as though the companies had been combined as of theJanuary 1, 2020 . These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place onJanuary 1, 2020 . The pro forma financial information assumes the 4,000,000 shares of CEN common stock were issued onJanuary 1, 2020 and includes adjustments to amortization for acquired intangible assets. The pro forma financial information for the three and nine-months endedSeptember 30, 2021 combines the results of CEN and CCM for the respective periods, which include the results of CCM subsequent toJuly 9, 2021 , and the historical results for CCM for the period ofJuly 1, 2021 toJuly 8, 2021 and the six-months endedJune 30, 2021 . The pro forma financial information for the three and nine months endedSeptember 30, 2020 combines CEN's historical results for those periods with the historical results of CCM for the three and nine months endedSeptember 30, 2020 .
The following table summarizes the pro forma financial information:
Three-Months Ended Nine-Months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020
Revenue $ 320,637 $ 310,210 $ 951,284 $ 906,875
Operating expenses 943,803 1,249,508 18,412,579 3,032,209
Loss from operations (623,166 ) (939,298 ) (17,461,295 ) (2,125,334 )
Other (expense) income (73,670 ) (866,513 ) 944,926 (2,492,515 )
Net income (loss) $ (696,836 ) $
(1,825,511 )
Net Loss Per Share Basic and Diluted $ (0.01 ) $
(0.06 )
Weighted Average Number of Shares Outstanding Basic and Diluted 49,412,822 31,334,031 41,394,326 31,172,985
NOTE 4 - PROPERTY, PLANT AND IMPROVEMENTS, NET
Property and equipment, net consists of the following as of:
September 30,
2021
Computers and equipment $ 62,574
Furniture and fixtures 32,900
Leasehold improvements 19,208
114,682
Less: accumulated depreciation and amortization 10,857
Net property and equipment $ 103,825
Effective August 1, 2020 , the Company terminated both their operating lease at
20 North Rear Road with Jamsyl Group , a third-party, and abandoned their office
space under operating lease with RN Holdings Ltd , a third-party, in Windsor,
Ontario (Note 13). All property, plant, and improvements, including the
previously held equipment that had secured the Global Holdings International,
LLC loan, were located at these locations and, with the exception of proceeds of
$1,801 from sales of associated assets, all remaining property, plant, and
improvements were abandoned resulting in a loss on disposal of $135,600 for the
three and nine-months ended September 30, 2020 . Accordingly, there was no
property and equipment held prior to the CCM acquisition on July 9, 2021 .
Depreciation expense was $10,968 and $1,532 for the three-months ended September
30, 2021 and 2020, respectively, and $10,968 and $10,724 for the nine months
ended September 30, 2021 and 2020, respectively.
14
--------------------------------------------------------------------------------
NOTE 5 - 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 16). 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. AtSeptember 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 16). The advances were for the purpose of funding the operations ofCEN Biotech Ukraine, LLC .Bahige (Bill) Chaaban , 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 6 - INTANGIBLE ASSETS Lighting Patent
On
The patent remained 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. InMarch 2018 , the agreement was amended to reflect a fixed one million registered shares of CEN common stock. As ofSeptember 30, 2021 andDecember 31, 2020 , the value of this liability was$354,900 and$1,380,000 , respectively. This liability will be remeasured at each reporting date using the current fair value of CEN's common shares. 15
-------------------------------------------------------------------------------- Subsequently, onOctober 7, 2021 , the agreement was amended and finalized to increase the number of CEN common shares to be transferred to five million. Upon closing of the agreement, the CEN common stock was transferred to the Sellers and the transfer of the patent and real property was completed. In addition, the Sellers assumed the mortgage and associated accrued interest on certain real property that was included in the original agreement, see Note 7. 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.
Intangible assets consist of the following at:
September 30, December 31,
2021 2020
Lighting patent $ 6,797,000 $ 6,797,000
Product technology 345,356 -
Customer relationships 219,772 -
Capitalized software development costs 53,215 -
Trade names 47,094 -
Total identifiable intangible assets 7,462,437 6,797,000
Less: Accumulated amortization 2,183,570 1,840,853
Net $ 5,278,867 $ 4,956,147
As of September 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 intangible assets. The lighting patent is being amortized straight-line over
16 years. Remaining intangibles, with the exception of the capitalized software
development costs, which have not yet been implemented, are being amortized
straight-line over 3 to 15 years. Expected amortization expense for the lighting
patent is $424,812 per year through 2031, with the remaining $283,215 to be
amortized in 2032. Expected amortization expense for the product technology,
customer relationships, and trade names acquired as part of the CCM acquisition
on July 9, 2021 are expected to be approximately $96,400 per year through 2023,
$88,600 in 2024, $80,700 in 2025 and 2026, with the remaining $121,100 to be
amortized through 2028. See Note 3 regarding the initial measurement period for
the intangibles acquired as part of the acquisition. of CCM.
