CEN Biotech : NOTE 2 - GOING CONCERN UNCERTAINTY / MANAGEMENT PLANS
05/12/2021 | 05:03pm EST
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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
$27,683,562 at March 31, 2021 and had no committed source of additional debt or
equity financing. The Company has not had any operating revenue and does not
foresee any operating revenue in the near term. The Company has relied on the
issuance of loans payable and convertible debt instruments to finance its
expenses, including notes that are in default, as described in Notes 5, 6, 7,
and 8. The Company will continue to raise additional capital through placement
of our common stock, notes or other securities in order to implement its
business plan or additional borrowings, including from related parties. The
COVID-19 pandemic has hindered the Company's ability to raise capital. There can
be no assurance that the Company will be successful in either situation in order
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
The Company's cash position may not be sufficient to support the Company's daily
operations or its ability to undertake any business activity that will generate
net revenue.
NOTE 3 - ADVANCES TO CEN BIOTECH UKRAINE AND LOAN RECEIVABLE FROM EMERGENCE GLOBAL
At both March 31, 2021 and December 31, 2020, the Company had an outstanding
loan agreement with Emergence Global Enterprises Inc. ("Emergence Global"), a
related party (see Note 11), and advanced funds of $17,901. The loan was made
for the purpose of funding the operations of Emergence Global. The loan was
unsecured, non-interest bearing, and was due on December 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 on April 19, 2021. Additionally, our CEO, Bill Chaaban was appointed as
the President of Emergence Global on April 12, 2021. In light of Section 402 of
the Sarbanes-Oxley Act of 2002, as of May 6, 2021, the loan to Emergence Global
has been repaid in full, through the issuance to the Company of shares of
Emergence Global common stock, and is no longer outstanding. See Note 16,
Subsequent Events.
At March 31, 2021 and December 31, 2020, the Company had advances of $1,229,328
and $1,179,328, respectively, to CEN Biotech Ukraine, LLC, a related party (see
Note 11). The advances were for the purpose of funding the operations of CEN
Biotech Ukraine, LLC.
Bahige (Bill) Chaaban, our Chief Executive Officer and member of our Board of
Directors, and Usamakh Saadikh, a member of our Board of Directors, each
directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine
is owned by XN Pharma, which is an entity jointly owned by Bahige (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 pursuant to the
guidelines of Ukrainian law. These loans are unsecured, non-interest bearing,
and are due on demand.
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NOTE 4 - INTANGIBLE ASSETS
On September 12, 2016, the Company executed an agreement dated August 31, 2016, to acquire assets, including a patent related to LED Lighting, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac (the "Sellers").
Material consideration given by Company was: (a) Shares of CEN common stock
equal to $5 million upon commencement of public trading (b) The transfer of real
properties located at 135 North Rear Road, Lakeshore, Ontario, Canada having a
fair value of $2,161,467 and 1517-1525 Ridge Road having a purchase cost
(including other related disbursements) to the Company of $202,666.
The patent remains in the name of Tesla Digital, Inc. until full settlement of
the terms of the agreement. In the interim, pursuant to an updated agreement
executed on April 15, 2019 between the Company and the Sellers, CEN has
reaffirmed the rights to use the patented technology.
In addition, the Company agreed to employ Stevan 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.
In March 2018, the Tesla agreement was amended to replace the $5 million stock
consideration commitment with a commitment to issue one million registered
shares of CEN common stock with a closing date of September 30, 2018. On October
4, 2018, this agreement was amended to extend the closing date to December 15,
2018. On April 3, 2019, the Company entered into an amendment which extended the
closing date of the agreement to December 31, 2019. On March 16, 2020 the
Company entered into an amendment extending the closing date until December 31,
2021. The March 2018 modification of the agreement converted a fixed value of
shares to a fixed number of shares. Accordingly, the liability was reduced and
additional paid in capital was increased by $4,380,000 to reflect the fair value
of the shares committed at the date of the amendment. As of both March 31, 2021
and December 31, 2020, the fair value of this liability was $1,380,000. This
liability will be remeasured at each reporting date using the current fair value
of CEN's common shares.
The Company intends to explore using the patented LED Lighting Technology across
manufacturing operations and licensing opportunities across multiple industries
such as horticultural, automotive, industrial and commercial lighting. The
assets acquired, other than the patent, included certain machinery and raw
materials, which were old and non-functioning and accordingly, had no fair
value.
The intangible asset consists of the following at:
March 31, December 31,
2021 2020
Lighting patent $ 6,797,000 $ 6,797,000
Accumulated amortization (1,947,056 ) (1,840,853 )
Net $ 4,849,944 $ 4,956,147
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As of March 31, 2021 and December 31, 2020, there is no impairment expense
recognized based on the Company's expectations that it will be able to monetize
the patent. The lighting patent is being amortized straight-line over 16 years.
Expected amortization expense is $424,812 per year through 2031, with the
remaining $283,215 to be amortized in 2032.
NOTE 5 - LOANS PAYABLE
Loans payable consist of the following at:
March 31, 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 to ARG & Pals, Inc., for the original amount of CAD 385,000. The mortgage bears interest at 22% per annum, is unsecured, and matured on November 21, 2018.
306,152
302,379
Loan payable to an individual, issued January 17, 2018 with a 30-day maturity, bearing share interest of 2,000 common shares per 30-day period. This is an unsecured loan which matures on May 16, 2021.
50,000
50,000
Loan payable to an individual, issued April 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 on May 16, 2021.
