UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
For the quarterly period ended
For the transition period from ___________ to ___________
Commission File Number
CEN BIOTECH, INC.
(Exact name of registrant as specified in its charter)
| | - |
| (State or other jurisdiction of | (I.R.S. Employer |
| | |
| (Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| 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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has 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.
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act): Yes
As of November 19, 2021, there were
TABLE OF CONTENTS
| PART I |
||
| ITEM 1 |
FINANCIAL STATEMENTS |
3 |
| ITEM 2 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
32 |
| ITEM 3 |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
43 |
| ITEM 4 |
CONTROLS AND PROCEDURES |
43 |
| PART II |
||
| ITEM 1 |
LEGAL PROCEEDINGS |
44 |
| ITEM 1A |
RISK FACTORS |
44 |
| ITEM 2 |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
44 |
| ITEM 3 |
DEFAULTS UPON SENIOR SECURITIES |
44 |
| ITEM 4 |
MINE SAFETY DISCLOSURE |
44 |
| ITEM 5 |
OTHER INFORMATION |
45 |
| ITEM 6 |
EXHIBITS |
45 |
SPECIAL NOTE REGARDING FORWARD-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, 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 could 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 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 hemp 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. Except as required by applicable laws, we do not undertake any obligation to update or revise any forward-looking statements.
PART I
| ITEM 1. |
FINANCIAL STATEMENTS |
Contents
| Page | |
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | |
| Unaudited condensed consolidated balance sheets | 4 |
| Unaudited condensed consolidated statements of operations and other comprehensive loss | 5 |
| Unaudited condensed consolidated statements of shareholders’ deficit | 6 |
| Unaudited condensed consolidated statements of cash flows | 7 |
| Notes to the unaudited condensed consolidated financial statements | 8 |
CEN BIOTECH, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other assets | ||||||||
| Loan receivable from Emergence Global Enterprises Inc. - related party | ||||||||
| Total current assets | ||||||||
| Other assets | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other receivable | ||||||||
| Note receivable - CEN Biotech Ukraine LLC - related party | ||||||||
| Advances to CEN Biotech Ukraine LLC - related party | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable – related parties | ||||||||
| Loans payable | ||||||||
| Loans payable – related parties | ||||||||
| Convertible notes payable | ||||||||
| Convertible notes payable- related parties | ||||||||
| Accrued interest | ||||||||
| Accrued interest – related parties | ||||||||
| Operating lease liabilities | ||||||||
| Accrued expenses | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities, less current portion | ||||||||
| Patent acquisition liability | ||||||||
| Convertible notes, less current portion | ||||||||
| CEBA loan payable | ||||||||
| Total liabilities | ||||||||
| Shareholders’ deficit | ||||||||
| Common stock; authorized shares; and issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. par value. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and shareholders’ deficit | $ | $ | ||||||
| See accompanying notes to condensed consolidated financial statements. |
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CEN BIOTECH, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Other Comprehensive Loss
(Unaudited)
| For the three months ended September 30, |
For the nine months ended September 30, |
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| 2021 |
2020 |
2021 |
2020 |
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| Revenue |
$ | $ | $ | $ | ||||||||||||
| Operating expenses |
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| Consulting fees and subcontractors |
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| Consulting fees – related parties |
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| Stock based compensation |
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| General and administrative |
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| Loss on lease abandonment |
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| Loss on lease termination |
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| Loss on disposal of property and equipment |
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| Total operating expenses |
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| Loss from operations |
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| Other income (expense) |
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| Interest expense |
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| Interest expense – related parties |
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| Interest income |
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| Governmental assistance income |
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| Change in fair value of patent acquisition liability |
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| Foreign exchange (loss) gain |
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| Other income (expense), net |
( |
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| Net loss |
$ | ( |
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| Other comprehensive loss - Foreign currency translation |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Net loss per share: |
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| Basic and diluted |
$ | ( |
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| Weighted average number of shares outstanding |
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| Basic and diluted |
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| See accompanying notes to condensed consolidated financial statements. |
| CEN BIOTECH, INC. AND SUBSIDIARIES |
| Condensed Consolidated Statements of Shareholders’ Deficit |
| (Unaudited) |
| Accumulated |
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| For the three months ended September 30: |
Common |
Additional |
Other |
Total |
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| Common |
Shares |
Paid-in |
Accumulated |
Comprehensive |
Shareholders’ |
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| Shares |
Amount |
Capital |
Deficit |
Loss |
Deficit |
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| Balances, July 1, 2020 |
$ | $ | $ | ( |
) | $ | $ | ( |
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| Stock-based compensation |
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| Issuance of common stock – interest shares |
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| Issuance of common stock - consulting |
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| Issuance of common stock – lease termination settlement |
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| Net loss |
- | ( |
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| Balances, September 30, 2020 |
$ | $ | $ | ( |
) | $ | $ | ( |
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| Balances, July 1, 2021 |
$ | $ | $ | ( |
) | $ | $ | ( |
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| Stock-based compensation |
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| Issuance of common stock - acquisition of Clear Com Media, Inc. |
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| Issuance of common stock – upon conversion of convertible notes |
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| Issuance of common stock – interest shares |
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| Issuance of common stock – consulting |
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| Net loss |
- | ( |
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| Balances, September 30, 2021 |
$ | $ | $ | ( |
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| Accumulated |
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| For the nine months ended September 30: |
Common |
Additional |
Other |
Total |
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| Common |
Shares |
Paid-in |
Accumulated |
Comprehensive |
Shareholders’ |
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| Shares |
Amount |
Capital |
Deficit |
Loss |
Deficit |
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| Balances, January 1, 2020 |
$ | $ | $ | ( |
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| Stock-based compensation |
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| Issuance of common stock – interest shares |
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| Issuance of common stock - consulting |
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| Issuance of common stock - settlement of accrued liability |
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| Issuance of common stock – lease termination settlement |
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| Net loss |
- | ( |
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| Balances, September 30, 2020 |
$ | $ | $ | ( |
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| Balances, January 1, 2021 |
$ | $ | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
| Stock-based compensation |
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| Issuance of common stock - acquisition of Clear Com Media, Inc. |
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| Beneficial conversion feature on convertible notes issued |
- | |||||||||||||||||||||||
| Issuance of common stock – upon conversion of convertible notes |
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| Issuance of common stock – upon conversion of convertible notes – related parties |
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| Issuance of common stock – interest shares |
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| Issuance of common stock – consulting |
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| Issuance of common stock – settlement of accrued interest |
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| Issuance of common stock – settlement of accrued liability |
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| Net loss |
- | ( |
) | ( |
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| Balances, September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| See accompanying notes to condensed consolidated financial statements. |
| CEN BIOTECH, INC. AND SUBSIDIARIES |
| Condensed Consolidated Statements of Cash Flows |
| (Unaudited) |
| For the nine months ended September 30, |
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| 2021 |
2020 |
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| Cash flows from operating activities |
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| Net loss |
$ | ( |
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| Adjustments to reconcile net loss to net cash used in operating activities |
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| Depreciation |
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| Amortization |
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| Amortization of debt discount |
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| Lease expense |
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| Loss on disposal of property and equipment |
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| Loss on operating lease right-of-use asset - lease abandonment |
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| Loss on operating lease right-of-use asset - lease termination settlement |
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| Stock-based compensation – employees |
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| Stock-based compensation – non-employees |
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| Shares issued related to lease termination settlement |
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| Non-cash services expense |
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| Shares issued for interest |
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| Change in fair value of patent acquisition liability |
( |
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| Foreign exchange loss (gain) |
( |
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| Changes in operating assets and liabilities which provided (used) cash, net of amounts acquired in 2021 business acquisition |
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| Accounts receivable |
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| Prepaid expenses and other assets |
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| Income taxes |
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| Other receivable |
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| Accounts payable |
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| Accounts payable – related parties |
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| Accrued interest – related and non-related parties |
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| Accrued expenses |
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| Net cash used in operating activities |
( |
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| Cash flows provided by (used in) investing activities |
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| Cash acquired upon acquisition of Clear Com Media, Inc. |
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| Advances to CEN Biotech Ukraine LLC |
( |
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| Capitalized software development |
( |
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| Purchases of equipment |
( |
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| Proceeds from sale of equipment |
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| Net cash provided by (used in) investing activities |
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| Cash flows provided by financing activities |
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| Repayment of loans payable - related parties |
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| Issuance of convertible notes |
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| Issuance of convertible notes – related parties |
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| Net cash provided by financing activities |
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| Effect of exchange rate changes on cash |
( |
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| Net increase in cash and cash equivalents |
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
$ | $ | ||||||
| Supplemental cash flows disclosures |
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| Cash paid for interest |
$ | $ | ||||||
| Non-cash transactions - investing and financing activities |
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| Issuance of common stock - settlement of interest |
$ | $ | ||||||
| Issuance of common stock - settlement of accrued liability |
$ | $ | ||||||
| Issuance of common stock – upon conversion of convertible notes |
$ | $ | ||||||
| Issuance of common stock – upon conversion of convertible notes - related parties |
$ | $ | ||||||
| Beneficial conversion feature in connection with issuance of convertible notes |
$ | $ | ||||||
| Issuance of note payable for services |
$ | $ | ||||||
| Acquisition of Clear Com Media, Inc.: | ||||||||
| Fair value of assets acquired |
$ | $ | ||||||
| Issuance of common stock - acquisition of Clear Com Media, Inc. |
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| Liabilities assumed |
$ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
CEN BIOTECH, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(All amounts are in US dollars unless otherwise stated.)
