UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______to___________________ to ___________
Commission file numberFile Number 000-55557001-37567.
CEN BIOTECH, INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada | - |
(State or other jurisdiction of incorporation or organization) | (
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300-3295 Quality Way Windsor, Ontario Canada | N8T 3R9 |
(Address of principal executive offices) | (Zip code) |
7405 Tecumseh Road East Suite 300 Windsor, Ontario N8T 1G2, Canada(519) 419-4958
(Registrant’s telephone number, including area code)
N/A
(Address of principal executive offices)Former name, former address and former fiscal year, if changed since last report)
226-344-0660Securities registered pursuant to Section 12(b) of the Act:
(Registrant’s telephone number)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [ X ]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ X ]☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth.growth company. See definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☒ |
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ]
Smaller Reporting Company [X ] EmergingIf an emerging growth company, [ ]
Indicateindicate by check mark whetherif the registrant is an accelerated filer (as defined in Rule 12b-2has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act) Yes [ ] No [X ]Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).: Yes [ ]☐ No [X]☒
At As of November 17, 2017, the number of7, 2022, there were 64,126,432, shares of the Registrant’s common stock, outstanding was 10,525,000.no par value per share (“common stock”), of the registrant outstanding.
CEN BIOTECH, INC.
INDEXTABLE OF CONTENTS
PART I | ||
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ITEM 1 | FINANCIAL STATEMENTS | 4 |
| ITEM 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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ITEM 4 | CONTROLS AND PROCEDURES | 36 |
| PART II | ||
| ITEM 1 | LEGAL PROCEEDINGS | 37 |
| ITEM 1A | RISK FACTORS | 37 |
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
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ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
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ITEM 4 | MINE SAFETY |
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ITEM 5 | OTHER INFORMATION |
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ITEM 6 | EXHIBITS |
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SPECIAL NOTE REGARDING FORWARD LOOKINGFORWARD-LOOKING STATEMENTS
This Quarterly Report of CEN Biotech, Inc. (the “Company”) includes “forward-looking statements” that represent our beliefs, projections and predictions about future events. There are statements in this quarterly report that are not historical facts. All statements other than statements of historical fact are “forward-looking statements,” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. These “forward-looking statements” can be identified by use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “hope,” “intend,” “may,” “plan,” “positioned,” “project,” “propose,” “should,” “strategy,” “will,” or any similar expressions. You should be awareexpressions, as well as statements in the future tense. These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that these forward-lookingcould cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements.
Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that are beyond our control.could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Although we believe that our assumptions underlying such forward-looking statements are reasonable, we do not guarantee our future performance, and our actual results may differ materially from those contemplated by these forward-looking statements. Our assumptions used for the purposes of the forward-looking statements made in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances, including the development of our lines of business and any products that we may manufacture or sell and our ability to raise additional funding sufficient to implement our strategy, as well as assumptions regarding Canadian and U.S. laws regarding the consumer or retail sale of marijuanahemp products and accessories and the manufacture and distribution of such products and accessories, including zoning and banking regulations. We also assume that we will be able to raise additional capital to fund our operations while we develop a line of business to generate net revenues. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. In light of these numerous risks and uncertainties, we cannot provide any assurance that the results and events contemplated by our forward-looking statements contained in this quarterly report will in fact transpire. These forward-looking statements are not guarantees of future performance. You are cautioned to not place undue reliance on these forward-looking statements, which speak onlystatements. Except as of their dates. Werequired by applicable laws, we do not undertake any obligation to update or revise any forward-looking statements.
PART I. FINANCIAL INFORMATIONI
ITEM 1. | FINANCIAL STATEMENTS |
ITEM 1. FINANCIAL STATEMENTS
Contents
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| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | Page |
| Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021, | 5 |
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Notes to the |
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CEN BIOTECH, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETSCondensed Consolidated Balance Sheets
SEPTEMBER 30, 2017 (Unaudited) and DECEMBER 31, 2016
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
| ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 60,388 | $ | 62,381 | ||||
Total Current Assets | 60,388 | 62,381 | ||||||
PROPERTY, EQUIPMENT & MACHINERY: | ||||||||
Property and Equipment Placed in Service, Net | 15,017 | 16,342 | ||||||
Improvement in Process | 1,412,487 | 1,270,115 | ||||||
OTHER ASSETS: | ||||||||
Other Receivable | 122,861 | - | ||||||
Advance on Business Acquisition | 775,328 | 425,328 | ||||||
Intangible Asset, Net | 2,209,152 | 2,319,852 | ||||||
TOTAL ASSETS | $ | 4,595,233 | $ | 4,094,019 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts Payable | $ | 85,767 | $ | 157,054 | ||||
Accounts Payable - Related Parties | 2,994 | 62,994 | ||||||
Accrued interest | 4,016,484 | 2,717,478 | ||||||
Accrued Interest - Related Parties | 503,056 | 107,140 | ||||||
Accrued Expenses | 287,650 | 840,584 | ||||||
Loan Payable - Related Parties | 849,127 | 846,448 | ||||||
Loan Payable | 9,983,501 | 9,962,287 | ||||||
Loan Payable - Short Term Convertible Notes | 885,207 | - | ||||||
Total Current Liabilities | 16,613,786 | 14,693,985 | ||||||
LONG TERM LIABILITIES: | ||||||||
Loans Payable - Convertible Notes | 2,150,904 | 1,391,603 | ||||||
Loans Payable - Convertible Notes - Related Parties | 2,710,312 | 1,388,121 | ||||||
Total Long Term Liabilities | 4,861,216 | 2,779,724 | ||||||
Total Liabilities | 21,475,002 | 17,473,709 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||
Preferred stock; unlimited authorized shares; 100,000 issued and outstanding | 10 | 10 | ||||||
Common stock; unlimited authorized shares; 10,525,000 issued and outstanding | 85 | 85 | ||||||
Additional paid-in capital | 10,000 | 10,000 | ||||||
Accumulated deficit | (16,889,864 | ) | (13,389,785 | ) | ||||
Total Stockholders' Equity (Deficit) | (16,879,769 | ) | (13,379,690 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) | $ | 4,595,233 | $ | 4,094,019 | ||||
September 30, 2022 | December 31, 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 148,151 | $ | 193,198 | ||||
Accounts receivable | 11,278 | 193,094 | ||||||
Prepaid expenses and other assets | 106,714 | 50,530 | ||||||
Income taxes refundable | 34,385 | 35,399 | ||||||
Loan receivable from Emergence Global Enterprises Inc. - related party | - | - | ||||||
Total current assets | 300,528 | 472,221 | ||||||
Other assets | ||||||||
Operating lease right-of-use assets | 95,432 | 138,103 | ||||||
Other receivable | 5,413 | - | ||||||
Note receivable - CEN Biotech Ukraine LLC - related party | 44,859 | 44,859 | ||||||
Advances to CEN Biotech Ukraine LLC - related party | 1,299,328 | 1,299,328 | ||||||
Property and equipment, net | 68,685 | 97,403 | ||||||
Deferred income taxes | 2,720 | 2,720 | ||||||
Intangible assets, net | 4,818,492 | 5,072,031 | ||||||
Goodwill | 1,276,482 | 1,314,134 | ||||||
Total assets | $ | 7,911,939 | $ | 8,440,799 | ||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 395,602 | $ | 440,332 | ||||
Accounts payable – related parties | 55,066 | 101,422 | ||||||
Loans payable | 1,688,793 | 1,688,793 | ||||||
Loans payable – related parties | 2,701,641 | 2,701,641 | ||||||
Convertible notes payable, net of unamortized discount | 760,480 | 643,330 | ||||||
Convertible notes payable, net of unamortized discount - related parties | 162,639 | 162,639 | ||||||
Accrued interest | 1,422,531 | 1,361,689 | ||||||
Accrued interest – related parties | 2,005,735 | 1,873,455 | ||||||
Operating lease liabilities | 114,729 | 103,908 | ||||||
Governmental assistance payable | 141,169 | 145,333 | ||||||
Accrued expenses | 379,468 | 638,073 | ||||||
Total current liabilities | 9,827,853 | 9,860,615 | ||||||
Operating lease liabilities, less current portion | 159,485 | 206,763 | ||||||
CEBA loan payable | 30,648 | 31,552 | ||||||
Total liabilities | 10,017,986 | 10,098,930 | ||||||
Commitments and contingencies (Notes 4, 11, 12, 18, 19, 24, and 25) | ||||||||
Shareholders’ deficit | ||||||||
Common stock; unlimited authorized shares; 63,991,432 and 27,557,363 issued and outstanding as of September 30, 2022, and December 31, 2021, respectively. No par value. | - | - | ||||||
Additional paid-in capital | 44,921,236 | 44,339,973 | ||||||
Accumulated deficit | (46,991,528 | ) | (45,964,183 | ) | ||||
Accumulated other comprehensive loss | (35,755 | ) | (33,921 | ) | ||||
Total shareholders’ deficit | (2,106,047 | ) | (1,658,131 | ) | ||||
Total liabilities and shareholders’ deficit | $ | 7,911,939 | $ | 8,440,799 | ||||
See accompanying notes to condensed consolidated financial statements.
CEN BIOTECH, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSConsolidated Statements of Operations and Other Comprehensive (Loss) Income
FOR THE THREE MONTHS ENDED SEPTEMBERPeriod ended September 30, 2017 AND 2016
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)2022, and 2021
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
REVENUE | $ | - | $ | - | $ | - | $ | - | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Salary and Consulting Fees | 195,381 | - | 498,158 | 95,239 | ||||||||||||
Salary and Consulting Fees - Related Parties | - | 24,000 | - | 24,000 | ||||||||||||
General and Administrative | 272,438 | 160,148 | 1,145,632 | 444,177 | ||||||||||||
Foreign Exchange Loss (Gain) | 49,094 | (1,480 | ) | 93,237 | 54,123 | |||||||||||
Total Operating Expenses | 516,913 | 182,668 | 1,737,027 | 617,539 | ||||||||||||
Loss from operations | 516,913 | 182,668 | 1,737,027 | 617,539 | ||||||||||||
OTHER INCOME OF EXPENSES | ||||||||||||||||
Sale of Equipment | - | - | - | 2,321 | ||||||||||||
Interest | (518,894 | ) | (353,727 | ) | (1,552,275 | ) | (1,020,051 | ) | ||||||||
Interest - Related Parties | (85,947 | ) | (59,942 | ) | (210,777 | ) | (165,088 | ) | ||||||||
Total Other Income of Expenses | (604,841 | ) | (413,669 | ) | (1,763,051 | ) | (1,182,818 | ) | ||||||||
Net Loss | $ | (1,121,754 | ) | $ | (596,337 | ) | $ | (3,500,079 | ) | $ | (1,800,357 | ) | ||||
Net Loss Per Share: Basic and Diluted | (0.11 | ) | (0.09 | ) | (0.33 | ) | (0.26 | ) | ||||||||
Weighted Average Number of Shares Oustanding: Basic and Diluted | 10,525,000 | 7,000,000 | 10,525,000 | 7,000,000 | ||||||||||||
For the three months ended September 30, | For the nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | 135,856 | $ | 272,166 | $ | 678,333 | $ | 272,166 | ||||||||
Operating expenses | ||||||||||||||||
Consulting fees | $ | 56,751 | $ | 308,782 | $ | 205,590 | $ | 1,205,782 | ||||||||
Consulting fees – related parties | - | 53,914 | - | 131,914 | ||||||||||||
Stock based compensation | 145,950 | 75,750 | 145,950 | 15,077,072 | ||||||||||||
General and administrative | 419,537 | 478,696 | 1,272,027 | 1,110,791 | ||||||||||||
Total operating expenses | 622,238 | 917,142 | 1,623,567 | 17,525,559 | ||||||||||||
Loss from operations | (486,382 | ) | (644,976 | ) | (945,234 | ) | (17,253,393 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (15,135 | ) | (71,567 | ) | (81,237 | ) | (365,170 | ) | ||||||||
Interest expense – related parties | (23,663 | ) | (101,845 | ) | (128,020 | ) | (338,495 | ) | ||||||||
Interest income | 125,140 | 87 | 125,193 | 481 | ||||||||||||
Change in fair value of patent acquisition liability | - | (52,900 | ) | - | 1,025,100 | |||||||||||
Foreign exchange (loss) gain | (187 | ) | 35,651 | 1,953 | (20,273 | ) | ||||||||||
Government assistance income | - | 116,610 | - | 116,610 | ||||||||||||
Other income (expense), net | 86,155 | (73,964 | ) | (82,111 | ) | 418,253 | ||||||||||
Net (loss) income | $ | (400,227 | ) | $ | (718,940 | ) | $ | (1,027,345 | ) | $ | (16,835,140 | ) | ||||
Other comprehensive loss - Foreign currency translation | - | (44,379 | ) | (1,834 | ) | (44,379 | ) | |||||||||
Comprehensive (loss) income | $ | (400,227 | ) | $ | (763,319 | ) | $ | (1,029,179 | ) | $ | (16,879,519 | ) | ||||
Net loss per share: | ||||||||||||||||
Basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.44 | ) | ||||
Weighted average number of shares outstanding | ||||||||||||||||
Basic and diluted | 63,991,432 | 47,341,589 | 63,991,432 | 38,625,095 | ||||||||||||
CEN BIOTECH, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Deficit
Period ended September 30, 2022 and 2021
Accumulated | ||||||||||||||||||||||||
Common | Additional | Other | Total | |||||||||||||||||||||
Common | Shares | Paid-in | Accumulated | Comprehensive | Shareholders’ | |||||||||||||||||||
Shares | Amount | Capital | Deficit | Loss | Deficit | |||||||||||||||||||
Balances, July 1, 2021 | 43,142,060 | $ | - | $ | 38,197,932 | $ | (43,176,727 | ) | $ | - | $ | (4,978,795 | ) | |||||||||||
Stock-based compensation | - | - | 75,750 | - | - | 75,750 | ||||||||||||||||||
Issuance of common stock – Acquisition of Clear Com Media | 4,000,000 | - | 2,120,000 | - | - | 2,120,000 | ||||||||||||||||||
Issuance of common stock – Upon conversion of convertible notes | 104,953 | - | 167,924 | - | - | 167,924 | ||||||||||||||||||
Issuance of common stock – Interest Shares | 39,000 | - | 23,673 | - | - | 23,673 | ||||||||||||||||||
Issuance of common stock – Consulting | 500,000 | - | 275,000 | - | 275,000 | |||||||||||||||||||
Net loss | - | - | - | (718,940 | ) | (44,379 | ) | (763,319 | ) | |||||||||||||||
Balances, September 31, 2021 | 47,786,013 | - | 40,860,279 | (43,895,667 | ) | (44,379 | ) | (3,079,767 | ) | |||||||||||||||
Balances, July 1, 2022 | 61,804,729 | $ | - | $ | 44,746,286 | $ | (46,591,301 | ) | $ | (35,755 | ) | $ | (1,880,770 | ) | ||||||||||
Issuance of common stock-Employee compensation | 1,390,000 | 145,950 | - | - | 145,950 | |||||||||||||||||||
Issuance of common stock-convertible notes | 796,703 | - | 29,000 | - | - | 29,000 | ||||||||||||||||||
Net loss | - | - | (400,227 | ) | - | (400,227 | ) | |||||||||||||||||
Balances, September 31, 2022 | 63,991,432 | $ | - | $ | 44,921,236 | $ | (46,991,528 | ) | $ | (35,755 | ) | $ | (2,106,047 | ) | ||||||||||
See accompanying notes to condensed consolidated financial statements.
