UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period endedJune 30, 2017 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the transition period from _______to________ Commission file number001-37567. CEN BIOTECH, INC. (Exact name of registrant as specified in its charter) Ontario, Canada ___________ (State or other jurisdiction of incorporation or organization) (IRS Employer Identification Number) (Address of principal executive offices) 226-344-0660 (Registrant’s telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, Large Accelerated Smaller Emerging growth company ☒ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No CEN BIOTECH, INC. INDEX PART I ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 4 CONTROLS AND PROCEDURES PART II ITEM I LEGAL PROCEEDINGS ITEM 1A RISK FACTORS ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS ITEM 3 DEFAULTS UPON SENIOR SECURITIES ITEM 4 MINE SAFETY DISCLOSURES ITEM 5 OTHER INFORMATION ITEM 6 EXHIBITS For the quarterly period ended September 30, 2016For the transition period from _______to________ Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item.(IRS Employer135 North Rear7405 Tecumseh Road Lakeshore,East Suite 300 Windsor, Ontario N8T 1G2, Canada NOR lK0[X][ X ] No [ ]or a smaller reporting company, filer.or an emerging growth company. See definitionthe definitions of “accelerated filer” and “large accelerated filer”filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):Act.Accelerated Fileraccelerated filer ☐Filerfiler ☐Non-Accelerated FilerNon-accelerated filer (Do not check if a smaller reporting company) ☐Reporting Companyreporting company ☒ [X][X ][X][X]At September 30, 2016As of August 21, 2017 the number of shares of the Registrant’s common stock outstanding was 7,000,000.10,525,000. 43 1214 1619 1619 1721 2221 3021 3022 3122 3122 3122PART ISPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTSThis Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”). These statementsThere are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management's Discussion and Analysis of Financial Condition or Plan of Operation.” Forward-looking statements also include statements in which wordsthis quarterly report that are not historical facts. These “forward-looking statements” can be identified by use of terminology such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider”“expect,” “hope,” “intend,” “may,” “plan,” “positioned,” “project,” “propose,” “should,” “strategy,” “will,” or any similar expressionsexpressions. You should be aware that these forward-looking statements are used.Forward-lookingsubject to risks and uncertainties that are beyond our control. Although we believe that our assumptions underlying such forward-looking statements are reasonable, we do not guarantee our future performance, and our actual results may differ materially from those contemplated by these forward-looking statements. Our assumptions used for the purposes of the forward-looking statements made in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances, including the development of our lines of business and any products that we may manufacture or sell and our ability to raise additional funding sufficient to implement our strategy, as well as assumptions regarding Canadian and U.S. laws regarding the consumer or retail sale of marijuana products and accessories and the manufacture and distribution of such products and accessories, including zoning and banking regulations. We also assume that we will be able to raise additional capital to fund our operations while we develop a line of business to generate net revenues. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. In light of these numerous risks and uncertainties, we cannot provide any assurance that the results and events contemplated by our forward-looking statements contained in this quarterly report will in fact transpire.These forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company's future results and shareholder values may differ materially from those expressed in these forward-looking statements. ReadersYou are cautioned to not to putplace undue reliance on these forward-looking statements, which speak only as of their dates.We do not undertake any obligation to update or revise any forward-looking statements.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Contents
Page | |
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited): | |
Condensed consolidated balance sheets | F-1 |
Condensed consolidated statements of operations | F-2 |
Condensed consolidated statements of cash flows | F-3 |
Notes to the condensed consolidated financial statements | F-4 |
CEN BIOTECH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
SEPTEMBER30, 2016 ANDJUNE 30, 2017 and DECEMBER 31, 20152016
(Unaudited)
September 30, 2016 | Dec 31, 2015 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 31,573 | $ | 3,016 | ||||
Total Current Assets | 31,573 | 3,016 | ||||||
FIXED ASSETS | ||||||||
Furniture and equipment in use | 17,668 | - | ||||||
Depreciation | 884 | - | ||||||
Net furniture and equipment in use | 16,784 | - | ||||||
Land | - | 1,064,651 | ||||||
Construction In Progress | - | 1,096,816 | ||||||
Leasehold Improvements in Progress | 6,105,711 | 6,130,644 | ||||||
OTHER ASSETS | ||||||||
Loans to CEN Ukraine | 310,188 | |||||||
Lighting Patent | 2,364,133 | |||||||