16
--------------------------------------------------------------------------------NOTE 7 - LOANS PAYABLE
Loans payable consist of the following at:
September 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 onSeptember 21, 2021 . This was assumed onOctober 7, 2021 by the Sellers as described in Note 6. 302,186
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 matured onJuly 16, 2021 . 50,000
50,000
Loan payable in default 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 onDecember 16, 2021 . 100,000
100,000
Loans payable in default to multiple private investors bearing an interest at rates of up to 12% per annum, which matured at various dates between June 2018 and May 2021. 592,395 -
Loans payable to a private investor for the
original amount of
867,089 -
Total loans payable (all current) $ 1,986,670 $ 527,379
During each of the three-month periods ended September 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 ended September 30,
2021 and 2020, $10,926 and $12,960 in interest expense and additional paid-in
capital was recorded, respectively.
During each of the nine-month periods ended September 30, 2021 and 2020, 54,000
common shares were issued to individuals in connection with interest terms of
the above loans. Accordingly, during the nine-month periods ended September 30,
2021 and 2020, $52,266 and $38,880 in interest expense and additional paid-in
capital was recorded, respectively.
During the three and nine-month periods ended September 30, 2021 , certain
private investors amended their convertible notes payable totaling $1,209,484
and $1,459,484 , respectively, which were convertible into 549,830 and 677,955
common shares, respectively. 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.
17
--------------------------------------------------------------------------------NOTE 8 - LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following at:
September 30 ,December 31, 2021 2020
Loan payable in default due to the spouse of
$ 1,388,122 $ -
Loans payable in default to the spouse of
236,830 236,854
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 of
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$644,360 and$568,969 as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Interest expense attributable to related party loans was$39,927 and$46,504 for the three-months endedSeptember 30, 2021 and 2020, respectively, and was$155,452 and$138,275 for the nine-months endedSeptember 30, 2021 and 2020, respectively. During the three-month periods endedSeptember 30, 2021 and 2020, 21,000 and 27,000 common shares, respectively, were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during the three-month periods endedSeptember 30, 2021 and 2020,$12,747 and$19,440 in related party interest expense and additional paid-in capital was recorded, respectively. 18
-------------------------------------------------------------------------------- During the nine-month periods endedSeptember 30, 2021 and 2020, 75,000 and 81,000 common shares, respectively, were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during the nine-month periods endedSeptember 30, 2021 and 2020,$74,757 and$58,320 in related party interest expense and additional paid-in capital was recorded, respectively. NOTE 9 - CONVERTIBLE NOTES
Convertible notes payable consists of the following at:
September 30, December 31,
2021 2020
Convertible notes payable in default to multiple
private investors, including certain notes in
default, bearing interest at 5% per annum with
conversion rights for 457,517 common shares, which
matured at various dates between May 2018 and
October 2021. $ 726,472 Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 94,298 common shares, maturing at various dates in June 2022. 35,000 - Convertible note payable, due on demand, for the original amount ofCAD 1,104,713 , bearing interest at 7% per annum which had conversion rights for 335,833 common shares. EffectiveAugust 17, 2021 , the note was amended and reclassified as the conversion feature was removed, see Note 7. -
867,641
Total convertible notes payable 761,472
6,730,448
Less unamortized debt discount 11,946 -
Total convertible notes payable, net of unamortized debt discount
749,526 6,730,448
Less current portion 749,526
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 nine-month period endedSeptember 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-month period endedSeptember 30, 2021 or the three or nine-month periods endedSeptember 30, 2020 . 19 --------------------------------------------------------------------------------
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 551,815 common shares.
During the three-month period endedSeptember 30, 2021 , certain private investors elected to exercise their convertible notes payable totaling$167,924 in exchange for 104,953 common shares. During the nine-month period endedSeptember 30, 2021 , certain private investors elected to exercise their convertible notes payable totaling$5,023,785 in exchange for 3,395,133 common shares. As a result, the associated convertible notes have been extinguished and reclassified as additional paid in capital. There were no such elections to convert any of the convertible notes payable during the three or nine-month periods endedSeptember 30, 2020 . During the nine-month period endedSeptember 30, 2021 , certain private investors elected to convert$78,893 of accrued interest owed on convertible notes into 94,357 shares of common stock. There were no such elections to convert any of the accrued interest on convertible notes payable during the three-month periods endedSeptember 30, 2021 or 2020 or the nine-month period endedSeptember 30, 2020 .