CEN BIOTECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSConsolidated Statements of Cash Flows
FOR THE NINE MONTHS ENDED SEPTEMBERFor the Period ended September 30, 2017 AND 2016
(Unaudited)2022, and 2021
September 30, | September 30, | |||||||
2017 | 2016 | |||||||
Cash Flows from Operating Activities | ||||||||
Net Income (Loss) | $ | (3,500,079 | ) | $ | (1,800,356 | ) | ||
Adjustments to Reconcile Net (Loss) to Net Cash Used in Operating Activities | ||||||||
Depreciation & Amortization | 112,026 | 13,159 | ||||||
Changes in Operating Assets and Liabilities | ||||||||
(Increase) in Other Receivable | (122,861 | ) | - | |||||
Increase (Decrease) in Accounts Payable & Acrued Expenses | (624,221 | ) | 244,918 | |||||
Increase (Decrease) in Accounts Payable - Related Parties | (60,000 | ) | (12,006 | ) | ||||
Increase (Decrease) in Accrued Interest | 1,694,922 | 1,185,138 | ||||||
Net Cash Flows Used in Operating Activities | (2,500,213 | ) | (369,147 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Leasehold Improvements and Other Assets | (142,372 | ) | 7,265 | |||||
Advance on Business Acquisition | (350,000 | ) | (310,188 | ) | ||||
Net Cash (Used in) Provided by Investing Activities | (492,372 | ) | (302,923 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from Notes | - | 174,815 | ||||||
Proceeds from Convertible Notes | 759,300 | 525,812 | ||||||
Proceeds from Convertible Notes - Related Parties | 2,231,292 | - | ||||||
Net Cash (Used in) Provided by Financing Activities | 2,990,592 | 700,627 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | (1,993 | ) | 28,557 | |||||
Cash and Cash Equivalents, Beginning of Year | 62,381 | 3,016 | ||||||
Cash and Cash Equivalents, End of Year | $ | 60,388 | $ | 31,573 | ||||
Supplemental Cash Flow Information | ||||||||
Cash Paid For; | ||||||||
Interest | $ | 33,716 | $ | - | ||||
Income Taxes Paid | - | - | ||||||
Accrued Expense Reclassified to Notes Payable | 831,628 | 105,206 | ||||||
Accrued Interest Reclassified to Notes Payable | - | 254,829 | ||||||
Patent Acquisition: | ||||||||
Construction in Progress Exchanged for Patent | $ | - | 1,096,816 | |||||
Land Exchanged for Patent | - | 1,064,651 | ||||||
Loans Payable Exchanged for Patent | - | 202,663 | ||||||
Stock Issued in Exchange for Patent | - | 3 | ||||||
Patent Acquired with Above Consideration | $ | - | $ | 2,364,133 | ||||
| For the Nine months | ||||||||
ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (1,027,345 | ) | $ | (16,835,140 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation | 28,718 | 10,968 | ||||||
Amortization | 291,221 | 342,959 | ||||||
Amortization of debt discount | 84,526 | |||||||
Lease expense | 9,650 | |||||||
Stock-based compensation – employees | 145,950 | 15,077,072 | ||||||
Stock-based compensation – non-employees | - | 1,172,000 | ||||||
Shares issued for interest | 5,030 | 127,023 | ||||||
Change in fair value of patent acquisition liability | (1,025,100 | ) | ||||||
Foreign exchange loss (gain) | 20,273 | |||||||
Changes in operating assets and liabilities which provided (used) cash | ||||||||
Account Receivables | 181,816 | 34,268 | ||||||
Income tax | 1,014 | 61,236 | ||||||
Operating lease liabilities | (31,850 | ) | - | |||||
Prepaid expenses and other assets | 56,184 | 32,287 | ||||||
Other receivable | (5,413 | ) | 89,370 | |||||
Accounts payable | (44,730 | ) | (3,568 | ) | ||||
Accounts payable – related parties | (46,365 | ) | (786 | ) | ||||
Accrued interest – related and non-related parties | 193,122 | 445,912 | ||||||
Accrued expenses | (258,605 | ) | 101,019 | |||||
Net cash used in operating activities | (511,253 | ) | (256,032 | ) | ||||
Cash flows used in investing activities | ||||||||
Cash acquired in acquisition of Clear Com Media Inc | - | 259,470 | ||||||
Advances to Cen Biotech Ukraine LLC | (120,000 | ) | ||||||
Capitalized software development | (53,751 | ) | ||||||
Purchase of Equipment | (18,988 | ) | ||||||
Net cash provided by (used in) investing activities | 66,731 | |||||||
Cash flows provided by financing activities | ||||||||
Repayment of loans payable - related parties | - | (50,000 | ) | |||||
Issuance of convertible notes | 152,750 | 412,830 | ||||||
Additional paid in capital | 313,756 | |||||||
Issuance of convertible notes – related parties | 466,506 | 48,000 | ||||||
Net cash provided by financing activities | 410,830 | |||||||
Effect of exchange rate change on cash | (9,632 | ) | ||||||
Net increase in cash and cash equivalents | (44,747 | ) | 211,897 | |||||
Cash and cash equivalents, beginning of period | 193,198 | 1,908 | ||||||
Cash and cash equivalents, end of period | $ | 148,151 | $ | 213,805 | ||||
Supplemental cash flows disclosures | ||||||||
Cash paid for interest | $ | - | $ | 25,821 | ||||
Non-cash transactions - investing and financing activities | ||||||||
Issuance of common stock - settlement of interest | $ | 5,030 | $ | 78,893 | ||||
Issuance of common stock - settlement of accrued liability | $ | 401,283 | $ | 13,390 | ||||
Issuance of common stock – upon conversion of convertible notes | $ | 29,000 | $ | 5,023,785 | ||||
Issuance of common stock – upon conversion of convertible notes - related parties | $ | - | $ | 68,000 | ||||
Issuance of common stock – Employee compensation | $ | 145,950 | $ | 68,000 | ||||
Beneficial conversion feature in connection with issuance of convertible notes | $ | - | $ | 111,306 | ||||
See accompanying notes to condensed consolidated financial statements.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
September 30, 2022, and December 31, 2021
(All amounts are in US dollars unless otherwise stated.)
NOTE 1--BASIS1– BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X.S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read in conjunction with the condensed consolidated financial statements of the Company for the year ended December 31, 2016 2021, and notes thereto.
Organization
CEN Biotech, Inc. (“CEN” or the “Company”) was incorporated in Canada on August 4, 2013 as a subsidiary of Creative Edge Nutrition, Inc. (“Creative”), a public company incorporated in Nevada. Creative distributed the shares of CEN common stock on a pro rata basis to the Creative shareholders on February 29, 2016 at which time CEN became an independent public company. The financial statements also include the accounts of CEN Holdings, Inc. a Michigan corporation that was incorporated on May 13, 2016 as a wholly-owned subsidiary of the Company and was terminated on March 20, 2017. Intercompany account balances and transactions are eliminated in the consolidated financial statements.
CEN is an early stage Canadian biopharmaceutical company founded to integrate agronomical and pharmaceutical principles for the purposes of growing, selling, processing and delivering pharmaceutical-grade medical marijuana in its pure and extracted form to patients in accordance with Health Canada’s newly-formed Marijuana for Medical Purposes Regulations (MMPR) and any other Canadian legislation that permits the legal use of marijuana.
CEN is actively pursuing business opportunities globally with the intent to grow, sell, process and deliver pharmaceutical grade medical marijuana in various drug delivery mechanisms within jurisdictions where it the use of marijuana is generally permitted by consumers for medical or recreational purposes.
Basis of Accounting
The Company’s financial statements are prepared using the accrual method of accounting using U.S. GAAP. The Company has elected a calendar year end. The functional currency of the Company is the U.S. Dollar. All amounts presentedThere have been no material changes in the Company’s financial statements aresignificant accounting policies as compared to the significant accounting policies described in U.S. Dollars.the Company’s annual report on Form 10-K for the year ended December 31, 2021.
Use of Estimates and Assumptions
Preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The Company has adopted the provisions of ASC 260.
Impairment of Long-Lived Assets
The Company's recently acquired a patent which is accounted for as a definite-lived intangible asset in accordance with ASC 360 "Impairment and Disposal of Long-Lived Assets" ("ASC 360").
A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. There were no impairment charges taken during the period ended September 30, 2017.
Loss per Share
Net loss per common share is computed pursuant to ASC 260-10-45.260-10-45. Basic and diluted net incomeloss per common share has been calculated by dividingis computed based on the net income for the period by the basic and diluted weighted average number of common shares outstanding assumingduring the period. Diluted net loss per share is calculated by dividing net loss by the diluted weighted average common shares outstanding, which includes the effect of potentially dilutive securities. During periods when there is a net loss, all potentially dilutive shares are anti-dilutive and are excluded from the calculation of net loss per share. Diluted earnings per share is similarly computed except that the Company incorporated asdenominator includes the effect, using the treasury stock method, of unvested restricted stock and convertible notes, if including such potential shares of common stock is dilutive. For the three-months ended September 30, 2022, and 2021, the common stock equivalents of the beginning of the first period presented. Thereconvertible note agreements were no dilutive shares outstanding as of September 30, 2017 or 2016.not included in diluted earnings per share computations because their effect was antidilutive.
Subsequent EventsRecent Developments
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. The Company followsCompany’s common shares commenced trading on the guidance in ASC 855-10-50OTCQB Venture Market® beginning on September 8, 2022. There is no assurance that an active trading market for the disclosure of subsequent events. The Company evaluates subsequent events from the date of the balance sheet through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASBour shares will develop or will be sustained if developed.
Recently Adopted Accounting Standards Codification,Pronouncements
No pronouncements were adopted by the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them withduring the SEC on the EDGAR system.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Reclassification
Certain amounts in priorthree-month period consolidated financial statements have been reclassified to conform current period presentation.
ended September 30, 2022.
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.
NOTE 2– GOING CONCERN UNCERTAINTY / MANAGEMENT PLANS
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplatecontemplating the continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normalnormal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern as theconcern. The Company had total liabilities in excess of its total assets, thehas incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of $16,889,864 at $46,991,528 At September 30, 2017, 2022 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 saleissuance of its securitiesloans payable and convertible debt instruments to finance its expenses, including a notenotes that isare in default, and is secured by the Company’s equipment, as described in Note 4.Notes 5,6,7, and 8. The Company will be dependent upon raisingcontinue 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.
Appointments of Officers and Directors
On April 14, 2022, the Condensed ConsolidatedCompany’s Board of Directors (the “Board”) appointed Brian S. Payne as the Company’s Chief Executive Officer, Chief Financial Statements
The financial statements do not include any adjustments that might be necessary if
Appointment of Directors
On April 18, 2022, the Board appointed the following persons as members of its Board effective April 18, 2022:
● | Josef Tukacs |
● | George Dragicevic |
Dismissal of Independent Registered Accounting Firm
On May 2, 2022, the Board of Directors of the Company is unableapproved the dismissal of Mazars USA LLP (“Mazars”), as its independent registered accounting firm, effective immediately. Mazars was engaged by the Company on January 16, 2018. No audit report of Mazars for the years ended December 31, 2021 or December 31, 2020, contained an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, with the exception of providing an explanatory paragraph stating there was substantial doubt about the Company’s ability to continue as a going concern. During the Company’s two most recent fiscal years and through May 2, 2022, (i) there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and Mazars on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of Mazars, would have caused Mazars to make reference to the subject matter of such disagreement in connection with its reports on the financial statements for such periods and (ii) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
Engagement of New Independent Registered Accounting Firm
On May 2, 2022, the Company’s Board approved the appointment of Olayinka Oyebola & Co (“OOC”) as the Company’s new independent registered public accounting firm effective immediately. During the Company’s two most recent fiscal years ended December 31, 2021 and 2020, and the subsequent interim period through May 2, 2022, neither the Company nor anyone acting on its behalf consulted with OOC regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, in connection with which either a written report or oral advice was provided to the Company that OOC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
NOTE 3– ADVANCES TO CEN BIOTECH UKRAINE AND ACQUISITION OF CLEAR COM MEDIA
At September 30, 2022 and December 31, 2021, the Company had advances of $1,229,328 and $1,229,328, 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 former Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a former 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.
CEN acquired CCM on July 9, 2021. The results of operations for CCM have been included in the accompanying consolidated financial statements from that date forward. The acquisition was made for the purpose of providing revenue to support CEN operations through the development, marketing and sales of certain digital products. Additionally, CCM will provide in-house IT support functions for CEN activities.
The merger was accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (ASC) 805, “Business Combinations” (ASC 805), with CEN representing the accounting acquirer under this guidance. ASC 805 requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired and liabilities assumed, using the bottom-up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets is to be recorded as goodwill.
The aggregate consideration for the acquisition of CCM was 4,000,000 shares of CEN common stock, which were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”), in reliance upon exemptions from the registration requirements of the Act in transactions not involving a public offering, and which were valued at $2,120,000 based upon the closing stock price on July 9, 2021. The purchase price accounting was still in process as of September 30, 2021, our most recently reported quarterly interim reporting. However, as of December 31, 2021, subsequent adjustments to the initial purchase price accounting due to receipt of final appraisal reports and other adjustments resulted in an increase in accounts receivable of approximately $8,000, a decrease of identifiable intangibles by approximately $168,000, and an increase in current financial liabilities by approximately $23,000, with a corresponding increase to goodwill of approximately $184,000. The decreased value of identifiable intangibles, had it been reflected in the September 30, 2021 reporting, would have resulted in a decrease to accumulated amortization and associated amortization expense of approximately $15,000. The following represents the adjusted fair values of the assets acquired and the liabilities assumed by CEN in the transaction:
Cash | $ | 259,470 | ||
Accounts receivable | 210,536 | |||
Property and equipment | 97,911 | |||
Other assets | 244,540 | |||
Identifiable intangibles | 456,855 | |||
Current financial liabilities | (344,591 | ) | ||
Other long-term liabilities | (140,078 | ) | ||
Total identifiable net assets | 784,643 | |||
Goodwill | 1,335,357 | |||
Net assets acquired | $ | 2,120,000 |
Identified intangible assets acquired include trade names, customer relationships, and product technology whose fair value of $456,855 is based on an appraisal report utilizing a combination of market, income, and multi-period excess earnings methods. These trade names and customer relationships are being amortized over useful lives ranging of 3 and 7 years, respectively, and the product technology is not yet being amortized as not yet in service. These identifiable intangible assets will be reviewed for impairment at least annually or more frequently if indicators of impairment exist.
Amounts recognized as goodwill are expected to be fully deductible for Canadian income tax purposes. All goodwill has been included within the Digital segment.
Costs related to the acquisition, which include legal, accounting, and valuation fees, in the amount of approximately $80,000 have been charged directly to operations and are included in general and administrative expenses in the 2021 consolidated statement of operations.