100,000
100,000
Total loans payable (all current) $ 531,152 $ 527,379
During each of the three-month periods ended March 31, 2021 and 2020, 18,000
common shares were issued to individuals in connection with interest terms of
the above loans made to CEN. Accordingly, during the three-month periods ended
March 31, 2021 and 2020, $24,840 and $12,960 in interest expense and additional
paid-in capital was recorded, respectively.
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NOTE 6 - LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following at:
March 31, 2021 December 31, 2020
Loans payable in default to the spouse of Bill
Chaaban, CEO of CEN, for the original amounts of CAD
48,630 and USD $198,660, bear interest at 10% per
annum. These are unsecured loans that matured on
December 31, 2018. $ 237,331 $ 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 December 31, 2018. 601,500 601,500
Loan payable in default to R&D Labs Canada, Inc.,
whose president is Bill Chaaban, also the CEO of
CEN, bearing interest at 8% per annum. This is an
unsecured loan that matured on October 2, 2019. R&D
Labs Canada is a company owned by Bill Chaaban's
spouse. 300,000 300,000
Loan payable to the spouse of Joseph Byrne, a 5%
shareholder and former CEO, and current President
and member of the board of CEN, issued January 12,
2018 with a 30-day maturity, bearing share interest
of 4,000 common shares per 30-day period. This is an
unsecured loan that matures on May 16, 2021. 100,000 100,000
Loan payable to Alex Tarrabain, CFO and a Director
of CEN, issued January 17, 2018 with a 30-day
maturity, bearing share interest of 3,000 common
shares per 30-day period. This is an unsecured loan
that matures on May 16, 2021. 75,000 75,000
Loan payable to Joseph Byrne, a 5% shareholder and former CEO, and current President and member of the board of CEN, issued January 24, 2018 with a 30-day maturity, bearing share interest of 2,000 common shares per 30-day period. This is an unsecured loan that matures on May 16, 2021.
50,000 50,000
Total loans payable - related party (all current) $ 1,363,831 $ 1,363,354
Attributable related party accrued interest was $590,589 and $568,969 as of March 31, 2021 and December 31, 2020, respectively. Interest expense attributable to related party loans was $63,862 and $45,582 for the three-months ended March 31, 2021 and 2020, respectively.
During both three-month periods ended March 31, 2021 and 2020, 27,000 common
shares were issued to related parties in connection with interest terms of the
above loans made to CEN. Accordingly, during the three-month periods ended March
31, 2021 and 2020, $37,260 and $19,440 in related party interest expense and
additional paid-in capital was recorded, respectively.
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NOTE 7 - CONVERTIBLE NOTES
Convertible notes payable consists of the following at:
March 31, December 31,
2021 2020
Convertible note payable, due on demand, for the original amount of CAD 1,104,713, bearing interest at 7% per annum with conversion rights for 335,833 common shares.
$ 878,468 $
867,641
Convertible notes payable to multiple private
investors, including certain notes in default,
bearing interest at 5% per annum with conversion
rights for 3,708,115 common shares, maturing at
various dates between May 2018 and February 2023. 5,972,807
5,862,807
Total convertible notes payable 6,851,275
6,730,448
Less current portion 6,763,275
6,652,448
Convertible notes payable, less current portion $ 88,000 $
78,000
These notes may be converted at the option of the note holder at any time after
registration of CEN's common stock upon written notice by the note holder. These
notes are convertible into a total of 4,043,948 common shares.
As of May 12, 2021, we are currently in default of $5,113,927 of convertible notes payable, which are convertible into 3,171,315 shares of common stock.
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NOTE 8 - CONVERTIBLE NOTES - RELATED PARTY
Convertible notes - related party consists of the following at:
March 31, December 31,
2021 2020
Convertible note in default due to the spouse of Bill Chaaban, CEO of CEN, which bears an interest at 12% per annum. This note is convertible to 867,576 common shares and matured on August 17, 2020. $ 1,388,122 $
1,388,122
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 note in default due to Alex Tarrabain, CFO and a Director of CEN, bearing interest at 5% per annum. This note is convertible to 30,000 common shares and matured on March 31, 2019.
48,000
48,000
Convertible notes in default due to Joseph Byrne,
former CEO, and current President and member of the
board of CEN, bearing interest at 12% per annum.
This note is convertible to 140,120 common shares
and matured on August 17, 2020. 224,191
224,191
Convertible note due to Darren Ferris, brother of
Ameen Ferris, a Vice President and a Director of
CEN, bearing interest at 5% per annum. This note is
convertible to 12,500 common shares with a maturity
date of June 19, 2021. 20,000
20,000
Total convertible notes payable - related party (all
current) $ 2,558,681 $ 2,558,681
Attributable related party accrued interest was $1,106,285 and $1,046,911 as of
March 31, 2021 and December 31, 2020, respectively. Interest expense
attributable to related party convertible notes was $59,374, and $59,869 for the
three months ended March 31, 2021 and 2020, respectively.
These notes may be converted at the option of the note holder at any time after
registration of CEN's common stock upon written notice by the note holder. These
notes are convertible into a total of 1,599,176 common shares.
As of May 12, 2021, we are currently in default of $2,538,681 of convertible notes payable, which are convertible into 1,586,676 shares of common stock.