Total Assets | $ | 8,828,389 | $ | 8,295,127 | ||||
LIABILITIES ANDSTOCKHOLDER’S DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | $ | 169,700 | $ | 164,503 | ||||
Accounts Payable – related parties | 62,994 | 75,000 | ||||||
Accrued Interest | 2,230,424 | 1,228,023 | ||||||
Accrued Interest – related parties | 178,160 | 250,252 | ||||||
Accrued Expenses | 728,234 | 593,719 | ||||||
Loans Payable – related parties | 847,318 | 1,313,680 | ||||||
Loans Payable | 9,969,179 | 9,865,615 | ||||||
Total Current Liabilities | 14,186,009 | 13,490,792 | ||||||
LONG-TERM DEBT | ||||||||
Loans Payable – related party | - | 612,000 | ||||||
Loans Payable – convertible notes | 850,002 | |||||||
Loans Payable – convertible notes related party | 1,388,121 | |||||||
Total Liabilities | 16,424,132 | 14,102,792 | ||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Preferred Stock; unlimited number of shares authorized; 100,000 issued and outstanding | 10 | 10 | ||||||
Common Stock; unlimited number of shares authorized; 7,000,000 issued and outstanding | 82 | 82 | ||||||
Common Stock – Issuance related to patent acquisition; 3,125,000 to be issued | 3 | |||||||
Accumulated Deficit | (7,595,838 | ) | (5,807,757 | ) | ||||
Total Stockholders’ Deficit | (7,595,743 | ) | (5,807,665 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 8,828,389 | $ | 8,295,127 |
June 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash | $ | 171,636 | $ | 62,381 | ||||
Total Current Assets | 171,636 | 62,381 | ||||||
PROPERTY, EQUIPMENT & MACHINERY: | ||||||||
Property and equipment placed in service, net | 15,459 | 16,342 | ||||||
Improvement in Process | 1,372,761 | 1,270,115 | ||||||
OTHER ASSETS: | ||||||||
Other receivable | 25,081 | - | ||||||
Advance on business acquisition | 675,328 | 425,328 | ||||||
Intangible asset, net | 2,246,052 | 2,319,852 | ||||||
Total Assets | $ | 4,506,316 | $ | 4,094,019 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts Payable | $ | 92,768 | $ | 157,054 | ||||
Accounts Payable - related parties | 12,994 | 62,994 | ||||||
Accrued Interest | 3,583,136 | 2,717,478 | ||||||
Accrued Interest - related parties | 365,978 | 107,140 | ||||||
Accrued Expenses | 287,650 | 840,584 | ||||||
Loan Payable - related parties | 847,634 | 846,448 | ||||||
Loan Payable | 9,971,681 | 9,962,287 | ||||||
Loan Payable - short term convertible notes | 851,292 | - | ||||||
Total Current Liabilities | 16,013,132 | 14,693,985 | ||||||
LONG TERM LIABILITIES: | ||||||||
Loans Payable - convertible notes | 2,863,078 | 1,391,602 | ||||||
Loans Payable - convertible notes- related party | 1,388,122 | 1,388,122 | ||||||
Total Long Term Liabilities | 4,251,199 | 2,779,724 | ||||||
Total Liabilities | 20,264,331 | 17,473,709 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||
Preferred stock; unlimited authorized shares, no par value; 100,000 issued and outstanding | 10 | 10 | ||||||
Common stock; unlimited authorized shares, no par value; 10,525,000 issued and outstanding | 85 | 85 | ||||||
Additional Paid-In Capital | 10,000 | 10,000 | ||||||
Accumulated Deficit | (15,768,110 | ) | (13,389,785 | ) | ||||
Total Stockholders' Equity (Deficit) | (15,758,015 | ) | (13,379,690 | ) | ||||
Total Liabilities and Stockholders' Equity (Deficit) | $ | 4,506,316 | $ | 4,094,019 |
See accompanying notes to the financial statements.
CEN BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBERJUNE 30, 20162017 AND 20152016
(Unaudited)AND THE SIX MONTHS ENDED JUNE 30, 2017 AND 2016
2016 | 2015 | |||||||
Revenue | ||||||||
Sale of equipment | - | - | ||||||
Operating expenses | ||||||||
Salary and Consulting Fees | - | 20,042 | ||||||
Salary and Consulting Fees – related parties | 24,000 | - | ||||||
General and Administrative | 147,873 | 180,402 | ||||||
General and Administrative – related parties | - | - | ||||||
Foreign Exchange Loss (Gain) | (1,480 | ) | - | |||||
Total Expense | 170,393 | 200,444 | ||||||
Loss from operations | (170,393 | ) | (200,444 | ) | ||||
Other Expenses | ||||||||
Interest | 353,727 | 313,701 | ||||||
Interest – related parties | 59,942 | 42,283 | ||||||
Total other expenses | 413,669 | 355,984 | ||||||
Net Loss | $ | (584,062 | ) | $ | (556,428 | ) | ||
Net Loss Per Share: Basic And Diluted | (0.08 | ) | (0.08 | ) | ||||
Weighted Average Number of Shares Outstanding: Basic And Diluted | 7,000,000 | 7,000,000 |
(Unaudited)
For the Three Months Ended June 30, For the Six Months Ended June 30, 2017 2016 2017 2016 REVENUE OPERATING EXPENSES Salary and Consulting Fees General and Administrative Foreign Exchange Loss (Gain) Total Expense Loss from operations Other Income or Expenses Sale of Equipment Interest Interest - related parties Total other expenses Net Loss Net Loss Per Share: Basic and Diluted Weighted Average Number of Shares Outstanding: Basic and Diluted $ - $ - $ - $ - 212,326 95,239 302,327 95,239 310,283 145,617 873,645 284,028 30,953 (2,877 ) 44,143 55,604 553,562 237,979 1,220,114 434,871 553,562 237,979 1,220,114 434,871 - 2,321 - 2,321 (62,825 ) (335,644 ) (1,033,381 ) (666,324 ) (525,030 ) (55,060 ) (124,830 ) (105,146 ) (587,855 ) (388,383 ) (1,158,211 ) (769,149 ) $ (1,141,417 ) $ (626,362 ) $ (2,378,325 ) $ (1,204,020 ) $ (0.11 ) $ (0.09 ) $ (0.23 ) $ (0.17 ) 10,525,000 7,000,000 10,525,000 7,000,000
See accompanying notes to the financial statements.
