CEN BIOTECH INC - Quarter Report: 2021 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

 

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

Commission File Number 000-55557 

 

CEN BIOTECH, INC.

(Exact name of registrant as specified in its charter)

 

Ontario, Canada	-
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
300-3295 Quality Way Windsor, Ontario Canada	N8T 3R9
(Address of principal executive offices)	(Zip code)

 

(519) 419-4958

(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.

Yes ☒ No ☐

 

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).

Yes ☒ No ☐

 

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 ☐
Non-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 ☐ No ☒

 

As of May 12, 2021, there were 40,460,854, shares of common stock, no par value per share (“common stock”), of the registrant outstanding.

 

 

 

TABLE OF CONTENTS

 

 

PART I
ITEM 1	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	3
ITEM 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34
ITEM 4	CONTROLS AND PROCEDURES	34
PART II
ITEM 1	LEGAL PROCEEDINGS	35
ITEM 1A	RISK FACTORS	35
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	36

 

ITEM 4	MINE SAFETY DISCLOSURE	36
ITEM 5	OTHER INFORMATION	36
ITEM 6	EXHIBITS	36

 

 

 

		March 31, 2021				December 31, 2020
ASSETS
Current assets
Cash and cash equivalents		$	780			$	1,908
Loan receivable from Emergence Global Enterprises Inc. - related party			17,901				17,901
Total current assets			18,681				19,809
Other assets
Other receivable			71,269				113,999
Note receivable - CEN Biotech Ukraine LLC - related party			44,859				44,859
Advances to CEN Biotech Ukraine LLC - related party			1,229,328				1,179,328
Intangible assets, net			4,849,944				4,956,147
Total assets		$	6,214,081			$	6,314,142
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Accounts payable		$	221,001			$	190,716
Accounts payable – related parties			8,347				8,347
Loans payable			531,152				527,379
Loans payable – related parties			1,363,831				1,363,354
Convertible notes payable			6,763,275				6,652,448
Convertible notes payable- related parties			2,558,681				2,558,681
Accrued interest			1,237,430				1,125,034
Accrued interest – related parties			1,696,874				1,615,880
Lease liabilities			29,659				22,895
Accrued expenses			658,833				641,023
Total current liabilities			15,069,083				14,705,757
Operating lease liabilities, less current portion			140,510				142,102
Patent acquisition liability			1,380,000				1,380,000
Convertible notes, less current portion			88,000				78,000
Total liabilities			16,677,593				16,305,859
Shareholders’ deficit
Common stock; unlimited authorized shares; 27,610,732 and 27,557,363 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. No par value.			-				-
Additional paid-in capital			17,220,050				17,068,810
Accumulated deficit			(27,683,562	)			(27,060,527	)
Total shareholders’ deficit			(10,463,512	)			(9,991,717	)
Total liabilities and shareholders’ deficit		$	6,214,081			$	6,314,142

 

		For the three months ended March 31,
		2021				2020
Operating expenses
Consulting fees – related parties		$	31,200			$	31,200
Stock based compensation			75,750				196,650
General and administrative			237,890				302,900
Total operating expenses			344,840				530,750
Loss from operations			(344,840	)			(530,750	)
Other income (expense)
Interest expense			(130,628	)			(794,680	)
Interest expense – related parties			(123,236	)			(105,451	)
Interest income			394				2,059
Foreign exchange (loss) gain			(24,725	)			128,710
Other expense, net			(278,195	)			(769,362	)
Net loss		$	(623,035	)		$	(1,300,112	)
Net loss per share:
Basic and diluted		$	(0.02	)		$	(0.05	)
Weighted average number of shares outstanding
Basic and diluted			27,582,095				26,976,110

 

						Common				Additional								Total
		Common				Shares				Paid-in				Accumulated				Shareholders’
		Shares				Amount				Capital				Deficit				Deficit
Balances, January 1, 2020			26,953,363			$	-			$	15,775,010			$	(41,310,172	)		$	(25,535,162	)
Stock-based compensation			-				-				196,650				-				196,650
Issuance of common stock – interest shares			45,000				-				32,400				-				32,400
Net loss			-				-				-				(1,300,112	)			(1,300,112	)
Balances, March 31, 2020			26,998,363			$	-			$	16,004,060			$	(42,610,284	)		$	(26,606,224	)
Balances, January 1, 2021			27,557,363			$	-			$	17,068,810			$	(27,060,527	)		$	(9,991,717	)
Stock-based compensation			-				-				75,750				-				75,750
Issuance of common stock – interest shares			45,000				-				62,100				-				62,100
Issuance of common stock – settlement of accrued liability			8,369				-				13,390				-				13,390
Net loss			-				-				-				(623,035	)			(623,035	)
Balances, March 31, 2021			27,610,732			$	-			$	17,220,050			$	(27,683,562	)		$	(10,463,512	)

