CEN BIOTECH, INC. The accompanying condensed consolidated financial statements have been prepared in contemplating the continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of$46,569,501 AtJune 30, 2022 and had no committed source of additional debt or equity financing. The Company has not had any operating revenue and does not foresee any operating revenue in the near term. The Company has relied on the 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. 9
-------------------------------------------------------------------------------- The Company's cash position may not be sufficient to support the Company's daily operations or its ability to undertake any business activity that will generate net revenue.
Appointments of Officers and Directors
On
Appointment of Directors
On
? Josef Tukacs ?George Dragicevic
Dismissal of Independent Registered Accounting Firm
OnMay 2, 2022 , the Board of Directors of the Company approved the dismissal ofMazars USA LLP ("Mazars"), as its independent registered accounting firm, effective immediately.Mazars was engaged by the Company onJanuary 16, 2018 . No audit report ofMazars for the years endedDecember 31, 2021 orDecember 31, 2020 , contained an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, with the exception of providing an explanatory paragraph stating there was substantial doubt about the Company's ability to continue as a going concern. During the Company's two most recent fiscal years and throughMay 2, 2022 , (i) there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company andMazars on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction ofMazars , would have causedMazars to make reference to the subject matter of such disagreement in connection with its reports on the financial statements for such periods and (ii) there were no "reportable events" (as defined in Item 304(a)(1)(v) of Regulation S-K).
Engagement of New Independent Registered Accounting Firm
OnMay 2, 2022 , the Company's Board approved the appointment ofOlayinka Oyebola & Co ("OOC") as the Company's new independent registered public accounting firm effective immediately. During the Company's two most recent fiscal years endedDecember 31, 2021 and 2020, and the subsequent interim period throughMay 2, 2022 , neither the Company nor anyone acting on its behalf consulted with OOC regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, in connection with which either a written report or oral advice was provided to the Company that OOC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
NOTE 3 - ADVANCES TO CEN BIOTECH
AtJune 30, 2022 andDecember 31, 2021 , the Company had advances of$1,229,328 and$1,229,328 , respectively, toCEN Biotech Ukraine, LLC , a related party (see Note 11). The advances were for the purpose of funding the operations ofCEN Biotech Ukraine, LLC .Bahige (Bill) Chaaban , our former Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a former member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned byBahige (Bill) Chaaban and Usamakh Saadikh.Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CEN Ukraine is operated and controlled by its sole director. Pursuant to Ukrainian law, shareholders of a company do not have the ability to control the company or the actions of its director. CEN Ukraine is operated under the direction of its management pursuant to the guidelines of Ukrainian law. These loans are unsecured, non-interest bearing, and are due on demand. CEN acquired CCM onJuly 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. 10
-------------------------------------------------------------------------------- The merger was accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (ASC) 805, "Business Combinations" (ASC 805), with CEN representing the accounting acquirer under this guidance. ASC 805 requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired and liabilities assumed, using the bottom-up approach, to estimate their value at acquisition date. Any excess of the fair value of the purchase consideration over these identified net assets is to be recorded as goodwill. The aggregate consideration for the acquisition of CCM was 4,000,000 shares of CEN common stock, which were issued pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Act"), in reliance upon exemptions from the registration requirements of the Act in transactions not involving a public offering, and which were valued at$2,120,000 based upon the closing stock price onJuly 9, 2021 . The purchase price accounting was still in process as ofSeptember 30, 2021 , our most recently reported quarterly interim reporting. However, as ofDecember 31, 2021 , subsequent adjustments to the initial purchase price accounting due to receipt of final appraisal reports and other adjustments resulted in an increase in accounts receivable of approximately$8,000 , a decrease of identifiable intangibles by approximately$168,000 , and an increase in current financial liabilities by approximately$23,000 , with a corresponding increase to goodwill of approximately$184,000 . The decreased value of identifiable intangibles, had it been reflected in theSeptember 30, 2021 reporting, would have resulted in a decrease to accumulated amortization and associated amortization expense of approximately$15,000 . The following represents the adjusted fair values of the assets acquired and the liabilities assumed by CEN in the transaction: Cash$ 259,470 Accounts receivable 210,536 Property and equipment 97,911 Other assets 244,540 Identifiable intangibles 456,855 Current financial liabilities (344,591 ) Other long-term liabilities (140,078 ) Total identifiable net assets 784,643 Goodwill 1,335,357 Net assets acquired$ 2,120,000 Identified intangible assets acquired include trade names, customer relationships, and product technology whose fair value of$456,855 is based on an appraisal report utilizing a combination of market, income, and multi-period excess earnings methods. These trade names and customer relationships are being amortized over useful lives ranging of 3 and 7 years, respectively, and the product technology is not yet being amortized as not yet in service. These identifiable intangible assets will be reviewed for impairment at least annually or more frequently if indicators of impairment exist.
Amounts recognized as goodwill are expected to be fully deductible for Canadian income tax purposes. All goodwill has been included within the Digital segment.
Costs related to the acquisition, which include legal, accounting, and valuation fees, in the amount of approximately$80,000 have been charged directly to operations and are included in general and administrative expenses in the 2021 consolidated statement of operations.
Supplemental proforma financial information
The unaudited financial information in the table below summarizes the combined results of operations of CEN and CCM on a pro forma basis, as though the companies had been combined as of theJanuary 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 onJanuary 1, 2020 . The pro forma financial information assumes the 4,000,000 shares of CEN common stock were issued onJanuary 1, 2020 and includes adjustments to amortization for acquired intangible assets and income tax expense. The pro forma financial information for the year endedDecember 31, 2021 combines the results of CEN and CCM for 2021, which include the results of CCM subsequent toJuly 9, 2021 , and the historical results for CCM for the period ofJanuary 1, 2021 toJuly 8, 2021 . The pro forma financial information for the year endedDecember 31, 2020 combines CEN's historical results for 2020 with the historical results of CCM for 2020. 11 -------------------------------------------------------------------------------- The following table summarizes the pro forma financial information (unaudited): Years Ended December 31, 2021 December 31, 2020 Revenue $ 1,305,985 $ 1,242,676 Operating expenses 20,437,863 3,720,279 Loss from operations (19,131,878 ) (2,477,603 ) Other income, net 57,949 16,950,653 (Loss) income before income taxes (19,073,929 14,473,050 Income tax expense (61,032 ) 32,892 Net (loss) income $ (19,012,897$ 14,440,158 Net (Loss) Income Per Share Basic $ (0.43 ) $ 0.46 Diluted $ (0.43 ) $ 0.39 Weighted Average Number of Shares Outstanding Basic 44,488,649 31,264,072 Diluted 44,488,649 36,732,510 NOTE 4 - INTANGIBLE ASSETS
On
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 at135 North Rear Road , Lakeshore,Ontario, Canada having a fair value of$2,161,467 and1517-1525 Ridge Road having a purchase cost (including other related disbursements) to the Company of$202,666 . The patent remains in the name ofTesla Digital, Inc. until full settlement of the terms of the agreement. In the interim, pursuant to an updated agreement executed onApril 15, 2019 between the Company and the Sellers, CEN has reaffirmed the rights to use the patented technology. In addition, the Company agreed to employStevan 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. InMarch 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 ofSeptember 30, 2018 . OnOctober 4, 2018 , this agreement was amended to extend the closing date toDecember 15, 2018 . OnApril 3, 2019 , the Company entered into an amendment which extended the closing date of the agreement toDecember 31, 2019 . OnMarch 16, 2020 the Company entered into an amendment extending the closing date untilDecember 31, 2021 . TheMarch 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 bothJune 30, 2022 andDecember 31, 2021 , the fair value of this liability was$1,380,000 . This liability will be remeasured at each reporting
date using the current fair value of CEN's common shares.