NOTE 1 – 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. 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, 2020 and notes thereto.
The Company's critical accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020. Subsequent to the filing of the Form 10-K, the Company completed its acquisition of Clear Com Media, Inc on July 9, 2021. In connection with this acquisition, the Company reports certain financial statement captions that it had not previously and, as such, has included the critical accounting policies associated with such items herein.
Consolidation
CEN Biotech, Inc.’s (“CEN”) consolidated financial statements include the accounts of CEN, Clear Com Media, Inc. (“CCM”), and Eastern Starr (collectively, the “Company”). CCM is a Windsor, Ontario based digital marketing, and e-commerce company. CCM’s purpose is to develop, market and sell various digital products. Additionally, CCM will provide in-house IT support functions for CEN’s activities. Eastern Starr’s purpose is to facilitate future growth opportunities in the LED lighting sector. All material intercompany transactions are eliminated in consolidation.
Use of Estimates and Assumptions
The accompanying condensed consolidated financial statements include certain estimates and assumptions which affect the reported amounts of assets and disclosure of contingent assets and liabilities at the date of the financial statements (including intangible assets and goodwill), and the reported amounts of revenues and expenses during the reporting period, including stock-based compensation. Accordingly, actual results may differ from those estimates.
Loss per Share
Net loss per common share is computed pursuant to Accounting Standards Codification (ASC) 260-10-45. Basic loss per share is computed based on the weighted average number of common shares outstanding during 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 denominator 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 and nine-months ended September 30, 2021 and 2020, the common stock equivalents of the convertible note agreements were not included in diluted earnings per share computations because their effect was antidilutive.
Revenue from Contracts with Customers
The Company has agreements with third parties to provide multi-platform, internet-based products and services to their customers in the form of online marketing, business metrics, and other solutions. These services are recognized over time, as the services are performed, as the asset created has no alternative use and the Company is contractually entitled to payment for its performance to date in the event the contract is cancelled for convenience. For these contracts, revenue is recognized over time using input measures that correspond to the level of staff effort expended to satisfy the performance obligation on a rate per hour or equivalent basis. Variable consideration has not historically been significant. The Company does not include sales and other taxes in the transaction price and thus does not recognize these amounts as revenue.
The Company derived approximately
Cash and Cash Equivalents
For purposes of the balance sheet and statement of cash flows, the Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Accounts receivable are customer obligations due under normal trade terms generally requiring payment within 30 to 60 days from the invoice date. Ongoing credit evaluations of customers’ financial condition are conducted and, generally, no collateral is required to support accounts receivable, which are stated at the amount management expects to collect from balances outstanding at year-end. Based on management’s assessment of the credit history with customers having outstanding balances and current relationships with them, it has estimated that realization of losses on balances outstanding at period-end will not be significant.
Property and Equipment
Property and equipment are recorded at cost. Major improvements and renewals are capitalized while ordinary maintenance and repairs are expensed. Management reviews these assets for impairment whenever events or changes in circumstances indicate the related carrying amount may not be recoverable. Depreciation is recognized on a straight-line basis over the estimated useful lives, which generally range from
Intangible Assets
Product Technology, Trade Names, and Customer Relationships: Identifiable intangible assets with finite useful lives are being amortized over periods ranging
Capitalized Software Development Costs: The Company incurs costs from third-parties to develop software for internal-use during the application development stage. Costs incurred during preliminary and post-implementation stages of software for internal use are expensed as incurred. Capitalized software development costs will be amortized on a straight-line basis over the estimated useful life of the project once implemented. The capitalized software has not been implemented as of September 30, 2021.
Goodwill
Goodwill arising from business combinations represents the excess of purchase consideration exchanged by the Company over the estimated fair value of the net assets of acquired businesses. The Company evaluates goodwill for impairment on an annual basis. In completing this evaluation, the Company considers the profitability of Clear Com Media, Inc. and compares its best estimate of future cash flows with the net carrying value of goodwill.
Income Taxes
Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred tax assets and liabilities.
Tax Credits
The Company’s research and development activities in Canada may entitle the Company to claim benefits under the Scientific Research and Experimental Development Program (“SR&ED”), a Canadian federal tax incentive program designed to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada. Benefits under the program include credits to taxable income. The tax credits received are classified as tax credit income in the condensed consolidated statements of income.
Foreign Currency
Foreign denominated monetary assets and liabilities of CEN are translated at the rate of exchange prevailing at the consolidated balance sheet date. Other assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing when the assets were acquired or the liabilities incurred. Sales and expenses are translated at the average exchange rate over the reporting period. Transaction gains or losses are included in the determination of net income.
The functional currency of CCM is the Canadian dollar. The accounts of CCM were translated to United States dollars equivalents at exchange rates as follows: balance sheet assets and liabilities were converted at period-end rates, equity at historical rates, and income statement accounts at average rates for the period. The resulting translation gain or loss is reflected in other comprehensive loss and accumulated other comprehensive loss in the condensed consolidated statements of operations and comprehensive loss and consolidated statements of shareholders’ deficit, respectively.
Recent Developments
On April 20, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with Clear Com Media Inc., an Ontario, Canada corporation (“CCM”), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the “CCM Shareholders”) and Lawrence Lehoux as the Representative of the CCM Shareholders (the “Shareholders’ Representative”, each of CCM and the CCM Shareholders may be referred to collectively herein as the “CCM Parties”). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is
At Closing, the Company increased the number of members on its Board of Directors (the “Board”) by one and to appoint and name 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 Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to pay Mr. Lehoux an annual base salary of $
On October 7, 2021 (“Closing Date”), the Company completed and closed the definitive agreement with Tesla Digital Inc., an Ontario, Canada corporation, Tesla Digital Global Group, Inc., an Ontario, Canada corporation, as well as Steven Pokrajac individually (together, the “Sellers”), pursuant to which the parties completed the sale and assignment of certain assets of the Sellers (the “Purchased Assets”) related to a Light Emitting Diode Driver Circuit, as more specifically set forth in the Asset Purchase Agreement, Patent Assignment and Bill of Sale (together, the “Transaction Documents”).
Pursuant to the Transaction Documents, the Company agreed to complete the purchase, acquisition and acceptance from the Sellers of the Purchased Assets, which include all of the Sellers’ right, title, and interest in and to United States patent number U.S. 8,723,425 (the “Patent”), in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof, in addition to, any related manufacturing machinery plus inventory on hand, and all know-how pertaining to manufacture, use, operation maintenance, development, enjoyment and exploitation of the Patent and the related manufacturing machinery (the “Property”).
| U.S. Patent | Application | Status | U.S. | Issue | Subject Matter |
| 13/525,703 | 06/18/2012 | Issued U.S. Patent | 8,723,425 | 05/13/2014 | Light Emitting Diode Driver Circuit |
The Sellers cooperated with the Company to perfect the sale and assignment of the Patent and Property, including through execution of the Patent Assignment and recordation of the same with the U.S. Patent Office, on October 7, 2021. The Company had full rights to utilize the patented technology prior to the Patent Assignment. These rights were granted by the Seller as a part of the transaction with the Company started in August of 2016.
As consideration for the sale, assignment and transfer of the Purchased Assets (the “Tesla Digital Transaction”), on the Closing Date the Company agreed to pay to the Sellers (i)
Pursuant to notice given to its current transfer agent on Closing Date, the Company has authorized and instructed transfer agent to reserve the Shares of the Company for issuance upon the written request of any of the Sellers in accordance with the terms therein and following written confirmation by the Company.
The Transaction Documents are the definitive agreements between the Company and Sellers, following a Sale Purchase Agreement for the sale of certain assets, properties and rights dated August 31, 2016, as well as its Amending Agreements dated March 29, 2018, September 30, 2018, April 3, 2019 and March 16, 2020.
Recently Adopted Accounting Pronouncements
No pronouncements were adopted by the Company during the nine-month period ended September 30, 2021.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. As a smaller reporting company, as defined by the SEC, this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company intends to adopt this standard effective January 1, 2022.