 

		For the three months ended March 31,
		2021				2020
Cash flows from operating activities
Net loss		$	(623,035	)		$	(1,300,112	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation			-				4,596
Amortization			106,203				106,203
Lease expense			5,172				1,070
Stock-based compensation – employees			75,750				196,650
Shares issued for interest			62,100				32,400
Foreign exchange loss (gain)			24,725				(128,710	)
Changes in operating assets and liabilities which provided (used) cash
Other receivable			42,730				(2,054	)
Accounts payable			27,522				2,466
Accounts payable – related parties			-				8,347
Accrued interest – related and non-related parties			186,505				867,731
Accrued expenses			31,200				31,200
Net cash used in operating activities			(61,128	)			(180,213	)
Cash flows used in investing activities
Advances to CEN Biotech Ukraine LLC			(50,000	)			-
Cash flows provided by financing activities
Issuance of convertible notes			110,000				178,000
Net decrease in cash and cash equivalents			(1,128	)			(2,213	)
Cash and cash equivalents, beginning of period			1,908				3,757
Cash and cash equivalents, end of period		$	780			$	1,544
Non-cash transactions - investing and financing activities
Issuance of common stock - settlement of accrued liability		$	13,390			$	-

 

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.

 

There have been no material changes in the Company’s significant accounting policies as compared to the significant accounting policies described in the Company’s annual report on Form 10-K for the year ended December 31, 2020.

 

Loss per Share

 

Net loss per common share is computed pursuant to 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-months ended March 31, 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.

 

Recent Developments

 

In April of 2021, the Company’s common stock began to be quoted on the OTC Link alternative trading system (operated by OTC Markets Group Inc.) under the trading symbol “CENBF” on the OTC Pink tier. There is no assurance that an active trading market for our shares will develop or will be sustained if developed.

 

Recently Adopted Accounting Pronouncements

 

No pronouncements were adopted by the Company during the three-month period ended March 31, 2021.

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued an accounting pronouncement (ASU 2020-06) related to the measurement and disclosure requirements for convertible instruments and contracts in an entity's own equity. The pronouncement simplifies and adds disclosure requirements for the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. As a smaller reporting company, as defined by the SEC, this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently evaluating the impact of this ASU on the consolidated financial statements.

 

 

 

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 $27,683,562 at March 31, 2021 and had no committed source of additional debt or equity financing. The Company has not had any operating revenue and does not foresee any operating revenue in the near term. The Company has relied on the issuance of loans payable and convertible debt instruments to finance its expenses, including notes that are in default, as described in Notes 5, 6, 7, and 8. The Company will continue to raise additional capital through placement of our common stock, notes or other securities in order to implement its business plan or additional borrowings, including from related parties. The COVID-19 pandemic has hindered the Company’s ability to raise capital. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

The Company’s cash position may not be sufficient to support the Company’s daily operations or its ability to undertake any business activity that will generate net revenue.

 

NOTE 3 – ADVANCES TO CEN BIOTECH UKRAINE AND LOAN RECEIVABLE FROM EMERGENCE GLOBAL

 

At both March 31, 2021 and December 31, 2020, the Company had an outstanding loan agreement with Emergence Global Enterprises Inc. (“Emergence Global”), a related party (see Note 11), and advanced funds of $17,901. The loan was made for the purpose of funding the operations of Emergence Global. The loan was unsecured, non-interest bearing, and was due on December 31, 2021. At the time the loan was made, Joseph Byrne, the CEO of Emergence Global was not an officer or director of the Company. He was at that time a 5% shareholder and former CEO of the Company. He was then appointed as the President and a director of the Company on April 19, 2021. Additionally, our CEO, Bill Chaaban was appointed as the President of Emergence Global on April 12, 2021. In light of Section 402 of the Sarbanes-Oxley Act of 2002, as of May 6, 2021, the loan to Emergence Global has been repaid in full, through the issuance to the Company of shares of Emergence Global common stock, and is no longer outstanding. See Note 16, Subsequent Events.