Supplemental proforma financial information
The unaudited financial information in the table below summarizes the combined results of operations of CEN and CCM on a pro forma basis, as though the companies had been combined as of the January 1, 2020. These pro forma results were based on estimates and assumptions, which we believe are reasonable. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on January 1, 2020. The pro forma financial information assumes the 4,000,000 shares of CEN common stock were issued on January 1, 2020 and includes adjustments to amortization for acquired intangible assets and income tax expense.
The pro forma financial information for the year ended December 31, 2021 combines the results of CEN and CCM for 2021, which include the results of CCM subsequent to July 9, 2021, and the historical results for CCM for the period of January 1, 2021 to July 8, 2021. The pro forma financial information for the year ended December 31, 2020 combines CEN’s historical results for 2020 with the historical results of CCM for 2020.
The following table summarizes the pro forma financial information (unaudited):
Years Ended | ||||||||
December 31, 2021 | December 31, 2020 | |||||||
Revenue | $ | 1,305,985 | $ | 1,242,676 | ||||
Operating expenses | 20,437,863 | 3,720,279 | ||||||
Loss from operations | (19,131,878 | ) | (2,477,603 | ) | ||||
Other income, net | 57,949 | 16,950,653 | ||||||
(Loss) income before income taxes | (19,073,929 | 14,473,050 | ||||||
Income tax expense | (61,032 | ) | 32,892 | |||||
Net (loss) income | $ | (19,012,897 | $ | 14,440,158 | ||||
Net (Loss) Income Per Share | ||||||||
Basic | $ | (0.43 | ) | $ | 0.46 | |||
Diluted | $ | (0.43 | ) | $ | 0.39 | |||
Weighted Average Number of Shares Outstanding | ||||||||
Basic | 44,488,649 | 31,264,072 | ||||||
Diluted | 44,488,649 | 36,732,510 | ||||||
NOTE 4– CONTINGENCIES AND UNCERTAINTIESINTANGIBLE ASSETS
On March 11, 2015, the Company’s application under the MMPR for a license to produce marijuana for medical purposes was formally rejected by Health Canada. The Company filed an application for judicial review in Canadian federal court on April 10, 2015 in order to obtain a reversal of this decision. We discontinued this action in February 2016. CEN continues to pursue relief and damages and on or about February 2, 2016, filed a Statement of Claim against the Attorney General of Canada in the Ontario Superior Court of Justice, for $15 million and other damages and relief. This case is in the discovery phase. We cannot provide any assurances as to the timing or decision or outcome related to our action seeking damages.
NOTE 4 – NOTES PAYABLE
Short term loans payable consists of the following at September 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | |||||||
Short term 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 is secured by the Company's equipment. | $ | 9,675,000 | $ | 9,675,000 | |||||
Short term mortgage payable, for the original amount of $385,000 CAD, bears interest at 22% per annum with a maturity date of September 21, 2018. | 308,501 | 287,287 | |||||||
Total Short Term Loans Payable | $ | 9,983,501 | $ | 9,962,287 | |||||
NOTE 5 – SHORT TERM LOANS PAYABLE – RELATED PARTY
Short term loans payable to related parties consist of the following at September 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | |||||||
Short term related party loan payable to Bill Chaaban, President of Cen Biotech, bears interest at 10% per annum. This is an unsecured loan with a maturity date of December 31, 2017. | $ | 247,627 | $ | 244,948 | |||||
Short term related party loan payable to a former director of Creative Edge, bears interest at 10% per annum. This is an unsecured loan with a maturity date of December 31, 2017. | 601,500 | 601,500 | |||||||
Total Short Term Loans Payable | $ | 849,127 | $ | 846,448 | |||||
NOTE 6 – SHORT TERM CONVERTIBLE NOTES
Short term convertible notes consist of the following at September 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | |||||||
Short term convertible note payable, bearing interest at 7% per annum with conversion rights for 335,833 common shares. | $ | 885,207 | $ | - | |||||
Total Short Term Convertible Notes | $ | 885,207 | $ | - | |||||
NOTE 7 – LONG TERM CONVERTIBLE NOTES
Long term convertible notes consist of the following at September 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | |||||||
Long term convertible notes payable to multiple private investors, bearing interest at 5% per annum with conversion rights to common shares. All notes have a maturity date of 2 years from inception. | $ | 2,150,904 | $ | 1,167,412 | |||||
| Long term convertible notes, bearing interest at 12% per annum | - | 224,191 | |||||||
Total Short Term Loans Payable | $ | 2,150,904 | $ | 1,167,412 | |||||
NOTE 8 – LONG TERM CONVERTIBLE NOTES RELATED PARTY
Long term convertible notes to related parties consist of the following at September 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | |||||||
Long term convertible note related party due to Bill Chaaban, President of Cen Biotech, bearing interest at 12% per annum. This note is convertible to 871,576 common shares with a maturity due date of December 31, 2018. | $ | 1,388,121 | $ | 1,388,121 | |||||
Long term convertible notes related party, bearing interest at 5% per annum. This note is convertible to 550,000 common shares with maturity dates in 2018. | 1,050,000 | - | |||||||
Long term convertible note related party, bearing interest at 5% per annum. This note is convertible to 30,000 common shares with a maturity due date of October 26, 2018. | 48,000 | - | |||||||
Long term convertible notes payable, bearing interest at 12% per annum. | 224,191 | - | |||||||
Total Long Term Convertible Notes Related Party | $ | 2,710,312 | $ | 1,388,121 | |||||
NOTE 9 – PATENT ACQUISITION
On September 12, 2016, the Company completed the transaction executed an agreement dated August 31, 2016, to acquire assets, including patented Colda patent related to LED Lighting, Technology, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac.Pokrajac (the “Sellers”).
The materialMaterial 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. |
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In addition, the Company willagreed to employ Stevan PokrajakPokrajac, 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.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 September 30, 2022 and December 31, 2021, 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.
On October 7, 2021, the agreement was amended and finalized to increase the number of CEN common shares to be transferred to five million. Upon closing of the agreement, the CEN common stock, valued at $2,042,500 based upon the October 7, 2021 closing market price, was transferred to the Sellers and the transfer of the patent and real property was completed. Of this amount, $1,634,000 represented additional stock compensation expense for the additional four million shares issued. In addition, the Sellers assumed the mortgage and associated accrued interest on certain real property that was included in the original agreement, of $302,186, resulting in a net loss on final settlement of the lighting patent purchase of $1,331,814.
The CompanyCompany intends to explore using the Coldpatented 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 oldcertain machinery and raw materials.materials, which were old and non-functioning and accordingly, had no fair value.
The intangible asset consists of the following at:
| Estimated | ||||||||||||
| Useful | ||||||||||||
| Life | ||||||||||||
2022 | 2021 | (years) | ||||||||||
Lighting patent | $ | 6,797,000 | $ | 6,797,000 | 16 | |||||||
Product technology | 276,080 | 276,080 | n/a | |||||||||
Customer relationships | 149,872 | 149,872 | 7 | |||||||||
Capitalized software development costs | 105,730 | 105,730 | n/a | |||||||||
Trade names | 23,664 | 23,664 | 3 | |||||||||
Total identifiable intangible assets | 7,352,346 | 7,352,346 | ||||||||||
Less: Accumulated amortization | 2,379,370 | 2,280,315 | ||||||||||
Net | $ | 4,972,976 | $ | 5,072,031 | ||||||||
As of December 31, 2021 and 2020, there is no impairment expense recognized based on the Company’s expectations that it will be able to monetize the intangible assets. Expected amortization expense for the lighting patent is $424,812 per year through 2031, with the remaining $283,215 to be amortized in 2032. Expected amortization expense for the customer relationships and trade names acquired as part of the CCM acquisition on July 9, 2021 are expected to be approximately $29,300 per year through 2023, 25,400 in 2024, $21,400 in 2025 and 2026, with the remaining $32,100 to be amortized through 2028. The product technology and capitalized software development costs are not yet available for general release to customers and thus are not yet amortized.
NOTE 5– LOANS PAYABLE
Loans payable consist of the following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
Loans payable, on demand, to a private investor for the original amount of CAD 1,104,713, bearing interest at 7% per annum. | $ | 871,398 | $ | 871,398 | ||||
Loans payable in default to multiple private investors bearing an interest at rates of up to 12% per annum, which matured at various dates between June 2018 and May 2021. | 592,395 | 592,395 | ||||||
Loan payable in default 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 April 16, 2022. | 100,000 | 100,000 | ||||||
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 | ||||||
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 matured on July 16, 2021. | 50,000 | 50,000 | ||||||
Mortgage payable 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 September 21, 2021. This was assumed on October 7, 2021 by the Sellers as described in Note 8. | - | - | ||||||
Total loans payable (all current) | $ | 1,688,793 | $ | 1,688,793 | ||||
During 2020, $9,600,000 plus $11,579,043 in associated accrued interest payable to Global Holdings International, LLC (“GHI”) was derecognized. The note matured on June 30, 2016 and the Company was in default. As at no time since the default on the loan did GHI, its principal, agent or its attorneys reach out via mail, e-mail, text or phone to demand payment on the loan. The Company reached out numerous times and never received a response or demand for payment or notice of default on the loan. CEN’s last attempt occurred in November 2020. The note, related interest and venue for the agreement are governed by Ontario Law and according to the Ontario Limitations Act (Limitations Act, 2002, S.O. 2002, c. 24, Sched. B) the statute of limitations is 2 years from the date of default under the note. The date of default was June 30, 2016, which is over the 2-year Statute of Limitation (SOL) period, and therefore the lender is outside of the SOL and cannot bring an action in Court against the Company for the debt. As a result of the legal finding, and having exhausted all reasonable efforts to contact GHI, the Company exercised its legal rights to derecognize the principal and interest obligations related to the related note with GHI which in accordance with ASC 405-20-40-1(b), is when CEN is judicially released from its obligations under the note.
During both 2021 and 2020, 62,000 and 72,000 common shares, respectively, were issued to individuals in connection with interest terms of the above loans. As of December 31, 2021, 10,000 common shares earned by an individual in connection with one of the above loans were not yet issued totaling $4,012 and is included within accrued expenses. Accordingly, during 2021 and 2020, $57,876 and $63,720 in interest expense and $53,864 and $63,720 in additional paid-in capital was recorded, respectively.
During 2021, certain private investors amended their convertible notes payable totaling $1,463,793, which were convertible into 677,955 common shares. As a result of the amendments, these notes no longer contain a conversion feature and have been reclassified to loans payable from convertible notes payable.
The Canada Emergency Business Account (“CEBA”) loan payable of $31,552 (CAD 40,000) as of December 31, 2021, to Royal Bank of Canada is unsecured, non-interest bearing until December 2022 and interest bearing at 5% thereafter. If the loan is not repaid by December 31, 2023, the principal balance increases by $15,776 (CAD 20,000). The loan principal is due in full at the maturity date of December 2025.
The Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) and Canada Emergency Rent Subsidy (“CERS”) in 2020 to provide a wage and rent subsidy to employers that suffered reductions in revenue resulting from the COVID-19 pandemic. CCM received $171,078 during 2021 related to CEWS and CERS and has included as a governmental assistance payable on the consolidated balance sheet as of December 31, 2021 as this represents an overpayment which is due back to the government.
NOTE 6– LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
Loan payable in default due to the spouse of Bill Chaaban, former CEO of CEN, which bears an interest at 12% per annum. This loan matured on August 17, 2020. | $ | 1,388,122 | $ | 1,388,122 | ||||
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 former 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 | ||||||
Loans payable in default to the spouse of Bill Chaaban, former 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. | 237,019 | 237,019 | ||||||
Loan payable to the spouse of Joseph Byrne, a 5% shareholder and former President, CEO 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 April 16, 2022. | 100,000 | 100,000 | ||||||
Loan payable to Alex Tarrabain, former CFO and 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 April 16, 2022. | 75,000 | 75,000 | ||||||
Loan payable to Joseph Byrne, a 5% shareholder and former President, CEO, 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 loan was repaid in June 2021. | - | - | ||||||
Total loans payable – related party (all current) | $ | 2,701,641 | $ | 2,701,641 | ||||
Attributable related party accrued interest was $671,665 and $568,969 as of December 31, 2021, and 2020, respectively. Interest expense attributable to related party loans was $189,182 and $202,640 in 2021 and 2020, respectively.
During both September 30, 2022, and December 31, 2021, 33,000 and 96,000 common shares, respectively, were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during September 30, 2022 and 2021, $174,950 and $74,757 in related party interest expense and additional paid-in capital was recorded, respectively.
NOTE 7– CONVERTIBLE NOTES
Convertible notes payable consists of the following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
Convertible notes payable in default to multiple private investors, including certain notes in default, bearing interest at 5% per annum with conversion rights for 363,767 common shares, which matured at various dates between May 2018 and October 2021. | $ | 576,472 | $ | 576,472 | ||||
Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 550,965 common shares, maturing at various dates between June 2022 and December 2022. | 145,000 | 145,000 | ||||||
Convertible note payable, due on demand, for the original amount of CAD 1,104,713, bearing interest at 7% per annum which had conversion rights for 335,833 common shares. Effective August 17, 2021, the note was amended and reclassified to loans payable as the conversion feature was removed, see Note 9. | - | - | ||||||
Convertible note payable for the original amount of USD 70,000, bearing interest at 8% per annum which had conversion rights after 180 days and a due date of May 23, 2023. The Conversion Price shall be equal to the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%). “Market Price” means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. | 70,000 | - | ||||||
Poet Capital LLC | 29,000 | |||||||
Sixth Street Lending LLC | 53,750 | |||||||
Repayment | (35,600 | ) | ||||||
Total convertible notes payable | 838,622 | 721,472 | ||||||
Less unamortized debt discount | 78,142 | 78,142 | ||||||
Total convertible notes payable, net of unamortized debt discount | 760,480 | 643,330 | ||||||
Less current portion | 760,480 | 643,330 | ||||||
Convertible notes payable, less current portion | $ | - | $ | - | ||||
The Company issues convertible notes as a method to raise operating capital. These notes convert to a fixed number of shares specified in the convertible note, at the option of the note holder. Certain of these notes are considered to contain a beneficial conversion feature if in-the-money at the time of issuance. The Company has assigned nodetermined the value associated with the beneficial conversion feature in connection with the notes issued during 2021to these since theirbe $180,098. This value was not relevanthas been recorded as a component of equity during 2021 and the aggregate original issue discount is accreted and charged to or calculated ininterest expense as a financing expense from the Company’s offer for acquisition. Therefore no impairment will date of issuance until maturity. Upon conversion, any remaining unaccreted discount is charged to interest expense. No convertible notes with beneficial conversion features were issued during 2020. These notes may be necessary if these assetsconverted at the option of the note holder upon written notice by the note holder. These notes are disposed of.convertible into a total of 914,732 common shares.
During the year 2022, certain private investors elected to exercise their convertible notes payable totaling $100,000 in exchange for 416,667 common shares. As a result, the associated convertible notes have been extinguished and reclassified as additional paid in capital.
During 2021, certain private investors elected to exercise their convertible notes payable totaling $5,173,785 in exchange for 3,488,883 common shares. As a result, the associated convertible notes have been extinguished and reclassified as additional paid in capital. There were no such elections to convert any of the convertible notes payable during 2021.