CEN BIOTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(Unaudited)
2016 | 2015 | |||||||
Revenue | ||||||||
Sale of equipment | 2,321 | - | ||||||
Operating expenses | ||||||||
Salary and Consulting Fees | 95,239 | 123,411 | ||||||
Salary and Consulting Fees – related parties | 24,000 | - | ||||||
General and Administrative | 431,902 | 475,800 | ||||||
General and Administrative – related parties | - | - | ||||||
Foreign Exchange Loss (Gain) | 54,123 | (1,679 | ) | |||||
Total Expense | 605,264 | 597,532 | ||||||
Loss from operations | (602,943 | ) | (597,532 | ) | ||||
Other Expenses | ||||||||
Interest | 1,020,051 | 922,271 | ||||||
Interest – related parties | 165,088 | 125,283 | ||||||
Total other expenses | 1,185,139 | 1,047,554 | ||||||
Net Loss | $ | (1,788,082 | ) | $ | (1,645,086 | ) | ||
Net Loss Per Share: Basic And Diluted | (0.26 | ) | (0.24 | ) | ||||
Weighted Average Number of Shares Outstanding: Basic And Diluted | 7,000,000 | 7,000,000 |
See accompanying notes to the financial statements.
CEN BIOTECH, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20162017 AND 20152016
(Unaudited)
2016 | 2015 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (1,788,081 | ) | $ | (1,645,086 | ) | ||
Adjustments to reconcile net gain (loss) to net cash used in operating activities | ||||||||
Depreciation | 884 | |||||||
Changes in | ||||||||
Accounts Payable and Accrued Expenses | 232,912 | 61,113 | ||||||
Accrued Interest | 1,185,138 | 1,177,894 | ||||||
Cash Flows Used In Operating Activities | (369,147 | ) | (406,079 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Due from CEN Ukraine | (310,188 | ) | - | |||||
Leasehold Improvements In Progress | 7,265 | (47,673 | ) | |||||
Total Cash Flows Used in Investing Activities | (302,923 | ) | (47,673 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds From Loans | 700,627 | 413,117 | ||||||
Total Cash Flows Provided by Financing Activities | 700,627 | 413,117 | ||||||
NET CHANGE IN CASH | 28,557 | (40,635 | ) | |||||
Cash, Beginning of Period | 3,016 | 44,433 | ||||||
Cash, End of Period | $ | 31,573 | $ | 3,798 | ||||
NON-CASH TRANSACTIONS | ||||||||
Interest Paid | $ | - | $ | - | ||||
Income Taxes Paid | - | - | ||||||
Accrued Expense reclassified to Notes Payable | 105,206 | - | ||||||
Accrued Interest reclassified to Notes Payable | 254,829 | - | ||||||
Patent Acquisition: | ||||||||
Construction in Progress exchanged for Patent | 1,096,816 | - | ||||||
Land exchanged for Patent | 1,064,651 | - | ||||||
Loans Payable exchanged for Patent | 202,663 | - | ||||||
Stock Issuable in exchange for Patent | 3 | - | ||||||
Patent Acquired with above consideration | 2,364,133 | - |
2017 | 2016 | |||||||
Cash Flows from Operating Activities | ||||||||
Net Income (Loss) | $ | (2,378,325 | ) | $ | (1,204,020 | ) | ||
Adjustments to reconcile net (loss) to net cash used in operating activities | ||||||||
Depreciation & Amortization | 74,684 | 442 | ||||||
Changes in operating assets and liabilities | ||||||||
(Increase) in other receivable | (25,081 | ) | - | |||||
Increase (Decrease) in accounts payable and accrued expenses | (617,220 | ) | 130,905 | |||||
Increase (Decrease) in accounts payable - related parties | (50,000 | ) | - | |||||
Increase (Decrease) in accrued interest | 865,658 | 666,324 | ||||||
Increase (Decrease) in accrued interest – related parties | 258,838 | 105,146 | ||||||
Cash Flows Used in Operating Activities | (1,871,446 | ) | (301,203 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of Fixed Assets | (102,646 | ) | 7,265 | |||||
Advance on Business Acquisition | (250,000 | ) | (310,188 | ) | ||||
Net Cash (Used in) Provided by Investing Activities | (352,646 | ) | (302,923 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from Loans Payable | 9,394 | - | ||||||
Proceeds from Loans Payable – related parties | 1,186 | 69,624 | ||||||