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NOTE 9 - INCOME TAXES
A reconciliation of the effective tax rate of the income tax benefit and the
statutory income tax rates applied to the loss before income taxes is as follows
for the three-months ended March 31:
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 of March 31, 2021, the Company has net operating loss carry forwards of
approximately $13,200,000 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 ended March 31, 2021 and the
year ended December 31, 2020:
March 31,
2021 December 31, 2020
Deferred tax asset - net operating losses $ 3,500,000 $ 3,400,000 Deferred tax asset valuation allowance (3,500,000 )
(3,400,000 )
Net deferred tax asset $ - $ -
The change in the valuation allowance amounted to $100,000 for both the
three-months ended March 31, 2021 and 2020. 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 March 31, 2021, there are no uncertain income tax positions
taken or expected to be taken that would require recognition of a liability or
disclosure in the condensed consolidated financial statements. The Company is
subject to routing audits by taxing jurisdictions; however, there are currently
no audits for any tax periods in progress. Generally, the Company is no longer
subject to income tax examinations for years prior to 2017.
NOTE 10 - SHAREHOLDERS' DEFICIT / STOCK ACTIVITY
The Company is authorized to issue an unlimited number of common shares and an unlimited number of special voting shares. Common shares have no stated par value.
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As of March 31, 2021, 5,643,124 shares of common stock are committed to the holders of the convertible notes.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Company has received loans from several related parties, as described above in Notes 6 and 8.
A loan totaling $17,901 was made to Emergence Global as of both March 31, 2021
and December 31, 2020. The loan was made for the business purpose of assisting
Emergence with operating expenses. Emergence Global's Chief Executive Officer is
Joseph 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 from July 2017 until
November 13, 2019.
There are advances of $1,229,328 and $1,179,328 to CEN Ukraine as of March 31,
2021 and December 31, 2020, respectively. Such advances were made for the
purpose of funding the operations of CEN Ukraine as summarized in Note 4. CEN
Ukraine was founded by Bill Chaaban. Prior to December 3, 2017, Bill Chaaban
directly owned 51% of CEN Ukraine. CEN Ukraine was founded to seek agricultural
and pharmaceutical opportunities in Ukraine. Bill Chaaban personally funded the
establishment and initial phases of CEN Ukraine. On December 14, 2017, the
Company entered into a controlling interest purchase agreement with Bill
Chaaban, our Chief Executive Officer and member of our board of directors, and
another shareholder of CEN Ukraine, Usamakh Saadikh, a member of our board of
directors, for 51% of the outstanding equity interests of CEN Ukraine. The
consideration will be paid by issuing common shares of the Company. The
agreement, which is subject to certain conditions, has not closed as of May 12,
2021, as the Company needs to raise additional funds in order to proceed with
the closing. Bahige (Bill) Chaaban, our Chief Executive Officer and member of
our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors,
each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN
Ukraine is owned by XN Pharma, which is an entity jointly owned by Bahige (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.
On July 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 both of the three-months ended March 31, 2021 and 2020, the Company
incurred payroll and consulting expenses of $31,200 with certain Board Members
and Officers. As of March 31, 2021 and December 31, 2020, $361,400 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 from R&D Labs Canada, Inc., whose
president is Bill 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 of March 31, 2021, however,
management expects this balance to be collectible.
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Jamaal Shaban ("Lessor"), cousin of Bill Chaaban, leased 20 North Rear Road, a
10.4 acre site of land in Canada which included two buildings and a security
vault, to the Company under an agreement effective January 2017 for monthly
rental payments of CAD 4,000 plus taxes for a period of five years. This lease
was assigned by the Lessor to Jamsyl Group, a third-party, when Jamsyl Group
purchased the property from Jamaal Shaban in October 2019. Effective August 1,
2020, the Company entered into a mutual termination and release agreement with
Jamsyl 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 of August 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-months
ended March 31, 2020, lease expenses of $8,719 related to this agreement were
recognized within general and administrative expenses.
The Company also leased office space in Windsor, Ontario from R&D Labs Canada,
Inc., whose president is Bill Chaaban. This lease was subsequently assigned to
RN Holdings Ltd, a third-party, on May 8, 2019 when RN holdings purchased the
building. Under the lease agreement effective October 1, 2017, monthly rents of
CAD 2,608 are due through September 2022, at which point monthly rents of CAD
3,390 are due. Effective August 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 on August 1, 2020. As of May 12, 2021, the
Company has not reached an agreement with RN Holdings Ltd to modify or to settle
the remaining contractual liability, which therefore remains recorded as of
March 31, 2021 under its original contractual terms. The associated liability as
of March 31, 2021 and December 31, 2020 was $170,169 and $164,997, respectively,
utilizing an 8% discount rate. During the three-months ended March 31, 2021 and
2020, lease expenses of $5,172 and $6,325, respectively, related to this
agreement were recognized within general and administrative expenses.
Effective with the August 1, 2020 lease termination and abandonments, all property, plant, and improvements, which were located at these properties were abandoned.
Maturities of the operating lease liability at March 31, 2021 was as follows:
Amount
2022 $ 41,480
2023 28,618
2024 32,348
2025 32,348
2026 32,348
Thereafter 48,522
Total lease payments $ 215,664
Less imputed interest 45,495
Present value of lease liability $ 170,169
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NOTE 12 - STOCK BASED COMPENSATION
Adoption of Equity Compensation Plan
On November 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.
Equity Compensation Grants
On November 30, 2017, the Company granted a one-time equity award ("Equity
Award") of 20,000 restricted shares of the Company's common stock pursuant to a
Restricted Stock Agreement, to each of the following then executives and
directors of the Company: Bahige "Bill" Chaaban, Chairman of the Board and
President of the Company; Joseph Byrne, Chief Executive Officer and Director;
Richard Boswell, Senior Executive Vice President, Chief Financial Officer
(through May 20, 2019) and Director; Brian Payne, Vice President and Director;
Donald Strilchuck, Director; Harold Aubrey de Lavenu, Director; Alex Tarrabain,
Chief Financial Officer (effective May 21, 2019) and Director; and Ameen Ferris,
Director. The Equity Awards vested immediately.