As of
NOTE 10 - CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties consists of the following at:
September 30, December 31,
2021 2020
Convertible notes in default due to Harold 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
on March 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 94,488 common shares with a maturity date of May 24, 2022. 48,000 - Convertible note in default due to the spouse ofBill Chaaban , CEO of CEN, which bears an interest at 12% per annum. This note was convertible to 867,576 common shares and matured onAugust 17, 2020 . EffectiveAugust 17, 2021 , the note was amended and reclassified as the conversion feature was removed, see Note 8. -
1,388,122
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 1,048,164
2,558,681
Less unamortized debt discount 11,730 - Total convertible notes payable - related parties (all current)$ 1,036,434 $ 2,558,681 20
-------------------------------------------------------------------------------- Attributable related party accrued interest was$1,160,088 and$1,046,911 as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Interest expense attributable to related party convertible notes was$61,918 , and$60,529 for the three months endedSeptember 30, 2021 and 2020, respectively, and was$183,043 and$180,268 for the nine-months endedSeptember 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 the nine-month period endedSeptember 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-month period endedSeptember 30, 2021 or the three or nine-month periods endedSeptember 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 719,591 common shares.
During the nine-month period ended
As of
NOTE 11 - CEBA LOAN PAYABLE
The
21
--------------------------------------------------------------------------------NOTE 12 - GOVERNMENTAL ASSISTANCE
The Canadian government enacted theCanada Emergency Wage Subsidy ("CEWS") andCanada Emergency Rent Subsidy ("CERS") in 2020 to provide a wage and rent subsidy to employers that suffered reductions in revenue resulting from the COVID-19 pandemic. CCM received$116,610 during the three and nine months endedSeptember 30, 2021 related to CEWS and CERS which is recognized as governmental assistance income in the condensed consolidated statements of operations and other comprehensive loss. NOTE 13 - LEASES
The Company currently leases certain facilities and equipment under
noncancelable operating lease agreements that expire at various dates through
2024. Monthly rentals range from
The Company also leased office space inWindsor, Ontario fromRN Holdings Ltd. 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 . Effective with theAugust 1, 2020 lease termination and abandonments, all property, plant, and improvements which were located at these properties were abandoned. As ofNovember 19, 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 ofSeptember 30, 2021 under its original contractual terms. The operating lease liability as ofSeptember 30, 2021 andDecember 31, 2020 was$318,775 and$164,997 , respectively, utilizing a weighted average discount rate of approximately 6.70% over a weighted average remaining lease term of approximately 4.6 years. During the three-months endedSeptember 30, 2021 and 2020, lease expenses of$17,594 and$5,248 , respectively, and during the nine-months endedSeptember 30, 2021 and 2020, lease expenses of$28,343 and$18,501 , respectively, related to this agreement were recognized within general and administrative expenses. The following is a schedule of future annual minimum rental payments required under operating leases with initial or remaining noncancelable lease terms in excess of one year for the 12 months subsequent toSeptember 30, 2021 : Amount 2022$ 110,969 2023 89,879 2024 75,522 2025 31,930 2026 31,930 Thereafter 31,930 Total lease payments$ 372,159 Less imputed interest 53,384
Present value of lease liability
22
--------------------------------------------------------------------------------NOTE 14 - 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 nine-months endedSeptember 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 % As ofSeptember 30, 2021 , the Company has net operating loss carry forwards of approximately$29,200,000 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 endedSeptember 30, 2021 and the year endedDecember 31, 2020 : September 30, December 31, 2021 2020
Deferred tax asset - net operating losses
(7,700,000 ) (3,400,000 )
Net deferred tax asset $ - $ -
The valuation allowance increased $100,000 and $700,000 for the three-months
ended September 30, 2021 and 2020, respectively, and $4,300,000 and $1,400,000
for the nine-months ended September 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 of September 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 15 - 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
23
--------------------------------------------------------------------------------NOTE 16 - RELATED PARTY TRANSACTIONS
The Company has received loans from several related parties, as described above in Notes 8 and 10.
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 5. There are advances of$1,299,328 and$1,179,328 to CEN Biotech Ukraine as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Such advances were made for the purpose of funding the operations of CEN Ukraine as summarized in Note 5. 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 CENUkraine . The consideration will be paid by issuing common shares of the Company. The agreement, which is subject to certain conditions, has not closed as ofNovember 19, 2021 , as the Company needs to raise additional funds in order to proceed with the closing.Bahige (Bill) Chaaban , 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. 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 endedSeptember 30, 2021 and 2020, the Company incurred payroll and consulting expenses of$53,914 and$31,200 , respectively, and$131,914 and$93,600 during the nine-months endedSeptember 30, 2021 and 2020, respectively, with certain Board Members and Officers. As ofSeptember 30, 2021 andDecember 31, 2020 ,$462,114 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 ofSeptember 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 nine-months endedSeptember 30, 2020 , lease expenses of$2,982 and$20,391 , respectively, related to this agreement were recognized within general and administrative expenses. 24
--------------------------------------------------------------------------------
NOTE 17 - 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 untilNovember 2020 . 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 untilNovember 2020 . 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. 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. 25 -------------------------------------------------------------------------------- OnJuly 13, 2021 , the Company entered into agreements with two individuals for the payment of security and legal consulting services under which the Company issued an aggregate of 500,000 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of$275,000 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 .