Proceeds from Short Term Convertible Loans | 851,292 | - | ||||||
Proceeds from Long Term Convertible Loans | 1,471,475 | 550,213 | ||||||
Net Cash (Used in) Provided by Financing Activities | 2,333,347 | 619,837 | ||||||
Net Increase (Decrease) in Cash and Cash Equivalents | 109,255 | 15,711 | ||||||
Cash and Cash Equivalents, Beginning of Year | 62,381 | 3,016 | ||||||
Cash and Cash Equivalents, End of Year | $ | 171,636 | $ | 18,727 | ||||
�� | ||||||||
Supplemental cash flow information | ||||||||
Cash paid for; | ||||||||
Interest | $ | 33,716 | $ | - | ||||
Income Taxes Paid | $ | - | $ | - | ||||
Accrued expenses reclassified to notes payable | $ | 831,628 | $ | - |
See accompanying notes to the financial statements.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
September 30, 2016
(Unaudited)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 20152016 and notes thereto.
Organization
CEN Biotech, Inc. (“CEN” or the “Company”) was incorporated in Canada on August 4, 2013 as a subsidiary of Creative Edge Nutrition, Inc. (“Creative”), a public company incorporated in Nevada. Creative distributed the shares of CEN common stock on a pro rata basis to the Creative shareholders on February 29, 2016 at which time CEN became an independent public company. The financial statements also include the accounts of CEN Holdings, Inc. a Michigan corporation that was incorporated on May 13, 2016.2016 as a wholly-owned subsidiary of the Company and was terminated on March 20, 2017. Intercompany account balances and transactions are eliminated in consolidation.the consolidated financial statements.
CEN is an early stage Canadian biopharmaceutical company founded to integrate agronomical and pharmaceutical principles for the purposes of growing, selling, processing and delivering pharmaceutical-grade medical marijuana in its pure and extracted form to patients in accordance with Health Canada’s newly-formed MarihuanaMarijuana for Medical Purposes Regulations (MMPR). and any other Canadian legislation that permits the legal use of marijuana.
CEN is actively pursuing business opportunities globally with the intent to grow, sell, process and deliver pharmaceutical grade medical marijuana in various drug delivery mechanisms within nationsjurisdictions where itthe use of marijuana is legal.generally permitted by consumers for medical or recreational purposes.
Basis of Accounting
The Company’s financial statements are prepared using the accrual method of accounting using accounting principles generally accepted in the United States.U.S. GAAP. The Company has elected a calendar year end. The functional currency of the Company is the US Dollar. All amounts presented in the Company’s financial statements are in US Dollars.
Use of Estimates and Assumptions
Preparation of the financial statements in conformity with accounting principles generally accepted in the United StatesU.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. The Company has adopted the provisions of ASC 260.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
Impairment of Long-Lived Assets
The Company recently acquired a patent which is accounted for as a definite-lived intangible asset in accordance with ASC 360 "Impairment and Disposal of Long-Lived Assets" ("ASC 360").
A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. There were no impairment charges taken during the period ended June 30, 2017.
Loss per Share
Net loss per common share is computed pursuant to ASC 260-10-45. Basic and diluted net income per common share has been calculated by dividing the net income for the period by the basic and diluted weighted average number of common shares outstanding assuming that the Company incorporated as of the beginning of the first period presented. There were no dilutive shares outstanding as of SeptemberJune 30, 20162017 or 2015.2016.