OnOctober 7, 2021 , the agreement was amended and finalized to increase the number of CEN common shares to be transferred to five million. Upon closing of the agreement, the CEN common stock, valued at$2,042,500 based upon theOctober 7, 2021 closing market price, was transferred to the Sellers and the transfer of the patent and real property was completed. Of this amount,$1,634,000 represented additional stock compensation expense for the additional four million shares issued. In addition, the Sellers assumed the mortgage and associated accrued interest on certain real property that was included in the original agreement, of$302,186 , resulting in a net loss on final settlement of the lighting patent purchase of$1,331,814 . The 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:
Estimated
Useful
Life
2022 2021 (years)
Lighting patent $ 6,797,000 $ 6,797,000 16
Product technology 276,080 276,080 n/a
Customer relationships 149,872 149,872 7Capitalized software development costs 105,730 105,730
n/a
Trade names 23,664 23,664
3
Total identifiable intangible assets 7,352,346 7,352,346 Less: Accumulated amortization
2,379,370 2,280,315
Net $ 4,972,976 $ 5,072,031
12-------------------------------------------------------------------------------- As ofDecember 31, 2021 and 2020, there is no impairment expense recognized based on the Company's expectations that it will be able to monetize the intangible assets. Expected amortization expense for the lighting patent is$424,812 per year through 2031, with the remaining$283,215 to be amortized in 2032. Expected amortization expense for the customer relationships and trade names acquired as part of the CCM acquisition onJuly 9, 2021 are expected to be approximately$29,300 per year through 2023, 25,400 in 2024,$21,400 in 2025 and 2026, with the remaining$32,100 to be amortized through 2028. The product technology and capitalized software development costs are not yet available for general release to customers and thus are not yet amortized. NOTE 5 - LOANS PAYABLE Loans payable consist of the following AtJune 30 , 2022andDecember 31 2021 : 2022 2021
Loans payable, on demand, to a private investor for the
original amount of
$ 871,398
Loans payable in default to multiple private investors
bearing an interest at rates of up to 12% per annum,
which matured at various dates between
592,395 592,395
Loan payable in default to an individual, issued
100,000 100,000
Loan payable to
75,000 75,000
Loan payable to an individual, issued
50,000 50,000
Mortgage payable to
- -
Total loans payable (all current)$ 1,688,793 $ 1,688,793 During 2020,$9,600,000 plus$11,579,043 in associated accrued interest payable toGlobal Holdings International, LLC ("GHI") was derecognized. The note matured onJune 30, 2016 and the Company was in default. As at no time since the default on the loan did GHI, its principal, agent or its attorneys reach out via mail, e-mail, text or phone to demand payment on the loan. The Company reached out numerous times and never received a response or demand for payment or notice of default on the loan. CEN's last attempt occurred inNovember 2020 . The note, related interest and venue for the agreement are governed by Ontario Law and according to the Ontario Limitations Act (Limitations Act, 2002, S.O. 2002, c. 24, Sched. B) the statute of limitations is 2 years from the date of default under the note. The date of default wasJune 30, 2016 , which is over the 2-year Statute of Limitation (SOL) period, and therefore the lender is outside of the SOL and cannot bring an action in Court against the Company for the debt. As a result of the legal finding, and having exhausted all reasonable efforts to contact GHI, the Company exercised its legal rights to derecognize the principal and interest obligations related to the related note with GHI which in accordance with ASC 405-20-40-1(b), is when CEN is judicially released from its obligations under the note. During both 2021 and 2020, 62,000 and 72,000 common shares, respectively, were issued to individuals in connection with interest terms of the above loans. As ofDecember 31, 2021 , 10,000 common shares earned by an individual in connection with one of the above loans were not yet issued totaling$4,012 and is included within accrued expenses. Accordingly, during 2021 and 2020,$57,876 and$63,720 in interest expense and$53,864 and$63,720 in additional paid-in capital was recorded, respectively. During 2021, certain private investors amended their convertible notes payable totaling$1,463,793 , which were convertible into 677,955 common shares. As a result of the amendments, these notes no longer contain a conversion feature and have been reclassified to loans payable from convertible notes payable. TheCanada Emergency Business Account ("CEBA") loan payable of$31,552 (CAD 40,000 ) as ofDecember 31, 2021 , to Royal Bank of Canada is unsecured, non-interest bearing untilDecember 2022 and interest bearing at 5% thereafter. If the loan is not repaid byDecember 31, 2023 , the principal balance increases by$15,776 (CAD 20,000 ). The loan principal is due in full at the maturity date ofDecember 2025 . 13
-------------------------------------------------------------------------------- The Canadian government enacted theCanada Emergency Wage Subsidy ("CEWS") andCanada Emergency Rent Subsidy ("CERS") in 2020 to provide a wage and rent subsidy to employers that suffered reductions in revenue resulting from the COVID-19 pandemic. CCM received$171,078 during 2021 related to CEWS and CERS and has included as a governmental assistance payable on the consolidated balance sheet as ofDecember 31, 2021 as this represents an overpayment which is due back to the government.
NOTE 6 - LOANS PAYABLE- RELATED PARTY
Loans payable - related party consists of the following AtJune 30, 2022 andDecember 31 2021 : 2022 2021
Loan payable in default due to the spouse of
Loans payable in default to a former director of
Creative, former parent company, bear interest at 10%
per annum. This are unsecured loans that matured on
601,500 601,500
Loan payable in default to
300,000 300,000
Loans payable in default to the spouse of
237,019 237,019
Loan payable to the spouse ofJoseph Byrne , a 5% shareholder and former President, CEO and member of the board of CEN, issuedJanuary 12, 2018 with a 30-day maturity, bearing share interest of 4,000 common shares per 30-day period. This is an unsecured loan that matured onApril 16, 2022 . 100,000
100,000
Loan payable to
75,000 75,000
Loan payable to
- -
Total loans payable - related party (all current)
Attributable related party accrued interest was
During bothJune 30 2022 andDecember 31, 2021 , 33,000 and 96,000 common shares, respectively, were issued to related parties in connection with interest terms of the above loans made to CEN. Accordingly, duringJune 30, 2022 and 2020,$5,030 and$81,302 in related party interest expense and additional paid-in capital was recorded, respectively. 14 --------------------------------------------------------------------------------
NOTE 7 - CONVERTIBLE NOTES Convertible notes payable consists of the following AtJune 30, 2022 andDecember 31 2021 : 2022 2021
Convertible notes payable in default to multiple private
investors, including certain notes in default, bearing
interest at 5% per annum with conversion rights for
363,767 common shares, which matured at various dates
between
$ 576,472
Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 550,965 common shares, maturing at various dates betweenJune 2022 andDecember 2022 . 145,000
145,000
Convertible note payable, due on demand, for the
original amount of
- -
Convertible note payable for the original amount ofUSD 70,000 , bearing interest at 8% per annum which had conversion rights after 180 days and a due date ofMay 23, 2023 . The Conversion Price shall be equal to the Variable Conversion Price (as defined herein)(subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%). "Market Price" means the lowest Trading Price for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. 70,000
-
Total convertible notes payable 791,472
721,472
Less unamortized debt discount 78,142
78,142
Total convertible notes payable, net of unamortized debt discount 713,330 643,330 Less current portion 713,330 643,330 Convertible notes payable, less current portion $ - $ - The Company issues convertible notes as a method to raise operating capital. These notes convert to a fixed number of shares specified in the convertible note, at the option of the note holder. Certain of these notes are considered to contain a beneficial conversion feature if in-the-money at the time of issuance. The Company has determined the value associated with the beneficial conversion feature in connection with the notes issued during 2021 to be$180,098 . This value has been recorded as a component of equity during 2021 and the aggregate original issue discount is accreted and charged to interest expense as a financing expense from the date of issuance until maturity. Upon conversion, any remaining unaccreted discount is charged to interest expense. No convertible notes with beneficial conversion features were issued during 2020. These notes may be converted at the option of the note holder upon written notice by the note holder. These notes are convertible into a total of 914,732 common shares.
During the year 2022, certain private investors elected to exercise their
convertible notes payable totaling
During 2021, certain private investors elected to exercise their convertible notes payable totaling$5,173,785 in exchange for 3,488,883 common shares. As a result, the associated convertible notes have been extinguished and reclassified as additional paid in capital. There were no such elections to convert any of the convertible notes payable during 2021. As ofAugust 14, 2022 , we are currently in default of$576,472 of convertible notes payable, which are convertible into 363,767 shares of common stock. There were no new notes issued during Q1 2022 and$70,000 in new notes during Q2 2022
NOTE 8 - CONVERTIBLE NOTES - RELATED PARTY
Convertible notes - related party consists of the following AtJune 30, 2022 andDecember 31 2021 : 2022 2021
Convertible notes, in default, due to
$ 121,796
Convertible notes with beneficial conversion features
due to the parents of
48,000 48,000
Total convertible notes payable - related parties 169,796
169,796
Less unamortized debt discount 7,157
7,157
Total convertible notes payable - related parties (all current)$ 162,639 $ 162,639 15
-------------------------------------------------------------------------------- Attributable related party accrued interest was$1,977,812 and$1,201,790 as ofJune 30, 2022 , andDecember 31, 2021 , respectively. Interest expense attributable to related party convertible notes was$104,357 and$229,318 inJune 2022 andDecember 2021 , respectively. 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 2021 to be$18,141 . This value has been recorded as a component of equity during 2021 and the aggregate original issue discount is accreted and charged to interest expense as a financing expense from the date of issuance until maturity. Upon conversion, any remaining unaccreted discount is charged to interest expense. No convertible notes to related parties with beneficial conversion features were issued during 2020. These notes may be converted at the option of the note holder upon written notice by the note holder. These notes are convertible into a total of 170,611 common shares.
During 2021, a convertible note due to
As of
NOTE 9 - INCOME TAXES
The Company has elected to file separate Canadian income tax returns for CEN (growth) and for CCM (digital).