On May 16, 2019 , an employment agreement was entered into with Alex 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 effective May
21, 2019 :
? 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.
26-------------------------------------------------------------------------------- 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. OnApril 2, 2021 andJune 25, 2021 , the Company entered into an RSA (the "Tarrabain RSA") withAlex Tarrabain . Pursuant to the Tarrabain RSA, the Company grantedMr. 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. 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$29,035,063 and$13,013,241 as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. During the three and nine-month periods endedSeptember 30, 2021 , 500,000 and 12,559,291 restricted shares, respectively, with a grant date fair value of$275,000 and$16,021,822 , respectively, were awarded. During the three and nine-month periods endedSeptember 30, 2020 , 162,500 and 387,500 restricted shares, respectively, with a grant date fair value of$117,000 and$279,000 , respectively, 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. 27
-------------------------------------------------------------------------------- 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 endedSeptember 30, 2021 and 2020, 575,000 and 500,000, respectively, and during the nine-month periods endedSeptember 30, 2021 and 2020, 12,784,291 and 1,737,500, respectively, of these shares vested. The fair value of the restricted stock which vested amounted to$350,750 and$355,500 for the three-months endedSeptember 30, 2021 and 2020, respectively, and$16,249,072 and$1,053,000 for the nine-months endedSeptember 30, 2021 and 2020, respectively. Compensation expense recognized in connection with the restricted stock awards was$75,750 and$196,650 for the three-months endedSeptember 30, 2021 and 2020, respectively, and$15,077,072 and$589,950 for the nine-months endedSeptember 30, 2021 and 2020, respectively. Consulting expense recognized in connection with the restricted stock awards was$275,000 and$117,000 for the three-months endedSeptember 30, 2021 and 2020, respectively, and$1,172,000 and$279,000 for the nine-months endedSeptember 30, 2021 and 2020, respectively.
Non-vested restricted stock award activity for the nine-months ended
Weighted-
Average
Weighted- Remaining
Average Grant Contractual
Number of Date Fair Value Term
Shares per Share (Years)
Non-vested at January 1, 2020 2,025,000 $ 0.76 1.54
Granted 387,500 0.72 -
Vested (1,737,500 ) 0.71 -
Forfeited - - -
Non-vested at September 30, 2020 675,000 $ 0.91 1.36
Non-vested at January 1, 2021 425,000 $ 1.01 1.50
Granted 12,559,291 1.28 -
Vested (12,784,291 ) 1.27 -
Forfeited - - -
Non-vested at September 30, 2021 200,000 $ 1.01 0.75
The fair value of the restricted stock grants was based on the valuation of a
third-party specialist prior to April 5, 2021 . Beginning April 5, 2021 , the fair
value of the restricted stock grants is based upon the daily closing price per
the OTC Link. As of September 30, 2021 , unrecognized compensation expense
totaled $202,000 , which will be recognized on a straight-line basis over the
vesting period or requisite service period through May 2022 .
28
--------------------------------------------------------------------------------NOTE 18 - 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 ofSeptember 30, 2021 and 2020. Common stock equivalents that were excluded for the three and nine-month periods endedSeptember 30, 2021 and 2020 are as follows: Three-months Ended Nine-months Ended September 30, September 30, 2021 2020 2021 2020 Convertible debt 1,271,406 5,733,735 1,163,866 5,425,999 NOTE 19 - 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.