 

At March 31, 2021 and December 31, 2020, the Company had advances of $1,229,328 and $1,179,328, respectively, to CEN Biotech Ukraine, LLC, a related party (see Note 11). The advances were for the purpose of funding the operations of CEN Biotech Ukraine, LLC.

 

Bahige (Bill) Chaaban, our Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned by Bahige (Bill) Chaaban and Usamakh Saadikh. Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CEN Ukraine is operated and controlled by its sole director. Pursuant to Ukrainian law, shareholders of a company do not have the ability to control the company or the actions of its director. CEN Ukraine is operated under the direction of its management pursuant to the guidelines of Ukrainian law. These loans are unsecured, non-interest bearing, and are due on demand.

 

 

 

NOTE 4 – INTANGIBLE ASSETS

 

On September 12, 2016, the Company executed an agreement dated August 31, 2016, to acquire assets, including a patent related to LED Lighting, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac (the “Sellers”).

 

Material consideration given by Company was: (a) Shares of CEN common stock equal to $5 million upon commencement of public trading (b) The transfer of real properties located at 135 North Rear Road, Lakeshore, Ontario, Canada having a fair value of $2,161,467 and 1517-1525 Ridge Road having a purchase cost (including other related disbursements) to the Company of $202,666.

 

The patent remains in the name of Tesla Digital, Inc. until full settlement of the terms of the agreement. In the interim, pursuant to an updated agreement executed on April 15, 2019 between the Company and the Sellers, CEN has reaffirmed the rights to use the patented technology.

 

In addition, the Company agreed to employ Stevan Pokrajac, by an LED subsidiary that the Company plans to form, but which has not yet been formed, in connection with the development of the acquired technology with compensation equal to $200,000 per year, commencing with the start of operations.

 

In March 2018, the Tesla agreement was amended to replace the $5 million stock consideration commitment with a commitment to issue one million registered shares of CEN common stock with a closing date of September 30, 2018. On October 4, 2018, this agreement was amended to extend the closing date to December 15, 2018. On April 3, 2019, the Company entered into an amendment which extended the closing date of the agreement to December 31, 2019. On March 16, 2020 the Company entered into an amendment extending the closing date until December 31, 2021. The March 2018 modification of the agreement converted a fixed value of shares to a fixed number of shares. Accordingly, the liability was reduced and additional paid in capital was increased by $4,380,000 to reflect the fair value of the shares committed at the date of the amendment. As of both March 31, 2021 and December 31, 2020, the fair value of this liability was $1,380,000. This liability will be remeasured at each reporting date using the current fair value of CEN’s common shares.

 

The Company intends to explore using the patented LED Lighting Technology across manufacturing operations and licensing opportunities across multiple industries such as horticultural, automotive, industrial and commercial lighting. The assets acquired, other than the patent, included certain machinery and raw materials, which were old and non-functioning and accordingly, had no fair value.

 

The intangible asset consists of the following at:

 

 

 

As of March 31, 2021 and December 31, 2020, there is no impairment expense recognized based on the Company’s expectations that it will be able to monetize the patent. The lighting patent is being amortized straight-line over 16 years. Expected amortization expense is $424,812 per year through 2031, with the remaining $283,215 to be amortized in 2032.

 

NOTE 5 – LOANS PAYABLE

 

Loans payable consist of the following at:

 

 

During each of the three-month periods ended March 31, 2021 and 2020, 18,000 common shares were issued to individuals in connection with interest terms of the above loans made to CEN. Accordingly, during the three-month periods ended March 31, 2021 and 2020, $24,840 and $12,960 in interest expense and additional paid-in capital was recorded, respectively.

 

 

 

NOTE 6 – LOANS PAYABLE- RELATED PARTY

 

Loans payable - related party consists of the following at:

 

 

Attributable related party accrued interest was $590,589 and $568,969 as of March 31, 2021 and December 31, 2020, respectively. Interest expense attributable to related party loans was $63,862 and $45,582 for the three-months ended March 31, 2021 and 2020, respectively.

 

During both three-month periods ended March 31, 2021 and 2020, 27,000 common shares were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, during the three-month periods ended March 31, 2021 and 2020, $37,260 and $19,440 in related party interest expense and additional paid-in capital was recorded, respectively.

 

 

 

NOTE 7 – CONVERTIBLE NOTES

 

Convertible notes payable consists of the following at:

 

 

These notes may be converted at the option of the note holder at any time after registration of CEN’s common stock upon written notice by the note holder. These notes are convertible into a total of 4,043,948 common shares.