As of September 30, 2022, we are currently in default of $576,472 of convertible notes payable, which are convertible into 363,767 shares of common stock. There were no new notes issued during Q12022 and $70,000 in new notes during Q22022, $82,750 in new notes during the period ended September 2022
NOTE 10 8– COMMITMENTS AND CONTINGENCIESCONVERTIBLE NOTES – RELATED PARTY
Our $21,475,002Convertible notes – related party consists of indebtedness includesthe following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
Convertible notes, in default, due to Joseph Byrne, former President, CEO, and Member of the board of CEN, bearing interest at 12% per annum. This note is convertible to 76,123 common shares and matured on August 17, 2020. | $ | 121,796 | $ | 121,796 | ||||
Convertible notes with beneficial conversion features due to the parents of Jeffery Thomas, a Director of CEN, bearing interest at 5% per annum. These notes are convertible to 94,488 common shares with a maturity date of May 24, 2022. | 48,000 | 48,000 | ||||||
Total convertible notes payable – related parties | 169,796 | 169,796 | ||||||
Less unamortized debt discount | 7,157 | 7,157 | ||||||
Total convertible notes payable - related parties (all current) | $ | 162,639 | $ | 162,639 | ||||
Attributable related party accrued interest was $2,005,735 and $1,361,689 as of $4,519,540, as well as notes payable, notes payableSeptember 30, 2022, and December 31, 2021, respectively. Interest expense attributable to related parties,party convertible notes was $229,318 and $229,318 in June 2022 and December 2021, respectively.
The Company issues convertible notes to related parties totaling $16,579,050as a method to raise operating capital. These notes convert to a fixed number of shares specified in the convertible note, at the option of the note holder. Certain of these notes are considered to contain a beneficial conversion feature if in-the-money at the time of issuance.
The Company has determined the value associated with maturity datesthe beneficial conversion feature in connection with the notes issued to related parties during 2021 to be $18,141. This value has been recorded as outlined below. Wea component of equity during 2021 and the aggregate original issue discount is accreted and charged to interest expense as a financing expense from the date of issuance until maturity. Upon conversion, any remaining unaccreted discount is charged to interest expense. No convertible notes to related parties with beneficial conversion features were issued during 2020. These notes may be converted at the option of the note holder upon written notice by the note holder. These notes are convertible into a total of 170,611 common shares.
During 2021, a convertible note due to Joseph Byrne in the amount of $102,395, convertible into 63,997 shares, was transferred to a private investor and reclassified.
As of August 14, 2022, we are currently in default of $9,675,000$121,796 of debt that is secured by certain equipment that we value at approximately $10,533. We expect our operating and administrative expenses to be at least $2,400,000 annually. The convertible notes payable, which are due 2 years from issuance with notes maturing in 2018 and 2019.convertible into 76,123 shares of common stock.
Description | Maturity Date | Amount | ||||||
Note Payable - Related Party | 12/31/17 | $ | 247,627 | |||||
Note Payable - Related Party | 12/31/17 | $ | 601,500 | |||||
Note Payable | 6/30/2016 | $ | 9,675,000 | |||||
Note Payable | 9/21/2018 | $ | 308,501 | |||||
Convertible Notes - Short Term | $ | 885,207 | ||||||
Convertible Notes | Q1 2018 | $ | 62,040 | |||||
Convertible Notes | Q2 2018 | $ | 463,572 | |||||
Convertible Notes | Q3 2018 | $ | 90,200 | |||||
Convertible Notes | Q4 2018 | $ | 1,600 | |||||
Convertible Notes | Q1 2019 | $ | 566,475 | |||||
Convertible Notes | Q2 2019 | $ | 357,000 | |||||
Convertible Notes | Q3 2019 | $ | 603,818 | |||||
Convertible Notes | Q4 2019 | $ | 6,197 | |||||
Convertible Notes Related Party | 12/31/18 | $ | 1,388,122 | |||||
Convertible Notes Related Party | Q2 2018 | $ | 100,000 | |||||
Convertible Notes Related Party | Q4 2018 | $ | 450,000 | |||||
Convertible Notes Related Party | Q1 2019 | $ | 500,000 | |||||
Convertible Notes Related Party | Q4 2018 | $ | 48,000 | |||||
Convertible Notes Related Party |
| $ | 224,191 | |||||
| $ | 16,579,050 | |||||||
NOTE 11 9– LEASEINCOME TAXES
The Company leases spacehas elected to file separate Canadian income tax returns for operations in Canada which requires a monthly rent paymentCEN (growth) and for CCM (digital).
Growth:
As of $3,205. Installment amounts at September 30, 20172022, CEN has net operating loss carry forwards of approximately $46,991,528that may be available to reduce future years’ taxable income. Such carry forwards typically expire after 20 years. CEN 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 CEN believes that it is more likely than not that the carryforwards will expire unused and accordingly, CEN has recorded a valuation allowance for the following five yearsdeferred tax asset relating to these tax loss carry-forwards. The deferred tax asset and associated valuation allowance are as follows:follows for the years ended December 31:
Year Ended December 31, | Amount | ||||
2017 | $ | 9,616 | |||
2018 | 38,462 | ||||
2019 | 38,462 | ||||
2020 | 38,462 | ||||
2021 | 28,847 | ||||
| Total | $ | 153,850 | |||
2022 | 2021 | |||||||
Deferred tax asset - net operating losses | $ | 8,300,000 | $ | 3,400,000 | ||||
Deferred tax asset valuation allowance | (8,300,000 | ) | (3,400,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - | ||||
The change in the valuation allowance amounted to $4,900,000 and $3,400,000 for the years ended December 31, 2021 and 2020, respectively. All other temporary differences are immaterial both individually and in the aggregate to the consolidated financial statements.
Digital:
The tax benefit for CCM income taxes consists of the following components:
| December 31, | ||||
2021 | ||||
Current | $ | (33,621 | ) | |
Deferred | (2,735 | ) | ||
Net income tax benefit | $ | (36,356 | ) | |
The net deferred income tax asset presented in the consolidated balance sheets is comprised of the following at:
December 31, | ||||
2021 | ||||
Deferred tax assets | ||||
SR&ED credits | $ | 39,464 | ||
Deferred tax liabilities | ||||
Property and equipment | (11,357 | ) | ||
Intangible assets, including goodwill | (25,387 | ) | ||
Total deferred tax liabilities | (36,744 | ) | ||
Net deferred tax asset | $ | 2,720 | ||
A reconciliation of the income tax benefit and the amount computed by applying the statutory Canadian federal income tax rate to CEN’s and CCM’s income before income tax benefit for the year ended December31 is as follows:
| 2021 |
| 2020 | ||||||||||||||||||||||
Growth | Digital | Total | Growth | Digital | Total | |||||||||||||||||||
| Income tax (benefit) expense at statutory rate of 26.5% | $ | (5,020,280 | ) | $ | 1,177 | $ | (5,019,103 | ) | $ | 3,776,156 | $ | - | $ | 3,776,156 | ||||||||||
Valuation allowance | 5,020,280 | 5,020,280 | (3,776,156 | ) | - | (3,776,156 | ) | |||||||||||||||||
| SR&ED credits | - | (19,198 | ) | (19,198 | ) | - | - | - | ||||||||||||||||
| Other | - | (18,335 | ) | (18,335 | ) | - | - | - | ||||||||||||||||
| Income tax benefit | $ | - | $ | (36,356 | ) | $ | (36,356 | ) | $ | - | $ | - | $ | - | ||||||||||
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 December 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 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 2018.
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.
During the quarter end, 5,350,444 common shares was issued to former employee as settlement of employment related liability.
During the year 2022, 33,000 common shares was issued as share interest on loan payables.
As of December 31, 2021, 10,000 common shares earned by an individual in connection with one of the loans, as described in Note 9, were not yet issued.
As of December 31, 2021, 1,085,343 shares of common stock are committed to the Condensed Consolidated Financial Statementsholders of the convertible notes.
During the period ended September 30, 2022, 2,186,703 shares were issued in conjunction with Employee Agreements and the Conversion of debt to equity.
NOTE 12 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 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. This note was repaid on May 6, 202.
There are advances of $1,229,328 and $1,179,328 to CEN Ukraine as of December 31, 2021 and 2020, respectively. Such advances were made for the purpose of funding the operations of CEN Ukraine as summarized in Note 7. 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 interim 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 April 14, 2022, as the Company needs to raise additional funds in order to proceed with the closing. Bahige (Bill) Chaaban, our Interim 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.
During the years ended December 31, 2021 and 2020, the Company incurred consulting expenses with certain Board Members and Officers totaling $188,718 and $124,800, respectively. As of December 31, 2021 and 2020, $518,918 and $330,200 was payable to these related parties for consulting charges, which are included within accrued expenses.
During the year ended December 31, 2021, the Company incurred payroll expenses with Lawrence Lehoux, the Chief Technology Officer, of $94,553, which is included within general and administrative 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 December 31, 2021. See Note 25 for a discussion of subsequent events in Ukraine.
As of December 31, 2021 and 2020, the Company owed $8,347 to Joe Byrne, a Director, for advances made to the Company, which is included within accounts payable – related parties.
During 2021, the Company utilized an entity owned by Alex Tarrabain, the Chief Financial Officer, for accounting advisory services totaling $13,320. As of December 31, 2021, the Company owed $13,320 to this entity and also owed Mr. Tarrabain $30,795 for reimbursable expenses, which are included within accounts payable – related parties.
As of December 31, 2021, the Company owed Lawrence Lehoux, the Chief Technology Officer, $48,960 for reimbursable expenses, which is included within accounts payable – related parties.
The Company currently leases certain facilities and equipment under noncancelable operating lease agreements that expire at various dates through 2024. Monthly rentals range from CAD 844 to CAD 5,595. In addition, the facilities lease calls for variable charges for common area usage which are expensed as incurred.
The Company also leased office space in Windsor, Ontario from RN Holdings Ltd. 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. Effective with the August 1, 2020 lease termination and abandonments, all property, plant, and improvements which were located at these properties were abandoned. As of April 14, 2022, 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 December 31, 2021 under its original contractual terms. As of December 31, 2021 and 2020 the associated liability was $177,686 and $164,997, respectively. During 2021 and 2020, lease expenses of approximately $13,000 and $35,000, respectively related to this agreement were recognized within general and administrative expenses.
The operating lease liability as of December 31, 2021 and 2020 was $310,671 and $164,997, respectively, utilizing a weighted average discount rate of approximately 6.76% over a weighted average remaining lease term of approximately 4.4 years. During 2021 and 2020, lease expenses of approximately $46,000 and $35,000, respectively, related to these agreements were recognized within general and administrative expenses.
Jamaal Shaban (“Lessor”), cousin of Bill Chaaban, leased a property at 20 North Rear Road 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. All remaining associated right-of-use assets as of August 1, 2020 of $48,110 and associated liabilities of $45,118, which had utilized an 8% discount rate, were written off in conjunction, resulting in a loss on lease termination of $53,692. During 2020, lease expenses of approximately $20,000 related to this agreement were recognized within general and administrative expenses.
The following is a schedule of future annual minimum rental payments required under operating leases with initial or remaining noncancelable lease terms in excess of one year for the 12 months subsequent to December 31:
Amount | ||||
2022 | $ | 119,543 | ||
2023 | 90,325 | |||
2024 | 61,897 | |||
2025 | 32,088 | |||
2026 | 32,088 | |||
Thereafter | 24,066 | |||
Total lease payments | $ | 360,007 | ||
Less imputed interest | 49,336 | |||
Present value of lease liability | $ | 310,671 | ||
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.
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 an additional 20,000,000 shares of the Company’s common stock for issuance under the 2021 Plan.
Equity Compensation Grants
On November 30, 2017, the Company granted a one-time equity award (“Equity Award”) of restricted shares of the Company’s common stock pursuant to a Restricted Stock Agreement to certain executives and directors of the company. Donald Strilchuck, Director, received 1,000,000 restricted shares of the Company's common stock for security consulting services, of which 550,000 vested immediately and the remaining vesting ratably each month over the next 36 months until November 2020. Other individuals received a total of 1,870,000 restricted shares of the Company's common stock for consulting services performed, of which 1,330,000 vested immediately and the remaining vesting ratably each month over the next 36 months until November 2020. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date.
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.
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 of $897,000 was recognized on the grant date.
On July 12,13, 2021, the Company entered into agreements with two individuals for the payment of security and legal consulting services under which the Company issued an aggregate of 500,000 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of $275,000 was recognized on the grant date.
On September 7, 2022, the Company entered into agreements with Seven individuals for the compensation of employees and Directors of the company. under which the Company issued an aggregate of 1,390,000 shares of its common stock.
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, President of the Company, Mr. Chaaban will 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, Chief Executive Officer of the Company, Mr. Byrne will 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. |
| ● | Under the Employment Agreement with Richard Boswell, Senior Executive Vice President and Chief Financial Officer of the Company, Mr. Boswell will 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 will 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, an employment agreement, under similar terms, was entered into with Mr. BillTarrabain. Under the Employment Agreement with Alex Tarrabain, Chief Financial Officer and as one of the Vice Presidents of the Company, Mr. Tarrabain will 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.
On December 6, 2021, the Board of Directors appointed Rick Purdy as its Senior Vice President of Deals and Acquisitions. On this date, an employment agreement, under similar terms, was entered into with Mr. Purdy. Under the Employment Agreement, Mr. Purdy will receive compensation in the form of a base annual salary of $31,200 and a grant of 2,500,000 shares of restricted stock of the Company, of which 700,000 vested immediately and the remaining vesting ratably each month over the next 36 months until December 2024. The expense related to the restricted stock awarded to employees for services previously rendered of $238,000 was recognized on the grant date. Remaining expenses will be recognized ratably monthly as the restricted stock award vests.
On April 2, 2021, the Board of Directors appointed Ameen Ferris and Harold Aubrey De Lavenu to serve as Vice Presidents of the Company. Under the associated Executive Employment Agreements, they will each receive compensation in the form of a base annual salary of $31,200. In addition, Ameen Ferris was granted 1,000,000 and Harold Aubrey De Lavenu was granted 1,041,250 restricted shares, subject to applicable securities laws and regulations, as set forth in the Restricted Stock Agreement, of the Company’s common stock. Such shares vested immediately. The expense related to the restricted stock awarded to employees for services previously rendered of $2,816,925 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the “Boswell RSA”) with Richard Boswell. Pursuant to the Boswell RSA, the Company granted Mr. Boswell 2,185,679 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $3,016,237 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the “Chaaban RSA”) with Bahige Chaaban. Pursuant to the Chaaban RSA, the Company granted Mr. Chaaban 3,106,122 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $4,286,435 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the “Payne RSA”) with Brian Payne. Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $1,980,300 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the “Saadikh RSA”) with Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh 1,000,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $1,380,000 was recognized on the grant date.
On April 2, 2021, the Company entered into an RSA (the “Strilchuck RSA”) with Donald Strilchuck. Pursuant to the Strilchuck RSA, the Company granted Mr. Strilchuck 341,250 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $470,925 was recognized on the grant date.
On April 2, 2021 and June 25, 2021, the Company entered into an RSA (the “Tarrabain RSA”) with Alex Tarrabain. Pursuant to the Tarrabain RSA, the Company granted Mr. Tarrabain 300,000 and 1,000,000, respectively, restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered of $899,000 was recognized on the grant date.