Growth: As ofJune 30, 2022 , CEN has net operating loss carry forwards of approximately$46,569,501 that may be available to reduce future years' taxable income. Such carry forwards typically expire after 20 years. CEN currently has carry forwards that begin to expire in 2034. Future tax benefits which may arise as a result of these losses have not been recognized in these consolidated financial statements, because CEN believes that it is more likely than not that the carryforwards will expire unused and accordingly, CEN has recorded a valuation allowance for the deferred tax asset relating to these tax loss carry-forwards. The deferred tax asset and associated valuation allowance are as follows for the years endedDecember 31 : 2022 2021
Deferred tax asset - net operating losses
Net deferred tax asset $ - $ - The change in the valuation allowance amounted to$4,900,000 and$3,400,000 for the years endedDecember 31, 2021 and 2020, respectively. All other temporary differences are immaterial both individually and in the aggregate to the consolidated financial statements. Digital:
The tax benefit for CCM income taxes consists of the following components:
December 31,
2021
Current $ (33,621 )
Deferred (2,735 )
Net income tax benefit $ (36,356 ) The net deferred income tax asset presented in the consolidated balance sheets is comprised of the following at:
December 31,
2021
Deferred tax assets
SR&ED credits $ 39,464
Deferred tax liabilities
Property and equipment (11,357 )Intangible assets, including goodwill (25,387 )
Total deferred tax liabilities (36,744 ) Net deferred tax asset$ 2,720 16
-------------------------------------------------------------------------------- A reconciliation of the income tax benefit and the amount computed by applying the statutory Canadian federal income tax rate to CEN's and CCM's income before income tax benefit for the year endedDecember 31 is as follows: 2021 2020 Growth Digital Total Growth Digital Total
Income tax (benefit) expense at statutory rate of 26.5%$ (5,020,280 ) $ 1,177 $ (5,019,103 ) $ 3,776,156 $ -$ 3,776,156 Valuation allowance 5,020,280 - 5,020,280 (3,776,156 ) - (3,776,156 ) SR&ED credits - (19,198 ) (19,198 ) - - - Other - (18,335 ) (18,335 ) - - - Income tax benefit $ -$ (36,356 ) $ (36,356 ) $ - $ - $ - Company management analyzes its income tax filing positions in Canadian federal and provincial jurisdictions where it is required to file income tax returns, for all open tax years in these jurisdictions, to identify potential uncertain tax positions. As ofDecember 31, 2021 , there are no uncertain income tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the consolidated financial statements. The Company is subject to routing audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Generally, the Company is no longer subject to income tax examinations for years prior to 2018.
NOTE 10 - SHAREHOLDERS' DEFICIT / STOCK ACTIVITY
The Company is authorized to issue an unlimited number of common shares and an unlimited number of special voting shares. Common shares have no stated par value.
During the quarter end, 5,350,444 common shares was issued to former employee as settlement of employment related liability.
During the year 2022, 33,000 common shares was issued as share interest on loan payables.
As of
As of
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 ofDecember 31, 2020 . The loan was made for the business purpose of assisting Emergence with operating expenses. Emergence Global's Chief Executive Officer isJoseph 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 fromJuly 2017 untilNovember 13, 2019 . This note was repaid onMay 6 , 202. There are advances of$1,299,328 and$1,179,328 to CEN Ukraine as ofDecember 31, 2021 and 2020, respectively. Such advances were made for the purpose of funding the operations of CEN Ukraine as summarized in Note 7. CEN Ukraine was founded byBill Chaaban . Prior toDecember 3, 2017 ,Bill Chaaban directly owned 51% of CEN Ukraine. CEN Ukraine was founded to seek agricultural and pharmaceutical opportunities inUkraine .Bill Chaaban personally funded the establishment and initial phases of CEN Ukraine. OnDecember 14, 2017 , the Company entered into a controlling interest purchase agreement withBill Chaaban , our interim Chief Executive Officer and member of our board of directors, and another shareholder of CEN Ukraine, Usamakh Saadikh, a member of our board of directors, for 51% of the outstanding equity interests of CENUkraine . The consideration will be paid by issuing common shares of the Company. The agreement, which is subject to certain conditions, has not closed as ofApril 14, 2022 , as the Company needs to raise additional funds in order to proceed with the closing.Bahige (Bill) Chaaban , our Interim Chief Executive Officer and member of our Board of Directors, and Usamakh Saadikh, a member of our Board of Directors, each directly own 25.5% of CEN Ukraine respectively. The remaining 49% of CEN Ukraine is owned by XN Pharma, which is an entity jointly owned byBahige (Bill) Chaaban and Usamakh Saadikh.Bahige (Bill) Chaaban and Usamakh Saadikh do not currently hold any positions with CEN Ukraine. CENUkraine 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. 17 -------------------------------------------------------------------------------- During the years endedDecember 31, 2021 and 2020, the Company incurred consulting expenses with certain Board Members and Officers totaling$188,718 and$124,800 , respectively. As ofDecember 31, 2021 and 2020,$518,918 and$330,200 was payable to these related parties for consulting charges, which are included within accrued expenses.
During the year ended
During 2017, the Company purchased equipment fromR&D Labs Canada, Inc. , whose president isBill 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 ofDecember 31, 2021 . See Note 25 for a discussion of subsequent events inUkraine .
As of
During 2021, the Company utilized an entity owned byAlex Tarrabain , the Chief Financial Officer, for accounting advisory services totaling$13,320 . As ofDecember 31, 2021 , the Company owed$13,320 to this entity and also owedMr. Tarrabain $30,795 for reimbursable expenses, which are included within accounts payable - related parties. As ofDecember 31, 2021 , the Company owedLawrence Lehoux , the Chief Technology Officer,$48,960 for reimbursable expenses, which is included within accounts payable - related parties.
The Company currently leases certain facilities and equipment under
noncancelable operating lease agreements that expire at various dates through
2024. Monthly rentals range from
The Company also leased office space inWindsor, Ontario fromRN Holdings Ltd. Under the lease agreement effectiveOctober 1, 2017 , monthly rents ofCAD 2,608 are due throughSeptember 2022 , at which point monthly rents ofCAD 3,390 are due. EffectiveAugust 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 onAugust 1, 2020 . Effective with theAugust 1, 2020 lease termination and abandonments, all property, plant, and improvements which were located at these properties were abandoned. As ofApril 14, 2022 , the Company has not reached an agreement withRN Holdings Ltd to modify or to settle the remaining contractual liability, which therefore remains recorded as ofDecember 31, 2021 under its original contractual terms. As ofDecember 31, 2021 and 2020 the associated liability was$177,686 and$164,997 , respectively. During 2021 and 2020, lease expenses of approximately$13,000 and$35,000 , respectively related to this agreement were recognized within general and administrative expenses. The operating lease liability as ofDecember 31, 2021 and 2020 was$310,671 and$164,997 , respectively, utilizing a weighted average discount rate of approximately 6.76% over a weighted average remaining lease term of approximately 4.4 years. During 2021 and 2020, lease expenses of approximately$46,000 and$35,000 , respectively, related to these agreements were recognized within general and administrative expenses.Jamaal Shaban ("Lessor"), cousin ofBill Chaaban , leased a property at20 North Rear Road to the Company under an agreement effectiveJanuary 2017 for monthly rental payments ofCAD 4,000 plus taxes for a period of five years. This lease was assigned by the Lessor toJamsyl Group , a third-party, whenJamsyl Group purchased the property fromJamaal Shaban inOctober 2019 . EffectiveAugust 1, 2020 , the Company entered into a mutual termination and release agreement withJamsyl Group in exchange for 36,500 shares of CEN common stock, valued at$50,700 , which vested immediately, based upon remaining lease payments owed. The lease had been accounted for as an operating lease. All remaining associated right-of-use assets as ofAugust 1, 2020 of$48,110 and associated liabilities of$45,118 , which had utilized an 8% discount rate, were written off in conjunction, resulting in a loss on lease termination of$53,692 . During 2020, lease expenses of approximately$20,000 related to this agreement were recognized within general and administrative expenses. 18 -------------------------------------------------------------------------------- The following is a schedule of future annual minimum rental payments required under operating leases with initial or remaining noncancelable lease terms in excess of one year for the 12 months subsequent toDecember 31 : Amount 2022$ 119,543 2023 90,325 2024 61,897 2025 32,088 2026 32,088 Thereafter 24,066 Total lease payments$ 360,007 Less imputed interest 49,336
Present value of lease liability
NOTE 12 - STOCK BASED COMPENSATION
Adoption of Equity Compensation Plan
OnNovember 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. OnApril 2, 2021 , the Board of Directors of the Company adopted the 2021 Equity Compensation Plan (the "2021 Plan") providing for the granting of options to purchase shares of common stock, restricted stock awards and other stock-based awards to directors, officers, employees, advisors and consultants of the Company and reserved an additional 20,000,000 shares of the Company's common stock for issuance under the 2021 Plan. Equity Compensation Grants OnNovember 30, 2017 , the Company granted a one-time equity award ("Equity Award") of restricted shares of the Company's common stock pursuant to a Restricted Stock Agreement to certain executives and directors of the company.Donald Strilchuck , Director, received 1,000,000 restricted shares of the Company's common stock for security consulting services, of which 550,000 vested immediately and the remaining vesting ratably each month over the next 36 months untilNovember 2020 . Other individuals received a total of 1,870,000 restricted shares of the Company's common stock for consulting services performed, of which 1,330,000 vested immediately and the remaining vesting ratably each month over the next 36 months untilNovember 2020 . The expense related to the restricted stock awarded to non-employees for services rendered was recognized on the grant date. OnApril 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. OnAugust 27, 2020 andSeptember 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. OnApril 2, 2021 , a consulting agreement with CONFIEN SAS for business coaching was entered into for a period of 12 months. As payment for these services, 650,000 restricted shares, subject to applicable securities laws and regulations as set forth in the Restricted Stack Agreement, of the Company's common stock were granted. Such shares vested immediately. The expense related to the restricted stock awarded to non-employees for services previously rendered of$897,000 was recognized on the grant date. OnJuly 13, 2021 , the Company entered into agreements with two individuals for the payment of security and legal consulting services under which the Company issued an aggregate of 500,000 shares of its common stock. These awards vested immediately. The expense related to the restricted stock awarded to non-employees for services rendered of$275,000 was recognized on the grant date. Employment Agreements
On
? Under the Employment Agreement with
Company,
salary of
Company, of which 7,400,000 vested immediately and the remaining vested
ratably each month over the next 36 months until November 2020 .
