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United States CEN BIOTECH, INC. (CENBF) Add to my list
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2021 CEN BIOTECH INC : Entry into a Material Definitive Agreement, Unregistered Sale of Equity Securities, Change in Directors or Principal Officers, Financial Statements and Exhibits (form 8-K)
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2021 CEN Biotech, Inc. Announces Executive Changes
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2021 Note 2 - going concern uncertainty / management plans
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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.