Subsequent Events
The Company follows the guidance in ASC 855-10-50 for the disclosure of subsequent events. The Company evaluates subsequent events from the date of the balance sheet through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them with the SEC on the EDGAR system.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 2 – GOING CONCERN
The accompanying condensed financial statements have been preparedassuming thatprepared in conformity with U.S. GAAP, which contemplate continuation of the Company willas 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. As reflectedconcern as the Company had total liabilities in the accompanying financial statements,excess of its total assets, the Company had an accumulated deficit of $7,595,838$15,768,110 at SeptemberJune 30, 2016,2017, and had no committed source of 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 sale of its securities to finance its expenses, including a note that is in default and is secured by the Company’s equipment, as described in Note 4. The Company will be dependent upon raising 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. There can be no assurance that the Company will be successful in either situation in order to continue as a going concern.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
While the Company is attempting to obtain a license from Health Canada and generate revenues, theThe Company’s cash position may not be sufficient to support the Company’s daily operations. Management believes that the actions presently being taken to obtain the license from Health Canada has a realistic chance of succeeding. While the Company believes in the viability of its strategy to generate revenues and inoperations or its ability to raise additional funds, there can be no assurances toundertake any business activity that effect. The Company’s ability to continue as a going concern is dependent upon its ability to achieve profitable operations or obtain adequate financing.will generate net revenue.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 – CONTINGENCIES AND UNCERTAINTIES
On March 11, 2015, the Company’s application under the MMPR for a license to produce marijuana for medical purposes was formally rejected by Health Canada. The Company filed an application for judicial review in Canadian federal court on April 10, 2015 in order to obtain a reversal of this decision. TheWe discontinued this action in February 2016.CEN continues to pursue relief and damages and on or about February 2, 2016, filed a Statement of Claim against the Attorney General of Canada in theOntarioSuperior Court ofJustice, for $15 million and other damages and relief. This case is in the discovery phase. We cannot provide any assurances as to the timing or decision or outcome of this legal proceeding cannot be predicted. The file is currently making its way through the legal process in Federal Court in Canada.Most recently, the license sought by the company under the MMPR has been declaredrelated to be of no force and effect by the Federal Court (but that declaration is put on hold for 6 months to allow the government to deal with new legislation). Based on these legal findings, the company has decided to withdraw its application for Judicial Review.our action seeking damages.
NOTE 4– NOTES PAYABLE
TheShort term loans payable consists of the following short-term loans are outstanding:at June 30, 2017 and December 31, 2016:
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Description | 2017 | 2016 | ||||||
Short term loan payable to Global Holdings International, LLC, which bears interest at 15% per annum after defaulting on the maturity date of June 30, 2016. This note is secured by the Company's equipment. | $ | 9,675,000 | $ | 9,675,000 | ||||
Short term mortgage payable, for the original amount of $385,000 CAD, bears interest at 22% per annum with a maturity date of September 21, 2017. | 296,681 | 287,287 | ||||||
Total Short Term Loans Payable | $ | 9,971,681 | $ | 9,962,287 |
NOTE 5 – SHORT TERM LOANS PAYABLE – RELATED PARTY |
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Short term loans payable- related party consist of the following at June 30, 2017 and December 31, 2016: |
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Description | 2017 | 2016 | ||||||
Short term related party loan payable to Bill Chaaban, President of Cen Biotech, bears interest at 10% per annum. This is an unsecured loan with a maturity date of December 31, 2017. | $ | 246,134 | $ | 244,948 | ||||
Short term related party loan payable to a former director of Creative Edge, bears interest at 10% per annum. This is an unsecured loan with a maturity date of December 31, 2017. | 601,500 | 601,500 | ||||||
Total Short Term Loans Payable | $ | 847,634 | $ | 846,448 |
There are 2 year convertible notes with a principal balance of $1,388,121 dueCEN BIOTECH, INC.
Notes to Mr. Chaaban. It bears interest at an annual rate of 12% and is convertible to 871,576 common shares. There are also multiple long-term convertible notes with a principle balance of $850,002. Two notes bear interest at 12% and all others bear interest at an annual rate of 5% and have conversion rights totaling up to 542,350 common shares.the Condensed Consolidated Financial Statements
SUMMARY TABLE OFNOTE 6 – SHORT TERM CONVERTIBLE NOTES PAYABLE
As of September 30, 2016 and 2015
SUMMARY OF NOTES PAYABLE | 2016 | 2015 | ||||||
Loans Payable | 9,969,179 | 9,881,855 | ||||||
Loans Payable – related parties | 847,318 | 1,440,482 | ||||||
Long-Term Loans | 850,002 | - | ||||||
Long-Term Loans – related parties | 1,388,121 | 612,000 | ||||||
Total of All Notes Payable | $ | 13,054,620 | $ | 11,934,337 |
NOTE5 - SUBSEQUENT EVENTS
In accordance with ASC 855,Subsequent Events, the Company has evaluated subsequent events from October 1, 2016 through November 10, 2016, the date of issuanceShort term convertible notes consist of the last quarterly financial statements,following at June 30, 2017 and has determined it has the no material subsequent events to disclose;December 31, 2016:
NOTE 6- RELATED PARTY TRANSACTIONS
Description | 2017 | 2016 | ||||||
Short term convertible notes payable, bear interest at 7% per annum with conversion rights for 335,833 common shares. | $ | 851,292 | $ | - | ||||
Total Short Term Convertible Notes | $ | 851,292 | $ | - |
There are loans of $310,188 to CEN Biotech Ukraine. CEN Biotech Ukraine was founded by Bill Chaaban. Bill Chaaban currently owns 51% OF CEN Biotech Ukraine. CEN Biotech Ukraine was founded to seek agricultural and pharmaceutical opportunities in Ukraine. Bill Chaaban has personally funded CEN Biotech Ukraine.