NOTE 20 - 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 September 30, 2021 :
Cash and cash equivalents $ 213,805 $ - $ 213,805 $ - $ 213,805
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 $ 1,986,670 $ - $ - $ 1,986,670 $ 1,986,670
Loans payable - related parties $ 2,701,452 $ - $ - $ - $ -
Patent acquisition liability $ 354,900 $ 354,900 $ - $ - $ 354,900
Convertible notes payable $ 749,526 $ - $ - $ 1,962,985 $ 1,962,985
Convertible notes payable - related
parties $ 1,036,434 $ - $ - $ - $ -
CEBA loan payable $ 31,396 $ - $ - $ 31,396 $ 31,396
29--------------------------------------------------------------------------------
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 $ - $ - $ - $ -
The fair values of other receivables (including related accrued interest), note
receivable - CEN Biotech Ukraine, LLC , and advances to Emergence Global and CEN
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. 30 --------------------------------------------------------------------------------
NOTE 21 - SEGMENT INFORMATION As described in Note 2, the Company closed on the acquisition of CCM onJuly 9, 2021 . With the acquisition of CCM, the Company has two reportable business segments, Growth and Digital. The Growth segment encompasses the activities ofCEN Biotech, Inc. and focuses on the planned manufacturing, production and development of LED lighting technology and hemp-based products. The Digital segment encompasses the activities ofClear Com Media, Inc. and focuses on providing digital marketing and web design related services. Substantially all of the Company's operations are conducted withinthe United States of America andCanada . Segment information: Three-months Ended September 30, 2021 2020 Growth Digital Growth Digital Revenue $ -$ 272,166 $ - $ - Operating loss (570,311 ) (74,665 ) (968,424 ) - Depreciation expense - 10,968 1,532 - Amortization expense 106,203 24,350 106,203 - Interest income - 87 1,553 - Interest expense 173,412 - 921,017 - Capital expenditures - 18,988 - - Nine-months Ended September 30, 2021 2020 Growth Digital Growth Digital Revenue $ -$ 272,166 $ - $ - Operating loss (17,178,728 ) (74,665 ) (2,189,621 ) - Depreciation expense - 10,968 10,724 - Amortization expense 318,609 24,350 318,609 - Interest income 394 87 5,465 - Interest expense 703,665 - 2,727,672 - Capital expenditures - 18,988 - -
Segment assets to total assets:
September 30, December 31,
2021 2020
Growth $ 5,989,211 $ 6,314,142
Digital 2,412,754 -
Total assets $ 8,401,965 $ 6,314,142
NOTE 22 - SUBSEQUENT EVENTS
From
31
--------------------------------------------------------------------------------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 November 19, 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.
On April 20, 2021 , the Company entered into a Share Exchange Agreement (the
"Agreement") with Clear Com Media Inc. , an Ontario, Canada corporation ("CCM"),
each of the shareholders of CCM as set forth on the signature pages of the
Agreement (the "CCM Shareholders") and Lawrence 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 on July 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.
32
--------------------------------------------------------------------------------
Effective with the acquisition of Clear Com Media, Inc. on July 9, 2021 , the
Company reports in two business segments, Growth and Digital. The Growth segment
encompasses the activities of CEN Biotech, Inc. and focuses on the planned
manufacturing, production and development of LED lighting technology and
hemp-based products. The Digital segment encompasses the activities of Clear Com
Media, Inc. and focuses on providing digital marketing and web design related
services. Substantially all of the Company's operations are conducted within the
United States of America and Canada .
Our principal office is located at
The Company derived approximately 99% of its revenue from one customer during the three and nine-month periods endedSeptember 30, 2021 . The Company had no revenue prior toJuly 9, 2021 .
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.
At
? Approximately$420,000 to operate its office inKiev ; ? 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,$2.2 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
?
the phyto medical space and we estimate the cost of this to be
33
--------------------------------------------------------------------------------?February 2022 - The Company intends to obtain quotation on OTCQB and we estimate the costs of this to be$200,000 .
?
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 April, 2022 and
we estimate the costs of this to be $400,000 annually.
? Purchase of seeds for production crop expected to take place in March, 2022
and we estimate the costs of this to be $100,000 annually.
? 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 September, 2022 and
we estimate the costs of this to be $300,000 annually.
?
regarding the LED lighting patent.
?
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 April, 2022 and we
estimate the costs of this to be $400,000 annually.
? Lease equipment expected to take place in June, 2022 and we estimate the costs
of this to be $400,000 annually.
? Hire staff expected to take place in May, 2022 and we estimate the costs of
this to be $600,000 annually.
? Initial raw materials expected to take place in May, 2022 and we estimate the
costs of this to be $500,000 one time.
? Marketing and delivery expected to take place in September, 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.
34
--------------------------------------------------------------------------------
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 a decrease of 30% in this burn rate with the elimination of some staff members that provide the SEO and custom development services that are no longer being performed by CCM. We will potentially rehire some of these people in order to retool the focus of the business and pivot to the development of some products as soon as it is financially viable to do so.
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.
? The pace of development of the Chatter product has been modified to meet the
changing needs of the business and to address new market realities. Progress
continues but a refocus on core deliverables that delivers a new phased
approach to product roll out is being implemented. Recent changes in sales,
the competitive landscape and modified revenue forecasts have triggered a
pivot in terms of priorities and timing.
? The development of the Block Chain Permission Platform has been modified to
solely focus on the R&D elements of the offering. Commercialization of the
product has been reorganized to be addressed later once we have achieved new
internal goals and milestones; however, work continues on the core offering
with clear goals and objectives in mind.
? Continued development of internal efficiency processes and automated systems
for tasks such as workflow, billing, subscriptions, security and internal
cloud computing.