NOTE 2 – GOING CONCERN UNCERTAINTY / MANAGEMENT PLANS
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 $
The Company’s cash position may not be sufficient to support the Company’s daily operations or its ability to undertake any business activity that will generate sufficient net revenue.
NOTE 3 – ACQUISTION OF CLEAR COM MEDIA, INC.
As described in Note 1, CEN acquired CCM 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 will be accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (ASC) 805, “Business Combinations” (ASC 805), with CEN representing the accounting acquirer under this guidance. ASC 805 requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired and liabilities assumed, using the bottom-up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets is to be recorded as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase consideration is recorded as a bargain purchase gain. Our estimates of fair value are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance. During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill or bargain purchase gain, as appropriate, in the period in which such revised estimates are identified.
See Note 21 for segment reporting, which includes the specific revenue and earnings results of CCM since the date of acquisition as CCM has been determined to be a distinct operating segment.
The aggregate consideration for the acquisition of CCM was
| Cash | $ | |||
| Accounts receivable | ||||
| Property and equipment | ||||
| Other assets | ||||
| Identifiable intangibles | ||||
| Current financial liabilities | ( | ) | ||
| Other long-term liabilities | ( | ) | ||
| Total identifiable net assets | ||||
| Goodwill | ||||
| Net assets acquired | $ |
Identified intangible assets acquired includes trade names, customer relationships, and product technology whose fair value of $
Amounts recognized as goodwill are expected to be fully deductible for Canadian income tax purposes.
Costs related to the acquisition, which include legal, accounting, and valuation fees, in the amount of approximately $
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.
The pro forma financial information for the three and nine-months ended September 30, 2021 combines the results of CEN and CCM for the respective periods, which include the results of CCM subsequent to July 9, 2021, and the historical results for CCM for the period of July 1, 2021 to July 8, 2021 and the six-months ended June 30, 2021. The pro forma financial information for the three and nine months ended September 30, 2020 combines CEN’s historical results for those periods with the historical results of CCM for the three and nine months ended September 30, 2020.
The following table summarizes the pro forma financial information:
| Three-Months Ended | Nine-Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share | ||||||||||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted Average Number of Shares Outstanding | ||||||||||||||||
| Basic and Diluted | ||||||||||||||||
NOTE 4 - PROPERTY, PLANT AND IMPROVEMENTS, NET
Property and equipment, net consists of the following as of:
| September 30, | ||||
| 2021 | ||||
| Computers and equipment | $ | |||
| Furniture and fixtures | ||||
| Leasehold improvements | ||||
| Less: accumulated depreciation and amortization | ||||
| Net property and equipment | $ | |||
Effective August 1, 2020, the Company terminated both their operating lease at 20 North Rear Road with Jamsyl Group, a third-party, and abandoned their office space under operating lease with RN Holdings Ltd, a third-party, in Windsor, Ontario (Note 13). All property, plant, and improvements, including the previously held equipment that had secured the Global Holdings International, LLC loan, were located at these locations and, with the exception of proceeds of $
Depreciation expense was $
NOTE 5 – ADVANCES TO CEN BIOTECH UKRAINE AND LOAN RECEIVABLE FROM EMERGENCE GLOBAL
At December 31, 2020, the Company had an outstanding loan receivable of $
At September 30, 2021 and December 31, 2020, the Company had advances of $
Bahige (Bill) Chaaban, Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own
NOTE 6 – INTANGIBLE ASSETS
Lighting Patent
On September 12, 2016, the Company executed an agreement dated August 31, 2016, to acquire assets, including a patent related to LED Lighting, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac (the “Sellers”).
The patent remained in the name of Tesla Digital, Inc. until full settlement of the terms of the agreement. In the interim, pursuant to an updated agreement executed on April 15, 2019 between the Company and the Sellers, CEN has reaffirmed the rights to use the patented technology. In addition, the Company agreed to employ Stevan Pokrajac, by an LED subsidiary that the Company plans to form, but which has not yet been formed, in connection with the development of the acquired technology with compensation equal to $
In March 2018, the agreement was amended to reflect a fixed
Subsequently, on October 7, 2021, the agreement was amended and finalized to increase the number of CEN common shares to be transferred to million. Upon closing of the agreement, the CEN common stock was transferred to the Sellers and the transfer of the patent and real property was completed. In addition, the Sellers assumed the mortgage and associated accrued interest on certain real property that was included in the original agreement, see Note 7.
The Company intends to explore using the patented LED Lighting Technology across manufacturing operations and licensing opportunities across multiple industries such as horticultural, automotive, industrial and commercial lighting. The assets acquired, other than the patent, included certain machinery and raw materials, which were old and non-functioning and accordingly, had no fair value.
Intangible assets consist of the following at:
| September 30, 2021 | December 31, 2020 | |||||||
| Lighting patent | $ | $ | ||||||
| Product technology | ||||||||
| Customer relationships | ||||||||
| Capitalized software development costs | ||||||||
| Trade names | ||||||||
| Total identifiable intangible assets | ||||||||
| Less: Accumulated amortization | ||||||||
| Net | $ | $ | ||||||
As of September 30, 2021 and December 31, 2020, there is
NOTE 7 – LOANS PAYABLE
Loans payable consist of the following at:
| September 30, 2021 | December 31, 2020 | |||||||
| Loan payable to Global Holdings International, LLC, which bears interest at per annum after defaulting on the maturity date of . This note was previously secured by equipment that the Company disposed of on August 1, 2020. | $ | $ | ||||||
| Mortgage payable in default to ARG & Pals, Inc., for the original amount of CAD . The mortgage bears interest at per annum, is unsecured, and matured on . This was assumed on October 7, 2021 by the Sellers as described in Note 6. | ||||||||
| Loan payable to an individual, issued January 17, 2018 with a 30-day maturity, bearing share interest of common shares per 30-day period. This is an unsecured loan which matured on . | ||||||||
| Loan payable in default to an individual, issued April 13, 2018, with a 30-day maturity, bearing share interest of common shares per 30-day period. This is an unsecured loan which matures on . | ||||||||
| Loans payable in default to multiple private investors bearing an interest at rates of up to per annum, which matured at various dates between and . | ||||||||
| Loans payable to a private investor for the original amount of CAD , bearing interest at per annum. This is due on demand. | ||||||||
| Total loans payable (all current) | $ | $ | ||||||
During each of the three-month periods ended September 30, 2021 and 2020,
During each of the nine-month periods ended September 30, 2021 and 2020,
During the three and nine-month periods ended September 30, 2021, certain private investors amended their convertible notes payable totaling $
NOTE 8 – LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following at:
| September 30, 2021 | December 31, 2020 | |||||||
| Loan payable in default due to the spouse of Bill Chaaban, CEO of CEN, which bears an interest at per annum. This loan matured on . | $ | $ | ||||||
| Loans payable in default to the spouse of Bill Chaaban, CEO of CEN, for the original amounts of CAD and USD , bear interest at per annum. These are unsecured loans that matured on . | ||||||||
| Loans payable in default to a former director of Creative, former parent company, bear interest at per annum. This are unsecured loans that matured on . | ||||||||
| Loan payable in default to R&D Labs Canada, Inc., whose president is Bill Chaaban, also the CEO of CEN, bearing interest at per annum. This is an unsecured loan that matured on . R&D Labs Canada is a company owned by Bill Chaaban’s spouse. | ||||||||
| Loan payable to the spouse of Joseph Byrne, a shareholder and former CEO, and current President and member of the board of CEN, issued January 12, 2018 with a 30-day maturity, bearing share interest of common shares per 30-day period. This is an unsecured loan that matures on . | ||||||||
| Loan payable to Alex Tarrabain, CFO and a Director of CEN, issued January 17, 2018 with a 30-day maturity, bearing share interest of common shares per 30-day period. This is an unsecured loan that matures on . | ||||||||
| Loan payable to Joseph Byrne, a shareholder and former CEO, and current President and member of the board of CEN, issued January 24, 2018 with a 30-day maturity, bearing share interest of common shares per 30-day period. This loan was repaid in June 2021. | ||||||||
| Total loans payable - related party (all current) | $ | $ | ||||||
Attributable related party accrued interest was $
During the three-month periods ended September 30, 2021 and 2020,
During the nine-month periods ended September 30, 2021 and 2020,
NOTE 9 – CONVERTIBLE NOTES
Convertible notes payable consists of the following at:
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes payable in default to multiple private investors, including certain notes in default, bearing interest at per annum with conversion rights for common shares, which matured at various dates between and . | $ | $ | ||||||
| Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at per annum with conversion rights for common shares, maturing at various dates in . | ||||||||
| Convertible note payable, due on demand, for the original amount of CAD , bearing interest at per annum which had conversion rights for common shares. Effective August 17, 2021, the note was amended and reclassified as the conversion feature was removed, see Note 7. | ||||||||
| Total convertible notes payable | ||||||||
| Less unamortized debt discount | ||||||||
| Total convertible notes payable, net of unamortized debt discount | ||||||||
| Less current portion | ||||||||
| 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 determined the value associated with the beneficial conversion feature in connection with the notes issued during nine-month period ended September 30, 2021 to be $
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
During the three-month period ended September 30, 2021, certain private investors elected to exercise their convertible notes payable totaling $
During the nine-month period ended September 30, 2021, certain private investors elected to convert $
As of November 19, 2021, we are currently in default of $
NOTE 10 – CONVERTIBLE NOTES PAYABLE - RELATED PARTIES
Convertible notes payable - related parties consists of the following at:
| September 30, 2021 | December 31, 2020 | |||||||
| Convertible notes in default due to Harold Aubrey de Lavenu, a Vice President and Director of CEN, bearing interest at per annum. These notes are convertible to common shares and matured on . | $ | $ | ||||||
| Convertible notes in default due to Joseph Byrne, former CEO, and current President and member of the board of CEN, bearing interest at per annum. This note is convertible to common shares and matured on . | ||||||||
| Convertible notes with beneficial conversion features due to the parents of Jeffery Thomas, a Director of CEN, bearing interest at per annum. These notes are convertible to common shares with a maturity date of . | ||||||||
| Convertible note in default due to the spouse of Bill Chaaban, CEO of CEN, which bears an interest at per annum. This note was convertible to common shares and matured on . Effective August 17, 2021, the note was amended and reclassified as the conversion feature was removed, see Note 8. | ||||||||
| Convertible note in default due to Alex Tarrabain, CFO and a Director of CEN, bearing interest at per annum. On April 10, 2021, this note was converted to common shares. | ||||||||
| Convertible note due to Darren Ferris, brother of Ameen Ferris, a Vice President and a Director of CEN, bearing interest at per annum. On April 26, 2021, this note was converted to common shares. | ||||||||
| Total convertible notes payable – related parties | ||||||||
| Less unamortized debt discount | ||||||||
| Total convertible notes payable - related parties (all current) | $ | $ | ||||||
Attributable related party accrued interest was $
The Company issues convertible notes to related parties as a method to raise operating capital. These notes convert to a fixed number of shares specified in the convertible note, at the option of the note holder. Certain of these notes are considered to contain a beneficial conversion feature if in-the-money at the time of issuance.