On April 14, 2022, the following persons resigned from the following positions from Company. Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, of the Company. The resignation did not result from any disagreements with the Company or its management. Mr. Chaaban will continue to serve asPresident, Chairman of the Board of Directors Company effective at the close of business on April 14, 2022. Alex Tarrabain resigned from his positions as the Company’s Chief Financial Officer and Director effective at the close of business on April 14, 2022. Rick Purdy resigned from his positions as Company’s Senior Vice President of Deals and Acquisitions and Director effective at the close of business on April 14, 2022. Amen Ferris resigned from his positions as Company’s Vice President and Director effective at the close of business on April 14, 2022. Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business on April 14, 2022. Additionally, Richard Boswell resigned from his positions as the Company’s Senior Executive Vice President and Director effective as of April 15, 2022.
On April 19, 2022, Dr. Usamakh Saadikh resigned from his position as a director on the Board of Directors (the “Board”) of the “Company as well as all other positions with the Company effective immediately. Dr. Usamakh Saadikh, was a member of our Board and the Vice President of International Business Development since June 2018.
The foregoing resignations shall be referred to together herein as the “Resignations”. Subsequent to the effectiveness of the above Resignations, the above name persons no longer hold any positions with the Company. The Resignations were not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices by any of the above persons.
Settlement Agreements with Departing Officers and Directors
As reported by the Company on its Current Report on Form 8-K filed with the Securities and Exchange Commission on April 19, 2022, on April 14, 2022, the following persons resigned from the following positions from the Company. Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board of Directors Company effective at the close of business on April 14, 2022. Alex Tarrabain resigned from his positions as the Company’s Chief Financial Officer and Director effective at the close of business on April 14, 2022. Rick Purdy resigned from his positions as Company’s Senior Vice President of Deals and Acquisitions and Director effective at the close of business on April 14, 2022. Amen Ferris resigned from his positions as Company’s Vice President and Director effective at the close of business on April 14, 2022. Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business on April 14, 2022. Additionally, Richard Boswell resigned from his positions as the Company’s Senior Executive Vice President and Director effective as of April 15, 2022. The foregoing resignations shall be referred to together herein as the “Resignations”. Subsequent to the effectiveness of the above Resignations, the above named persons no longer hold any positions with the Company. In connection with the Resignations, the Company has entered into the settlement agreements described below with the following persons.
On April 19, 2022, the Company, entered into a settlement agreement with Bahige (Bill) Chaaban (the “Chaaban Settlement Agreement”) pursuant to which the Company agreed to issue Mr. Chaaban 1,785,096 restricted shares of its common stock in exchange for the accrued salary of $133,882.19 owed to Mr. Chaaban as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Chaaban Settlement Agreement, Mr. Chaaban’s Employment Agreement with the Company dated November 30, 2017, was terminated as of April 14, 2022. Pursuant to the Chaaban Settlement Agreement, Mr. Chaaban agreed to release the Company from any claims, as such term is defined thereunder, that Mr. Chaaban may have against the Company.
On April 19, 2022, the Company, entered into a settlement agreement with Alex Tarrabain (the “Tarrabain Settlement Agreement”) pursuant to which the Company agreed to issue Mr. Tarrabain 1,196,673 restricted shares of its common stock in exchange for the accrued salary of $89,682.19 owed to Mr. Tarrabain as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Tarrabain Settlement Agreement, Mr. Tarrabain’s Employment Agreement with the Company dated May 21, 2019, was terminated as of April 14, 2022. Pursuant to the Tarrabain Settlement Agreement, Mr. Tarrabain agreed to release the Company from any claims, as such term is defined thereunder, that Mr. Tarrabain may have against the Company.
On April 19, 2022, the Company, entered into a settlement agreement with Rick Purdy (the “Purdy Settlement Agreement”) pursuant to which the Company agreed to issue Mr. Purdy 150,483 restricted shares of its common stock in exchange for the accrued salary of $11,286.19 owed to Mr. Purdy as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Purdy Settlement Agreement, Mr. Purdy’s Employment Agreement with the Company dated December 6, 2021, was terminated as of April 14, 2022.
On April 19, 2022, the Company, entered into a settlement agreement with Ameen Ferris (the “Ferris Settlement Agreement”) pursuant to which the Company agreed to issue Mr. Ferris 433,096 restricted shares of its common stock in exchange for the accrued salary of $32,482.19 owed to Mr. Ferris as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Ferris Settlement Agreement, Mr. Ferris’s Employment Agreement with the Company dated April 2, 2021, was terminated as of April 14, 2022.
On April 19, 2022, the Company, entered into a settlement agreement with Richard Boswell (the “Boswell Settlement Agreement”) pursuant to which the Company agreed to issue Mr. Boswell 1,785,096 restricted shares of its common stock in exchange for the accrued salary of $133,882.19 owed to Mr. Boswell as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Boswell Settlement Agreement, Mr. Boswell’s Employment Agreement with the Company dated November 30, 2017, was terminated as of April 15, 2022.
Restricted Stock Awards
Restricted stock awards relate to common shares that are subject to applicable securities laws and regulations as set forth in the RSAs and other equity compensation grants.
The total grant-date fair value of the restricted shares granted through employment agreements and equity compensation grants was $29,885,063 and $13,013,241 as of December 31, 2021 and 2020, respectively. During 2021 and 2020, 15,059,291 restricted shares with a grant date fair value of $16,871,822 and 387,500 restricted shares with a grant date fair value of $279,000, respectively, were awarded. Prior to the start of trading on April 5, 2021 via the OTC Link alternative trading system (operated by OTC Markets Group Inc.), the grant-date fair value was calculated utilizing an enterprise valuation model as of the date the awards are granted. Beginning April 5, 2021, the grant-date fair value is calculated utilizing the daily closing price as published via the OTC Link.
With the exception of immediately vesting portions of awards, shares typically vest pro-rata over the requisite service period, which is generally three years from the grant-date. Non-vested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.
During 2021 and 2020, 13,559,291 and 1,987,500 of these shares vested, respectively. The fair value of the restricted stock which vested amounted to $16,562,822 and $1,237,250 for 2021 and 2020, respectively.
Compensation expense, broken out by allocation, recognized in connection with the restricted stock awards was as follows for the years ended December 31:
2022 | 2021 | |||||||
Stock Based Compensation | $ | - | $ | 15,390,822 | ||||
Professional fees | - | 1,172,000 | ||||||
Total | $ | - | $ | 16,562,822 | ||||
Non-vested restricted stock award activity for the years ended September 30, 2022 and 2021 are as follows:
| Weighted- | Weighted- | |||||||||||
| Average | Average | |||||||||||
| Grant | Remaining | |||||||||||
| Date Fair | Contractual | |||||||||||
| Number of | Value | Term | ||||||||||
Shares | per Share | (Years) | ||||||||||
Non-vested at December 31, 2021 | 1,925,000 | $ | 1.01 | 1.50 | ||||||||
Granted | 39,051,155 | 1.12 | - | |||||||||
Vested | (36,559,545 | ) | 1.22 | - | ||||||||
Forfeited | - | - | - | |||||||||
Non-vested at September 30, 2022 | 4,416,610 | $ | 0.38 | 2.84 | ||||||||
The fair value of the restricted stock grants was based on the valuation of a third-party specialist prior to April 5, 2021. Beginning April 5, 2021, the fair value of the restricted stock grants is based upon the daily closing price per the OTC Link. As of December 31, 2021, unrecognized compensation expense totaled $738,250, which will be recognized on a straight-line basis over the vesting period or requisite service period through December 2024.
Restricted Stock Agreement with Lawrence Lehoux
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “RSA”) under the Plan with Lawrence Lehoux, the Company’s Chief Technology Officer, President and a Director. Pursuant to the RSA, the Company granted Mr. Lehoux 2,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement with Brian S. Payne
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Payne RSA”) under the Plan with Brian S. Payne, the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board. Pursuant to the Payne RSA, the Company granted Mr. Payne 3,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Payne RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withDonald Strilchuck
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Strilchuck RSA”) under the Plan with Donald Strilchuck, a member of the Company’s Board. Pursuant to the Strilchuck RSA, the Company granted Mr. Strilchuck 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Strilchuck RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement with George Dragicevic
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Dragicevic RSA”) under the Plan with George Dragicevic a member of the Company’s Board. Pursuant to the Dragicevic RSA, the Company granted Mr. Dragicevic 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Dragicevic RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withHarold Andre Aubrey de Lavenu
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Lavenu RSA”) under the Plan with Harold Andre Aubrey de Lavenu, a Vice President and Director of the Company. Pursuant to the Lavenu RSA, the Company granted Mr. Chaaban holds long term convertible notes bearing interest 12% per annum and are convertibleLavenu 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to 871,576 common sharesvest as set forth in the Lavenu RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement with a maturity date of August 17, 2018.Jeffrey Thomas
On July 12, 2017, August 29, 2022, the Company elected individuals to serve as Directors onentered into a Restricted Stock Agreement (the “Thomas RSA”) under the Plan with Jeffrey Thomas, a member of the Company’s Board. These individuals hold long term convertible notes payable issued priorPursuant to the election. All notes payable bear interest at 5% per annum and are convertibleThomas RSA, the Company granted Mr. Thomas 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to common shares with various maturity dates.vest as set forth in the Thomas RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withJosef Tukacs
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Tukacs RSA”) under the Plan with Josef Tukacs, a member of the Company’s Board. Pursuant to the Tukacs RSA, the Company granted Mr. Tukacs 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Tukacs RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Employment Agreement with Lawrence Lehoux
On August 26, 2022, the Company entered into an Executive Employment Agreement with Lawrence Lehoux, the Company’s Chief Technology Officer, President and a Director, (the “Employment Agreement”) with an effective date of September 1, 2022. Pursuant to the Employment Agreement, during the term of the Employment Agreement, the Company agreed to employ, and Mr. Lehoux agreed to accept employment with the Company as its President and Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to issue Mr. Lehoux 1,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Company’s 2021 Equity Compensation Plan (the “Plan”). Additionally, pursuant to the Employment Agreement, the Company agreed to pay Mr. Lehoux a base salary of $240,000.00. The term of the Employment Agreement is a period of five (5) years. The Employment Agreement can be terminated by Mr. Lehoux for “Good Reason” as such term is defined in the Employment Agreement or without “Good Reason” by giving a minimum of thirty (30) days’ prior written notice to advise the Company that he is resigning his employment. In the event of termination of the Employment Agreement by Mr. Lehoux by resignation without “Good Reason,” no sums will be payable by the Company except for: (i) any unpaid base salary through the effective date of resignation and (ii) reimbursement for any expenses for which Mr. Lehoux had not been reimbursed. In the event of a termination of the Employment Agreement by Mr. Lehoux for “Good Reason,” the Company would have a period of thirty (30) days following receipt of such notice from Mr. Lehoux to cure or revoke the event constituting “Good Reason.” The Company can also terminate the Employment Agreement for “Cause” as such term is defined in the Employment Agreement, and if that occurs, no sums will be payable by the Company except for: (i) any unpaid base salary through the date of termination, (ii) reimbursement for any expenses for which the Mr. Lehoux had not been reimbursed and (iii) only if the act of “Cause” does not constitute willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the Company, any other amount due under the Employment Agreement for termination pay or severance pay. The Company can also terminate the Employment Agreement without “Cause” at any time. Pursuant to the Employment Agreement, in connection with the sale of the Company or any other transaction constituting a “Change in Control” as such term is defined in the Employment Agreement or a strategic transaction, the Company may, but will not be obligated, to provide Mr. Lehoux with additional compensation (including, but not limited to additional stock options or restricted stock) for services outside of general scope of duties and responsibilities of Mr. Lehoux.
Employment Agreement with Brian S. Payne
On August 26, 2022, the Company entered into an Executive Employment Agreement with Brian S. Payne, the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board, (the “Payne Employment Agreement”) with an effective date of September 1, 2022. Pursuant to the Payne Employment Agreement, during the term of the Payne Employment Agreement, the Company agreed to employ, and Mr. Payne agreed to accept employment with the Company as its Chief Executive Officer and Chairman. Pursuant to the Payne Employment Agreement, the Company agreed to issue Mr. Payne 2,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Plan. Additionally, pursuant to the Payne Employment Agreement, the Company agreed to pay Mr. Payne a base salary of $240,000.00. The term of the Payne Employment Agreement is a period of five (5) years. The Payne Employment Agreement can be terminated by Mr. Payne for “Good Reason” as such term is defined in the Payne Employment Agreement or without “Good Reason” by giving a minimum of thirty (30) days’ prior written notice to advise the Company that he is resigning his employment. In the event of termination of the Payne Employment Agreement by Mr. Payne by resignation without “Good Reason,” no sums will be payable by the Company except for: (i) any unpaid base salary through the effective date of resignation and (ii) reimbursement for any expenses for which Mr. Payne had not been reimbursed. In the event of a termination of the Payne Employment Agreement by Mr. Payne for “Good Reason,” the Company would have a period of thirty (30) days following receipt of such notice from Mr. Payne to cure or revoke the event constituting “Good Reason.” The Company can also terminate the Payne Employment Agreement for “Cause” as such term is defined in the Payne Employment Agreement, and if that occurs, no sums will be payable by the Company except for: (i) any unpaid base salary through the date of termination, (ii) reimbursement for any expenses for which the Mr. Payne had not been reimbursed and (iii) only if the act of “Cause” does not constitute willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the Company, any other amount due under the Payne Employment Agreement for termination pay or severance pay. The Company can also terminate the Payne Employment Agreement without “Cause” at any time. Pursuant to the Payne Employment Agreement, in connection with the sale of the Company or any other transaction constituting a “Change in Control” as such term is defined in the Payne Employment Agreement or a strategic transaction, the Company may, but will not be obligated, to provide Mr. Payne with additional compensation (including, but not limited to additional stock options or restricted stock) for services outside of general scope of duties and responsibilities of Mr. Payne.
NOTE 13– 13NET 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 December 31, 2021. During 2020, the potential common shares from the Tesla Agreement, which were contingent on certain events as described in Note 8, were excluded as the effect of conversion was anti-dilutive. Common stock equivalents that were excluded for the period ended June 30, and December 2021 because they were anti-dilutive are as follows:
2021 | 2020 | |||||||
Convertible debt | 1,085,343 | - | ||||||
Tesla agreement | - | 1,000,000 | ||||||
The following table shows the computation of basic and diluted earnings per share for 2021:
Income | Shares | Per-Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic EPS | ||||||||||||
Income available to common stockholders | $ | 607,152 | 61,341,187 | $ | 0.00 | |||||||
Effect of Dilutive Securities | ||||||||||||
Convertible debt | - | - | - | |||||||||
Diluted EPS | ||||||||||||
Income available to common stockholders with assumed conversions | $ | 607,152 | 61,341,187 | $ | 0.00 | |||||||
NOTE 14 – - SUBSEQUENT EVENTSCONTINGENCY
In accordanceconnection with ASC 855, 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.