? The marketing of both the Chatter and
being refined based on new and ongoing information that is being gathers from
our target markets and the rapidly changing landscape of the verticals we
operate in. As our research continues, we hope to commence marketing efforts
in second to third quarter of next year when the products are in a completed
and in a commercially viable state.
? The development of digital community project remains at the discovery stage
and research continues about the participants and nuances of this space and
how we feel we can best serve this vertical. Once a plan is formalized new
hires will be recruited to address the specific development needs of this
product and service.
? 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 responsive website design, online chat, social media marketing
and landing page development.
? As part of our renegotiation with Postmedia as are no longer providing the SEO
and custom development services going forward.
? No acquisitions are being considered at this time until the proper financing
in place to do so.
--------------------------------------------------------------------------------
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. 35
-------------------------------------------------------------------------------- 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. The aggregate consideration for the acquisition of CCM was 4,000,000 restricted shares of CEN common stock, which were valued at$2,120,000 based upon the closing stock price onJuly 9, 2021 . The following is a preliminary estimate of the fair values of the assets acquired and the liabilities assumed by CEN in the transaction: Cash$ 259,470 Accounts receivable 202,527 Property and equipment 97,911 Other assets 244,540 Identifiable intangibles 625,170 Current financial liabilities (321,251 ) Other long-term liabilities (140,078 ) Total identifiable net assets 968,289 Goodwill 1,151,711 Net assets acquired$ 2,120,000 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. 36
-------------------------------------------------------------------------------- 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. OnOctober 7, 2021 ("Closing Date"), the Company entered into and closed on a definitive agreement withTesla Digital Inc. , anOntario, Canada corporation,Tesla Digital Global Group, Inc. , anOntario, Canada corporation, as well asSteven Pokrajac individually (together, the "Sellers"), pursuant to which the parties agreed to the sale and assignment of certain assets of the Sellers (the "Purchased Assets") related to a Light Emitting Diode Driver Circuit, as more specifically set forth in the Asset Purchase Agreement, Patent Assignment and Bill of Sale (together, the "Transaction Documents"). Pursuant to the Transaction Documents, the Company agreed to complete the purchase, acquisition and acceptance from the Sellers of the Purchased Assets, which include all of the Sellers' right, title, and interest in and toUnited States patent numberU.S. 8 ,723,425 (the "Patent"), in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof, in addition to, any related manufacturing machinery plus inventory on hand, and all know-how pertaining to manufacture, use, operation maintenance, development, enjoyment and exploitation of the Patent and the related manufacturing machinery (the "Property"). U.S. U.S. Patent Application Patent Issue Subject Application No. Filing Date Status No. Date Matter 13/525,703 06/18/2012 Issued U.S. Patent 8,723,425 05/13/2014 Light Emitting Diode Driver Circuit The Sellers cooperated with the Company to perfect the sale and assignment of the Patent and Property, including through execution of the Patent Assignment and recordation of the same with theU.S. Patent Office, onOctober 7, 2021 . The Company had full rights to utilize the patented technology prior to the Patent Assignment. These rights were granted by the Seller as a part of the transaction with the Company started in August of 2016. As consideration for the sale, assignment and transfer of the Purchased Assets (the "Tesla Digital Transaction"), on the Closing Date the Company agreed to pay to the Sellers (i) 5,000,000 shares of the Company's Common Stock, at no par value per share (the "Shares"), (ii) that parcel of real property known as1517-1525 Ride Road ,Essex, Ontario (Canada ), which the Parties acknowledged has already been satisfactorily tendered by Company to Sellers with assumption of mortgage, and (iii) that parcel of real property known as135 North Rear Road , Town of Lakeshore,Ontario (Canada ), which the Parties acknowledged has already been satisfactorily tendered by Company to Sellers with assumption of mortgage.
Pursuant to notice given to its current transfer agent on Closing Date, the Company has authorized and instructed transfer agent to reserve the Shares of the Company for issuance upon the written request of any of the Sellers in accordance with the terms therein and following written confirmation by the Company.
The Transaction Documents are the definitive agreements between the Company and Sellers, following a Sale Purchase Agreement for the sale of certain assets, properties and rights datedAugust 31, 2016 , as well as its Amending Agreements datedMarch 29, 2018 ,September 30, 2018 ,April 3, 2019 andMarch 16, 2020 .
From
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--------------------------------------------------------------------------------Results of Operations We have incurred recurring losses and have only recently commenced revenue generating operations with our acquisition ofClear Com Media, Inc. onJuly 9, 2021 . 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. 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$43,895,667 atSeptember 30, 2021 and had no committed source of debt or equity financing. The Company did not have any operating revenue until the acquisition ofClear Com Media, Inc. onJuly 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. 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 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 sufficient net revenue.