NOTE 7 – LONG TERM CONVERTIBLE NOTES
Long term convertible notes consist of the following at June 30, 2017 and December 31, 2016.
Description | 2017 | 2016 | ||||||
Long term convertible notes payable to multiple private investors, bear interest at 5% per annum with conversion rights total up to 1,120,100 common shares. All notes have a maturity date of 2 years from inception. | $ | 2,638,888 | $ | 1,167,412 | ||||
Long term convertible notes payable, bear interest at 12% per annum with a maturity date of August 18, 2018. | 224,190 | 224,190 | ||||||
Total Short Term Loans Payable | $ | 2,863,078 | $ | 1,391,602 |
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
NOTE8 –LONG TERM CONVERTIBLE NOTES–RELATED PARTY
Long term convertible notes to a related party consist of the following at June 30, 2017 and December 31, 2016:
Description | 2017 | 2016 | ||||||
Long term convertible note to a related party due to Bill Chaaban, President of Cen Biotech, which bears interest at 12% per annum. This note is convertible at the holder’s option to 871,576 common shares with a maturity due date of August 17, 2018. | $ | 1,388,122 | $ | 1,388,122 | ||||
Total Long Term Convertible Notes to a Related Party | $ | 1,388,122 | $ | 1,388,122 |
NOTE9 – PATENT ACQUISITION
On September 12, 2016, the Company completed the transaction to acquire assets, including patented Cold LED Lighting Technology, from Tesla Digital, Inc. (A, a Canadian Corporation)Corporation, and Stevan (Steve) Pokrajac. .
The material consideration given by Company includes:was:
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(b) | The transfer of real properties located at 135 North Rear Road, Lakeshore, Ontario, Canada having a book value of $2,161,467 USD and 1517-1525 Ridge Road having a purchase cost (including other related disbursements) to the Company of approximately $182,488. |
In addition, the Company will employ Stevan Pokrajak in connection with the development of the acquired technology with compensation equal to $200,000 per year. |
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The company plansCompanyintends to explore using theCold 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 old machinery and raw materials. The companyCompany has assigned no value to these since their value was not relevant to or calculated in the company’sCompany’s offer for acquisition. Therefore, no impairment will be necessary if these assets are disposed of.
NOTE 10 – COMMITMENT AND CONTINGENCIES
Our $19,019,628 of indebtedness includes accrued interest of $3,949,113 as well as notes payable, notes payable to related parties, convertible notes and convertible notes to related parties totaling $15,070,515 with maturity dates as outlined below. We are in default of $9,675,000 of debt that is secured by certain equipment that we value at approximately $10,533. We expect our operating and administrative expenses to be at least $2,400,000 annually. The convertible notes are due 2 years from issuance with notes maturing in 2018 and 2019.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
Description | Maturity Date | Amount | ||||
Note Payable - Related Party | December 31, 2017 | $ | 246,134 | |||
Note Payable - Related Party | December 31, 2017 | 601,500 | ||||
Note Payable | June 30, 2016 | 9,675,000 | ||||
Note Payable | September 21, 2018 | 296,681 | ||||
Convertible Notes | 1st Quarter 2018 | 535,612 | ||||
Convertible Notes | 2nd Quarter 2018 | 314,391 | ||||
Convertible Notes | 3rd Quarter 2018 | 541,600 | ||||
Convertible Notes | 4th Quarter 2018 | 1,066,475 | ||||
Convertible Notes | 1st Quarter 2019 | 405,000 | ||||
Convertible Notes - Related Parties | August 17, 2018 | 1,388,122 | ||||
Total | $ | 15,070,515 |
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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.
CEN BIOTECH, INC.
Notes to the Condensed Consolidated Financial Statements
NOTE 11 – LEASE
The company leases space for operations in Canada which requires a monthly rent payment of CAN$4,000. Installments amounts due converted using the exchange rate at June 30, 2017 for the following five years are as follows:
Year Ended December 31, | Amount | |||
2017 | $ | 18,494 | ||
2018 | 36,989 | |||
2019 | 36,989 | |||
2020 | 36,989 | |||
2021 | 36,989 | |||
Total | $ | 166,450 |
NOTE12 - SUBSEQUENT EVENTS
In accordance with ASC 855,Subsequent Events, the Company has evaluated subsequent events from June 30, 2017 through August 15, 2017, the date of issuance of the last quarterly financial statements, and has determined that it has the no material subsequent events to disclose.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Explanatory Note Regarding Forward-Looking Statements
Certain matters discussedUnless otherwise noted, references in this interim report on Form 10-Q are forward-looking statements. Such forward-looking statements contained in this annual report involve risks and uncertainties, including statements as to:
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These forward-looking statements can generally be identified as such becauseto “CEN,” the context of“Company,” “we,” “our” or “us” means CEN Biotech, Inc., the statement will include words such as “we,” “believe," “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this report and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.registrant,
The following discussion and analysis provides information which management believes to be relevant to an assessment and understanding of the Company's results of operations and financial condition. This discussion should be read together with the Company's financial statements and the notes to financial statements, which are included in this report.