The fair value of the Company’s financial instruments are as follows:
Fair Value Measured at Reporting Date Using | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
At September 30, 2022: | ||||||||||||||||||||
Cash and cash equivalents | $ | 148,151 | $ | - | $ | 148,151 | $ | - | $ | 148,151 | ||||||||||
Note receivable – CEN Biotech Ukraine, LLC – related party | $ | 44,859 | $ | - | $ | - | $ | 44,859 | $ | 44,859 | ||||||||||
Advances to CEN Biotech Ukraine, LLC - related party | $ | 1,299,328 | $ | - | $ | - | $ | 1,299,328 | $ | 1,299,328 | ||||||||||
Loans payable | $ | 1,688,793 | $ | - | $ | - | $ | 1,688,793 | $ | 1,688,793 | ||||||||||
Loans payable – related parties | $ | 2,701,641 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Convertible notes payable | $ | 760,480 | $ | - | $ | - | $ | 760,480 | $ | 760,480 | ||||||||||
Convertible notes payable – related parties | $ | 162,639 | $ | - | $ | - | $ | 162,639 | $ | 162,639 | ||||||||||
CEBA loan payable | $ | 30,648 | $ | - | $ | - | $ | 30,648 | $ | 30,648 | ||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
At December 31, 2021: | ||||||||||||||||||||
Cash and cash equivalents | $ | 193,198 | $ | - | $ | 193,198 | $ | - | $ | 193,198 | ||||||||||
Note receivable – CEN Biotech Ukraine, LLC – related party | $ | 44,859 | $ | - | $ | - | $ | 44,859 | $ | 44,859 | ||||||||||
Advances to CEN Biotech Ukraine, LLC - related party | $ | 1,299,328 | $ | - | $ | - | $ | 1,299,328 | $ | 1,299,328 | ||||||||||
Loans payable | $ | 1,688,793 | $ | - | $ | - | $ | 1,688,793 | $ | 1,688,793 | ||||||||||
Loans payable – related parties | $ | 2,701,641 | $ | - | $ | - | $ | - | $ | - | ||||||||||
Convertible notes payable | $ | 643,330 | $ | - | $ | - | $ | 1,890,736 | $ | 1,890,736 | ||||||||||
Convertible notes payable – related parties | $ | 162,639 | $ | - | $ | - | $ | - | $ | - | ||||||||||
CEBA loan payable | $ | 31,552 | $ | - | $ | - | $ | 31,552 | $ | 31,552 | ||||||||||
The fair values of other receivables (including related accrued interest), note receivable - CEN Biotech Ukraine, LLC, and advances to Emergence Global and CEN Biotech Ukraine, LLC approximate carrying value due to the terms of the instruments.
The fair value of the loans payable approximates carrying value due to the terms of such instruments and applicable interest rates.
The fair value of convertible notes payable is based on the par value plus accrued interest through the date of reporting due to the terms of such instruments and interest rates.
It is Subsequent Eventsnot practicable to estimate the fair value of loans payable – related parties and convertible notes payable – related parties due to their related party nature.
The fair value of the patent acquisition liability is based upon the fair value of the common stock, which was obtained from a 3rd party valuation specialist prior to April 5, 2021. This valuation report utilized a cash-free asset value model to estimate enterprise value based upon similar companies. Beginning April 5, 2021, the fair value of the patent acquisition liability was based upon the OTC closing price and accordingly was transferred from Level 3 to Level 1 due to the availability of published prices for CEN’s common stock during 2021. Effective October 7, 2021, the liability was settled with delivery of the associated common shares, see Note 8.
NOTE 16– SUBSEQUENT EVENTS
On July 19, 2022, pursuant to a Termination of Patent Purchase and Assignment Agreement (“Termination Agreement”), the Company has evaluated subsequent events from September 30, 2017 through November 17, 2017,and Buyer agreed to terminate the date of issuanceAgreement as of the last quarterly financial statements,“Effective Termination Date”, as defined in the Agreement, and has determinedthe Agreement shall thereafter be null and void, and of no further force or effect. Furthermore, each the Company and Buyer recognize that it has no material subsequent eventsneither party shall have any ongoing rights or obligations pursuant to disclose.the Agreement.
On September 16, 2022, the Company announced the planned launch of its newest technology product, WordPresto (www.wordpresto.com) on September 28, 2022, at 11:00 AM EDT. This launch event will be broadcast on both Facebook Live and YouTube live and will highlight WordPresto’s capabilities aiming to revolutionize the web design market and to address the needs of scalable and affordable web design.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATION
Explanatory Note
Unless otherwise noted, references in this Form 10-Q to “CEN,” the “Company,” “we,” “our” or “us” means CEN Biotech, Inc., the registrant,
The following discussion and analysis provides information which management believes to be relevant to an assessment and understanding of the Company'sour financial condition and results of operations and financial condition. This discussion should be read together with the Company's financial statements and the notes to financial statements, which are included in this report.
This management's discussion and analysis or plan of operation should be read in conjunction with the consolidated financial statements and notes theretothe 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 the Company for the year ended December 31, 2016. Because of its natureevents could differ materially from those anticipated in these forward-looking statements as a result of a development stage company, the reported results will not necessarily reflect the future.
Corporate Overviewnumber 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 Historysimilar expressions to identify forward-looking statements.
In NovemberBackground 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 announced plans to separate into two publicly-traded companies: one comprising ofEdge Nutrition, Inc. (“Creative”), a Nevada corporation. Creative separated its planned specialty pharmaceutical business located in Canada the other comprised of its nutritional supplements business. As part of the separation, Creative transferredby transferring substantially all of the assets and liabilities of the planned specialty pharmaceutical business to CEN. TheCEN and effecting a distribution was through a pro rata distribution(the “Spin-Off Distribution”) of CEN sharescommon stock to Creative shareholders on February 29, 2016 that2016. The Spin-Off Distribution was expectedintended to be tax free for U.S. Federalfederal income tax purposes. CEN was incorporated in Ontario as a wholly-owned subsidiary of Creative on August 2013.
AcquisitionPrior to the Spin Off Distribution, the Company initially pursued the cannabis business in Canada and obtained funding to build the initial phase of Tesla Digital
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 September 12,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 completed 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, 2022 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 transaction to acquire assets, including patented Cold LED Lighting Technology, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac.tetrahydrocannabinol (“THC”) that is below 0.3%.
The material consideration given by Company in this acquisition was:
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In addition, the Company will employ Stevan Pokrajak in connection with the development of the acquiredLED lighting technology with compensation equal to $200,000 per year.
and hemp-based products. The Company intends to continue to explore using the Cold LED Lighting Technology across manufacturing operationsusage of hemp, which it now intends to cultivate for usage in industrial, medical and licensing opportunities across multiple industries suchfood products.
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 horticultural, automotive, industrialset forth on the signature pages of the Agreement (the “CCM Shareholders”) and commercial lighting. The assets acquired other thanLawrence Lehoux as the patent included old machineryRepresentative of the CCM Shareholders (the “Shareholders’ Representative”, each of CCM and raw materials. Thethe CCM Shareholders may be referred to collectively herein as the “CCM Parties”). Pursuant to the Agreement, the Company has assigned no valueagreed to these since their value was not relevantacquire 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 or calculated inthe CCM Shareholders of 4,000,000 restricted shares of the Company’s offer for acquisition. Thereforecommon stock, no impairment will be necessary if these assets are disposed of.
par value per share (the “Company Common Stock”). The Agreement closed on July 9, 2021 (the “Closing”). At Closing, the CCM Shareholders delivered the CCM Stock to the Company has invested approximately $200,000and the Company delivered the Company Common Stock to move equipment, pay for design workthe CCM Shareholders, and develop prototypes in connectionCCM became a wholly owned subsidiary of the Company. At Closing, the Company increased the number of members on its Board of Directors (the “Board”) by one and to appoint and named the Shareholder Representative as a member of the Board of the Company. Additionally, at Closing, the Company appointed and named the Shareholder Representative as the Company’s Chief Technology Officer. At Closing, the Company entered into an employment agreement (the “Employment Agreement”) with Mr. Lehoux. Pursuant to the Employment Agreement, during the term of the Employment Agreement, the Company agreed to employ, and Mr. Lehoux agreed to accept employment with the Company as the Company’s strategyChief Technology Officer. Pursuant to develop sales opportunities in commercial, municipal and automotive lighting.the Employment Agreement, the Company agreed to pay Mr. Lehoux a base salary of $31,200.
Our financial statements assumeClear Com Media Inc. is a Windsor, Ontario based data management, digital marketing and Ecommerce company founded on the premise that 3,125,000we are not satisfied until our customers are. Clear Com is entirely committed to delivering a positive customer experience while continuing to grow and gaining the trust of the online community. Clear Com seeks to let nothing stop it from delivering a positive personal experience by focusing on data driven decision making. By exemplifying professionalism and expertise in technology Clear Com seeks to ensure customer satisfaction every step of the way. The aggregate consideration for the acquisition of CCM was 4,000,000 restricted shares of CEN common stock, will be issuedwhich were valued at $2,120,000 based upon the closing stock price on July 9, 2021. The following represents the fair values of the assets acquired and the liabilities assumed by CEN in the transaction, including from the originally reported estimates, an increase in accounts receivable of approximately $8,000, a decrease of identifiable intangibles by approximately $168,000, and an increase in current financial liabilities by approximately $23,000, with a corresponding increase to goodwill of approximately $184,000 reflected as consideration for thisof July 9, 2021:
| Cash | 259,470 | |||
| Accounts receivable | 210,536 | |||
| Property and equipment | 97,911 | |||
| Other assets | 244,540 | |||
| Identifiable intangibles | 456,855 | |||
| Current financial liabilities | (344,591 | ) | ||
| Other long-term liabilities | (140,078 | ) | ||
| Total identifiable net assets | 784,643 | |||
| Goodwill | 1,335,357 | |||
| Net assets acquired | $ | 2,120,000 |
Effective with the acquisition basedof Clear Com Media, Inc. on a price per shareJuly 9, 2021, the Company reports in two business segments, Growth and Digital. The Growth segment encompasses the activities of $1.60. The acquisition agreement contemplated that the number of shares will be basedCEN Biotech, Inc. and focuses on the fair value determinedplanned manufacturing, production and development of LED lighting technology and hemp-based products. The Digital segment encompasses the activities of Clear Com Media, Inc. and focuses on providing digital marketing and web design related services. Substantially all of the Company’s operations are conducted within 180 days after the acquisition.United States of America and Canada.
Our historicalprincipal 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.
The Company did not have any operating revenue until the acquisition of Clear Com Media, Inc. on July 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. Our consolidated financial statements have been prepared onassuming that we will continue as a stand-alone basis in conformity with U.S. GAAP.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.
RESULTS OF OPERATIONSAt September 30, 2022 and December 31, 2021, the Company had advances of $1,229,328 and $1,229,328, 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 $150,000 for a total of $1,800,000 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 $5,000,000 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 $5,000,000 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: $2.0 million in digital development, $1.2 million in LED lighting manufacturing, and $1.8 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:
● | December 2022 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: |
o | Lease production facility expected to take place in March 2023 and we estimate the costs of this to be $400,000 annually. |
o | Lease equipment expected to take place in July, 2023 and we estimate the costs of this to be $400,000 |
o | Hire staff expected to take place in August, 2023 and we estimate the costs of this to be $600,000 annually. |
o | Initial raw materials expected to take place in August, 2023 and we estimate the costs of this to be $500,000 one time. |
o | Marketing and delivery expected to take place in October, 2023 and we estimate the costs of this to be $300,000 annually. |
o | December 2022 to June 2023 – The Company will continue to develop digital media programs and services to accentuate its current service offerings and we estimate the costs of this to be $2,000,000. |
Plan of Operations of Clear Com Media, Inc.
The current burn rate for CCM inclusive of all wages and operating costs are approximately $120,000 CDN per month or $1,440,000 CDN per year (Approx. $1,152,000 USD) per year. We anticipate a decrease of 30% in this burn rate with the elimination of some staff members that provide the SEO and custom development services that are no longer being performed by CCM. We will potentially rehire some of these people in order to retool the focus of the business and pivot to the development of some products as soon as it is financially viable to do so.
The following highlights the major goals and activities planned for the next twelve months:
o | Expansion of CCM’s enterprise hosting infrastructure for CCM’s client services and CCM products to address the ongoing growth needs of the business. |
o | The pace of development of the Chatter product has been modified to meet the changing needs of the business and to address new market realities. Progress continues but a refocus on core deliverables that delivers a new phased approach to product roll out is being implemented. Recent changes in sales, the competitive landscape and modified revenue forecasts have triggered a pivot in terms of priorities and timing. |
o | The development of the Block Chain Permission Platform has been modified to solely focus on the R&D elements of the offering. Commercialization of the product has been reorganized to be addressed later once we have achieved new internal goals and milestones; however, work continues on the core offering with clear goals and objectives in mind. |
o | Continued development of internal efficiency processes and automated systems for tasks such as workflow, billing, subscriptions, security and internal cloud computing. |
o | The marketing of both the Chatter and Block Chain product and service are being refined based on new and ongoing information that is being gathers from our target markets and the rapidly changing landscape of the verticals we operate in. As our research continues, we hope to commence marketing efforts in the third quarter of this year when the products are in a completed and in a commercially viable state. |
o | The development of digital community project remains at the discovery stage and research continues about the participants and nuances of this space and how we feel we can best serve this vertical. Once a plan is formalized new hires will be recruited to address the specific development needs of this product and service. |
o | Continued support and a modest expansion of the core services offered by to our key business partners and direct customers. These services include but are not limited to responsive website design, online chat, social media marketing and landing page development. |
o | As part of our renegotiation with Postmedia as are no longer providing the SEO and custom development services going forward. |
o | No acquisitions are being considered at this time until the proper financing in place to do so. |
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.
Recent Developments
Termination of Patent Purchase and Assignment Agreement
On May 24, 2022, the Company entered into a Patent Purchase and Assignment Agreement (the “Agreement”) with Emergence Global Enterprises Inc., a corporation incorporated pursuant to the laws of British Columbia, Canada (the “Buyer”). Pursuant to the Agreement, the Company agreed to sell its entire right, title and interest in Registered U.S. Patent I Light Emitting Diode Driver Circuit, issued May 13, 2014, in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof (the “Patent”) to the Buyer, in exchange for the amount of seven million, four hundred and forty thousand Dollars (CAD $7,440,000), which was agreed to be paid through the issuance of 62,000,000 Common Shares of the Buyer (the “Shares”) constituting 44.17% of the Buyer’s issued and outstanding capital stock. On July 19, 2022, pursuant to a Termination of Patent Purchase and Assignment Agreement (“Termination Agreement”), the Company and Buyer agreed to terminate the Agreement as of the “Effective Termination Date”, as defined in the Agreement, and the Agreement shall thereafter be null and void, and of no further force or effect. Furthermore, each the Company and Buyer recognize that neither party shall have any ongoing rights or obligations pursuant to the Agreement.