 

As of May 12, 2021, we are currently in default of $5,113,927 of convertible notes payable, which are convertible into 3,171,315 shares of common stock.

 

 

 

NOTE 8 – CONVERTIBLE NOTES - RELATED PARTY

 

Convertible notes - related party consists of the following at:

 

 

Attributable related party accrued interest was $1,106,285 and $1,046,911 as of March 31, 2021 and December 31, 2020, respectively. Interest expense attributable to related party convertible notes was $59,374, and $59,869 for the three months ended March 31, 2021 and 2020, respectively.

 

These notes may be converted at the option of the note holder at any time after registration of CEN’s common stock upon written notice by the note holder. These notes are convertible into a total of 1,599,176 common shares.

 

As of May 12, 2021, we are currently in default of $2,538,681 of convertible notes payable, which are convertible into 1,586,676 shares of common stock.

 

 

 

NOTE 9 – INCOME TAXES

 

A reconciliation of the effective tax rate of the income tax benefit and the statutory income tax rates applied to the loss before income taxes is as follows for the three-months ended March 31:

 

 

As of March 31, 2021, the Company has net operating loss carry forwards of approximately $13,200,000 that may be available to reduce future years’ taxable income. Such carry forwards typically expire after 20 years. The Company currently has carry forwards that begin to expire in 2034. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, because the Company believes that it is more likely than not that the carryforwards will expire unused and accordingly, the Company has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. The deferred tax asset and associated valuation allowance are as follows for the period ended March 31, 2021 and the year ended December 31, 2020:

 

 

The change in the valuation allowance amounted to $100,000 for both the three-months ended March 31, 2021 and 2020. All other temporary differences are immaterial both individually and in the aggregate to the condensed consolidated financial statements.

 

Company management analyzes its income tax filing positions in Canadian federal and provincial jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions. As of March 31, 2021, there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the condensed consolidated financial statements. The Company is subject to routing audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Generally, the Company is no longer subject to income tax examinations for years prior to 2017.

 

NOTE 10 – SHAREHOLDERS’ DEFICIT / STOCK ACTIVITY

 

The Company is authorized to issue an unlimited number of common shares and an unlimited number of special voting shares. Common shares have no stated par value.

 

 

As of March 31, 2021, 5,643,124 shares of common stock are committed to the holders of the convertible notes.

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

The Company has received loans from several related parties, as described above in Notes 6 and 8.

 

A loan totaling $17,901 was made to Emergence Global as of both March 31, 2021 and December 31, 2020. The loan was made for the business purpose of assisting Emergence with operating expenses. Emergence Global’s Chief Executive Officer is Joseph Byrne, a 5% shareholder and former CEO, and current President and member of the board of CEN. Joseph Byrne, previously served as the Chief Executive Officer and member of the Board of Directors of the Company from July 2017 until November 13, 2019.

 

There are advances of $1,229,328 and $1,179,328 to CEN Ukraine as of March 31, 2021 and December 31, 2020, respectively. Such advances were made for the purpose of funding the operations of CEN Ukraine as summarized in Note 4. CEN Ukraine was founded by Bill Chaaban. Prior to December 3, 2017, Bill Chaaban directly owned 51% of CEN Ukraine. CEN Ukraine was founded to seek agricultural and pharmaceutical opportunities in Ukraine. Bill Chaaban personally funded the establishment and initial phases of CEN Ukraine. On December 14, 2017, the Company entered into a controlling interest purchase agreement with Bill Chaaban, our Chief Executive Officer and member of our board of directors, and another shareholder of CEN Ukraine, Usamakh Saadikh, a member of our board of directors, for 51% of the outstanding equity interests of CEN Ukraine. The consideration will be paid by issuing common shares of the Company. The agreement, which is subject to certain conditions, has not closed as of May 12, 2021, as the Company needs to raise additional funds in order to proceed with the closing. Bahige (Bill) Chaaban, our Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned by Bahige (Bill) Chaaban and Usamakh Saadikh. Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CEN Ukraine is operated and controlled by its sole director. Pursuant to Ukrainian law, shareholders of a company do not have the ability to control the company or the actions of its director. CEN Ukraine is operated under the direction of its management per the guidelines of Ukrainian law.

 

On July 12, 2017, the Company’s Shareholders elected individuals to serve as Directors on the Board. These individuals hold long-term convertible notes payable issued prior to the election. All notes payable bear interest at 5% per annum and are convertible to common shares with various maturity dates. They became related parties when they were elected.