Results of Operations for the Three and Nine-Months Ended
The following tables reflect our operating results for the three and nine-months
ended
Three-months ended
Operating Summary September 30, 2021 September 30, 2020 Change
Revenue $ 272,166 $ - n/a %
Operating Expenses (917,142 ) (968,424 ) (5.3 )%
Loss from Operations (644,976 ) (968,424 ) (33.4 )%
Other Expense, net (73,964 ) (957,752 ) (92.3 )%
Net Loss $ (718,940 ) $ (1,926,176 ) (62.7 )%
Nine-months ended
Operating Summary September 30, 2021 September 30, 2020 Change
Revenue $ 272,166 $ - n/a %
Operating Expenses (17,525,559 ) (2,189,621 ) 700.4 %
Loss from Operations (17,253,393 ) (2,189,621 ) 688.0 %
Other Income (Expense), net 418,253 (2,696,548 ) (115.5 )%
Net Loss $ (16,835,140 ) $ (4,886,169 ) 244.5 %
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Revenue EffectiveJuly 9, 2021 with the acquisition ofClear Com Media, Inc. , we commenced revenue generating operations. All revenue generating activity was from the Digital segment. Revenue of$272,166 was recognized during both the three and nine-months endedSeptember 30, 2021 . We did not recognize revenue during the three or nine-months endedSeptember 30, 2020 , as we had not yet commenced revenue generating operations. Operating Expenses Growth Segment During the three months endedSeptember 30, 2021 , our operating expenses were$570,311 compared to$968,424 during the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2021 , our operating expenses were comprised of salary and consulting fees of$328,914 , stock-based compensation expense of$75,750 , and general and administrative expenses of$165,647 . By comparison, during the three months endedSeptember 30, 2020 , our operating expenses were comprised of salary and consulting fees of$167,200 , stock-based compensation expense of$196,650 , general and administrative expenses of$268,487 , and losses from lease abandonment, lease termination, and associated disposal of property and equipment of$336,087 . Expenses incurred during the three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 decreased primarily due to the non-recurring losses from lease abandonment, lease termination, and associated disposal of property and equipment that occurred in 2020 and decreases in general and administrative spending. During the nine months endedSeptember 30, 2021 , our operating expenses were$17,178,728 compared to$2,189,621 during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , our operating expenses were comprised of salary and consulting fees of$1,303,914 , stock-based compensation expense of$15,077,072 , and general and administrative expenses of$797,742 . By comparison, during the nine months endedSeptember 30, 2020 , our operating expenses were comprised of salary and consulting fees of$391,677 , stock-based compensation expense of$589,950 , general and administrative expenses of$871,907 , and losses from lease abandonment, lease termination, and associated disposal of property and equipment of$336,087 . Expenses incurred during the nine months endedSeptember 30, 2021 compared to nine months endedSeptember 30, 2020 increased primarily due to increased consulting fees for security, legal, and business coaching for our executives, increased stock-based compensation for our executives and board members as well as increases in legal and professional fees. Digital Segment
During the both the three and nine months ended
Other Income and Expense Items
During the three months endedSeptember 30, 2021 , our other expense, net was$73,964 compared to other expense, net of$957,752 during the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2021 , our other income and expense items were comprised of interest expense of$173,412 , interest income of$87 , governmental assistance income of$116,610 , loss on change in fair value of patent acquisition liability of$52,900 , and foreign exchange gain of$35,651 . By comparison, during the three months endedSeptember 30, 2020 , our other income and expense items were comprised of interest expense of$921,017 , interest income of$1,553 , and foreign exchange loss of$38,288 . Expenses incurred during the three months endedSeptember 30, 2021 compared to three months endedSeptember 30, 2020 decreased primarily due to a decrease in interest expense as a result of debt conversions. 39 -------------------------------------------------------------------------------- During the nine months endedSeptember 30, 2021 , our other income, net was$418,253 compared to other expense, net of$2,696,548 during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , our other income and expense items were comprised of interest expense of$703,665 , interest income of$481 , governmental assistance income of$116,610 , gain on change in fair value of patent acquisition liability of$1,025,100 , and foreign exchange loss of$20,273 . By comparison, during the nine months endedSeptember 30, 2020 , our other income and expense items were comprised of interest expense of$2,727,672 , interest income of$5,465 , and foreign exchange gain of$25,659 . Expenses incurred during the nine months endedSeptember 30, 2021 compared to nine months endedSeptember 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 ofSeptember 30, 2021 , the Company has net operating loss carryforwards of approximately$29,200,000 that may be available to reduce future years' taxable income. As ofSeptember 30, 2021 , the Company has a deferred tax asset of approximately$7,700,000 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. Net Loss
Our net loss during the three months ended
Our net loss during the nine months endedSeptember 30, 2021 was$16,835,140 compared to a net loss of$4,886,169 during the nine months endedSeptember 30, 2020 due to the factors discussed above. Other Comprehensive Loss Our comprehensive loss arises from foreign currency translation adjustments related to CCM based upon published exchange rates. During both the three and nine-months endedSeptember 30, 2021 our other comprehensive loss was$44,379 . We had no items of comprehensive income or loss during either the three or nine-months endedSeptember 30, 2020 .