The Company has determined the value associated with the beneficial conversion feature in connection with the notes issued to related parties during the nine-month period ended September 30, 2021 to be $
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
During the nine-month period ended September 30, 2021, a convertible note due to Joseph Byrne in the amount of $
As of November 19, 2021, we are currently in default of $
NOTE 11 – CEBA LOAN PAYABLE
The Canada Emergency Business Account (“CEBA”) loan payable of $
NOTE 12 – GOVERNMENTAL ASSISTANCE
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 $
NOTE 13 – LEASES
The Company currently leases certain facilities and equipment under noncancelable operating lease agreements that expire at various dates through 2024. Monthly rentals range from CAD
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
The operating lease liability as of September 30, 2021 and December 31, 2020 was $
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 September 30, 2021:
| Amount | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | $ | |||
| Less imputed interest | ||||
| Present value of lease liability | $ | |||
NOTE 14 – INCOME TAXES
A reconciliation of the effective tax rate of the income tax benefit and the statutory income tax rates applied to the loss before income taxes is as follows for the three and nine-months ended September 30:
| 2021 | 2020 | |||||||
| Income tax benefit at Canadian statutory rate | % | % | ||||||
| Valuation allowance | ( | %) | ( | %) | ||||
| Effective income tax rate | % | % | ||||||
As of September 30, 2021, the Company has net operating loss carry forwards of approximately $
| September 30, 2021 | December 31, 2020 | |||||||
| Deferred tax asset - net operating losses | $ | $ | ||||||
| Deferred tax asset valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The valuation allowance increased $
Company management analyzes its income tax filing positions in Canadian federal and provincial jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions. As of September 30, 2021, there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the condensed consolidated financial statements. The Company is subject to routing audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Generally, the Company is no longer subject to income tax examinations for years prior to 2017.
NOTE 15 – SHAREHOLDERS’ DEFICIT / STOCK ACTIVITY
The Company is authorized to issue an unlimited number of common shares and an unlimited number of special voting shares. Common shares have
As of September 30, 2021,
NOTE 16 – RELATED PARTY TRANSACTIONS
The Company has received loans from several related parties, as described above in Notes 8 and 10.
A loan totaling $
There are advances of $
On July 12, 2017, the Company’s Shareholders elected individuals to serve as Directors on the Board. These individuals hold long-term convertible notes payable issued prior to the election. All notes payable bear interest at
During the three-months ended September 30, 2021 and 2020, the Company incurred payroll and consulting expenses of $
During 2017, the Company purchased equipment from R&D Labs Canada, Inc., whose president is Bill Chaaban, in exchange for a $
Jamaal Shaban (“Lessor”), cousin of Bill Chaaban, leased 20 North Rear Road, a 10.4 acre site of land in Canada which included two buildings and a security vault, to the Company under an agreement effective January 2017 for monthly rental payments of CAD
NOTE 17 – 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
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
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
On October 1, 2019, the Company entered into an agreement with a communications and branding firm for the payment of its services under which the Company issued
On April 17, 2020, the Company entered into agreements with three individuals for the payment of business consulting services under which the Company issued
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
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,
On July 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
Employment Agreements
On November 30, 2017, employment agreements were entered into with four key members of management:
| ● | Under the Employment Agreement with Bahige (Bill) Chaaban, then President of the Company, Mr. Chaaban agreed to receive compensation in the form of a base annual salary of $ |
| ● | Under the Employment Agreement with Joseph Byrne, former Chief Executive Officer of the Company, Mr. Byrne agreed to receive compensation in the form of a base annual salary of $ |
| ● | Under the Employment Agreement with Richard Boswell, Senior Executive Vice President and then Chief Financial Officer of the Company, Mr. Boswell agreed to receive compensation in the form of a base annual salary of $ |
| ● | Under the Employment Agreement with Brian Payne, Vice President of the Company, Mr. Payne agreed to receive compensation in the form of a base annual salary of and a grant of |
On May 16, 2019, an employment agreement was entered into with Alex Tarrabain, one of the members of the Company’s Board, to serve as the Company’s Chief Financial Officer and as one of the Vice Presidents of the Company effective May 21, 2019:
| ● | Under the Employment Agreement with Alex Tarrabain, Chief Financial Officer and as one of the Vice Presidents of the Company, Mr. Tarrabain agreed to receive compensation in the form of a base annual salary of $ |
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 $
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
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
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
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
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
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
Restricted Stock Awards
Restricted stock awards relate to common shares that are subject to applicable securities laws and regulations as set forth in the RSAs and other equity compensation grants.
The total grant-date fair value of the restricted shares noted in the employment agreements and equity compensation grants sections above was $
With the exception of immediately vesting portions of awards, shares typically vest pro-rata over the requisite service period, which is generally years from the grant-date. Non-vested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.
During the three-month periods ended September 30, 2021 and 2020,
Compensation expense recognized in connection with the restricted stock awards was $
Non-vested restricted stock award activity for the nine-months ended September 30, 2021 and 2020 are as follows:
| Number of Shares | Weighted- Average Grant Date Fair Value per Share | Weighted- Average Remaining Contractual Term (Years) | ||||||||||
| Non-vested at January 1, 2020 | $ | |||||||||||
| Granted | - | |||||||||||
| Vested | ( | ) | - | |||||||||
| Forfeited | - | |||||||||||
| Non-vested at September 30, 2020 | $ | |||||||||||
| Non-vested at January 1, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Vested | ( | ) | - | |||||||||
| Forfeited | - | |||||||||||
| Non-vested at September 30, 2021 | $ | |||||||||||
The fair value of the restricted stock grants was based on the valuation of a third-party specialist prior to April 5, 2021. Beginning April 5, 2021, the fair value of the restricted stock grants is based upon the daily closing price per the OTC Link. As of September 30, 2021, unrecognized compensation expense totaled $
NOTE 18 – NET LOSS PER SHARE
During periods when there is a net loss, all potentially dilutive shares are anti-dilutive and are excluded from the calculation of diluted net loss per share. Based on the Company’s application of the as-converted and treasury stock methods, all common stock equivalents were excluded from the computation of diluted earnings per share due to net losses as of September 30, 2021 and 2020. Common stock equivalents that were excluded for the three and nine-month periods ended September 30, 2021 and 2020 are as follows:
| Three-months Ended | Nine-months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Convertible debt | ||||||||||||||||
NOTE 19 – CONTINGENCY
In connection with the distribution by Creative of CEN’s common stock on February 29, 2016 and the Form 10 registration statement filed by CEN to register its shares of common stock under the Exchange Act, CEN received comments by the Staff of the Securities and Exchange Commission, including a letter dated May 4, 2016 in which the Staff noted that they “…continue to question the absence of Securities Act registration of the spin-off distribution”. In the event that the distribution of shares of CEN’s common stock was a distribution that required registration under the Securities Act, then the Company could be subject to enforcement action by the SEC that claims a violation of Section 5 of the Securities Act and could be subject to a private right of action for rescission or damages. Based on management’s estimate, any potential liability related to this matter would not be material.