This management's discussion and analysis or plan of operation should be read in conjunction with the financial statements and notes thereto of the Company for the year ended December 31, 2015.2016. Because of its nature of a development stage company, the reported results will not necessarily reflect the future.
Separation from CreativeCorporate Overview and History
In November 2013, Creative announced plans to separate into two publicly-traded companies,companies: one comprising of ourits planned specialty pharmaceutical business located in Canada, from ourthe other comprised of its nutritional supplements business. As part of the separation, Creative has transferred substantially all of the assets and liabilities of the planned specialty pharmaceutical business to CEN. The distribution is expected to occurwas through a pro rata distribution of CEN shares to Creative shareholders on February 29, 2016 that iswas expected to be tax free for U.S. Federal income tax purposes. CEN was incorporated in Ontario as a wholly-owned subsidiary of Creative on August 2013.
Acquisition of Tesla Digital
On September 12, 2016, the Company completed thea transaction to acquire assets, including patented Cold LED Lighting Technology, from Tesla Digital, Inc. (A, a Canadian Corporation)Corporation, and Stevan (Steve) Pokrajac. .
The material consideration given by Company includes:in this acquisition was:
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| The transfer of real properties located at 135 North Rear Road having a book value of $2,161,467 USD and 1517-1525 Ridge Road having a purchase cost (including other related disbursements) to the Company of approximately $182,488. |
In addition, the Company will employ Stevan Pokrajak in connection with the development of the acquired technology with compensation equal to $200,000 per year. |
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The company plansCompany intends to explore using theCold 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 old machinery and raw materials. The companyCompany has assigned no value to these since their value was not relevant to or calculated in the company’sCompany’s offer for acquisition. Therefore no impairment will be necessary if these assets are disposed of.
The Company has invested approximately $200,000 to move equipment, pay for design work and develop prototypes in connection with the Company’s strategy to develop sales opportunities in commercial, municipal and automotive lighting.
Our financial statements assume that 3,125,000 shares of CEN common stock will be issued as consideration for this acquisition based on a price per share of $1.60. The acquisition agreement contemplated that the number of shares will be based on the fair value determined within 180 days after the acquisition. We reserved 3,125,000 shares for this issuance and we are negotiating an amendment to the acquisition agreements to agree to the fair value and determine the number of shares that will be issued.
Our historical financial statements have been prepared on a stand-alone basis in conformity with U.S. generally accepted accounting principles.GAAP.
RESULTS OF OPERATIONSResults of Operations
We have incurred recurring losses and we have not commenced revenue generating operations to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
We will require additional capital to meet our operating requirements. We expectwill seek to raise additional capital through, among other things, the sale of equity or debt securities. In light of management’s efforts, thereThere are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concernconcern.
THIRD QUARTER ENDED SEPTEMBERWe have not entered into any line of business that generates any revenue. Our expenses to date are primarily our general and administrative expenses and fees, costs and expenses related to acquisitions and operations.
Operating Summary for the Three-Months Ended June 30, 2017and2016 COMPARED TO THIRD QUARTER ENDED JUNE 30, 2015.
Revenue
We recognized $0 in revenue during the third quarterthree months ended SeptemberJune 30, 20162017 and during the three months ended June 30, 2017 as we have not commenced revenue generating operations as of yet.to date.
OperatingExpenses
During the quarterthree months ended SeptemberJune 30, 2016,2017, our operating expenses were $170,393$553,562 compared to $200,444$237,979 during the same period for the prior fiscal year. During the three months ended SeptemberJune 30, 2017, our operating expenses were comprised of salary and consulting fees of $212,326, professional fees of $97,907, rent expense of $10,024, travel expense of $99,116, as well as general and administrative item of $134,189. By comparison, for the three months ended June 30, 2016, our operating expenses were comprised of salary and consulting fees of $24,000,$95,239, professional fees of $31,656,$40,422, rent expense of $58,871, travel expense of $23,543, security fees of 27,437 and general and administrative item of $4,886. By comparison, for the three months ended September 30, 2015, our operating expenses were comprised of salary and consulting fees of $20,042, professional fees of $119,224, rent expense of $49,196,$64,024, travel of $0,$28,994, and general and administrative items of $11,982. $9,300.