 

During both of the three-months ended March 31, 2021 and 2020, the Company incurred payroll and consulting expenses of $31,200 with certain Board Members and Officers. As of March 31, 2021 and December 31, 2020, $361,400 and $330,200, respectively, was payable to these related parties for payroll and consulting charges, which are included within accrued expenses.

 

During 2017, the Company purchased equipment from R&D Labs Canada, Inc., whose president is Bill Chaaban, in exchange for a $300,000 note payable. This equipment was then sold to CEN Ukraine for a loss of $255,141 in exchange for a $44,859 note receivable, payable in 10 equal installments beginning in 2017 through 2026. No payments have been received as of March 31, 2021, however, management expects this balance to be collectible.

 

 

Jamaal Shaban (“Lessor”), cousin of Bill Chaaban, leased 20 North Rear Road, a 10.4 acre site of land in Canada which included two buildings and a security vault, to the Company under an agreement effective January 2017 for monthly rental payments of CAD 4,000 plus taxes for a period of five years. This lease was assigned by the Lessor to Jamsyl Group, a third-party, when Jamsyl Group purchased the property from Jamaal Shaban in October 2019. Effective August 1, 2020, the Company entered into a mutual termination and release agreement with Jamsyl Group in exchange for 36,500 shares of CEN common stock, valued at $50,700, which vested immediately, based upon remaining lease payments owed. The lease had been accounted for as an operating lease utilizing an 8% discount rate. All remaining associated right-of-use assets as of August 1, 2020 of $48,110 and associated liabilities of $45,118 were written off in conjunction, resulting in a loss on lease termination of $53,692. During the three-months ended March 31, 2020, lease expenses of $8,719 related to this agreement were recognized within general and administrative expenses.

 

The Company also leased office space in Windsor, Ontario from R&D Labs Canada, Inc., whose president is Bill Chaaban. This lease was subsequently assigned to RN Holdings Ltd, a third-party, on May 8, 2019 when RN holdings purchased the building. Under the lease agreement effective October 1, 2017, monthly rents of CAD 2,608 are due through September 2022, at which point monthly rents of CAD 3,390 are due. Effective August 1, 2020, the Company ceased making payments and abandoned the leased space. Accordingly, the Company determined that there was no future economic value to the associated right-of-use asset and recognized a full impairment loss of $146,795 on August 1, 2020. As of May 12, 2021, the Company has not reached an agreement with RN Holdings Ltd to modify or to settle the remaining contractual liability, which therefore remains recorded as of March 31, 2021 under its original contractual terms. The associated liability as of March 31, 2021 and December 31, 2020 was $170,169 and $164,997, respectively, utilizing an 8% discount rate. During the three-months ended March 31, 2021 and 2020, lease expenses of $5,172 and $6,325, respectively, related to this agreement were recognized within general and administrative expenses.

 

Effective with the August 1, 2020 lease termination and abandonments, all property, plant, and improvements, which were located at these properties were abandoned.

 

Maturities of the operating lease liability at March 31, 2021 was as follows:

 

 

 

 

NOTE 12 – STOCK BASED COMPENSATION

 

Adoption of Equity Compensation Plan

 

On November 29, 2017, the Board adopted the 2017 Equity Compensation Plan (the “Plan”) providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants. The Company reserved 20,000,000 shares of common stock for issuance under the Plan. The Plan is intended to provide equity incentives to persons retained by our Company.

 

Equity Compensation Grants

 

On November 30, 2017, the Company granted a one-time equity award (“Equity Award”) of 20,000 restricted shares of the Company’s common stock pursuant to a Restricted Stock Agreement, to each of the following then executives and directors of the Company: Bahige “Bill” Chaaban, Chairman of the Board and President of the Company; Joseph Byrne, Chief Executive Officer and Director; Richard Boswell, Senior Executive Vice President, Chief Financial Officer (through May 20, 2019) and Director; Brian Payne, Vice President and Director; Donald Strilchuck, Director; Harold Aubrey de Lavenu, Director; Alex Tarrabain, Chief Financial Officer (effective May 21, 2019) and Director; and Ameen Ferris, Director. The Equity Awards vested immediately.

 

In addition, as part of this one-time equity award, Donald Strilchuck, Director, received an additional 1,000,000 restricted shares of the Company's common stock for security consulting services, of which 550,000 vested immediately and the remaining vesting ratably each month over the next 36 months. Other individuals received a total of 1,870,000 restricted shares of the Company's common stock for consulting services performed, of which 1,330,000 vested immediately and the remaining vesting ratably each month over the next 36 months. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date.