NOTE 20 – FAIR VALUE DISCLOSURES
Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.
The fair value of the Company’s financial instruments are as follows at:
| Fair Value Measured at Reporting Date Using | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
| At September 30, 2021: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Note receivable – CEN Biotech Ukraine, LLC – related party | $ | $ | $ | $ | $ | |||||||||||||||
| Advances to CEN Biotech Ukraine, LLC - related party | $ | $ | $ | $ | $ | |||||||||||||||
| Loans payable | $ | $ | $ | $ | $ | |||||||||||||||
| Loans payable – related parties | $ | $ | $ | $ | $ | |||||||||||||||
| Patent acquisition liability | $ | $ | $ | $ | $ | |||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | $ | |||||||||||||||
| Convertible notes payable – related parties | $ | $ | $ | $ | $ | |||||||||||||||
| CEBA loan payable | $ | $ | $ | $ | $ | |||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Fair Value | ||||||||||||||||
| At December 31, 2020: | ||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | $ | |||||||||||||||
| Other receivables | $ | $ | $ | $ | $ | |||||||||||||||
| Note receivable – CEN Biotech Ukraine, LLC – related party | $ | $ | $ | $ | $ | |||||||||||||||
| Advances to Emergence Global - related party | $ | $ | $ | $ | $ | |||||||||||||||
| Advances to CEN Biotech Ukraine, LLC - related party | $ | $ | $ | $ | $ | |||||||||||||||
| Loans payable | $ | $ | $ | $ | $ | |||||||||||||||
| Loans payable – related parties | $ | $ | $ | $ | $ | |||||||||||||||
| Patent acquisition liability | $ | $ | $ | $ | $ | |||||||||||||||
| Convertible notes payable | $ | $ | $ | $ | $ | |||||||||||||||
| Convertible notes payable – related parties | $ | $ | $ | $ | $ | |||||||||||||||
The fair values of other receivables (including related accrued interest), note receivable - CEN Biotech Ukraine, LLC, and advances to Emergence Global and CEN Biotech Ukraine, LLC approximate carrying value due to the terms of the instruments.
The fair value of the loans payable approximates carrying value due to the terms of such instruments and applicable interest rates.
The fair value of convertible notes payable is based on the par value plus accrued interest through the date of reporting due to the terms of such instruments and interest rates.
It is not practicable to estimate the fair value of loans payable – related parties and convertible notes payable – related parties due to their related party nature.
The fair value of the patent acquisition liability is based upon the fair value of the common stock, which was obtained from a 3rd party valuation specialist prior 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 is based upon the OTC closing price and accordingly was transferred from Level 3 to Level 1 due to the availability of published prices for CEN’s common stock.
NOTE 21 – SEGMENT INFORMATION
As described in Note 2, the Company closed on the acquisition of CCM on July 9, 2021. With the acquisition of CCM, the Company has
Segment information:
| Three-months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Growth | Digital | Growth | Digital | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Depreciation expense | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Nine-months Ended September 30, | ||||||||||||||||
| 2021 | 2020 | |||||||||||||||
| Growth | Digital | Growth | Digital | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Depreciation expense | ||||||||||||||||
| Amortization expense | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
Segment assets to total assets:
| September 30, 2021 | December 31, 2020 | |||||||
| Growth | $ | $ | ||||||
| Digital | ||||||||
| Total assets | $ | $ | ||||||
NOTE 22 – SUBSEQUENT EVENTS
From October 1, 2021 to November 19, 2021, the Company issued one new convertible note totaling $
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the Notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Special Note Regarding Forward-Looking Statements. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Background and Overview
CEN Biotech, Inc. (“we,” “us,” “our” or “CEN” or the “Company”) is a Canadian holding company, incorporated in Canada on August 4, 2013 as a subsidiary of Creative Edge Nutrition, Inc. (“Creative”), a Nevada corporation. Creative separated its planned specialty pharmaceutical business located in Canada by transferring substantially all of the assets and liabilities of the planned specialty pharmaceutical business to CEN and effecting a distribution (the “Spin-Off Distribution”) of CEN common stock to Creative shareholders on February 29, 2016. The Spin-Off Distribution was intended to be tax free for U.S. federal income tax purposes.
Prior to the Spin Off Distribution, the Company initially pursued the cannabis business in Canada and obtained funding to build the initial phase of its comprehensive seed-to-sale facility and applied to obtain a license in Canada to begin operating its state-of-the-art medical marijuana cultivation, processing, and distribution facility in Lakeshore, Ontario. On March 11, 2015, the Company’s application for a license to produce marijuana for medical purposes was formally rejected by Canadian regulatory authority. On February 1, 2016 the Company commenced legal action against the Attorney General of Canada in the Ontario Superior Court of Justice for damages for detrimental reliance, economic loss, and prejudgment and post judgment interest, costs of the proceeding and other relief that the court may seem just. As of November 19, 2021 the action in the Ontario Superior Court of Justice is still ongoing. In the meantime the Company decided to develop and pursue other businesses that are related to Light Emitting Diode (“LED”) lighting and hemp-based industrial, medical and food products that have a tetrahydrocannabinol (“THC”) that is below 0.3%.
We are currently focused on the manufacturing, production and development of LED lighting technology and hemp-based products. The Company intends to continue to explore the usage of hemp, which it now intends to cultivate for usage in industrial, medical and food products. We also plan to expand our business to include Cannabis, Psychedelic Mushrooms, and Digital Communities. Our mission is to strive to be an agriculture based mindful provider of Phyto medical solutions developed to help improve "your" state of health and well-being.
On April 20, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with Clear Com Media Inc., an Ontario, Canada corporation (“CCM”), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the “CCM Shareholders”) and Lawrence Lehoux as the Representative of the CCM Shareholders (the “Shareholders’ Representative”, each of CCM and the CCM Shareholders may be referred to collectively herein as the “CCM Parties”). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is 10,000 shares of CCM common shares (the “CCM Stock”) held by the CCM Shareholders in exchange (the “Exchange”) for the issuance by the Company to the CCM Shareholders of 4,000,000 restricted shares of the Company’s common stock, no par value per share (the “Company Common Stock”). The Agreement closed on July 9, 2021 (the “Closing”). At Closing, the CCM Shareholders delivered the CCM Stock to the Company and the Company delivered the Company Common Stock to the CCM Shareholders, and CCM became a wholly owned subsidiary of the Company.
Effective with the acquisition of Clear Com Media, Inc. on July 9, 2021, the Company reports in two business segments, Growth and Digital. The Growth segment encompasses the activities of CEN Biotech, Inc. and focuses on the planned manufacturing, production and development of LED lighting technology and hemp-based products. The Digital segment encompasses the activities of Clear Com Media, Inc. and focuses on providing digital marketing and web design related services. Substantially all of the Company’s operations are conducted within the United States of America and Canada.
Our principal office is located at 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 derived approximately 99% of its revenue from one customer during the three and nine-month periods ended September 30, 2021. The Company had no revenue prior to July 9, 2021.
Our consolidated financial statements have been prepared assuming that we will continue as a going concern; however, given our recurring losses from operations, management, as well as our auditors, have determined there is substantial doubt about our ability to continue as a going concern.
At September 30, 2021 and December 31, 2020, the Company had advances of $1,299,328 and $1,179,328, respectively, to CEN Ukraine which is a related party. The advances were for the purpose of funding the operations of CEN Ukraine. These advances were substantially used as follows:
| ● |
Approximately $420,000 to operate its office in Kiev; |
| ● |
Approximately $445,328 to employ several workers; |
| ● |
Approximately $350,000 for performing multiple test crops; |
| ● |
Approximately $75,000 for oil processing activities; and |
| ● |
Approximately $9,000 for payment of rent. |
Plan of Operations
Plan of Operations of CEN Biotech Inc.
Our monthly “burn rate,” the amount of expenses we expect to incur on a monthly basis, is approximately $100,000 for a total of $1,200,000 for the maximum of 12 months. We have relied and will continue to rely on capital raised from third parties to fund our operating expenses during the following 12 months.
In order to complete our plan of operations, we estimate that $8,400,000 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 $8,400,000 of funds from capital raised, we may not be able to fully carry out our plan of operations.