? Under the Employment Agreement with
the Company,
salary of
Company, of which 325,000 vested immediately and the remaining vesting ratably
each month over the next 36 months until
2019,
vesting and salary accruals ceased. As of
owed to
Byrne to vest in the remaining 337,500 restricted shares that had not vested.
19
--------------------------------------------------------------------------------
? Under the Employment Agreement with
President and Chief Financial Officer of the Company,
compensation in the form of a base annual salary of
4,500,000 shares of restricted stock of the Company, of which 4,140,000 vested
immediately and the remaining vested ratably each month over the next
36 months until November 2020 .
? Under the Employment Agreement with Brian Payne , Vice President of the
Company,
salary of
Company, of which 300,000 vested immediately and the remaining vested ratably
each month over the next 36 months until November 2020 .
On May 16, 2019 , an employment agreement, under similar terms, was entered into
with Mr. Tarrabain . Under the Employment Agreement with Alex Tarrabain , Chief
Financial Officer and as one of the Vice Presidents of the Company, Mr.
Tarrabain will receive compensation in the form of a base annual salary of
$31,200 and a grant of 1,250,000 shares of restricted stock of the Company, of
which 350,000 vested immediately and the remaining vesting ratably each month
over the next 36 months until May 2022 .
On December 6, 2021 , the Board of Directors appointed Rick Purdy as its Senior
Vice President of Deals and Acquisitions. On this date, an employment agreement,
under similar terms, was entered into with Mr. Purdy . Under the Employment
Agreement, Mr. Purdy will receive compensation in the form of a base annual
salary of $31,200 and a grant of 2,500,000 shares of restricted stock of the
Company, of which 700,000 vested immediately and the remaining vesting ratably
each month over the next 36 months until December 2024 . The expense related to
the restricted stock awarded to employees for services previously rendered of
$238,000 was recognized on the grant date. Remaining expenses will be recognized
ratably monthly as the restricted stock award vests.
On April 2, 2021 , the Board of Directors appointed Ameen Ferris and Harold
Aubrey De Lavenu to serve as Vice Presidents of the Company. Under the
associated Executive Employment Agreements, they will each receive compensation
in the form of a base annual salary of $31,200 . In addition, Ameen Ferris was
granted 1,000,000 and Harold Aubrey De Lavenu was granted 1,041,250 restricted
shares, subject to applicable securities laws and regulations, as set forth in
the Restricted Stock Agreement, of the Company's common stock. Such shares
vested immediately. The expense related to the restricted stock awarded to
employees for services previously rendered of $2,816,925 was recognized on the
grant date.
On April 2, 2021 , the Company entered into an RSA (the "Boswell RSA") with
Richard Boswell . Pursuant to the Boswell RSA, the Company granted Mr. Boswell
2,185,679 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$3,016,237 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Chaaban RSA") with
Bahige Chaaban . Pursuant to the Chaaban RSA, the Company granted Mr. Chaaban
3,106,122 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$4,286,435 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Payne RSA") with Brian
Payne . Pursuant to the Payne RSA, the Company granted Mr. Payne 1,435,000
restricted shares of the Company's common stock under the 2021 Plan to vest
immediately on the grant date. The shares issued are restricted shares that are
subject to applicable securities laws and regulations. The expense related to
the restricted stock awarded to employees for services previously rendered of
$1,980,300 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Saadikh RSA") with
Usamakh Saadikh. Pursuant to the Saadikh RSA, the Company granted Mr. Saadikh
1,000,000 restricted shares of the Company's common stock under the 2021 Plan to
vest immediately on the grant date. The shares issued are restricted shares that
are subject to applicable securities laws and regulations. The expense related
to the restricted stock awarded to employees for services previously rendered of
$1,380,000 was recognized on the grant date.
On April 2, 2021 , the Company entered into an RSA (the "Strilchuck RSA") with
Donald Strilchuck . Pursuant to the Strilchuck RSA, the Company granted Mr.
Strilchuck 341,250 restricted shares of the Company's common stock under the
2021 Plan to vest immediately on the grant date. The shares issued are
restricted shares that are subject to applicable securities laws and
regulations. The expense related to the restricted stock awarded to employees
for services previously rendered of $470,925 was recognized on the grant date.
On April 2, 2021 and June 25, 2021 , the Company entered into an RSA (the
"Tarrabain RSA") with Alex Tarrabain . Pursuant to the Tarrabain RSA, the Company
granted Mr. Tarrabain 300,000 and 1,000,000, respectively, restricted shares of
the Company's common stock under the 2021 Plan to vest immediately on the grant
date. The shares issued are restricted shares that are subject to applicable
securities laws and regulations. The expense related to the restricted stock
awarded to employees for services previously rendered of $899,000 was recognized
on the grant date.
20-------------------------------------------------------------------------------- OnApril 14, 2022 , the following persons resigned from the following positions from Company.Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board ofDirectors Company effective at the close of business onApril 14, 2022 .Alex Tarrabain resigned from his positions as the Company's Chief Financial Officer and Director effective at the close of business onApril 14, 2022 .Rick Purdy resigned from his positions as Company's Senior Vice President of Deals and Acquisitions and Director effective at the close of business onApril 14, 2022 .Amen Ferris resigned from his positions as Company's Vice President and Director effective at the close of business onApril 14, 2022 .Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business onApril 14, 2022 . Additionally,Richard Boswell resigned from his positions as the Company's Senior Executive Vice President and Director effective as ofApril 15, 2022 . OnApril 19, 2022 , Dr. Usamakh Saadikh resigned from his position as a director on the Board of Directors (the "Board") of the "Company as well as all other positions with the Company effective immediately. Dr. Usamakh Saadikh, was a member of our Board and the Vice President of International Business Development sinceJune 2018 . The foregoing resignations shall be referred to together herein as the "Resignations". Subsequent to the effectiveness of the above Resignations, the above name persons no longer hold any positions with the Company. The Resignations were not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices by any of the above persons.
Settlement Agreements with Departing Officers and Directors
As reported by the Company on its Current Report on Form 8-K filed with theSecurities and Exchange Commission onApril 19, 2022 , onApril 14, 2022 , the following persons resigned from the following positions from the Company.Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board ofDirectors Company effective at the close of business onApril 14, 2022 .Alex Tarrabain resigned from his positions as the Company's Chief Financial Officer and Director effective at the close of business onApril 14, 2022 .Rick Purdy resigned from his positions as Company's Senior Vice President of Deals and Acquisitions and Director effective at the close of business onApril 14, 2022 .Amen Ferris resigned from his positions as Company's Vice President and Director effective at the close of business onApril 14, 2022 .Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business onApril 14, 2022 . Additionally,Richard Boswell resigned from his positions as the Company's Senior Executive Vice President and Director effective as ofApril 15, 2022 . The foregoing resignations shall be referred to together herein as the "Resignations". Subsequent to the effectiveness of the above Resignations, the above named persons no longer hold any positions with the Company. In connection with the Resignations, the Company has entered into the settlement agreements described below with the following persons. OnApril 19, 2022 , the Company, entered into a settlement agreement withBahige (Bill) Chaaban (the "Chaaban Settlement Agreement") pursuant to which the Company agreed to issueMr. Chaaban 1,785,096 restricted shares of its common stock in exchange for the accrued salary of$133,882.19 owed toMr. Chaaban as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Chaaban Settlement Agreement,Mr. Chaaban's Employment Agreement with the Company datedNovember 30, 2017 , was terminated as ofApril 14, 2022 . Pursuant to the Chaaban Settlement Agreement,Mr. Chaaban agreed to release the Company from any claims, as such term is defined thereunder, thatMr. Chaaban may have against the Company. OnApril 19, 2022 , the Company, entered into a settlement agreement withAlex Tarrabain (the "Tarrabain Settlement Agreement") pursuant to which the Company agreed to issueMr. Tarrabain 1,196,673 restricted shares of its common stock in exchange for the accrued salary of$89,682.19 owed toMr. Tarrabain as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Tarrabain Settlement Agreement,Mr. Tarrabain's Employment Agreement with the Company datedMay 21, 2019 , was terminated as ofApril 14, 2022 . Pursuant to the Tarrabain Settlement Agreement,Mr. Tarrabain agreed to release the Company from any claims, as such term is defined thereunder, thatMr. Tarrabain may have against the Company. OnApril 19, 2022 , the Company, entered into a settlement agreement withRick Purdy (the "Purdy Settlement Agreement") pursuant to which the Company agreed to issueMr. Purdy 150,483 restricted shares of its common stock in exchange for the accrued salary of$11,286.19 owed toMr. Purdy as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Purdy Settlement Agreement,Mr. Purdy's Employment Agreement with the Company datedDecember 6, 2021 , was terminated as ofApril 14, 2022 . OnApril 19, 2022 , the Company, entered into a settlement agreement withAmeen Ferris (the "Ferris Settlement Agreement") pursuant to which the Company agreed to issueMr. Ferris 433,096 restricted shares of its common stock in exchange for the accrued salary of$32,482.19 owed toMr. Ferris as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Ferris Settlement Agreement,Mr. Ferris's Employment Agreement with the Company datedApril 2, 2021 , was terminated as ofApril 14, 2022 . OnApril 19, 2022 , the Company, entered into a settlement agreement withRichard Boswell (the "Boswell Settlement Agreement") pursuant to which the Company agreed to issueMr. Boswell 1,785,096 restricted shares of its common stock in exchange for the accrued salary of$133,882.19 owed toMr. Boswell as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Boswell Settlement Agreement,Mr. Boswell's Employment Agreement with the Company datedNovember 30, 2017 , was terminated as ofApril 15, 2022 . 21
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Restricted Stock Awards
Restricted stock awards relate to common shares that are subject to applicable securities laws and regulations as set forth in the RSAs and other equity compensation grants.