Employment Agreement with Lawrence Lehoux
On August 26, 2022, the Company entered into an Executive Employment Agreement with Lawrence Lehoux, the Company’s Chief Technology Officer, President and a Director, (the “Employment Agreement”) with an effective date of September 1, 2022. Pursuant to the Employment Agreement, during the term of the Employment Agreement, the Company agreed to employ, and Mr. Lehoux agreed to accept employment with the Company as its President and Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to issue Mr. Lehoux 1,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Company’s 2021 Equity Compensation Plan (the “Plan”). Additionally, pursuant to the Employment Agreement, the Company agreed to pay Mr. Lehoux a base salary of $240,000.00. The term of the Employment Agreement is a period of five (5) years. The Employment Agreement can be terminated by Mr. Lehoux for “Good Reason” as such term is defined in the Employment Agreement or without “Good Reason” by giving a minimum of thirty (30) days’ prior written notice to advise the Company that he is resigning his employment. In the event of termination of the Employment Agreement by Mr. Lehoux by resignation without “Good Reason,” no sums will be payable by the Company except for: (i) any unpaid base salary through the effective date of resignation and (ii) reimbursement for any expenses for which Mr. Lehoux had not been reimbursed. In the event of a termination of the Employment Agreement by Mr. Lehoux for “Good Reason,” the Company would have a period of thirty (30) days following receipt of such notice from Mr. Lehoux to cure or revoke the event constituting “Good Reason.” The Company can also terminate the Employment Agreement for “Cause” as such term is defined in the Employment Agreement, and if that occurs, no sums will be payable by the Company except for: (i) any unpaid base salary through the date of termination, (ii) reimbursement for any expenses for which the Mr. Lehoux had not been reimbursed and (iii) only if the act of “Cause” does not constitute willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the Company, any other amount due under the Employment Agreement for termination pay or severance pay. The Company can also terminate the Employment Agreement without “Cause” at any time. Pursuant to the Employment Agreement, in connection with the sale of the Company or any other transaction constituting a “Change in Control” as such term is defined in the Employment Agreement or a strategic transaction, the Company may, but will not be obligated, to provide Mr. Lehoux with additional compensation (including, but not limited to additional stock options or restricted stock) for services outside of general scope of duties and responsibilities of Mr. Lehoux.
Employment Agreement with Brian S. Payne
On August 26, 2022, the Company entered into an Executive Employment Agreement with Brian S. Payne, the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board, (the “Payne Employment Agreement”) with an effective date of September 1, 2022. Pursuant to the Payne Employment Agreement, during the term of the Payne Employment Agreement, the Company agreed to employ, and Mr. Payne agreed to accept employment with the Company as its Chief Executive Officer and Chairman. Pursuant to the Payne Employment Agreement, the Company agreed to issue Mr. Payne 2,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Plan. Additionally, pursuant to the Payne Employment Agreement, the Company agreed to pay Mr. Payne a base salary of $240,000.00. The term of the Payne Employment Agreement is a period of five (5) years. The Payne Employment Agreement can be terminated by Mr. Payne for “Good Reason” as such term is defined in the Payne Employment Agreement or without “Good Reason” by giving a minimum of thirty (30) days’ prior written notice to advise the Company that he is resigning his employment. In the event of termination of the Payne Employment Agreement by Mr. Payne by resignation without “Good Reason,” no sums will be payable by the Company except for: (i) any unpaid base salary through the effective date of resignation and (ii) reimbursement for any expenses for which Mr. Payne had not been reimbursed. In the event of a termination of the Payne Employment Agreement by Mr. Payne for “Good Reason,” the Company would have a period of thirty (30) days following receipt of such notice from Mr. Payne to cure or revoke the event constituting “Good Reason.” The Company can also terminate the Payne Employment Agreement for “Cause” as such term is defined in the Payne Employment Agreement, and if that occurs, no sums will be payable by the Company except for: (i) any unpaid base salary through the date of termination, (ii) reimbursement for any expenses for which the Mr. Payne had not been reimbursed and (iii) only if the act of “Cause” does not constitute willful misconduct, disobedience or willful neglect of duty that is not trivial and has not been condoned by the Company, any other amount due under the Payne Employment Agreement for termination pay or severance pay. The Company can also terminate the Payne Employment Agreement without “Cause” at any time. Pursuant to the Payne Employment Agreement, in connection with the sale of the Company or any other transaction constituting a “Change in Control” as such term is defined in the Payne Employment Agreement or a strategic transaction, the Company may, but will not be obligated, to provide Mr. Payne with additional compensation (including, but not limited to additional stock options or restricted stock) for services outside of general scope of duties and responsibilities of Mr. Payne.
Restricted Stock Agreement with Lawrence Lehoux
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “RSA”) under the Plan with Lawrence Lehoux, the Company’s Chief Technology Officer, President and a Director. Pursuant to the RSA, the Company granted Mr. Lehoux 2,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement with Brian S. Payne
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Payne RSA”) under the Plan with Brian S. Payne, the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board. Pursuant to the Payne RSA, the Company granted Mr. Payne 3,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Payne RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withDonald Strilchuck
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Strilchuck RSA”) under the Plan with Donald Strilchuck, a member of the Company’s Board. Pursuant to the Strilchuck RSA, the Company granted Mr. Strilchuck 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Strilchuck RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement with George Dragicevic
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Dragicevic RSA”) under the Plan with George Dragicevic a member of the Company’s Board. Pursuant to the Dragicevic RSA, the Company granted Mr. Dragicevic 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Dragicevic RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withHarold Andre Aubrey de Lavenu
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Lavenu RSA”) under the Plan with Harold Andre Aubrey de Lavenu, a Vice President and Director of the Company. Pursuant to the Lavenu RSA, the Company granted Mr. Lavenu 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Lavenu RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withJeffrey Thomas
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Thomas RSA”) under the Plan with Jeffrey Thomas, a member of the Company’s Board. Pursuant to the Thomas RSA, the Company granted Mr. Thomas 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Thomas RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
Restricted Stock Agreement withJosef Tukacs
On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Tukacs RSA”) under the Plan with Josef Tukacs, a member of the Company’s Board. Pursuant to the Tukacs RSA, the Company granted Mr. Tukacs 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Tukacs RSA. Notwithstanding the foregoing, the Restricted Shares shall become immediately vested upon a change of control of the Company.
OTCQB Venture Market®
The Company’s common shares commenced trading on the OTCQB Venture Market® beginning on September 8, 2022.
Planned Name and Direction Change
The Company is in the process of seeking to complete a name change and planned change in direction. The Company intends to focus on the digital media and technology space and intends to launch technology products, beginning in Fall of 2022. Under the requirements of the Canada Business Corporations Act, the Company intends to hold a Special Shareholder Meeting in the future to allow shareholders to comment and vote on the proposed changes.
WordPresto
On September 16, 2022, the Company announced the planned launch of its newest technology product, WordPresto. WordPresto is a both a product and service that seeks to provide people with a customized web design experience that utilizes WordPress as the core content management system as its web platform. WordPresto aims to provide interactive and customized web design technologies and services coupled with affordable ongoing support and maintenance. Our team aims to work from the ground up to quickly and affordably create an eloquent website that gives users a custom look and feel. With WordPresto, all you need to do is communicate your needs, provide ongoing feedback and let our experts do the rest. It starts with selecting a website package that best suits your company’s needs based on the industry, overall goals and objectives, and other marketing efforts that are in place. Each website package includes image and software licensing, professional design and development, updates and security patches, enterprise hosting, project management, and ongoing support and maintenance.
Results of Operations
We have incurred recurring losses and we 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.
We 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 $46,991,528 At September 30, 2022and had no committed source of debt or equity financing. The Company did not have any operating revenue until the acquisition of Clear Com Media, Inc. on July 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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 require additional capital to meet our operating requirements. We will seekcontinue to raise additional capital through amongplacement of our common stock, notes or other things,securities in order to implement its business plan or additional borrowings, including from related parties. The COVID-19 pandemic has hindered the sale of equity or debt securities.Company’s ability to raise capital. There are can be no assurances assurance that wethe Company will be successful in this or any of our endeavors or become financially viable andeither 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.
We haveThe Company’s cash position may not entered intobe sufficient to support the Company’s daily operations or its ability to undertake any line of business activity that will generates any net revenue. Our expenses to date are primarily our general and administrative expenses and fees, costs and expenses related to acquisitions and operations.
Operating SummaryResults of Operations for the Three MonthsThree-Months Ended September 30, 2017 2022 and 2021::
The following tables reflect our operating results for the three-months ended September 30, 2022 and 2016 2021, respectively:
Three-months ended | ||||||||||||
Operating Summary | Sept 30 2022 | Sept 30, 2021 | Change | |||||||||
Revenues, net | $ | 135,856 | $ | 272,106 | 100 | % | ||||||
Cost of Goods Sold | - | - | - | |||||||||
Gross Profit | 135,856 | 272,106 | - | |||||||||
Operating Expenses | 622,238 | 917,142 | (32.2% | ) | ||||||||
Loss from Operation | 486,382 | 644,976 | (24.6% | ) | ||||||||
Other Expense | (86,155 | ) | 73,964 | (216.4% | ) | |||||||
Net Loss | $ | 257,035 | $ | 623,035 | 58.7 | % | ||||||
Revenue
We recognized $0 incommenced and continue to have revenue on a regular basis.
Operating Expenses
During the three months ended September 30, 2022, our operating expenses were $622,238 compared to $917,142 during the three months ended September 30, 2017 and during the three months ended September 30, 2016, as we have not commenced revenue generating operations to date.
OperatingExpenses
During the three months ended September 30, 2017, our operating expenses were $516,913 compared to $182,668 during the same period for the prior fiscal year.2021. During the three months ended September 30, 2017,2022, our operating expenses were comprised of salary and consulting fees of $195,381, foreign currency exchange loss of $49,094, as well as other56,751, and general and administrative itemexpenses of $272,438.$419,537. By comparison, forduring the three months ended September 30, 2016,2021, our operating expenses were comprised of salary and consulting fees of $24,000, foreign currency gain$308,782, stock-based compensation expense of $1,480 as well as other$75,750, and general and administrative itemsexpenses of $160,148.
Expenses incurred during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 increased primarily due to increases in the use of consultants and travel expenses. The primary reasons for these increases are more consulting services and travel to continue development of our projects, and professional fees related to legal services for compliance and regulatory work.
Other Income and Expense Items
During the three months ended September 30, 2017, our other income and expense items totaled $604,841 expense compared to $413,669 expense for the three months ended September 30, 2016. During the three months ended September 30, 2017, our other income and expense items were comprised of interest fees of $518,894 and related parties interest of $85,947. By comparison, for the three months ended September 30, 2016, our other income and expense items were of interest fees of $353,727 and related parties interest of $59,942. The Company has not produced revenue and has borrowed money to fund operating activities, resulting in higher interest expenses.
NetLoss
Our net loss for the three months ended September 30, 2017 was $1,121,754 compared to a net loss of $596,337 for the three months ended September 30, 2016 primarily due to the factors discussed above.
Operating Summary for the Nine Months Ended September 30, 2017 and 2016
Revenue
We recognized $0 in revenue during the nine months ended September 30, 2017 and during the nine months ended September 30, 2016, as we have not commenced revenue generating operations to date.
OperatingExpenses
During the nine months ended September 30, 2017, our operating expenses were $1,737,027 compared to $617,539 during the same period for the prior fiscal year. During the nine months ended September 30, 2017, our operating expenses were comprised of salary and consulting fees of $498,158, foreign currency exchange loss of $93,237, as well as other general and administrative item of $1,145,632. By comparison, for the nine months ended September 30, 2016, our operating expenses were comprised of salary and consulting fees of $95,239, salary and consulting fees related parties, $24,000, foreign currency loss of $54,123 as well as other general and administrative items of $444,177.
Expenses incurred during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 increased primarily due to increases in the use of consultants and travel expenses. The primary reasons for these increases are more consulting services and travel to continue development of our projects, and professional fees related to legal services for compliance and regulatory work.$478,896.
Other Income and Expense Items
During the ninethree months ended September 30, 2017,2022, our other income, and expense items totaled $1,763,052 expensenet was $86,155 compared to $1,182,818 expense forexpenses of $73,964 during the ninethree months ended September 30 2016.2021. During the ninethree months ended September 30, 2017,2022, our other income and expense items were comprised of interest feesincome of $1,552,275 and related parties interest$125,140 foreign exchange loss of $210,777.$187. By comparison, forduring the ninethree months ended September 30, 2016,2021, our other income and expense items were comprised of interest feesexpense of $1,020,051$71,567, interest income of $87, and related partiesforeign exchange gain of $35,651. The decrease during the period is due to a decrease in interest expense driven by the conversion of $165,088,certain debt instruments to shares in 2021
Income Taxes
As of September 30, 2022, the Company has net operating loss carryforwards of approximately $46,991,236 that may be available to reduce future years’ taxable income. As of September 30, 2022, 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 well as sale of equipment of $2,321. Thethe Company has not produced revenue and has borrowed moneybeen able to fund operatingcommence revenue-generating activities resulting in higher interest expenses.to date.
NetLoss
Our net loss forduring the ninethree months ended September 30, 20172022 was $3,500,079$400,227 compared to a net loss of $1,800,356 for$718,940 during the ninethree months ended September 30, 2016 primarily2021 due to the factors discussed above.
Liquidity and Capital Resources
As of September 30, 2017, we had2022 and December 31, 2021, our liquid assets consisted of $4,595,233, comprised of: cash of $60,388, property, plant$148,151 and equipment, net of $15,017, patent asset of $2,209,152, improvements in process of $1,412,487, loans due from CEN Biotech Ukraine of $775,328 and other accounts receivable of $122,861. $193,198, respectively.
As of September 30, 2017, we had liabilities of $21,475,002, comprised of: accounts payable of $85,767, accounts payable – related party of $2,994,2022, our indebtedness includes accrued interest of $4,016,484,$1,422,531, accrued interest to related parties of $503,056, accrued expenses of $287,650, short term convertible notes to related parties of $849,127, loans payable of $9,983,501, short term convertible notes of $885,207, long term convertible notes of $2,150,904 and long term convertible notes to related parties of $2,710,312.
Our $21,475,002 of indebtedness includes accrued interest of $4,016,484, accrued interest to related parties of $503,056$2,005,735, as well as notesloans payable, notesloans payable to related parties, convertible notes, and convertible notes to related parties totaling $16,579,050, with maturity dates as outlined below. We are in default of $9,675,000 of debt that is secured by certain equipment that we value at approximately $10,533.$5,196,349. We expect our operating and administrative expenses to be at least $2,400,000$1,800,000 annually. The convertible notes are due 2 years from issuance with notes maturing in 2018 and 2019.