Generally, the funds are planned to be invested as follows: $2.3 million in hemp activities, $2.2 million in LED lighting manufacturing, $200,000 to obtain quotation on OTCQB, $2.5 million to complete acquisitions in the phyto medical space including cannabis and psychedelic mushrooms and $1.2 million in general operating costs. There can be no assurance that the Company will be able to raise the foregoing funds or proceed as planned.
We hope to reach the following milestones in the next 12 months:
| ● |
August 2022 – The Company intends to close a minimum of two acquisitions in the phyto medical space and we estimate the cost of this to be $1,250,000. |
| ● |
November 2022 - The Company intends to close an additional two acquisitions in the phyto medical space and we estimate the cost of this to be $1,250,000. |
| ● |
February 2022 – The Company intends to obtain quotation on OTCQB and we estimate the costs of this to be $200,000. |
| ● |
May 2022 – The Company intends to close on its contract with CEN Ukraine and we estimate the costs of this to be $300,000. |
| ● | March 2022 to December 2024 – The Company intends to explore the usage of hemp, which it intends to cultivate for usage in industrial, medical and food products through CEN Ukraine as follows: |
| ● |
Secure lease of processing facility expected to take place in April, 2022 and we estimate the costs of this to be $400,000 annually. |
| ● |
Purchase of seeds for production crop expected to take place in March, 2022 and we estimate the costs of this to be $100,000 annually. |
| ● |
Hire farming and production staff expected to take place in March, 2022 and we estimate the costs of this to be $600,000 annually. |
| ● |
Rent farming equipment, purchase fuel, irrigation, and nutrients expected to take place in April, 2022 and we estimate the costs of this to be $600,000 annually. |
| ● |
Market, package and ship product expected to take place in September, 2022 and we estimate the costs of this to be $300,000 annually. |
| ● |
October 2021 – The Company closed on its contract with Tesla Digital, Inc. regarding the LED lighting patent. |
| ● | December 2021 to December 2024 – The Company intends to explore using the LED lighting patent across manufacturing operations and licensing opportunities across multiple industries such as the horticultural industry, as well as the automotive, industrial and commercial lighting industries as follows: |
| ● |
Lease production facility expected to take place in April, 2022 and we estimate the costs of this to be $400,000 annually. |
| ● |
Lease equipment expected to take place in June, 2022 and we estimate the costs of this to be $400,000 annually. |
| ● |
Hire staff expected to take place in May, 2022 and we estimate the costs of this to be $600,000 annually. |
| ● |
Initial raw materials expected to take place in May, 2022 and we estimate the costs of this to be $500,000 one time. |
| ● |
Marketing and delivery expected to take place in September, 2022 and we estimate the costs of this to be $300,000 annually. |
Achievement of the milestones will depend highly on our funds and the availability of those funds. There can be no assurance that we will be able to successfully complete such milestones.
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:
| ● |
Expansion of CCM’s enterprise hosting infrastructure for CCM’s client services and CCM products to address the ongoing growth needs of the business. |
| ● |
The pace of development of the Chatter product has been modified to meet the changing needs of the business and to address new market realities. Progress continues but a refocus on core deliverables that delivers a new phased approach to product roll out is being implemented. Recent changes in sales, the competitive landscape and modified revenue forecasts have triggered a pivot in terms of priorities and timing. |
| ● |
The development of the Block Chain Permission Platform has been modified to solely focus on the R&D elements of the offering. Commercialization of the product has been reorganized to be addressed later once we have achieved new internal goals and milestones; however, work continues on the core offering with clear goals and objectives in mind. |
| ● |
Continued development of internal efficiency processes and automated systems for tasks such as workflow, billing, subscriptions, security and internal cloud computing. |
| ● |
The marketing of both the Chatter and 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 second to third quarter of next year when the products are in a completed and in a commercially viable state. |
| ● |
The development of digital community project remains at the discovery stage and research continues about the participants and nuances of this space and how we feel we can best serve this vertical. Once a plan is formalized new hires will be recruited to address the specific development needs of this product and service. |
| ● |
Continued support and a modest expansion of the core services offered by to our key business partners and direct customers. These services include but are not limited to responsive website design, online chat, social media marketing and landing page development. |
| ● |
As part of our renegotiation with Postmedia as are no longer providing the SEO and custom development services going forward. |
| ● |
No acquisitions are being considered at this time until the proper financing in place to do so. |
Recent Developments
The outbreak of a novel coronavirus (COVID-19), which the World Health Organization declared in March 2020 to be a pandemic, continues to spread throughout the United States of America and the globe. Many State Governors issued temporary Executive Orders that, among other stipulations, effectively prohibit in-person work activities for most industries and businesses, having the effect of suspending or severely curtailing operations. The extent of the ultimate impact of the pandemic on the Company's operational and financial performance will depend on various developments, including the duration and spread of the outbreak, and its impact on potential customers, employees, and vendors, all of which cannot be reasonably predicted at this time. While management reasonably expects the COVID-19 outbreak to negatively impact the Company's financial condition, operating results, and timing and amounts of cash flows, the related financial consequences and duration are highly uncertain.
On April 20, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with Clear Com Media Inc., an Ontario, Canada corporation (“CCM”), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the “CCM Shareholders”) and Lawrence Lehoux as the Representative of the CCM Shareholders (the “Shareholders’ Representative”, each of CCM and the CCM Shareholders may be referred to collectively herein as the “CCM Parties”). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is 10,000 shares of CCM common shares (the “CCM Stock”) held by the CCM Shareholders in exchange (the “Exchange”) for the issuance by the Company to the CCM Shareholders of 4,000,000 restricted shares of the Company’s common stock, no par value per share (the “Company Common Stock”). The Agreement closed on July 9, 2021 (the “Closing”). At Closing, the CCM Shareholders delivered the CCM Stock to the Company and the Company delivered the Company Common Stock to the CCM Shareholders, and CCM became a wholly owned subsidiary of the Company. 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 Chief Technology Officer. Pursuant to the Employment Agreement, the Company agreed to pay Mr. Lehoux a base salary of $31,200. Clear Com Media Inc. is a Windsor, Ontario based data management, digital marketing and Ecommerce company founded on the premise that we are not satisfied until our customers are. Clear Com is entirely committed to delivering a positive customer experience while continuing to grow and gaining the trust of the online community. Clear Com seeks to let nothing stop it from delivering a positive personal experience by focusing on data driven decision making. By exemplifying professionalism and expertise in 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, which were valued at $2,120,000 based upon the closing stock price on July 9, 2021. The following is a preliminary estimate of the fair values of the assets acquired and the liabilities assumed by CEN in the transaction:
| Cash |
$ | 259,470 | ||
| Accounts receivable |
202,527 | |||
| Property and equipment |
97,911 | |||
| Other assets |
244,540 | |||
| Identifiable intangibles |
625,170 | |||
| Current financial liabilities |
(321,251 | ) | ||
| Other long-term liabilities |
(140,078 | ) | ||
| Total identifiable net assets |
968,289 | |||
| Goodwill |
1,151,711 | |||
| Net assets acquired |
$ | 2,120,000 |
On July 13, 2021, the Company entered into an RSA (the “Keane RSA”) with Patrick Keane. Pursuant to the Keane RSA, the Company granted Mr. Keane 200,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.
On July 13, 2021, the Company entered into an RSA (the “Scott RSA”) with Daniel Scott. Pursuant to the Scott RSA, the Company granted Mr. Scott 300,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.
On October 7, 2021 (“Closing Date”), the Company entered into and closed on a definitive agreement with Tesla Digital Inc., an Ontario, Canada corporation, Tesla Digital Global Group, Inc., an Ontario, Canada corporation, as well as Steven Pokrajac individually (together, the “Sellers”), pursuant to which the parties agreed to the sale and assignment of certain assets of the Sellers (the “Purchased Assets”) related to a Light Emitting Diode Driver Circuit, as more specifically set forth in the Asset Purchase Agreement, Patent Assignment and Bill of Sale (together, the “Transaction Documents”).
Pursuant to the Transaction Documents, the Company agreed to complete the purchase, acquisition and acceptance from the Sellers of the Purchased Assets, which include all of the Sellers’ right, title, and interest in and to United States patent number U.S. 8,723,425 (the “Patent”), in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof, in addition to, any related manufacturing machinery plus inventory on hand, and all know-how pertaining to manufacture, use, operation maintenance, development, enjoyment and exploitation of the Patent and the related manufacturing machinery (the “Property”).
| U.S. Patent |
Application |
Status |
U.S. |
Issue |
Subject Matter |
| 13/525,703 |
06/18/2012 |
Issued U.S. Patent |
8,723,425 |
05/13/2014 |
Light Emitting Diode Driver Circuit |
The Sellers cooperated with the Company to perfect the sale and assignment of the Patent and Property, including through execution of the Patent Assignment and recordation of the same with the U.S. Patent Office, on October 7, 2021. The Company had full rights to utilize the patented technology prior to the Patent Assignment. These rights were granted by the Seller as a part of the transaction with the Company started in August of 2016.