In addition, as part of this one-time equity award, Donald Strilchuck, Director,
received an additional 1,000,000 restricted shares of the Company's common stock
for security consulting services, of which 550,000 vested immediately and the
remaining vesting ratably each month over the next 36 months. Other individuals
received a total of 1,870,000 restricted shares of the Company's common stock
for consulting services performed, of which 1,330,000 vested immediately and the
remaining vesting ratably each month over the next 36 months. The expense
related to the restricted stock awarded to non-employees for services rendered
was recognized on the grant date.
On June 7, 2018, the Company elected Dr. Usamakh Saadikh to serve as a director
of the Company. As compensation for his role as a Director, the company granted
a one-time equity award of 20,000 shares of the Company's common stock. This
award vested immediately.
On June 19, 2018, the Company entered into an agreement with a law firm for the
payment of its services under which the Company issued 125,000 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.
On December 31, 2018, the Company issued 12,120 shares of its common stock to
individuals for the payment of their services. These awards vested immediately.
The expense related to the stock awarded to non-employees for services rendered
was recognized on the grant date.
On October 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.
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On April 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.
On August 27, 2020 and September 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.
Employment Agreements
On November 30, 2017, employment agreements were entered into with four key members of management:
? Under the Employment Agreement with Bahige (Bill) Chaaban, then President of
the Company, Mr. Chaaban agreed to receive compensation in the form of a base
annual salary of $31,200 and a grant of 8,750,000 shares of restricted stock
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 Joseph Byrne, former Chief Executive
Officer of the Company, Mr. Byrne agreed to receive compensation in the form
of a base annual salary of $31,200 and a grant of 1,250,000 shares 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 November 13, 2019, Mr. Byrne resigned and left the Company, at
which point additional vesting and salary accruals ceased. As of April 2,
2020, the accrued salaries owed to Joe Byrne, which amounted to $58,500, were
settled by allowing Joe Byrne to vest in the remaining 337,500 restricted
shares that had not vested. On April 19, 2021, Joe Byrne was appointed as
President and a member of the board of directors of the Company.
? Under the Employment Agreement with Richard Boswell, Senior Executive Vice
President and then Chief Financial Officer of the Company, Mr. Boswell agreed
to receive compensation in the form of a base annual salary of $31,200 and a
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, Mr. Payne agreed to receive compensation in the form of a base annual
salary of $31,200 and a grant of 750,000 shares of restricted stock of the
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, the Board appointed 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 (the "Effective
Date"). Richard Boswell, who served as the Company's Chief Financial Officer
since July 2017, resigned from his position as the Company's Chief Financial
Officer as of the Effective Date, continues to serve in his position as the
Company's Senior Executive Vice President going forward focusing on the
Company's strategic activities and will also continue to serve as a member of
the Company's Board.
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In conjunction with the above, on May 16, 2019, an employment agreement was entered into with Mr. Tarrabain:
? Under the Employment Agreement with Alex Tarrabain, Chief Financial Officer
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 a
grant 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.
Restricted Stock Awards
The total grant-date fair value of the restricted shares noted in the employment
agreements and equity compensation grants sections above was $13,013,241 as of
both March 31, 2021 and December 31, 2020. No restricted shares were awarded
during the three-month periods ended March 31, 2021 or 2020. The grant-date fair
value is calculated utilizing an enterprise valuation model as of the date the
awards are granted. 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 ended March 31, 2021 and 2020, 75,000 and
337,500, respectively, of these shares vested. The fair value of the restricted
stock which vested amounted to $75,750 and $238,500 for the three-months ended
March 31, 2021 and 2020, respectively.
Compensation expense recognized in connection with the restricted stock awards
was $75,750 and $196,650 for the three-months ended March 31, 2021 and 2020,
respectively.
Non-vested restricted stock award activity for the three-months ended March 31,
2021 and 2020 are as follows:
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 - - -
Vested (337,500 ) 0.71 -
Forfeited - - -
Non-vested at March 31, 2020 1,687,500 $ 0.77 1.33
Non-vested at January 1, 2021 425,000 $ 1.01 1.50
Granted - - -
Vested (75,000 ) 1.01 -
Forfeited - - -
Non-vested at March 31, 2021 350,000 $ 1.01 1.25
20
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The fair value of the restricted stock grants was based on the valuation of a
third-party specialist. As of March 31, 2021, unrecognized compensation expense
totaled $353,500, which will be recognized on a straight-line basis over the
vesting period or requisite service period through May 2022.
NOTE 13 - NET LOSS PER SHARE
During periods when there is a net loss, all potentially dilutive shares are
anti-dilutive and are excluded from the calculation of diluted net loss per
share. Based on the Company's application of the as-converted and treasury stock
methods, all common stock equivalents were excluded from the computation of
diluted earnings per share due to net losses as of March 31, 2021 and 2020.
Common stock equivalents that were excluded for the three-month periods ended
March 31, 2021 and 2020 are as follows:
Three-months Ended
March 31,
2021 2020
Convertible debt 5,596,665 5,338,973
NOTE 14 - CONTINGENCY
In connection with the distribution by Creative of CEN's common stock on
February 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 the Securities and Exchange Commission, including a
letter dated May 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 the SEC 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 15 - FAIR VALUE DISCLOSURES
Fair value is the price that would be received from the sale of an asset or paid
to transfer a liability assuming an orderly transaction in the most advantageous
market at the measurement date. U.S. GAAP establishes a hierarchical disclosure
framework that prioritizes and ranks the level of observability of inputs used
in measuring fair value.