 

On June 7, 2018, the Company elected Dr. Usamakh Saadikh to serve as a director of the Company. As compensation for his role as a Director, the company granted a one-time equity award of 20,000 shares of the Company’s common stock. This award vested immediately.

 

On June 19, 2018, the Company entered into an agreement with a law firm for the payment of its services under which the Company issued 125,000 shares of its common stock. This award vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date.

 

On December 31, 2018, the Company issued 12,120 shares of its common stock to individuals for the payment of their services. These awards vested immediately. The expense related to the stock awarded to non-employees for services rendered was recognized on the grant date.

 

On October 1, 2019, the Company entered into an agreement with a communications and branding firm for the payment of its services under which the Company issued 50,000 shares of its common stock. This award vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date.

 

 

On April 17, 2020, the Company entered into agreements with three individuals for the payment of business consulting services under which the Company issued 225,000 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of $162,000 was recognized on the grant date.

 

On August 27, 2020 and September 25, 2020, the Company entered into agreements with two individuals for the payment of business consulting services under which the Company issued an aggregate of 162,500 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of $117,000 was recognized on the grant date.

 

Employment Agreements

 

On November 30, 2017, employment agreements were entered into with four key members of management:

 

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Under the Employment Agreement with Bahige (Bill) Chaaban, then President of the Company, Mr. Chaaban agreed to receive compensation in the form of a base annual salary of $31,200 and a grant of 8,750,000 shares of restricted stock of the Company, of which 7,400,000 vested immediately and the remaining vested ratably each month over the next 36 months until November 2020.

 

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Under the Employment Agreement with Joseph Byrne, former Chief Executive Officer of the Company, Mr. Byrne agreed to receive compensation in the form of a base annual salary of $31,200 and a grant of 1,250,000 shares of restricted stock of the Company, of which 325,000 vested immediately and the remaining vesting ratably each month over the next 36 months until November 2020. Effective November 13, 2019, Mr. Byrne resigned and left the Company, at which point additional vesting and salary accruals ceased. As of April 2, 2020, the accrued salaries owed to Joe Byrne, which amounted to $58,500, were settled by allowing Joe Byrne to vest in the remaining 337,500 restricted shares that had not vested. On April 19, 2021, Joe Byrne was appointed as President and a member of the board of directors of the Company.

 

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Under the Employment Agreement with Richard Boswell, Senior Executive Vice President and then Chief Financial Officer of the Company, Mr. Boswell agreed to receive compensation in the form of a base annual salary of $31,200 and a grant of 4,500,000 shares of restricted stock of the Company, of which 4,140,000 vested immediately and the remaining vested ratably each month over the next 36 months until November 2020.

 

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Under the Employment Agreement with Brian Payne, Vice President of the Company, Mr. Payne agreed to receive compensation in the form of a base annual salary of $31,200 and a grant of 750,000 shares of restricted stock of the Company, of which 300,000 vested immediately and the remaining vested ratably each month over the next 36 months until November 2020.

 

On May 16, 2019, the Board appointed Alex Tarrabain, one of the members of the Company’s Board to serve as the Company’s Chief Financial Officer and as one of the Vice Presidents of the Company effective May 21, 2019 (the “Effective Date”). Richard Boswell, who served as the Company’s Chief Financial Officer since July 2017, resigned from his position as the Company’s Chief Financial Officer as of the Effective Date, continues to serve in his position as the Company’s Senior Executive Vice President going forward focusing on the Company’s strategic activities and will also continue to serve as a member of the Company’s Board.

 

 

In conjunction with the above, on May 16, 2019, an employment agreement was entered into with Mr. Tarrabain:

 

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Under the Employment Agreement with Alex Tarrabain, Chief Financial Officer and as one of the Vice Presidents of the Company, Mr. Tarrabain agreed to receive compensation in the form of a base annual salary of $31,200 and a grant of 1,250,000 shares of restricted stock of the Company, of which 350,000 vested immediately and the remaining vesting ratably each month over the next 36 months until May 2022.

 

Restricted Stock Awards

 

The total grant-date fair value of the restricted shares noted in the employment agreements and equity compensation grants sections above was $13,013,241 as of both March 31, 2021 and December 31, 2020. No restricted shares were awarded during the three-month periods ended March 31, 2021 or 2020. The grant-date fair value is calculated utilizing an enterprise valuation model as of the date the awards are granted. With the exception of immediately vesting portions of awards, shares typically vest pro-rata over the requisite service period, which is generally three years from the grant-date. Non-vested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.