As consideration for the sale, assignment and transfer of the Purchased Assets (the “Tesla Digital Transaction”), on the Closing Date the Company agreed to pay to the Sellers (i) 5,000,000 shares of the Company’s Common Stock, at no par value per share (the “Shares”), (ii) that parcel of real property known as 1517-1525 Ride Road, Essex, Ontario (Canada), which the Parties acknowledged has already been satisfactorily tendered by Company to Sellers with assumption of mortgage, and (iii) that parcel of real property known as 135 North Rear Road, Town of Lakeshore, Ontario (Canada), which the Parties acknowledged has already been satisfactorily tendered by Company to Sellers with assumption of mortgage.
Pursuant to notice given to its current transfer agent on Closing Date, the Company has authorized and instructed transfer agent to reserve the Shares of the Company for issuance upon the written request of any of the Sellers in accordance with the terms therein and following written confirmation by the Company.
The Transaction Documents are the definitive agreements between the Company and Sellers, following a Sale Purchase Agreement for the sale of certain assets, properties and rights dated August 31, 2016, as well as its Amending Agreements dated March 29, 2018, September 30, 2018, April 3, 2019 and March 16, 2020.
From October 1, 2021 to November 19, 2021, the Company issued one new convertible note totaling $100,000 with conversion rights of 416,667 shares of the Company common stock.
Results of Operations
We have incurred recurring losses and have only recently commenced revenue generating operations with our acquisition of Clear Com Media, Inc. on July 9, 2021. Our expenses to date are primarily our general and administrative expenses and fees, costs and expenses related to acquisitions and operations. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
The accompanying condensed consolidated financial statements have been prepared in contemplating continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of $43,895,667 at September 30, 2021 and 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. The Company has relied on the issuance of loans payable and convertible debt instruments to finance its expenses, including a note that is in default and is secured by the Company’s equipment and certain unsecured convertible notes payable. The Company will be dependent upon raising additional capital through placement of common stock, notes or other securities in order to implement its business plan or additional borrowings, including from related parties. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
The Company’s cash position may not be sufficient to support the Company’s daily operations or its ability to undertake any business activity that will generate sufficient net revenue.
Results of Operations for the Three and Nine-Months Ended September 30, 2021 and 2020:
The following tables reflect our operating results for the three and nine-months ended September 30, 2021 and 2020, respectively:
| Three-months ended |
||||||||||||
| Operating Summary |
September 30, 2021 |
September 30, 2020 |
Change |
|||||||||
| Revenue |
$ | 272,166 | $ | - | n/a | % |
||||||
| Operating Expenses |
(917,142 | ) | (968,424 | ) | (5.3 | )% |
||||||
| Loss from Operations |
(644,976 | ) | (968,424 | ) | (33.4 | )% |
||||||
| Other Expense, net |
(73,964 | ) | (957,752 | ) | (92.3 | )% |
||||||
| Net Loss |
$ | (718,940 | ) | $ | (1,926,176 | ) | (62.7 | )% |
||||
| Nine-months ended |
||||||||||||
| Operating Summary |
September 30, 2021 |
September 30, 2020 |
Change |
|||||||||
| Revenue |
$ | 272,166 | $ | - | n/a | % |
||||||
| Operating Expenses |
(17,525,559 | ) | (2,189,621 | ) | 700.4 | % |
||||||
| Loss from Operations |
(17,253,393 | ) | (2,189,621 | ) | 688.0 | % |
||||||
| Other Income (Expense), net |
418,253 | (2,696,548 | ) | (115.5 | )% |
|||||||
| Net Loss |
$ | (16,835,140 | ) | $ | (4,886,169 | ) | 244.5 | % |
||||
Revenue
Effective July 9, 2021 with the acquisition of Clear Com Media, Inc., we commenced revenue generating operations. All revenue generating activity was from the Digital segment. Revenue of $272,166 was recognized during both the three and nine-months ended September 30, 2021. We did not recognize revenue during the three or nine-months ended September 30, 2020, as we had not yet commenced revenue generating operations.
Operating Expenses
Growth Segment
During the three months ended September 30, 2021, our operating expenses were $570,311 compared to $968,424 during the three months ended September 30, 2020. During the three months ended September 30, 2021, our operating expenses were comprised of salary and consulting fees of $328,914, stock-based compensation expense of $75,750, and general and administrative expenses of $165,647. By comparison, during the three months ended September 30, 2020, our operating expenses were comprised of salary and consulting fees of $167,200, stock-based compensation expense of $196,650, general and administrative expenses of $268,487, and losses from lease abandonment, lease termination, and associated disposal of property and equipment of $336,087. Expenses incurred during the three months ended September 30, 2021 compared to three months ended September 30, 2020 decreased primarily due to the non-recurring losses from lease abandonment, lease termination, and associated disposal of property and equipment that occurred in 2020 and decreases in general and administrative spending.
During the nine months ended September 30, 2021, our operating expenses were $17,178,728 compared to $2,189,621 during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, our operating expenses were comprised of salary and consulting fees of $1,303,914, stock-based compensation expense of $15,077,072, and general and administrative expenses of $797,742. By comparison, during the nine months ended September 30, 2020, our operating expenses were comprised of salary and consulting fees of $391,677, stock-based compensation expense of $589,950, general and administrative expenses of $871,907, and losses from lease abandonment, lease termination, and associated disposal of property and equipment of $336,087. Expenses incurred during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 increased primarily due to increased consulting fees for security, legal, and business coaching for our executives, increased stock-based compensation for our executives and board members as well as increases in legal and professional fees.
Digital Segment
During the both the three and nine months ended September 30, 2021, our operating expenses were $346,831 and consistent primarily of wages and subcontracting costs.
Other Income and Expense Items
During the three months ended September 30, 2021, our other expense, net was $73,964 compared to other expense, net of $957,752 during the three months ended September 30, 2020. During the three months ended September 30, 2021, our other income and expense items were comprised of interest expense of $173,412, interest income of $87, governmental assistance income of $116,610, loss on change in fair value of patent acquisition liability of $52,900, and foreign exchange gain of $35,651. By comparison, during the three months ended September 30, 2020, our other income and expense items were comprised of interest expense of $921,017, interest income of $1,553, and foreign exchange loss of $38,288. Expenses incurred during the three months ended September 30, 2021 compared to three months ended September 30, 2020 decreased primarily due to a decrease in interest expense as a result of debt conversions.
During the nine months ended September 30, 2021, our other income, net was $418,253 compared to other expense, net of $2,696,548 during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, our other income and expense items were comprised of interest expense of $703,665, interest income of $481, governmental assistance income of $116,610, gain on change in fair value of patent acquisition liability of $1,025,100, and foreign exchange loss of $20,273. By comparison, during the nine months ended September 30, 2020, our other income and expense items were comprised of interest expense of $2,727,672, interest income of $5,465, and foreign exchange gain of $25,659. Expenses incurred during the nine months ended September 30, 2021 compared to nine months ended September 30, 2020 decreased primarily due to a decrease in interest expense as a result of debt conversions and a favorable change in the fair value of the patent acquisition liability.
Income Taxes
As of September 30, 2021, the Company has net operating loss carryforwards of approximately $29,200,000 that may be available to reduce future years’ taxable income. As of September 30, 2021, the Company has a deferred tax asset of approximately $7,700,000 which has been completely offset by a valuation allowance. The Company believes that it is more likely than not that the carryforwards will expire unused as the Company has not been able to commence revenue generating activities to date.
Net Loss
Our net loss during the three months ended September 30, 2021 was $718,940 compared to a net loss of $1,926,176 during the three months ended September 30, 2020 due to the factors discussed above.
Our net loss during the nine months ended September 30, 2021 was $16,835,140 compared to a net loss of $4,886,169 during the nine months ended September 30, 2020 due to the factors discussed above.
Other Comprehensive Loss
Our comprehensive loss arises from foreign currency translation adjustments related to CCM based upon published exchange rates. During both the three and nine-months ended September 30, 2021 our other comprehensive loss was $44,379. We had no items of comprehensive income or loss during either the three or nine-months ended September 30, 2020.
Liquidity and Capital Resources
As of September 30, 2021 and December 31, 2020, our liquid assets consisted of cash of $213,805 and $1,908, respectively.