The total grant-date fair value of the restricted shares granted through employment agreements and equity compensation grants was$29,885,063 and$13,013,241 as ofDecember 31, 2021 and 2020, respectively. During 2021 and 2020, 15,059,291 restricted shares with a grant date fair value of$16,871,822 and 387,500 restricted shares with a grant date fair value of$279,000 , respectively, were awarded. Prior to the start of trading onApril 5, 2021 via the OTC Link alternative trading system (operated by OTC Markets Group Inc.), the grant-date fair value was calculated utilizing an enterprise valuation model as of the date the awards are granted. BeginningApril 5, 2021 , the grant-date fair value is calculated utilizing the daily closing price as published via the OTC Link. With the exception of immediately vesting portions of awards, shares typically vest pro-rata over the requisite service period, which is generally three years from the grant-date. Non-vested restricted stock awards participate in dividends and recipients are entitled to vote these restricted shares during the vesting period.
During 2021 and 2020, 13,559,291 and 1,987,500 of these shares vested,
respectively. The fair value of the restricted stock which vested amounted to
Compensation expense, broken out by allocation, recognized in connection with
the restricted stock awards was as follows for the years ended
2022 2021
Stock Based Compensation $ - $ 15,390,822
Professional fees - 1,172,000
Total $ - $ 16,562,822
Non-vested restricted stock award activity for the years ended June 30, 2022 and
2021 are as follows:
Weighted-
Weighted- Average
Average Remaining
Grant Date Contractual
Number of Fair Value Term
Shares per Share (Years)
Non-vested at January 31, 2021 425,000 $ 1.01 1.50
Granted 15,059,291 1.12 -
Vested (13,559,291 ) 1.22 -
Forfeited - - -
Non-vested at December 31, 2021 1,925,000 $ 0.38 2.84
The fair value of the restricted stock grants was based on the valuation of a
third-party specialist prior to April 5, 2021 . Beginning April 5, 2021 , the fair
value of the restricted stock grants is based upon the daily closing price per
the OTC Link. As of December 31, 2021 , unrecognized compensation expense totaled
$738,250 , which will be recognized on a straight-line basis over the vesting
period or requisite service period through December 2024 .
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 ofDecember 31, 2021 . During 2020, the potential common shares from the Tesla Agreement, which were contingent on certain events as described in Note 8, were excluded as the effect of conversion was anti-dilutive. Common stock equivalents that were excluded for the period endedJune 30 , andDecember 2021 because they were anti-dilutive are as follows: 2021 2020 Convertible debt 1,085,343 - Tesla agreement - 1,000,000 22
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The following table shows the computation of basic and diluted earnings per
share for 2021:
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common stockholders $ 607,152 61,341,187 $ 0.00
Effect of Dilutive Securities
Convertible debt - - -
Diluted EPS
Income available to common stockholders
with assumed conversions $ 607,152 61,341,187 $ 0.00
NOTE 14 - 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:
Fair Value Measured at Reporting Date Using
Carrying
Amount Level 1 Level 2 Level 3 Fair Value
At June 30, 2022 :
Cash and cash equivalents $ 66,046 $ - $ 66,046 $ - $ 66,046
Note receivable - CEN Biotech
Ukraine, LLC - related party $ 44,859 $ - $ - $ 44,859 $ 44,859
Advances to CEN Biotech
Ukraine, LLC - related party $ 1,299,328 $ - $ - $ 1,299,328 $ 1,299,328
Loans payable $ 1,688,793 $ - $ - $ 1,688,793 $ 1,688,793
Loans payable - related parties $ 2,701,641 $ - $ - $ - $ -
Convertible notes payable $ 713,330 $ - $ - $ 713,330 $ 713,330
Convertible notes payable -
related parties $ 162,639 $ - $ - $ - $ -
CEBA loan payable $ 47,400 $ - $ - $ 47,400 $ 47,400
Carrying
Amount Level 1 Level 2 Level 3 Fair ValueAtDecember 31, 2020 : Cash and cash equivalents$ 193,198 $ -$ 193,198 $ -$ 193,198 Note receivable -CEN Biotech Ukraine, LLC - related party$ 44,859 $ - $ -$ 44,859 $ 44,859 Advances toCEN Biotech Ukraine, LLC - related party$ 1,299,328 $ - $ -$ 1,299,328 $ 1,299,328 Loans payable$ 1,688,793 $ - $ -$ 1,688,793 $ 1,688,793 Loans payable - related parties$ 2,701,641 $ - $ - $ - $ - Convertible notes payable$ 643,330 $ - $ -$ 1,890,736 $ 1,890,736 Convertible notes payable - related parties$ 162,639 $ - $ - $ - $ - CEBA loan payable$ 31,552 $ - $ -$ 31,552 $ 31,552 The fair values of other receivables (including related accrued interest), note receivable -CEN Biotech Ukraine, LLC , and advances to Emergence Global andCEN 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.
23
--------------------------------------------------------------------------------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 toApril 5, 2021 . This valuation report utilized a cash-free asset value model to estimate enterprise value based upon similar companies. BeginningApril 5, 2021 , the fair value of the patent acquisition liability was based upon the OTC closing price and accordingly was transferred from Level 3 to Level 1 due to the availability of published prices for CEN's common stock during 2021. EffectiveOctober 7, 2021 , the liability was settled with delivery of the associated common shares, see Note 8. NOTE 16 - SUBSEQUENT EVENTS OnMay 24, 2022 ,CEN Biotech, Inc. , anOntario, Canada corporation (the "Company") entered into a Patent Purchase and Assignment Agreement (the "Agreement") with Emergence Global Enterprises Inc., a corporation incorporated pursuant to the laws ofBritish Columbia, Canada (the "Buyer"). Pursuant to the Agreement, the Company agreed to sell its entire right, title and interest in RegisteredU.S. Patent No. 8,723,425, Light Emitting Diode Driver Circuit, issuedMay 13, 2014 , in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof (the "Patent") to the Buyer, in exchange for the amount of seven million, four hundred andforty thousand Dollars (CAD$7,440,000 ), which was agreed to be paid through the issuance of 62,000,000 Common Shares of the Buyer (the "Shares") at a deemed issue price of$0.12 per share (the "Payment") constituting 44.17% of the Buyer's issued and outstanding capital stock. Pursuant to the Agreement, the Payment will fully satisfy all payment obligations under the Agreement to the Company. Pursuant to the Agreement, the Company agreed to be fully responsible for, and the Buyer shall not be liable to the Company or any other person or entity for any dispute regarding, allocation of the Payment made under the Agreement. Pursuant to the Agreement, the Company agreed to pay any maintenance fees, annuities, and the like due or payable on the Patent until the closing date of the Agreement. OnJuly 19, 2022 , pursuant to a Termination of Patent Purchase and Assignment Agreement ("Termination Agreement"), the Company and Buyer agreed to terminate the Agreement as of the "Effective Termination Date", as defined in the Agreement, and the Agreement shall thereafter be null and void, and of no further force or effect. Furthermore, each the Company and Buyer recognize that neither party shall have any ongoing rights or obligations pursuant to the Agreement. 24
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and the
Notes to those financial statements that are included elsewhere in this
Quarterly Report on Form 10-Q. Our discussion includes forward-looking
statements based upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual results and
the timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under Special Note Regarding Forward-Looking Statements. We use words
such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing,"
"expect," "believe," "intend," "may," "will," "should," "could," and similar
expressions to identify forward-looking statements.
Background and Overview
CEN Biotech, Inc. ("we," "us," "our" or "CEN" or the "Company") is a Canadian
holding company, incorporated in Canada on August 4, 2013 , as a subsidiary of
Creative Edge Nutrition, Inc. ("Creative"), a Nevada corporation. Creative
separated its planned specialty pharmaceutical business located in Canada by
transferring substantially all of the assets and liabilities of the planned
specialty pharmaceutical business to CEN and effecting a distribution (the
"Spin-Off Distribution") of CEN common stock to Creative shareholders on
February 29, 2016 . The Spin-Off Distribution was intended to be tax free for
U.S. federal income tax purposes.
Prior to the Spin Off Distribution, the Company initially pursued the cannabis
business in Canada and obtained funding to build the initial phase of its
comprehensive seed-to-sale facility and applied to obtain a license in Canada to
begin operating its state-of-the-art medical marijuana cultivation, processing,
and distribution facility in Lakeshore, Ontario . On March 11, 2015 , the
Company's application for a license to produce marijuana for medical purposes
was formally rejected by Canadian regulatory authority. On February 1, 2016 the
Company commenced legal action against the Attorney General of Canada in the
Ontario Superior Court of Justice for damages for detrimental reliance, economic
loss, and prejudgment and post judgment interest, costs of the proceeding and
other relief that the court may seem just. As of May 12, 2022 the action in the
Ontario Superior Court of Justice is still ongoing. In the meantime, the
Company decided to develop and pursue other businesses that are related to Light
Emitting Diode ("LED") lighting and hemp-based industrial, medical and food
products that have a 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.
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 .