Liquidity and Capital Resources
As of
40
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As of September 30, 2021 , our indebtedness includes a patent acquisition
liability of $354,900 , accrued interest of $1,323,520 , accrued interest to
related parties of $1,804,448 , as well as loans payable, loans payable to
related parties, convertible notes and convertible notes to related parties at
original issuance totaling $6,497,758 ($6,474,082 net of debt discount), and a
CEBA loan payable of $31,396 , with maturity dates as outlined below. The
convertible notes are generally due 2 years from issuance with notes maturing in
2018 through 2022. As of November [ ], 2021 we are currently in default of
$5,272,669 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 Q2 2019 210,000
Loan Payable Q3 2019 30,000
Loan Payable Q4 2019 45,000
Loan Payable Q1 2020 32,000
Loan Payable Q3 2020 162,395
Loan Payable Q2 2021 50,000
Loan Payable Q3 2021 302,187
Loan Payable On Demand 867,088
Loan Payable - Related Party Q4 2018 838,330
Loan Payable - Related Party Q4 2019 300,000
Loan Payable - Related Party Q3 2020 1,388,122
Loan Payable - Share Interest Q3 2021 50,000
Loan Payable - Share Interest Q4 2021 100,000
Loan Payable - Share Interest - Related Party Q4 2021 175,000
Convertible Notes Q2 2018 4,000
Convertible Notes Q4 2018 50,000
Convertible Notes Q1 2019 137,072
Convertible Notes Q2 2019 10,000
Convertible Notes Q3 2019 40,000
Convertible Notes Q4 2019 105,600
Convertible Notes Q1 2020 122,800
Convertible Notes Q4 2020 7,000
Convertible Notes Q2 2021 75,000
Convertible Notes Q4 2021 175,000
Convertible Notes Q2 2022 35,000
Convertible Notes - Related Party Q1 2019 878,368
Convertible Notes - Related Party Q3 2020 121,796
Convertible Notes - Related Party Q2 2022 48,000
CEBA Loan Payable Q4 2025 31,396
Total $ 6,529,154
We intend to fund our expenses through revenues generated through Clear Com
Media, Inc. and from 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.
41
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Nine-months ended
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. During the nine months endedSeptember 30, 2021 , we used$256,032 in operating activities compared to$399,306 used in operating activities during the nine months endedSeptember 30, 2020 . The decrease in the use of operating cash between the two periods was primarily related to increases in general and administrative expenses that were offset by the commencement of revenue generating activities with the acquisition of CCM onJuly 9, 2021 .
Cash Flows from Investing Activities
Our cash flow provided by investing activities during the nine months endedSeptember 30, 2021 was$66,731 compared to cash used in investing activities of$103,199 during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , our cash flows from investing activities was comprised of an addition of cash as part of the CCM acquisition in exchange for shares of CEN common stock, advances to CEN Biotech Ukraine of$120,000 , research and development of$53,751 , and purchases of equipment of$18,988 . By comparison, during the nine months endedSeptember 30, 2020 , our use of cash flows for investing activities was comprised of advances to CEN Ukraine of$105,000 and proceeds from the sale of equipment of$1,801 .
Cash Flows from Financing Activities
During the nine months endedSeptember 30, 2021 , we received$460,830 through issuance of convertible notes to investors to fund our working capital requirements and repaid$50,000 of our loans payable. During the nine months endedSeptember 30, 2020 , we received$499,000 through issuance of convertible notes to investors to fund our working capital requirements.
During the nine months ended
During the nine-month period endedSeptember 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.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
No pronouncements were adopted by the Company during the nine-month period ended
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--------------------------------------------------------------------------------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 . Early adoption is permitted. The Company intends to adopt this standard effectiveJanuary 1, 2022 . 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, except as it relates to the provisional estimates surrounding the valuation of net assets recognized in conjunction with the acquisition of CCM onJuly 9, 2021 . ASC 805 allows for a measurement period, not to exceed 12 months from the date of acquisition, for filers to compile sufficient information to complete their estimate of the fair value of the net assets acquired. As ofSeptember 30, 2021 , the Company is still in this measurement period. Any significant adjustments to our estimates of fair value of acquired net assets in future periods could have significant impacts on reported results from such periods. 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.
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