 

During the three-month periods ended March 31, 2021 and 2020, 75,000 and 337,500, respectively, of these shares vested. The fair value of the restricted stock which vested amounted to $75,750 and $238,500 for the three-months ended March 31, 2021 and 2020, respectively.

 

Compensation expense recognized in connection with the restricted stock awards was $75,750 and $196,650 for the three-months ended March 31, 2021 and 2020, respectively.

 

Non-vested restricted stock award activity for the three-months ended March 31, 2021 and 2020 are as follows:

 

 

 

The fair value of the restricted stock grants was based on the valuation of a third-party specialist. As of March 31, 2021, unrecognized compensation expense totaled $353,500, which will be recognized on a straight-line basis over the vesting period or requisite service period through May 2022.

 

NOTE 13 – NET LOSS PER SHARE

 

During periods when there is a net loss, all potentially dilutive shares are anti-dilutive and are excluded from the calculation of diluted net loss per share. Based on the Company’s application of the as-converted and treasury stock methods, all common stock equivalents were excluded from the computation of diluted earnings per share due to net losses as of March 31, 2021 and 2020. Common stock equivalents that were excluded for the three-month periods ended March 31, 2021 and 2020 are as follows:

 

 

 

NOTE 14 – CONTINGENCY

 

In connection with the distribution by Creative of CEN’s common stock on February 29, 2016 and the Form 10 registration statement filed by CEN to register its shares of common stock under the Exchange Act, CEN received comments by the Staff of the Securities and Exchange Commission, including a letter dated May 4, 2016 in which the Staff noted that they “…continue to question the absence of Securities Act registration of the spin-off distribution”. In the event that the distribution of shares of CEN’s common stock was a distribution that required registration under the Securities Act, then the Company could be subject to enforcement action by the SEC that claims a violation of Section 5 of the Securities Act and could be subject to a private right of action for rescission or damages. Based on management’s estimate, any potential liability related to this matter would not be material.

 

NOTE 15 – FAIR VALUE DISCLOSURES

 

Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework that prioritizes and ranks the level of observability of inputs used in measuring fair value.

 

 

The fair value of the Company’s financial instruments are as follows at:

 

 

 

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 3^rd party valuation specialist. This valuation report utilized a cash-free asset value model to estimate enterprise value based upon similar companies.

 

NOTE 16 – SUBSEQUENT EVENTS

 

On April 2, 2021, the Board of Directors of the Company adopted the 2021 Equity Compensation Plan (the “2021 Plan”) providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants of the Company and reserved 20,000,000 shares of the Company’s common stock for issuance under the 2021 Plan.

 

On April 2, 2021, the Board of Directors appointed Ameen Ferris and Harold Aubrey De Lavenu to serve as Vice Presidents of the Company. Under the associated Executive Employment Agreements, they will each receive compensation in the form of a base annual salary of $31,200. In addition, Ameen Ferris was granted 1,000,000 and Harold Aubrey De Lavenu was granted 1,041,250 restricted shares, subject to applicable securities laws and regulations, as set forth in the Restricted Stock Agreement, of the Company’s common stock. Such shares vested immediately. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

On April 2, 2021, the Company entered into an RSA (the “Boswell RSA”) with Richard Boswell. Pursuant to the Boswell RSA, the Company granted Mr. Boswell 2,185,679 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

On April 2, 2021, the Company entered into an RSA (the “Chaaban RSA”) with Bahige Chaaban. Pursuant to the Chaaban RSA, the Company granted Mr. Chaaban 3,106,122 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

On April 2, 2021, the Company entered into an RSA (the “Payne RSA”) with Brian Payne. Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

On April 2, 2021, the Company entered into an RSA (the “Saadikh RSA”) with Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh 1,000,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

On April 2, 2021, the Company entered into an RSA (the “Strilchuck RSA”) with Donald Strilchuck. Pursuant to the Strilchuck RSA, the Company granted Mr. Strilchuck 341,250 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date.  The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

 

On April 2, 2021, the Company entered into an RSA (the “Tarrabain RSA”) with Alex Tarrabain. Pursuant to the Tarrabain RSA, the Company granted Mr. Tarrabain 300,000 restricted shares of the Company’s common stock under the 2021 Plan to vest immediately on the grant date. The shares issued are restricted shares that are subject to applicable securities laws and regulations. The expense related to the restricted stock awarded to employees for services previously rendered was recognized on the grant date.