25
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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 represents the fair values of the assets acquired and the
liabilities assumed by CEN in the transaction, including from the originally
reported estimates, an increase in accounts receivable of approximately $8,000 ,
a decrease of identifiable intangibles by approximately $168,000 , and an
increase in current financial liabilities by approximately $23,000 , with a
corresponding increase to goodwill of approximately $184,000 reflected as of
July 9, 2021 :
Cash 259,470
Accounts receivable 210,536
Property and equipment 97,911
Other assets 244,540
Identifiable intangibles 456,855
Current financial liabilities (344,591 )
Other long-term liabilities (140,078 )
Total identifiable net assets 784,643
Goodwill 1,335,357
Net assets acquired $ 2,120,000
Effective with the acquisition 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
The Company did not have any operating revenue until the acquisition ofClear Com Media, Inc. onJuly 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. 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. AtJune 30 , 2022andDecember 31, 2021 , the Company had advances of$1,229,328 and$1,229,328 , respectively, to CEN Ukraine which is a related party. The advances were for the purpose of funding the operations of CEN Ukraine. These advances were substantially used as follows: ? Approximately$350,000 to operate its office inKiev ; ? Approximately$445,328 to employ several workers; ? Approximately$350,000 for performing multiple test crops; ? Approximately$75,000 for oil processing activities; and ? Approximately$9,000 for payment of rent. Plan of Operations Our monthly "burn rate," the amount of expenses we expect to incur on a monthly basis, is approximately$150,000 for a total of$1,800,000 for the maximum of 12 months. We have relied and will continue to rely on capital raised from third parties to fund our operating expenses during the following 12 months.
In order to complete our plan of operations, we estimate that
Generally, the funds are planned to be invested as follows:
We hope to reach the following milestones in the next 12 months:
?
Lighting across manufacturing operations and licensing opportunities across
multiple industries such as the horticultural industry, as well as the
automotive, industrial and commercial lighting industries as follows:
o Lease production facility expected to take place in
the costs of this to be $400,000 annually.
26--------------------------------------------------------------------------------
o Lease equipment expected to take place in July, 2022 and we estimate the costs
of this to be $400,000 o Hire staff expected to take place in August, 2022 and we estimate the costs of
this to be $600,000 annually.
o Initial raw materials expected to take place in August, 2022 and we estimate
the costs of this to be $500,000 one time.
o Marketing and delivery expected to take place in October, 2022 and we estimate
the costs of this to be $300,000 annually.
o
programs and services to accentuate its current service offerings and we
estimate the costs of this to be $2,000,000 .
Plan of Operations of
The current burn rate for CCM inclusive of all wages and operating costs are approximately$120,000 CDN per month or$1,440,000 CDN per year (Approx.$1,152,000 USD ) per year. We anticipate a decrease of 30% in this burn rate with the elimination of some staff members that provide the SEO and custom development services that are no longer being performed by CCM. We will potentially rehire some of these people in order to retool the focus of the business and pivot to the development of some products as soon as it is financially viable to do so.
The following highlights the major goals and activities planned for the next twelve months:
o Expansion of CCM's enterprise hosting infrastructure for CCM's client services
and CCM products to address the ongoing growth needs of the business.
o The pace of development of the Chatter product has been modified to meet the
changing needs of the business and to address new market realities. Progress
continues but a refocus on core deliverables that delivers a new phased
approach to product roll out is being implemented. Recent changes in sales,
the competitive landscape and modified revenue forecasts have triggered a
pivot in terms of priorities and timing.
o The development of the Block Chain Permission Platform has been modified to
solely focus on the R&D elements of the offering. Commercialization of the
product has been reorganized to be addressed later once we have achieved new
internal goals and milestones; however, work continues on the core offering
with clear goals and objectives in mind.
o Continued development of internal efficiency processes and automated systems
for tasks such as workflow, billing, subscriptions, security and internal
cloud computing.
o The marketing of both the Chatter and
being refined based on new and ongoing information that is being gathers from
our target markets and the rapidly changing landscape of the verticals we
operate in. As our research continues, we hope to commence marketing efforts
in the third quarter of this year when the products are in a completed and in
a commercially viable state.
o The development of digital community project remains at the discovery stage
and research continues about the participants and nuances of this space and
how we feel we can best serve this vertical. Once a plan is formalized new
hires will be recruited to address the specific development needs of this
product and service.
o Continued support and a modest expansion of the core services offered by to
our key business partners and direct customers. These services include but are
not limited to responsive website design, online chat, social media marketing
and landing page development.
o As part of our renegotiation with Postmedia as are no longer providing the SEO
and custom development services going forward.
o No acquisitions are being considered at this time until the proper financing
in place to do so.
Achievement of the milestones will depend highly on our funds and the availability of those funds. There can be no assurance that we will be able to successfully complete such milestones.
Recent Developments The continued outbreak of a novel coronavirus (COVID-19), which theWorld Health Organization declared inMarch 2020 to be a pandemic, continues to spread throughoutthe United States of America and the globe. Many State Governors issued temporary Executive Orders that, among other stipulations, effectively prohibiting 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 continued 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. 27
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Resignations of Officers and Directors
OnApril 14, 2022 , the following persons resigned from the following positions from the Company.Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board ofDirectors Company effective at the close of business onApril 14, 2022 .Alex Tarrabain resigned from his positions as the Company's Chief Financial Officer and Director effective at the close of business onApril 14, 2022 .Rick Purdy resigned from his positions as Company's Senior Vice President of Deals and Acquisitions and Director effective at the close of business onApril 14, 2022 .Amen Ferris resigned from his positions as Company's Vice President and Director effective at the close of business onApril 14, 2022 .Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business onApril 14, 2022 . Additionally,Richard Boswell resigned from his positions as the Company's Senior Executive Vice President and Director effective as ofApril 15, 2022 .
The foregoing resignations shall be referred to together herein as the "Resignations". Subsequent to the effectiveness of the above Resignations, the above name persons no longer hold any positions with the Company.
The Resignations were not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices by any of the above persons.
Appointments of Officers and Directors
On
Resignation of Director OnApril 19, 2022 , Dr. Usamakh Saadikh resigned from his position as a director on the Board of Directors of the Company as well as all other positions with the Company effective immediately. Dr. Usamakh Saadikh, was a member of our Board and the Vice President of International Business Development sinceJune 2018 . The foregoing resignation was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices by Dr. Saadikh. Appointment of Directors
On
? Josef Tukacs; and ?George Dragicevic
Settlement Agreements with Departing Officers and Directors
As reported by the Company on its Current Report on Form 8-K filed with theSecurities and Exchange Commission onApril 19, 2022 , onApril 14, 2022 , the following persons resigned from the following positions from the Company.Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board ofDirectors Company effective at the close of business onApril 14, 2022 .Alex Tarrabain resigned from his positions as the Company's Chief Financial Officer and Director effective at the close of business onApril 14, 2022 .Rick Purdy resigned from his positions as Company's Senior Vice President of Deals and Acquisitions and Director effective at the close of business onApril 14, 2022 .Amen Ferris resigned from his positions as Company's Vice President and Director effective at the close of business onApril 14, 2022 .Joseph Byrne resigned from his positions as a Director of the Company effective at the close of business onApril 14, 2022 . Additionally,Richard Boswell resigned from his positions as the Company's Senior Executive Vice President and Director effective as ofApril 15, 2022 . The foregoing resignations shall be referred to together herein as the "Resignations". Subsequent to the effectiveness of the above Resignations, the above named persons no longer hold any positions with the Company. In connection with the Resignations, the Company has entered into the settlement agreements described below with the following persons. OnApril 19, 2022 , the Company, entered into a settlement agreement withBahige (Bill) Chaaban (the "Chaaban Settlement Agreement") pursuant to which the Company agreed to issueMr. Chaaban 1,785,096 restricted shares of its common stock in exchange for the accrued salary of$133,882.19 owed toMr. Chaaban as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Chaaban Settlement Agreement,Mr. Chaaban's Employment Agreement with the Company datedNovember 30, 2017 , was terminated as ofApril 14, 2022 . Pursuant to the Chaaban Settlement Agreement,Mr. Chaaban agreed to release the Company from any claims, as such term is defined thereunder, thatMr. Chaaban may have against the Company. 28 -------------------------------------------------------------------------------- OnApril 19, 2022 , the Company, entered into a settlement agreement withAlex Tarrabain (the "Tarrabain Settlement Agreement") pursuant to which the Company agreed to issueMr. Tarrabain 1,196,673 restricted shares of its common stock in exchange for the accrued salary of$89,682.19 owed toMr. Tarrabain as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Tarrabain Settlement Agreement,Mr. Tarrabain's Employment Agreement with the Company datedMay 21, 2019 , was terminated as ofApril 14, 2022 . Pursuant to the Tarrabain Settlement Agreement,Mr. Tarrabain agreed to release the Company from any claims, as such term is defined thereunder, thatMr. Tarrabain may have against the Company. OnApril 19, 2022 , the Company, entered into a settlement agreement withRick Purdy (the "Purdy Settlement Agreement") pursuant to which the Company agreed to issueMr. Purdy 150,483 restricted shares of its common stock in exchange for the accrued salary of$11,286.19 owed toMr. Purdy as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Purdy Settlement Agreement,Mr. Purdy's Employment Agreement with the Company datedDecember 6, 2021 , was terminated as ofApril 14, 2022 . OnApril 19, 2022 , the Company, entered into a settlement agreement withAmeen Ferris (the "Ferris Settlement Agreement") pursuant to which the Company agreed to issueMr. Ferris 433,096 restricted shares of its common stock in exchange for the accrued salary of$32,482.19 owed toMr. Ferris as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Ferris Settlement Agreement,Mr. Ferris's Employment Agreement with the Company datedApril 2, 2021 , was terminated as ofApril 14, 2022 . OnApril 19, 2022 , the Company, entered into a settlement agreement withRichard Boswell (the "Boswell Settlement Agreement") pursuant to which the Company agreed to issueMr. Boswell 1,785,096 restricted shares of its common stock in exchange for the accrued salary of$133,882.19 owed toMr. Boswell as of the date of his resignation from the Company pursuant to his employment agreement with the Company. Pursuant to the Boswell Settlement Agreement,Mr. Boswell's Employment Agreement with the Company datedNovember 30, 2017 , was terminated as ofApril 15, 2022 .