21
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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 March 31, 2021:
Cash and cash equivalents $ 780 $ - $ 780 $ - $ 780
Other receivables $ 71,269 $ - $ - $ 71,269 $ 71,269
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 $ 1,229,328 $ - $ - $ 1,229,328 $ 1,229,328
Loans payable $ 531,152 $ - $ - $ 531,152 $ 531,152
Loans payable - related parties $ 1,363,831 $ - $ - $ - $ -
Patent acquisition liability $ 1,380,000 $ - $ - $ 1,380,000 $ 1,380,000
Convertible notes payable $ 6,851,275 $ - $ - $ 7,977,476 $ 7,977,476
Convertible notes payable -
related parties $ 2,558,681 $ - $ - $ - $ -
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.
22
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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.
This valuation report utilized a cash-free asset value model to estimate
enterprise value based upon similar companies.
NOTE 16 - SUBSEQUENT EVENTS
On April 2, 2021, the Board of Directors of the Company adopted the 2021 Equity
Compensation Plan (the "2021 Plan") providing for the granting of options to
purchase shares of common stock, restricted stock awards and other stock-based
awards to directors, officers, employees, advisors and consultants of the
Company and reserved 20,000,000 shares of the Company's common stock for
issuance under the 2021 Plan.
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 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the "Boswell RSA") with
Richard Boswell. Pursuant to the Boswell RSA, the Company granted Mr. Boswell
2,185,679 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered
was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the "Chaaban RSA") with
Bahige Chaaban. Pursuant to the Chaaban RSA, the Company granted Mr. Chaaban
3,106,122 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered
was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the "Payne RSA") with Brian
Payne. Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000
restricted shares of the Company's common stock under the 2021 Plan to vest
immediately on the grant date. The shares issued are restricted shares that are
subject to applicable securities laws and regulations. The expense related to
the restricted stock awarded to employees for services previously rendered was
recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the "Saadikh RSA") with
Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh
1,000,000 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered
was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the "Strilchuck RSA") with
Donald Strilchuck. Pursuant to the Strilchuck RSA, the Company granted Mr.
Strilchuck 341,250 restricted shares of the Company's common stock under the
2021 Plan to vest immediately on the grant date. The shares issued are
restricted shares that are subject to applicable securities laws and
regulations. The expense related to the restricted stock awarded to employees
for services previously rendered was recognized on the grant date.
23
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On April 2, 2021, the Company entered into an RSA (the "Tarrabain RSA") with
Alex Tarrabain. Pursuant to the Tarrabain RSA, the Company granted Mr. Tarrabain
300,000 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.
The shares issued pursuant to the RSAs are restricted shares and are subject to applicable securities laws and regulations as set forth in the RSAs.
On April 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 was
recognized on the grant date.
In April of 2021, the Company's common stock began to be quoted on the OTC Link alternative trading system (operated by OTC Markets Group Inc.) under the trading symbol "CENBF" on the OTC Pink tier. There is no assurance that an active trading market for our shares will develop or will be sustained if developed.
On April 19, 2021, the Board appointed Mr. Bahige (Bill) Chaaban to serve as
Chief Executive Officer of the Company effective April 19, 2021. On the same
date, the Board appointed Mr. Joseph Byrne to serve as President and a member of
the Board of the Company effective April 19, 2021. On the same, date, the Board
appointed Mr. Rick Purdy to serve as a member of the Board of the Company
effective April 19, 2021. On the same date, the Board appointed Mr. Jeffrey
Thomas to serve as a member of the Board of the Company effective April 19,
2021.
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, subject to applicable securities laws and regulations of the
Company's common stock, no stated par value per share (the "Company Common
Stock"). At the closing (the "Closing") of the Agreement, pursuant to the
Exchange, the CCM Shareholders will deliver the CCM Stock to the Company and the
Company will deliver the Company Common Stock to CCM, and CCM will become a
wholly owned subsidiary of the Company. The Closing is planned to occur within
two days of the satisfaction or waiver of all closing conditions under the
Agreement. The completion of the Exchange is subject to certain customary
closing conditions, including, but not limited to, that CCM will have provided
to the Company CCM's and its subsidiaries, audited and unaudited financial
statements as required to be included in the Company's filings with the
Securities and Exchange Commission. Another closing condition is that the
Company will have completed its due diligence investigation of CCM to the
Company's satisfaction in its sole discretion.
From April 23, 2021 to May 9, 2021, the Company authorized the issuance of 1,682,317 shares of its common stock upon conversion of the principal amount due under 89 notes, to 41 persons. The aggregate principal amount of the notes prior to conversion was $2,691,706.
24
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Since March 31, 2021 the Company issued two new convertible notes totaling $77,830 with conversion rights of 48,644 shares of the Company common stock.
At both March 31, 2021 and December 31, 2020, the Company had an outstanding
loan agreement with Emergence Global, and advanced funds of $17,901. At the time
the loan was made, Joseph Byrne, the CEO of Emergence Global was not an officer
or director of the company. He was at that time a 5% shareholder and former CEO
of the Company. He was then appointed as the President and a director of the
Company on April 19, 2021. Additionally, our CEO, Bill Chaaban was appointed as
the President of Emergence Global on April 12, 2021. In light of Section 402 of
the Sarbanes-Oxley Act of 2002, as of May 6, 2021, the loan to Emergence Global
has been repaid in full, through the issuance to the Company of shares of
Emergence Global Enterprises Inc. common stock, and is no longer outstanding.