 

The shares issued pursuant to the RSAs are restricted shares and are subject to applicable securities laws and regulations as set forth in the RSAs.

 

On April 2, 2021, a consulting agreement with CONFIEN SAS for business coaching was entered into for a period of 12 months. As payment for these services, 650,000 restricted shares, subject to applicable securities laws and regulations as set forth in the Restricted Stack Agreement, of the Company’s common stock were granted. Such shares vested immediately. The expense related to the restricted stock awarded to non-employees for services previously rendered was recognized on the grant date.

 

In April of 2021, the Company’s common stock began to be quoted on the OTC Link alternative trading system (operated by OTC Markets Group Inc.) under the trading symbol “CENBF” on the OTC Pink tier. There is no assurance that an active trading market for our shares will develop or will be sustained if developed.

 

On April 19, 2021, the Board appointed Mr. Bahige (Bill) Chaaban to serve as Chief Executive Officer of the Company effective April 19, 2021. On the same date, the Board appointed Mr. Joseph Byrne to serve as President and a member of the Board of the Company effective April 19, 2021. On the same, date, the Board appointed Mr. Rick Purdy to serve as a member of the Board of the Company effective April 19, 2021. On the same date, the Board appointed Mr. Jeffrey Thomas to serve as a member of the Board of the Company effective April 19, 2021.

 

On April 20, 2021, the Company entered into a Share Exchange Agreement (the “Agreement”) with Clear Com Media Inc., an Ontario, Canada corporation (“CCM”), each of the shareholders of CCM as set forth on the signature pages of the Agreement (the “CCM Shareholders”) and Lawrence Lehoux as the Representative of the CCM Shareholders (the “Shareholders’ Representative”, each of CCM and the CCM Shareholders may be referred to collectively herein as the “CCM Parties”). Pursuant to the Agreement, the Company agreed to acquire from the CCM Shareholders, all of the common shares of CCM, which is 10,000 shares of CCM common shares (the “CCM Stock”) held by the CCM Shareholders in exchange (the “Exchange”) for the issuance by the Company to the CCM Shareholders of 4,000,000 restricted shares, subject to applicable securities laws and regulations of the Company’s common stock, no stated par value per share (the “Company Common Stock”). At the closing (the “Closing”) of the Agreement, pursuant to the Exchange, the CCM Shareholders will deliver the CCM Stock to the Company and the Company will deliver the Company Common Stock to CCM, and CCM will become a wholly owned subsidiary of the Company. The Closing is planned to occur within two days of the satisfaction or waiver of all closing conditions under the Agreement. The completion of the Exchange is subject to certain customary closing conditions, including, but not limited to, that CCM will have provided to the Company CCM’s and its subsidiaries, audited and unaudited financial statements as required to be included in the Company’s filings with the Securities and Exchange Commission. Another closing condition is that the Company will have completed its due diligence investigation of CCM to the Company’s satisfaction in its sole discretion.

 

From April 23, 2021 to May 9, 2021, the Company authorized the issuance of 1,682,317 shares of its common stock upon conversion of the principal amount due under 89 notes, to 41 persons.  The aggregate principal amount of the notes prior to conversion was $2,691,706. 

 

 

Since March 31, 2021 the Company issued two new convertible notes totaling $77,830 with conversion rights of 48,644 shares of the Company common stock.

 

At both March 31, 2021 and December 31, 2020, the Company had an outstanding loan agreement with Emergence Global, and advanced funds of $17,901. At the time the loan was made, Joseph Byrne, the CEO of Emergence Global was not an officer or director of the company. He was at that time a 5% shareholder and former CEO of the Company. He was then appointed as the President and a director of the Company on April 19, 2021. Additionally, our CEO, Bill Chaaban was appointed as the President of Emergence Global on April 12, 2021. In light of Section 402 of the Sarbanes-Oxley Act of 2002, as of May 6, 2021, the loan to Emergence Global has been repaid in full, through the issuance to the Company of shares of Emergence Global Enterprises Inc. common stock, and is no longer outstanding. The Company and Emergence Global entered into that certain Loan Repayment Agreement dated as of May 6, 2021, pursuant to which Emergence Global agreed to repay to the Company $17,901, representing the total amount outstanding under the loan agreement, by issuing 21,830 shares of Emergence Global common stock, $0.82 par value per share. Such shares were issued to the Company on May 6, 2021.