Dismissal of Independent Registered Accounting Firm
OnMay 2, 2022 , the Board of the Company approved the dismissal ofMazars USA LLP ("Mazars"), as its independent registered accounting firm, effective immediately.Mazars was engaged by the Company onJanuary 16, 2018 . No audit report ofMazars for the years endedDecember 31, 2021 orDecember 31, 2020 , contained an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, with the exception of providing an explanatory paragraph stating there was substantial doubt about the Company's ability to continue as a going concern. During the Company's two most recent fiscal years and throughMay 2, 2022 , (i) there were no disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company andMazars on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction ofMazars , would have causedMazars to make reference to the subject matter of such disagreement in connection with its reports on the financial statements for such periods and (ii) there were no "reportable events" (as defined in Item 304(a)(1)(v) of Regulation S-K).
Engagement of New Independent Registered Accounting Firm
OnMay 2, 2022 , the Company's Board approved the appointment ofOlayinka Oyebola & Co ("OOC") as the Company's new independent registered public accounting firm effective immediately. During the Company's two most recent fiscal years endedDecember 31, 2021 and 2020, and the subsequent interim period throughMay 2, 2022 , neither the Company nor anyone acting on its behalf consulted with OOC regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, in connection with which either a written report or oral advice was provided to the Company that OOC concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
Entry into Patent and Assignment Agreement
OnMay 24, 2022 , the Company entered into a Patent Purchase and Assignment Agreement (the "Agreement") with Emergence Global Enterprises Inc., a corporation incorporated pursuant to the laws ofBritish Columbia, Canada (the "Buyer"). Pursuant to the Agreement, the Company agreed to sell its entire right, title and interest in RegisteredU.S. Patent No. 8,723,425, Light Emitting Diode Driver Circuit, issuedMay 13, 2014 , in and to the inventions therein set forth and any reissue, reexamination, renewal, divisional, or continuation thereof (the "Patent") to the Buyer, in exchange for the amount of seven million, four hundred andforty thousand Dollars (CAD$7,440,000 ), which was agreed to be paid through the issuance of 62,000,000 Common Shares of the Buyer (the "Shares") at a deemed issue price of$0.12 per share (the "Payment") constituting 44.17% of the Buyer's issued and outstanding capital stock. Pursuant to the Agreement, the Payment will fully satisfy all payment obligations under the Agreement to the Company. Pursuant to the Agreement, the Company agreed to be fully responsible for, and the Buyer shall not be liable to the Company or any other person or entity for any dispute regarding, allocation of the Payment made under the Agreement. Pursuant to the Agreement, the Company agreed to pay any maintenance fees, annuities, and the like due or payable on the Patent until the closing date of the Agreement. 29 -------------------------------------------------------------------------------- The closing of the Agreement subject to certain customary closing conditions, including, but not limited to, the Buyer having received approvals of the Canadian Securities Exchange for the Agreement and the transactions contemplated thereby and such approvals must be valid and in effect as of the closing date of the Agreement. Additionally the closing of the Agreement is subject to the approval of the shareholders of the Buyer. Additionally, between the date of entry into the Agreement, and the closing date of the Agreement, there must be no material adverse effect, as such term is defined in the Agreement, occurring with regards to the Buyer. Additionally, between the date of entry into the Agreement, and the closing date of the Agreement, the Buyer and the Company agreed to conduct their business and operations of the Buyer in the ordinary course of business and in compliance with all applicable laws. Additionally, between the date of entry into the Agreement, and the closing date of the Agreement, the Buyer agreed, without the written consent of the Company, including but not limited to, not to issue any dividends, amend its organizational documents, incur any indebtedness, recognize any labor union, or enter into any material transaction other than in the ordinary course of business. Additionally, between the date of entry into the Agreement, and the closing date of the Agreement, the Company agreed not to amend its organizational documents and not to effect any merger, consolidation, share exchange or business combination that would transfer the Patent to any other person. The Agreement can be terminated at any time prior to closing by mutual written consent of the parties. The Company may terminate the Agreement if the Buyer breaches any of the closing conditions applicable to it under the Agreement. The Buyer may terminate the Agreement if the Company breaches any of the closing conditions applicable to it under the Agreement. Pursuant to the Agreement, the Company agreed to indemnify the Buyer against any and all out-of-pocket loss, cost, payments, demand, penalty, forfeiture, expense, liability, judgment, deficiency or damage, and diminution in value or claim (including actual costs of investigation and attorneys' fees and other costs and expenses) (all of the foregoing collectively, "Losses") incurred or sustained by the Buyer as a result of or in connection with (i) any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of the Company contained in the Agreement and (ii) the ownership, and operation of the Patent prior to the transfer of the Patent on the closing date of the Agreement. Additionally, pursuant to the Agreement, the Buyer agreed to indemnify the Company against any and all Losses incurred or sustained by the Company as a result of or in connection with (i) any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment of any of the representations, warranties, covenants and agreements of the Buyer contained in the Agreement and (ii) the ownership, and operation of the Patent following the transfer of the Patent on the closing date of the Agreement. Pursuant to the Agreement, neither the Buyer nor the Company, shall be obligated to indemnify the other party for any Losses in excess of$7,440,000 .Bahige (Bill) Chaaban andJoe Byrne are a Director and Chief Executive Officer of the Buyer, respectively, and each previously held positions with the Company.Bahige (Bill) Chaaban resigned from his positions as Chief Executive Officer, President, Chairman of the Board ofDirectors Company effective at the close of business onApril 14, 2022 .Joseph Byrne resigned from his position as a Director of the Company effective at the close of business onApril 14, 2022 . AtDecember 31, 2020 , the Company had an outstanding loan agreement with the Buyer and advanced funds of$17,901 . At the time the loan was made,Joseph Byrne , the CEO of the Buyer 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 onApril 19, 2021 , and has since resigned from all positions with the Company. Additionally, our former CEO,Bill Chaaban was appointed as the President of the Buyer onApril 12, 2021 . As ofMay 6, 2021 , the loan to the Buyer was repaid in full, through the issuance to the Company of shares of the Buyer common stock, and is no longer outstanding. The Company and the Buyer entered into a Loan Repayment Agreement dated as ofMay 6, 2021 , pursuant to which the Buyer agreed to repay to the Company$17,901 , representing the total amount then outstanding under the loan agreement, by issuing 21,830 shares of the Buyer's common stock. Such shares were issued to the Company onMay 6, 2021 . To evidence the assignment of the Patent, the Company agreed to enter into a Patent Assignment Agreement (the "PAA") for the Patent, with the Buyer at the closing of the Agreement. Pursuant to the PAA, the Company will agree to assign the Patent to the Buyer, and also to provide evidence to the Buyer of the filing of a request for recordation with theU.S. Patent Office of the PAA . 30 --------------------------------------------------------------------------------
Securities Purchase Agreement and Promissory Note
OnMay 24, 2022 , the Company entered into a securities purchase agreement (the "SPA") with 1800DIAGONAL LENDING LLC , aVirginia limited liability company ("Diagonal"), pursuant to which Diagonal purchased a convertible promissory note (the "Note") from the Company in the aggregate principal amount of$70,000 . Pursuant to the SPA, the Company agreed to reimburse Diagonal$3,750 for Diagonal's legal fees and due diligence fees in connection with entry into the SPA and the issuance of the Note. The SPA contains customary representations and warranties by the Company and Diagonal typically contained in such documents. The maturity date of the Note isMay 24, 2023 (the "Maturity Date"). The Note bears interest at a rate of 8% per annum, and a default interest of 22% per annum. Diagonal has the option to convert all of the outstanding amounts due under the Note into shares of the Company's no par value per share common stock beginning on the date which is 180 days following the issuance date of the Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the default amount, as such term is defined under the Note. The conversion price under the Note for each share of common stock is equal to 65% of the lowest trading price of the Company's common stock for the 10 prior trading days including the day upon which a notice of conversion is received by the Company. The conversion of the Note is subject to a beneficial ownership limitation of 4.