The Company and Emergence Global entered into that certain Loan Repayment
Agreement dated as of May 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 on May 6,
2021.
25
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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 May 12, 2021 the action in the
Ontario Superior Court of Justice is still ongoing. In the meantime the Company
decided to develop and pursue other businesses that are related to Light
Emitting Diode ("LED") lighting and hemp-based industrial, medical and food
products that have a tetrahydrocannabinol ("THC") that is below 0.3%.
We are currently focused on the manufacturing, production and development of LED
lighting technology and hemp-based products. The Company intends to continue to
explore the usage of hemp, which it now intends to cultivate for usage in
industrial, medical and food products.
Our principal office is located at 300-3295 Quality Way, Windsor, Ontario, Canada, N8T 3R9 and our phone number is (519) 419-4958. Our corporate website is located at http://www.cenbiotechinc.com. The information contained on or connected to our website is not part of this report and is not incorporated herein.
We have not yet generated any revenues, and at present we are not able to
estimate if or when we will be able to generate any revenues. Our consolidated
financial statements have been prepared assuming that we will continue as a
going concern; however, given our recurring losses from operations, management,
as well as our auditors, have determined there is substantial doubt about our
ability to continue as a going concern.
26
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At March 31, 2021 and December 31, 2020, the Company had advances of $1,229,328
and $1,179,328, respectively, to CEN Ukraine which is a related party. The
advances were for the purpose of funding the operations of CEN Ukraine. These
advances were substantially used as follows:
? Approximately $350,000 to operate its office in Kiev;
? Approximately $445,328 to employ several workers;
? Approximately $350,000 for performing multiple test crops;
? Approximately $75,000 for oil processing activities; and
? Approximately $9,000 for payment of rent.
Plan of Operations
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 $6,200,000 in funds will be required. The source of such funds is anticipated to be from capital raised from third parties. If we fail to generate $6,200,000 of funds from capital raised, we may not be able to fully carry out our plan of operations.
Generally, the funds are planned to be invested as follows: $2.3 million in hemp
activities, $2.5 million in LED lighting manufacturing, $200,000 to obtain
quotation on OTCQB 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:
? June 2021 - The Company intends to obtain quotation on OTCQB and we estimate
the costs of this to be $200,000.
? August 2021 - The Company intends to close on its contract with CEN Ukraine
and we estimate the costs of this to be $300,000.
? August 2021 to December 2024 - The Company intends to explore the usage of
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 June, 2021 and
we estimate the costs of this to be $400,000 annually.
? Purchase of seeds for production crop expected to take place in November, 2021
and we estimate the costs of this to be $100,000 annually.
? 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 $600,000
annually.
? Market, package and ship product expected to take place in July, 2021 and we
estimate the costs of this to be $300,000 annually.
27
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? July 2021 - The Company intends to close on its contract with Tesla Digital,
Inc. regarding the LED Lighting patent and we estimate the costs of this to be
$300,000.
? May 2021 to December 2024 - The Company intends to explore using the LED
Lighting 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 June 2021 and we estimate
the costs of this to be $400,000 annually.
? Lease equipment expected to take place in July, 2021 and we estimate the costs
of this to be $400,000 annually.
? Hire staff expected to take place in August, 2021 and we estimate the costs of
this to be $600,000 annually.
? Initial raw materials expected to take place in August, 2021 and we estimate
the costs of this to be $500,000 one time.
? Marketing and delivery expected to take place in October, 2021 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.
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Recent Developments
The outbreak of a novel coronavirus (COVID-19), which the World Health
Organization declared in March 2020 to be a pandemic, continues to spread
throughout the 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.
On April 2, 2021, the Board of Directors of the Company adopted the 2021 Equity
Compensation Plan (the "2021 Plan") providing for the granting of options to
purchase shares of common stock, restricted stock awards and other stock-based
awards to directors, officers, employees, advisors and consultants of the
Company and reserved 20,000,000 shares of the Company's common stock for
issuance under the 2021 Plan.
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 of the Company's common stock subject to applicable securities laws and
regulations. Such shares vested immediately. The expense related to the
restricted stock awarded to employees for services previously rendered was
recognized on the grant date.
28
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On April 2, 2021, the Company entered into an RSA (the "Boswell RSA") with
Richard Boswell. Pursuant to the Boswell RSA, the Company granted Mr. Boswell
2,185,679 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. On April 2, 2021, the Company entered into
an RSA (the "Chaaban RSA") with Bahige Chaaban. Pursuant to the Chaaban RSA, the
Company granted Mr. Chaaban 3,106,122 restricted shares of the Company's common
stock under the 2021 Plan to vest immediately on the grant date. On April 2,
2021, the Company entered into an RSA (the "Payne RSA") with Brian Payne.
Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000 restricted
shares of the Company's common stock under the 2021 Plan to vest immediately on
the grant date. On April 2, 2021, the Company entered into an RSA (the "Saadikh
RSA") with Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr.
Saadikh 1,000,000 restricted shares of the Company's common stock under the 2021
Plan to vest immediately on the grant date. On April 2, 2021, the Company
entered into an RSA (the "Strilchuck RSA") with Donald Strilchuck. Pursuant to
the Strilchuck RSA, the Company granted Mr. Strilchuck 341,250 restricted shares
of the Company's common stock under the 2021 Plan to vest immediately on the
grant date. On April 2, 2021, the Company entered into an RSA (the "Tarrabain
RSA") with Alex Tarrabain. Pursuant to the Tarrabain RSA, the Company granted
Mr. Tarrabain 300,000 restricted shares of the Company's common stock under the
2021 Plan to vest immediately on the grant date. The shares issued pursuant to
the RSAs are restricted shares and are subject to applicable securities laws and
regulations as set forth in the RSAs. The shares were issued for services
previously rendered was recognized on the applicable grant dates.