As of September 30, 2021, our indebtedness includes a patent acquisition liability of $354,900, accrued interest of $1,323,520, accrued interest to related parties of $1,804,448, as well as loans payable, loans payable to related parties, convertible notes and convertible notes to related parties at original issuance totaling $6,497,758 ($6,474,082 net of debt discount), and a CEBA loan payable of $31,396, with maturity dates as outlined below. The convertible notes are generally due 2 years from issuance with notes maturing in 2018 through 2022. As of November [ ], 2021 we are currently in default of $5,272,669 of unsecured debt. We expect our operating and administrative expenses to be at least $1,200,000 annually.
| Description |
Maturity Date |
Amount at Original Issuance |
||||
| Loan Payable |
Q2 2016 |
$ | 75,000 | |||
| Loan Payable |
Q2 2018 |
10,000 | ||||
| Loan Payable |
Q1 2019 |
53,000 | ||||
| Loan Payable |
Q2 2019 |
210,000 | ||||
| Loan Payable |
Q3 2019 |
30,000 | ||||
| Loan Payable |
Q4 2019 |
45,000 | ||||
| Loan Payable |
Q1 2020 |
32,000 | ||||
| Loan Payable |
Q3 2020 |
162,395 | ||||
| Loan Payable |
Q2 2021 |
50,000 | ||||
| Loan Payable |
Q3 2021 |
302,187 | ||||
| Loan Payable |
On Demand |
867,088 | ||||
| Loan Payable – Related Party |
Q4 2018 |
838,330 | ||||
| Loan Payable – Related Party |
Q4 2019 | 300,000 | ||||
| Loan Payable – Related Party |
Q3 2020 | 1,388,122 | ||||
| Loan Payable – Share Interest |
Q3 2021 |
50,000 | ||||
| Loan Payable – Share Interest |
Q4 2021 |
100,000 | ||||
| Loan Payable – Share Interest – Related Party |
Q4 2021 |
175,000 | ||||
| Convertible Notes |
Q2 2018 |
4,000 | ||||
| Convertible Notes |
Q4 2018 |
50,000 | ||||
| Convertible Notes |
Q1 2019 |
137,072 | ||||
| Convertible Notes |
Q2 2019 |
10,000 | ||||
| Convertible Notes |
Q3 2019 |
40,000 | ||||
| Convertible Notes |
Q4 2019 |
105,600 | ||||
| Convertible Notes |
Q1 2020 |
122,800 | ||||
| Convertible Notes |
Q4 2020 |
7,000 | ||||
| Convertible Notes |
Q2 2021 |
75,000 | ||||
| Convertible Notes |
Q4 2021 |
175,000 | ||||
| Convertible Notes |
Q2 2022 |
35,000 | ||||
| Convertible Notes - Related Party |
Q1 2019 |
878,368 | ||||
| Convertible Notes - Related Party |
Q3 2020 |
121,796 | ||||
| Convertible Notes - Related Party |
Q2 2022 |
48,000 | ||||
| CEBA Loan Payable |
Q4 2025 |
31,396 | ||||
| Total |
$ | 6,529,154 | ||||
We intend to fund our expenses through revenues generated through Clear Com Media, Inc. and from the issuance and sale of additional securities. We do not have any commitments from any persons to purchase any securities and there can be no assurance that we will be able to raise sufficient funds to pay our liabilities as they become due and payable.
Nine-months ended September 30, 2021 and 2020
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. During the nine months ended September 30, 2021, we used $256,032 in operating activities compared to $399,306 used in operating activities during the nine months ended September 30, 2020. The decrease in the use of operating cash between the two periods was primarily related to increases in general and administrative expenses that were offset by the commencement of revenue generating activities with the acquisition of CCM on July 9, 2021.
Cash Flows from Investing Activities
Our cash flow provided by investing activities during the nine months ended September 30, 2021 was $66,731 compared to cash used in investing activities of $103,199 during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, our cash flows from investing activities was comprised of an addition of cash as part of the CCM acquisition in exchange for shares of CEN common stock, advances to CEN Biotech Ukraine of $120,000, research and development of $53,751, and purchases of equipment of $18,988. By comparison, during the nine months ended September 30, 2020, our use of cash flows for investing activities was comprised of advances to CEN Ukraine of $105,000 and proceeds from the sale of equipment of $1,801.
Cash Flows from Financing Activities
During the nine months ended September 30, 2021, we received $460,830 through issuance of convertible notes to investors to fund our working capital requirements and repaid $50,000 of our loans payable. During the nine months ended September 30, 2020, we received $499,000 through issuance of convertible notes to investors to fund our working capital requirements.
During the nine months ended September 30, 2021, holders of convertible notes totaling $5,091,785 elected to convert their notes into 3,437,633 common shares.
During the nine-month period ended September 30, 2021, certain private investors elected to convert $78,893 of accrued interest owed on convertible notes into 94,357 shares of common stock.
CEN has no committed source of debt or equity financing. Our Executive team and Board are seeking additional financing from their business contacts, but no assurances can be given that such financing will be obtained or, if obtained, on what terms.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a reporting company that will increase our operating costs or cash requirements in the future.
Jumpstart Our Business Startups Act of 2012
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) provides that an emerging growth company can take advantage of certain exemptions from various reporting and other requirements that are applicable to public companies that are not emerging growth companies. We currently take advantage of some, but not all, of the reduced regulatory and reporting requirements that are available to us for as long as we qualify as an emerging growth company. Our independent registered public accounting firm will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting for as long as we qualify as an emerging growth company.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
No pronouncements were adopted by the Company during the nine-month period ended September 30, 2021.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. As a smaller reporting company, as defined by the SEC, this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company intends to adopt this standard effective January 1, 2022.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements.
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made, except as it relates to the provisional estimates surrounding the valuation of net assets recognized in conjunction with the acquisition of CCM on July 9, 2021. ASC 805 allows for a measurement period, not to exceed 12 months from the date of acquisition, for filers to compile sufficient information to complete their estimate of the fair value of the net assets acquired. As of September 30, 2021, the Company is still in this measurement period. Any significant adjustments to our estimates of fair value of acquired net assets in future periods could have significant impacts on reported results from such periods. Note 1 to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, we are not required to provide the information called for by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure and controls and procedures.
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and 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 management, 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 officer concluded that as of September 30, 2021, our disclosure controls and procedures were not effective.
(b) Changes in internal control over financial reporting.
During the quarter ended September 30, 2021, the Company acquired the Clear Com Media, Inc. business. As of quarter ended September 30, 2021, management is in the process of integrating this new business line into the Company's overall internal control environment. Further, management will perform a thorough review of processes and procedures to ensure appropriate controls are in place. Management anticipates completing these integration efforts by the end of the current year ending December 31, 2021.
Other than the foregoing, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. 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 both the three and nine-months ended September 30, 2021, CEN entered into loans and associated extension agreements with various parties and also settled accrued liabilities. In consideration for such loans and associated extensions, along with the settlement of accrued liabilities, CEN granted various individuals a total aggregate amount of 192,726 unregistered shares of common stock of CEN during both the three and nine-months ended September 30, 2021.
The above issuances of shares of common stock were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder or in reliance on the provisions of Regulation S promulgated thereunder.
During both the three and nine-months ended September 30, 2021, we issued $456,395 of convertible notes to investors to fund our working capital requirements. These notes bear interest at 5% per year and are convertible at the option of the holder into 677,775 common shares.
The above issuances of convertible notes were issued in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended and the provisions of Regulation D promulgated thereunder or in reliance on the provisions of Regulation S promulgated thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
CEN has a payment default with respect to certain unsecured loans payable to private investors and related parties, in the principal amount of $3,243,846 and which bear interest at rates from 5% to 22% per annum which were due prior to November 19, 2021. The aggregate amounts due under these loans as of November 19, 2021, including accrued interest, is approximately $4,969,425. Interest and default interest and related fees currently accrue at approximately $97,000 per quarter.
CEN has a payment default with respect to certain unsecured convertible loans payable to private investors and related parties, in the principal amount of $1,726,636 and which bear interest at rates from 5% to 12% per annum which were due prior to November 19, 2021. The aggregate amounts due under these loans as of November 19, 2021, including accrued interest, is approximately $2,149,000. Interest and default interest and related fees currently accrue at approximately $24,000 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 |
||
| 3.1 |
|||
| 3.2 |
|||
| 31.1 |
|||
| 31.2 |
|||
| 32.1 |
|||
| 32.2 |
|||
| 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 Document.* |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document.* |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document.* |
| 101.LAB |
Inline XBRL Taxonomy Extension Labels Linkbase Document.* |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document.* |
| 104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).* |
_____________
* Filed herewith.
b. Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 19, 2021
| CEN BIOTECH, INC. |
||
| By: |
/s/ Bahige Chaaban |
|
| Name: |
Bahige Chaaban |
|
| Title: |
Chief Executive Officer (Principal Executive Officer) |
|
| Dated: November 19, 2021 |
/s/ Alex Tarrabain |
| Name: Alex Tarrabain |
|
| Title: Chief Financial Officer (Principal Financial and Accounting Officer) |