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise. Failure of the Company to convert the Note and deliver the common stock when due will result in the Company paying Diagonal$2,000 per day for each day beyond such deadline. Prior to the 180th day of the issuance date Note, the Company may prepay the Note in whole or in part, however if it does so between the issuance date and the date which is 60 days from the issuance date, the repayment percentage is 120%. If the Company prepays the Note between the 61st day after issuance and the 120th day after issuance, the prepayment percentage is 125%. If the Company prepays the Note between the 121st day after issuance and the 180 days after issuance, the prepayment percentage is 130%. After such time, the company can submit an optional prepayment notice to Diagonal, however the prepayment shall be subject to the agreement between the Company and Diagonal on the applicable prepayment percentage. Pursuant to the Note, as long as the Company has any obligations under the Note, the Company cannot without Diagonal's written consent, sell, lease or otherwise dispose of any significant portion of its assets which would render the Company a "shell company" as such term is defined in SEC Rule 144. Additionally, under the Note, any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition. The Note contains standard and customary events of default such as failing to timely make payments under the Note when due, the failure of the Company to timely comply with the Securities Exchange Act of 1934, as amended, reporting requirements and the failure to maintain a listing on the OTC Markets. The occurrence of any of the events of default, entitle Diagonal, among other things, to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, the Note. Upon an Event of Default, interest shall accrue at a default interest rate of 22%, and the Company shall pay to the Diagonal an amount equal to the greater of (a) 150% of all amounts due and owing under the Note and (b) the highest number of shares of common stock issuable upon conversion of such amount at the highest closing price or the common stock during the default period, among other remedies for specific events of default. Amendment and Termination OnMay 24, 2022 , the Company entered into a Patent Purchase and Assignment Agreement (the "Agreement") with Emergence Global Enterprises Inc., a corporation incorporated pursuant to the laws ofBritish Columbia, Canada (the "Buyer"). OnJuly 14, 2022 , the Company entered into Amendment No. 1 to Patent Purchase and Assignment Agreement (the "Amendment"). Pursuant to the Amendment, Section 9.10(a) of the Agreement is amended such that the "Termination Date" was amended to beAugust 15, 2022 . Furthermore, reference to the "Closing Date", as defined in the Agreement, on the signature page to the Agreement was a typographical error. The Agreement was in fact executed on the "Effective Date", as defined in the Agreement. The Agreement was amended to correct such typographical error. OnJuly 19, 2022 , pursuant to a Termination of Patent Purchase and Assignment Agreement ("Termination Agreement"), the Company and Buyer agreed to terminate the Agreement as of the "Effective Termination Date", as defined in the Agreement, and the Agreement shall thereafter be null and void, and of no further force or effect. Furthermore, each the Company and Buyer recognize that neither party shall have any ongoing rights or obligations pursuant to the Agreement. Results of Operations We have incurred recurring losses and have not commenced revenue generating operations to date. Our expenses to date are primarily our general and administrative expenses and fees, costs and expenses related to acquisitions and operations. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. The accompanying condensed consolidated financial statements have been prepared in contemplating continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern. The Company has incurred significant operating losses and negative cash flows from operations since inception. The Company had an accumulated deficit of$46,221,218 AtJune 30, 2022 and had no committed source of debt or equity financing. The Company did not have any operating revenue until the acquisition ofClear Com Media, Inc. onJuly 9, 2021 and such amounts are not expected to be sufficient to sustain ongoing operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The Company has relied on the issuance of loans payable and convertible debt instruments to finance its expenses, including notes that are in default, as described in Notes 5, 6, 7, and 8. The Company will 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. 31
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Results of Operations for the Three-Months Ended
The following tables reflect our operating results for the three-months ended
Three-months ended
June 30, June 30,
Operating Summary 2022 2021 Change
Revenues, net $ 542,477 $ - 100 %
Cost of Goods Sold - - -
Gross Profit 542,477 - -
Operating Expenses 842,450 16,263,577 (94.8% )
Loss from Operations 299,973 16,263,577 98.2 %
Other Expense 48,310 (770,412 ) 106.2 %
Net Loss $ 348.283 $ 15,493,165 97.7 %
Revenue
We have not begun revenue producing operations and recognized revenue of
Operating Expenses During the three months endedJune 30, 2022 , our operating expenses were$842,450 compared to$16,263,577 during the three months endedJune 30, 2021 . During the three months endedJune 30, 2022 , our operating expenses were comprised of salary and consulting fees of$148,839 , and general and administrative expenses of$693,611 . By comparison, during the three months endedJune 30, 2021 , our operating expenses were comprised of salary and consulting fees of$943,800 , stock-based compensation expense of$14,925,572 , and general and administrative expenses of$394,205 . Expenses incurred during the three months endedJune 30, 2022 compared to three months endedJune 30 , 2021decreased primarily due to the reduction of stock based compensation.
Other Income and Expense Items
During the three months endedJune 30, 2022 , our other expense, net was$48,310 compared to$770,412 during the three months endedJune 30, 2021 . During the three months endedJune 30, 2022 , our other income and expense items were comprised of interest expense of$46,223 , foreign exchange loss of$2,140 . By comparison, during the three months endedJune 30, 2021 , our other income and expense items were comprised of interest expense of$276,389 , and foreign exchange loss of$2,140 . Income Taxes
As of
Net Loss Our net loss during the three months endedJune 30, 2022 was$348,283 compared to a net loss of$15,493,165 during the three months endedJune 30, 2021 due to the factors discussed above.
Liquidity and Capital Resources
As of
32
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As of June 30, 2022 , our indebtedness includes accrued interest of $1,427,791 ,
accrued interest to related parties of $1,977,812 , as well as loans payable,
loans payable to related parties, convertible notes, and convertible notes to
related parties totaling $5,266,403 . We expect our operating and administrative
expenses to be at least $1,800,000 annually.
Loans payable - related party consists of the following At June 30, 2022 and
December 31 2021 :
2022 2021
Loan payable in default due to the spouse of
Loans payable in default to a former director of
Creative, former parent company, bear interest at 10%
per annum. This are unsecured loans that matured on
601,500 601,500
Loan payable in default to
300,000 300,000
Loans payable in default to the spouse of
237,019 237,019
Loan payable to the spouse ofJoseph Byrne , a 5% shareholder and former President, CEO, and Member of the board of CEN, issuedJanuary 12, 2018 with a 30-day maturity, bearing share interest of 4,000 common shares per 30-day period. This is an unsecured loan that matured onApril 16, 2022 . 100,000
100,000
Loan payable toAlex Tarrabain , former CFO and a Director of CEN, issuedJanuary 17, 2018 with a 30-day maturity, bearing share interest of 3,000 common shares per 30-day period. This is an unsecured loan that matured onApril 16, 2022 . 75,000
75,000
Loan payable to
- -
Total loans payable - related party (all current)
Convertible notes payable consists of the following AtJune 30, 2022 andDecember 31 2021 : 2022 2021
Convertible notes payable in default to multiple private
investors, including certain notes in default, bearing
interest at 5% per annum with conversion rights for
363,767 common shares, which matured at various dates
between
$ 576,472
Convertible notes payable with beneficial conversion features at original issuance to multiple private investors, bearing interest at 5% per annum with conversion rights for 550,965 common shares, maturing at various dates betweenJune 2022 andDecember 2022 . 145,000
145,000
Convertible note payable, due on demand, for the
original amount of
- -
Total convertible notes payable 721,472
721,472
Less unamortized debt discount 78,142
78,142
Total convertible notes payable, net of unamortized debt
discount 643,330 643,330
Less current portion 643,330 643,330
Convertible notes payable, less current portion $ - $ -
33-------------------------------------------------------------------------------- Convertible notes - related party consists of the following AtJune 30, 2022 andDecember 31 2021 : 2022 2021
Convertible notes, in default, due to
$ 121,796
Convertible notes with beneficial conversion features
due to the parents of
48,000 48,000
Convertible note, in default, due to the spouse of
- -
Convertible notes due to
- -
Convertible note due to
- -
Convertible note due to
- -
Total convertible notes payable - related parties 169,796
169,796
Less unamortized debt discount 7,157
7,157
Total convertible notes payable - related parties (all current)$ 162,639 $ 162,639
We intend to fund our expenses through the issuance and sale of additional securities. We do not have any commitments from any persons to purchase any securities and there can be no assurance that we will be able to raise sufficient funds to pay our liabilities as they become due and payable.
Three-months ended
Cash Flows from Operating Activities
During the three months endedMarch 31, 2022 , we used$58,020 in operating activities compared to$61,128 used in operating activities during the three months endedMarch 31, 2021 . The decrease in the use of operating cash between the two periods related primarily to a decrease in our overall net loss driven by decreased levels of interest expense and collections on other receivables, as offset by an unfavorable change in exchange rates.
Cash Flows from Investing Activities
Our use of cash flow for investing activities during the three months endedMarch 31, 2022 was$0 compared to$50,000 during the three months endedMarch 31, 2021 . During the three months endedMarch 31, 2021 , our use of cash flows for investing activities were comprised of advances to CEN Ukraine of$50,000 . By comparison, during the three months endedMarch 31, 2022 , we did not have any cash flows from investing activities.
Cash Flows from Financing Activities
During the three months endedMarch 31, 2022 , we received$0 through issuance of convertible notes to investors to fund our working capital requirements. During the three months endedMarch 31, 2021 , we received$110,000 through issuance of convertible notes to investors to fund our working capital requirements. CEN has no committed source of debt or equity financing. Our Executive team and Board are seeking additional financing from their business contacts, but no assurances can be given that such financing will be obtained or, if obtained, on what terms. 34
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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 quarter ended
Recent Accounting Pronouncements Not Yet Adopted
InAugust 2020 , theFinancial 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 theSEC , this pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning afterDecember 15, 2023 . The Company is currently evaluating the impact of this ASU on the consolidated financial statements. Critical Accounting Policies
The preparation of condensed consolidated financial statements and related notes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the condensed consolidated financial statements. Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made. Note 1 to the consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our condensed consolidated financial statements.
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