On April 2, 2021, a consulting agreement with CONFIEN SAS for business coaching
was entered into for a period of 12 months. As payment for these services,
650,000 restricted shares subject to applicable securities laws and regulations
of the Company's common stock were granted. Such shares vested immediately. The
expense related to the restricted stock awarded to non-employees for services
previously rendered was recognized on the grant date.
In April of 2021, the Company's common stock began to be quoted on the OTC Link alternative trading system (operated by OTC Markets Group Inc.) under the trading symbol "CENBF" on the OTC Pink tier. There is no assurance that an active trading market for our shares will develop or will be sustained if developed.
On April 19, 2021, the Board appointed Mr. Bahige (Bill) Chaaban to serve as
Chief Executive Officer of the Company effective April 19, 2021. On the same
date, the Board appointed Mr. Joseph Byrne to serve as President and a member of
the Board of the Company effective April 19, 2021. On the same, date, the Board
appointed Mr. Rick Purdy to serve as a member of the Board of the Company
effective April 19, 2021. On the same, date, the Board appointed Mr. Jeffrey
Thomas to serve as a member of the Board of the Company effective April 19,
2021.
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 stated par value per share,
subject to applicable securities laws and regulations (the "Company Common
Stock"). At the closing (the "Closing") of the Agreement, pursuant to the
Exchange, the CCM Shareholders will deliver the CCM Stock to the Company and the
Company will deliver the Company Common Stock to CCM, and CCM will become a
wholly owned subsidiary of the Company. The Closing is planned to occur within
two days of the satisfaction or waiver of all closing conditions under the
Agreement. The completion of the Exchange is subject to certain customary
closing conditions, including, but not limited to, that CCM will have provided
to the Company CCM's and its subsidiaries, audited and unaudited financial
statements as required to be included in the Company's filings with the
Securities and Exchange Commission. Another closing condition is that the
Company will have completed its due diligence investigation of CCM to the
Company's satisfaction in its sole discretion.
29
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From April 23, 2021 to May 9, 2021, the Company authorized the issuance of
1,688,567 shares of its common stock upon conversion of the principal amount due
under 90 notes, to 41 persons. The aggregate principal amount of the notes prior
to conversion was $2,701,706.
At both March 31, 2021 and December 31, 2020, the Company had an outstanding
loan agreement with Emergence Global Enterprises Inc. ("Emergence Global"), and
advanced funds of $17,901. At the time the loan was made, Joseph Byrne, the CEO
of Emergence Global was not an officer or director of the company. He was at
that time a 5% shareholder and former CEO of the Company. He was then appointed
as the President and a director of the Company on April 19, 2021. Additionally,
our CEO, Bill Chaaban was appointed as the President of Emergence Global on
April 12, 2021. In light of Section 402 of the Sarbanes-Oxley Act of 2002, as of
May 6, 2021, the loan to Emergence Global has been repaid in full, through the
issuance to the Company of shares of Emergence Global common stock, and is no
longer outstanding. The Company and Emergence Global entered into that certain
Loan Repayment Agreement dated as of May 6, 2021, pursuant to which Emergence
Global agreed to repay to the Company $17,901, representing the total amount
then outstanding under the loan agreement, by issuing 21,830 shares of Emergence
Global common stock, $0.82 par value per share. Such shares were issued to the
Company on May 6, 2021.
Results of Operations
We have incurred recurring losses and have not commenced revenue generating
operations to date. Our expenses to date are primarily our general and
administrative expenses and fees, costs and expenses related to acquisitions and
operations. Our condensed consolidated financial statements have been prepared
assuming that we will continue as a going concern and, accordingly, do not
include adjustments relating to the recoverability and realization of assets and
classification of liabilities that might be necessary should we be unable to
continue in operation.
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
$27,683,562 at March 31, 2021 and had no committed source of debt or equity
financing. The Company has not had any operating revenue and does not foresee
any operating revenue in the near term. The Company has relied on the issuance
of loans payable and convertible debt instruments to finance its expenses,
including a note that is in default and is secured by the Company's equipment
and certain unsecured convertible notes payable. The Company will be dependent
upon raising additional capital through placement of our common stock, notes or
other securities in order to implement its business plan or additional
borrowings, including from related parties. There can be no assurance that the
Company will be successful in either situation in order to continue as a going
concern. The condensed consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
The Company's cash position may not be sufficient to support the Company's daily
operations or its ability to undertake any business activity that will generate
net revenue.
30
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Results of Operations for the Three-Months Ended March 31, 2021 and 2020:
The following tables reflect our operating results for the three-months ended March 31, 2021 and 2020, respectively:
Three-months ended
March 31, March 31,
Operating Summary 2021 2020 Change
Revenues, net $ - $ - -
Cost of Goods Sold - - -
Gross Profit - - -
Operating Expenses 344,840 530,750 35.0 %
Loss from Operations 344,840 530,750 35.0 %
Other Expense 278,195 769,362 63.8 %
Net Loss $ 623,035 $ 1,300,112 52.1 %
Revenue
We have not recognized revenue during the three-months ended March 31, 2021 and 2020, as we have not commenced revenue generating operations to date.
Operating Expenses
During the three months ended March 31, 2021, our operating expenses were
$344,840 compared to $530,750 during the three months ended March 31, 2020.