Description | Maturity Date | Amount | ||||||
Note Payable - Related Party | 12/31/17 | $ | 247,627 | |||||
Note Payable - Related Party | 12/31/17 | 601,500 | ||||||
Note Payable | 6/30/2016 | 9,675,000 | ||||||
Note Payable | 9/21/2018 | 308,501 | ||||||
Convertible Notes - Short Term | 885,207 | |||||||
Convertible Notes | Q1 2018 | 62,040 | ||||||
Convertible Notes | Q2 2018 | 463,572 | ||||||
Convertible Notes | Q3 2018 | 90,200 | ||||||
Convertible Notes | Q4 2018 | 1,600 | ||||||
Convertible Notes | Q1 2019 | 566,475 | ||||||
Convertible Notes | Q2 2019 | 357,000 | ||||||
Convertible Notes | Q3 2019 | 603,818 | ||||||
Convertible Notes | Q4 2019 | 6,197 | ||||||
Convertible Notes Related Party | 12/31/18 | 1,388,122 | ||||||
Convertible Notes Related Party | Q2 2018 | 100,000 | ||||||
Convertible Notes Related Party | Q4 2018 | 450,000 | ||||||
Convertible Notes Related Party | Q1 2019 | 500,000 | ||||||
Convertible Notes Related Party | Q4 2018 | 48,000 | ||||||
Convertible Notes Related Party | 224,191 | |||||||
| $ | 16,579,050 | |||||||
Loans payable - related party consists of the following At September 30, 2022and December 31 2021:
2022 | 2021 | |||||||
Loan payable in default due to the spouse of Bill Chaaban, former CEO of CEN, which bears an interest at 12% per annum. This loan matured on August 17, 2020. | $ | 1,388,122 | $ | 1,388,122 | ||||
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 former 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 | ||||||
Loans payable in default to the spouse of Bill Chaaban, former 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. | 237,019 | 237,019 | ||||||
Loan payable to the spouse of Joseph Byrne, a 5% shareholder and former President, CEO, 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 April 16, 2022. | 100,000 | 100,000 | ||||||
Loan payable to Alex Tarrabain, former 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 April 16, 2022. | 75,000 | 75,000 | ||||||
Loan payable to Joseph Byrne, a 5% shareholder and former President, CEO, 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 loan was repaid in June 2021. | - | - | ||||||
Total loans payable - related party (all current) | $ | 2,701,641 | $ | 2,701,641 | ||||
Convertible notes payable consists of the following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
Convertible notes payable in default to multiple private investors, including certain notes in default, bearing interest at 5% per annum with conversion rights for 363,767 common shares, which matured at various dates between May 2018 and October 2021. | $ | 576,472 | $ | 576,472 | ||||
Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 550,965 common shares, maturing at various dates between June 2022 and December 2022. | 145,000 | 145,000 | ||||||
Convertible note payable for the original amount of USD 70,000, bearing interest at 8% per annum which had conversion rights after 180 days and a due date of May 23, 2023. The Conversion Price shall be equal to the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%). “Market Price” means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. | 70,000 | - | ||||||
Poet Capital LLC | 29,000 | |||||||
Sixth Street Lending LLC | 53,750 | 721,472 | ||||||
Repayment | (35,600 | ) | 78,142 | |||||
Total convertible notes payable | 838,622 | |||||||
Less unamortized debt discount | 78,142 | 643,330 | ||||||
| 643,330 | ||||||||
Total convertible notes payable, net of unamortized debt discount | 760,480 | |||||||
Convertible notes payable, less current portion | $ | - | $ | - | ||||
Convertible notes - related party consists of the following At September 30, 2022 and December 31 2021:
2022 | 2021 | |||||||
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 76,123 common shares and matured on August 17, 2020. | $ | 121,796 | $ | 121,796 | ||||
Convertible notes with beneficial conversion features due to the parents of Jeffery Thomas, a Director of CEN, bearing interest at 5% per annum. These notes are convertible to 94,488 common shares with a maturity date of May 24, 2022. | 48,000 | 48,000 | ||||||
Convertible note, in default, due to the spouse of Bill Chaaban, former CEO of CEN, which bears an interest at 12% per annum. This note was convertible to 867,576 common shares and matured on August 17, 2020. Effective August 17, 2021, the note was amended and reclassified as the conversion feature was removed, see Note 10. | - | - | ||||||
Convertible notes due to Harold Aubrey de Lavenu, a Director of CEN, bearing interest at 5% per annum. On October 12, 2021, this note was converted to 548,980 common shares. | - | - | ||||||
Convertible note due to Alex Tarrabain, former CFO and a Director of CEN, bearing interest at 5% per annum. On April 10, 2021, this note was converted to 30,000 common shares. | - | - | ||||||
Convertible note due to Darren Ferris, brother of Ameen Ferris, a former Vice President and a Director of CEN, bearing interest at 5% per annum. On April 26, 2021, this note was converted to 12,500 common shares. | - | - | ||||||
Total convertible notes payable – related parties | 169,796 | 169,796 | ||||||
Less unamortized debt discount | 7,157 | 7,157 | ||||||
Total convertible notes payable - related parties (all current) | $ | 162,639 | $ | 162,639 | ||||
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.
Nine Months ended September 30, 2022 and 2021
Cash Flows from OperatingActivities
We have not generated positive cash flows from operating activities. During the nine months ended September 30, 2017,2022, we used $2,500,213$511,253 in operating activities compared to $369,147$256,032 used in operating activities during the nine months ended September 30, 2016.2021. The increase isin the use of operating cash between the two periods related primarily due to operating expenses.a increase 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 InvestingActivities
Our use of cash flow for investing activities during the first nine months ended September 30, 2017 totaling $492,3722022 was $0 compared to $66,371 during the same period in 2016nine months ended September 30, 2021. During the nine months ended September 30, 2021, our use of $302,923. The increase is duecash flows for investing activities were comprised of advances to acquisitionCEN Ukraine of fixed assets$50,000 and advance on acquisitions in 2017.other purchases of Equipment related to Clear Comm Media. By comparison, during the nine months ended September 30, 2022, we did not have any cash flows from investing activities.
Cash Flows from FinancingActivities
During the first nine months ended September 30, 2017, financing activities equaled $2,990,592. This included loans (net foreign exchange)2022, we received $619,817 through issuance of convertible notes to investors to fund our working capital requirements of $16,553,398. This includes new convertible notes held by investors duringrequirements. During the first nine months ended September 30, 2017 totaling $2,990,592, with conversion rights totaling up2021, we received $460,830 through issuance of convertible notes to 1,842,723 common shares.investors to fund our working capital requirements.
CEN has no committed source of debt or equity financing. Our President isExecutive team and Board are seeking additional financing from histheir business contacts, but no assurances can be given that such financing will be obtained or, if obtained, on what terms. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the fiscal period ended December 31, 2016 that states that our lack of committed resources causes substantial doubt about our ability to continue as a going concern.
Fluctuations of foreign exchange rates may adversely affect our reported results.
Our planned operations will be conducted solely in Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result in fluctuations in reported amounts from Canadian operations in our consolidated financial statements. Currently, the U.S. Dollar is the functional currency, because the bulk of the Company’s transactions have been in U.S. dollars, and because the Company has received the vast majority of its funding in U.S. dollars. Therefore, any change in the exchange rate will affect our reported sales, expenses and net income.Off-Balance Sheet Arrangements
We have not entered into hedging transactions with respect tono 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 foreign currency exposure, but may do sooperating 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 cannot be assuredcurrently take advantage of some, but not all, of the reduced regulatory and reporting requirements that fluctuations in foreign currency exchange ratesare available to us for as long as we qualify as an emerging growth company. Our independent registered public accounting firm will not have a material adverse impactbe required to provide an attestation report on the effectiveness of our business,internal control over financial condition or results of operations.reporting for as long as we qualify as an emerging growth company.
Recent Accounting Pronouncements
Recently IssuedAdopted Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
No pronouncements were adopted by the Company during the quarter ended September 30, 2022.
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 1to the consolidated financial statements included elsewhere in this filing, includes a summary of the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.
Seasonality
The Company does not currently expect its planned business to be seasonal in nature.
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 public company that will increase our operating costs or cash requirements in the future.
Summary of Material Contractual Commitments
The following is a summary of our material contractual commitments as of September, 2017. The Company currently leases space for operations in Canada.
Operating Lease | Total | Less than 1 Year | 1 - 3 Years | 3 - 5 years | More than 5 Years | ||||||||||||||||
Office Lease | $ | 153,850 | $ | 9,616 | $ | 76,925 | $ | 67,309 | $ | - | |||||||||||
Total | $ | 153,850 | $ | 9,616 | $ | 76,925 | $ | 67,309 | $ | - | |||||||||||
Inflation
Management believes that inflation has not had a significant effect on our results of operations.
Future Legislation
The federal government of Canada is reviewing the Cannabis laws. Possessing and selling cannabis for non-medical purposes is still illegal everywhere in Canada and until new legislation and new rules are in place, current laws remain in effect. We understand that the Canadian government has a commitment to revise the regulatory regime. We cannot provide any assurance that the cannabis regulatory scheme will be revised, the date that Canada will enact any new legislation or if the legislation will be beneficial to our future prospects.
ITEM 3
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK.
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company isAs a smaller reporting company, we are not required to provide the information requiredcalled for by this Item.
ITEM 4 4. CONTROLS AND PROCEDURES.
CONTROLS AND PROCEDURES
Management’s Report on Internal Controls over Disclosure Controls(a) Evaluation of disclosure and Procedurescontrols and Financial Reportingprocedures.
Our managementWe maintain “disclosure controls and procedures,” as that term is responsible for establishingdefined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and maintaining adequate internal control over financial reporting. The Company's internal control over financial reportingisprocedures include controls and procedures designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and to provide reasonable assuranceensure that information required to be disclosed in theour company’s reports that the Company files or submitsfiled under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our internal control overmanagement, with the participation of our principal executive officer and principal financial officer, evaluated our Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial reporting includes those policies and procedures that:
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As of September 30, 2017,2022, our management conducted an assessment of the effectiveness of the Company's internal control over disclosure controls and procedures were not effective.
Management recognized the need for additional resources in the area of accounting and financial reporting. In making this assessment, management followed an approach based onreporting controls and procedures. As a result, we have outsourced the framework set forthaccounting and financial reporting oversight roles to a qualified accounting firm with public company reporting expertise.
(b) Changes inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (known as “COSO”). Based on this assessment, management determined that the Company's internal control over disclosure controls and procedures and financial reporting as of September 30, 2017 was effective.reporting.
During the quarter ended September 30, 2017, thereThere were no changes in the Company'sour internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over disclosure controls and procedures and financial reporting.
The Company’s management, including the Company’s CEO/CFO, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This quarterly report does not include an attestation report of the Company's registered public accounting firm regardingour internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report.
PART IIII. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, we may become party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings that we believe to be material or which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operation if determined adversely to us.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended September 30, 2022, the Company made the following issuances of shares of its common stock pursuant to certain Employment Agreements and Restricted Stock Agreements:
● | On August 26, 2022, the Company agreed to issue Mr. Lehoux 1,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Company’s 2021 Equity Compensation Plan (the “Plan”) |
● | On August 26, 2022, the Company agreed to issue Mr. Payne 2,750,000 shares of the Company’s common stock subject to the provisions of a Restricted Stock Agreement under the Plan. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “RSA”) under the Plan with Lawrence Lehoux, the Company’s Chief Technology Officer, President and a Director. Pursuant to the RSA, the Company granted Mr. Lehoux 2,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Payne RSA”) under the Plan with Brian S. Payne, the Company’s Chief Executive Officer, Chief Financial Officer and Chairman of the Board. Pursuant to the Payne RSA, the Company granted Mr. Payne 3,000,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Payne RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Strilchuck RSA”) under the Plan with Donald Strilchuck, a member of the Company’s Board. Pursuant to the Strilchuck RSA, the Company granted Mr. Strilchuck 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Strilchuck RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Dragicevic RSA”) under the Plan with George Dragicevic a member of the Company’s Board. Pursuant to the Dragicevic RSA, the Company granted Mr. Dragicevic 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Dragicevic RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Lavenu RSA”) under the Plan with Harold Andre Aubrey de Lavenu, a Vice President and Director of the Company. Pursuant to the Lavenu RSA, the Company granted Mr. Lavenu 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Lavenu RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Thomas RSA”) under the Plan with Jeffrey Thomas, a member of the Company’s Board. Pursuant to the Thomas RSA, the Company granted Mr. Thomas 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Thomas RSA. |
● | On August 29, 2022, the Company entered into a Restricted Stock Agreement (the “Tukacs RSA”) under the Plan with Josef Tukacs, a member of the Company’s Board. Pursuant to the Tukacs RSA, the Company granted Mr. Tukacs 250,000 shares of the Company’s common stock (the “Restricted Shares”) under the Plan to vest as set forth in the Tukacs RSA. |
Health Care Canada.
On March 11, 2015,During the Company’s application under the MMPRquarter ended September 30, 2022, CEN entered into loans and associated extension agreements with various parties and also settled an accrued liability. In consideration for a license to produce marijuana for medical purposes was formally rejected by Health Canada. The Company filed an application for judicial review in Canadian federal court on April 10, 2015 in order to obtain a reversal of this decision.
We discontinued this action in February 2016 after a February 24, 2016 decision in a case in which the Company was not a party (Neil Allard, Tanya Beemish, David Hebert And Shawn Davey V. Her Majesty The Queen In Right Of Canada). The Canadian federal court decision determined that the plaintiff’s Charter rights have been infringed by the MMPRsuch loans and that such infringement is not in accordanceassociated extensions, along with the principlessettlement of fundamental justice or otherwise justified. We understand that the federal governmentan accrued liability, CEN granted various individuals a total aggregate amount of Canada is re-evaluating the MMPR regime and the legalization or permitting of marijuana for medical and other uses including the right of persons to grow, harvest, manufacture and distribute marijuana related products.
CEN continues to pursue relief and damages and on or about February 2, 2016, filed a Statement of Claim against the Attorney General of Canada in the Ontario Superior Court of Justice, claiming the following:
(a) damages for detrimental reliance in the sum of Fifteen Million Dollars ($15,000,000.00);
(b) damages for pure economic loss in an undetermined amount;
(c) prejudgment and post judgment interest in accordance with sections 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, and section 31 of the Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50, as amended;
(d) the costs of this proceeding on a substantial indemnity basis, plus all applicable taxes; and
(e) such further and other relief as the court seems just.
This case is in the discovery phase. We cannot provide any assurances as to the timing or decision or outcome related to our action seeking damages.
SEC Comment.
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 its2,186,703 unregistered shares of common stock underof CEN during 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 distributionquarter ended September 30, 2022.
The above issuances of shares of CEN’s common stock was a distribution that required registration underwere issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), thenand the Company could be subject to enforcement action byprovisions of Regulation D promulgated thereunder or in reliance on the SEC that claims a violationprovisions of Section 5 of the Securities Act and could be subject to a private right of action for rescission or damages.Regulation S promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
CEN has a payment default with respect to certain unsecured convertible loans payable to private investors and related parties, in the principal amount of $805,969 and which bear interest at 5% per annum which were due prior to September 30, 2022. The aggregate amounts due under these loans as of September 30, 2022, including accrued interest, is approximately $1,500,000. Interest and default interest and related fees currently accrue at approximately $96,000 per quarter.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The exhibits listed on the Exhibit Index below are provided as part of this report.
Exhibit No. | Description | |
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10.4 | ||
10.5 | ||
10.6 | ||
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10.9 | ||
10.10 | ||
10.11 |
31.1 | ||
32.1 |
101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).* |
101.SCH | Inline XBRL Taxonomy Extension Schema |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | Inline XBRL Taxonomy Extension |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
Document.* |
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* Filed herewith.
b. Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date:Dated: November 17, 2017
14, 2022
CEN | BIOTECH, INC. | |||
By: | /s/ Brian S. Payne | |||
Name: |
| Brian S. Payne | ||
Title: | Chief Executive Officer (Principal Executive Officer) | |||
Dated: November 14, 2022 | /s/Brian S. Payne | ||
Name: Brian S. Payne | |||
Title: Chief Financial Officer | (Principal Financial and Accounting Officer) |
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