During the three months ended March 31, 2021, our operating expenses were
comprised of salary and consulting fees of $31,200, stock-based compensation
expense of $75,750, and general and administrative expenses of $237,890. By
comparison, during the three months ended March 31, 2020, our operating expenses
were comprised of salary and consulting fees of $31,200, stock-based
compensation expense of $196,650, and general and administrative expenses of
$302,900. Expenses incurred during the three months ended March 31, 2021
compared to three months ended March 31, 2020 decreased primarily due to
decreases in stock based compensation and general and administrative expenses
related to travel and legal expenses.
Other Income and Expense Items
During the three months ended March 31, 2021, our other expense, net was
$278,195 compared to $769,362 during the three months ended March 31, 2020.
During the three months ended March 31, 2021, our other income and expense items
were comprised of interest expense of $253,864, interest income of $394, and
foreign exchange loss of $24,725. By comparison, during the three months ended
March 31, 2020, our other income and expense items were comprised of interest
expense of $900,131, interest income of $2,059, and foreign exchange gain of
$128,710. The decrease during the period is due to a decrease in interest
expense driven from the December 2020 derecognition of debt which was offset by
an unfavorable change in exchange rates.
Income Taxes
As of March 31, 2021, the Company has net operating loss carryforwards of
approximately $13,200,000 that may be available to reduce future years' taxable
income. As of March 31, 2021, the Company has a deferred tax asset of
approximately $3,500,000 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.
31
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Net Loss
Our net loss during the three months ended March 31, 2021 was $623,035 compared
to a net loss of $1,300,112 during the three months ended March 31, 2020 due to
the factors discussed above.
Liquidity and Capital Resources
As of March 31, 2021 and December 31, 2020, our liquid assets consisted of cash of $780 and $1,908, respectively.
As of March 31, 2021, our indebtedness includes a patent acquisition liability
of $1,380,000, accrued interest of $1,237,430, accrued interest to related
parties of $1,696,874, as well as loans payable, loans payable to related
parties, convertible notes and convertible notes to related parties totaling
$11,304,939, with maturity dates as outlined below. The convertible notes are
generally due 2 years from issuance with notes maturing in 2018 through 2023. As
of May 12, 2021 we are currently in default of $9,172,590 of unsecured debt. We
expect our operating and administrative expenses to be at least $1,200,000
annually.
Description Maturity Date Amount
Loan Payable 6/30/2016 $ 75,000
Loan Payable 9/30/2020 306,152
Loan Payable - Related Party 12/31/2018
838,831
Loan Payable - Related Party 10/2/2019
300,000
Loan Payable - Share Interest 5/16/2021
150,000
Loan Payable - Share Interest - Related Party 5/16/2021 225,000
Convertible Notes On Demand 878,468
Convertible Notes Q2 2018 14,000
Convertible Notes Q4 2018 68,000
Convertible Notes Q1 2019 1,046,287
Convertible Notes Q2 2019 405,000
Convertible Notes Q3 2019 791,017
Convertible Notes Q4 2019 457,701
Convertible Notes Q1 2020 575,800
Convertible Notes Q2 2020 117,000
Convertible Notes Q3 2020 514,264
Convertible Notes Q4 2020 478,824
Convertible Notes Q1 2021 379,034
Convertible Notes Q2 2021 332,000
Convertible Notes Q3 2021 256,520
Convertible Notes Q4 2021 349,360
Convertible Notes Q1 2022 100,000
Convertible Notes Q2 2022 34,000
Convertible Notes Q3 2022 44,000
Convertible Notes Q1 2023 10,000
Convertible Notes - Related Party Q1 2019
926,368
Convertible Notes - Related Party Q3 2020
1,612,313
Convertible Notes - Related Party Q2 2021 20,000
Total $ 11,304,939
32
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We intend to fund our expenses through the issuance and sale of additional securities. We do not have any commitments from any persons to purchase any securities and there can be no assurance that we will be able to raise sufficient funds to pay our liabilities as they become due and payable.
Three-months ended March 31, 2021 and 2020
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. During the
three months ended March 31, 2021, we used $61,128 in operating activities
compared to $180,213 used in operating activities during the three months ended
March 31, 2020. The decrease in the use of operating cash between the two
periods related primarily to a decrease in our overall net loss driven by
decreased levels of interest expense and collections on other receivables, as
offset by an unfavorable change in exchange rates.
Cash Flows from Investing Activities
Our use of cash flow for investing activities during the three months ended
March 31, 2021 was $50,000 compared to $0 during the three months ended March
31, 2020. During the three months ended March 31, 2021, our use of cash flows
for investing activities were comprised of advances to CEN Ukraine of $50,000.
By comparison, during the three months ended March 31, 2020, we did not have any
cash flows from investing activities.
Cash Flows from Financing Activities
During the three months ended March 31, 2021, we received $110,000 through
issuance of convertible notes to investors to fund our working capital
requirements. During the three months ended March 31, 2020, we received $178,000
through issuance of convertible notes to investors to fund our working capital
requirements.
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.
33
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Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
No pronouncements were adopted by the Company during the quarter ended March 31, 2021.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the Financial 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 the SEC, this pronouncement is effective for fiscal
years, and for interim periods within those fiscal years, beginning after
December 15, 2023. The Company is currently evaluating the impact of this ASU on
the consolidated financial statements.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the condensed consolidated
financial statements.
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. There are no critical policies or decisions that rely on
judgments that are based on assumptions about matters that are highly uncertain
at the time the estimate is made. Note 1 to the consolidated financial
statements includes a summary of the significant accounting policies and methods
used in the preparation of our condensed consolidated financial statements.
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