Expenses incurred during the thirdsecond quarter ended SeptemberJune 30, 2017 compared to second quarter ended June 30, 2016 compared to third quarter ended September 30, 2015 decreasedincreased primarily due to a decreasesincreases in the use of consulting fees, professional fees. Professional fees generally include financial,and travel expenses. The primary reasons for these increases are more consulting services and travel to continue development of our projects, and professional fees related to legal services for compliance and administrative contracted services.regulatory work.
Other Income and Expense Items
During third quarter ended SeptemberDuringthe second quarterended June 30, 2016, our other income and expense items totaled $413,669 expense$587,855 compared to $355,984 expense$388,383 during the prior fiscal year.three months ended June 30, 2016. During the three months ended SeptemberJune 30, 2016,2017, our other income and expense items were comprised of interest fees of $353,727$62,825 and related parties interest of 59,942.$525,030. By comparison, for the three months ended SeptemberJune 30, 2015,2016, our other income and expense items were of interest fees of $313,701$335,644 and related parties interest of 42,283.$55,060. The Company has not produced revenue and has borrowed money to fund operating activities, resulting in higher interest expenses.
NetLoss
Our net loss for the three months ended June 30, 2017 was $1,141,417 compared to a net loss of $626,362 during the three months ended June 30, 2016, primarily due to the factors discussed above.
Operating Summary for theSix Months Ended June 30, 2017ComparedtoSix Months Ended June 30, 2016
Revenue
We recognized $0 in revenue during the six months ended June 30, 2017 and during the six months ended June 30, 2017, as we have not commenced revenue generating operations to date.
OperatingExpenses
During the six months ended June 30, 2017, our operating expenses were $1,220,114 compared to $434,871 during the six months ended June 30, 2016. During the six months ended June 30, 2017, our operating expenses were comprised of salary and consulting fees of $320,327, professional fees of $83,494, rent expense of $153,411, travel expense of $28,994, as well as general and administrative item of $766,112. By comparison, for the six months ended June 30, 2016, our operating expenses were comprised of salary and consulting fees of $95,239, professional fees of $83,494, rent expense of $153,411, travel of $28,994, and general and administrative items of $19,153.
Expenses incurred during the six months ended June 30, 2017 compared to the six months ended June 30, 2016 increased primarily due to increases in the use of consulting fees, professional fees and travel expenses. The primary reasons for these increases are more consulting services and travel to continue development of our projects, and professional fees related to legal services for compliance and regulatory work.
Other Income and Expense Items
During the six months ended June 30, 2016, our other income and expense items totaled $1,158,211 compared to $769,149 during the three months ended June 30, 2016. During the six months ended June 30, 2017, our other income and expense items were comprised of interest fees of $124,830 and related parties interest of $1,033,381. By comparison, for the six months ended June 30, 2016, our other income and expense items were of interest fees of $666,324 and related parties interest of $105,146. The Company has not produced revenue and has borrowed money to fund operating activities, resulting in higher interest expenses.
NetLoss
Our net loss for the third quartersix months ended SeptemberJune 30, 20162017 was $584,062$2,378,325 compared to a net loss of $556,428$1,204,020 during the third quartersix months ended SeptemberJune 30, 20152016, primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resource
As of SeptemberJune 30, 2016,2017, we had assets of $8,828,389$4,506,316 comprised of;of cash of $31,573,$171,636, property, plant and equipment, net of $15,459, patent asset of $2,364,133 and leasehold$2,246,052, improvements in process of $6,122,495 and$1,327,761, loans due from CEN Biotech Ukraine of $310,188.$675,328 and other accounts receivable $25,081. As of SeptemberJune 30, 2016,2017, we had liabilities of $16,424,132$20,264,331 comprised of; loans from related parties of $847,318, loans of $9,969,179, accrued interest and other expenses of $3,136,818, accounts payable of $232,694, convertible notes from a$105,762, accrued interest $3,949,113, accrued expenses $287,650, loans to related party of $1,388,121,$851,292, loans payable $9,971,681, convertible notes of $3,095,179 and multiple long term convertible loans totaling $850,002.notes to related party $2,007,312.
FIRST THREE QUARTERS ENDED SEPTEMBER 30, 2016 COMPARED TO FIRST THREE QUARTERS ENDED SEPTEMBER 30, 2015.Our $19,870,920 of indebtedness includes accrued interest of $3,949,113 as well as notes payable, notes payable related parties, convertible notes and convertible notes related parties totaling $15,070,515 with maturity dates as outlined below. We are in default of $9,675,000 of debt that is secured by certain equipment that we value at approximately $10,533. We expect our operating and administrative expenses to be at least $2,400,000 annually. The convertible notes are due 2 years from issuance with notes maturing in 2018 and 2019.
Description | Maturity Date | Amount | ||||
Note Payable - Related Party | December 31, 2017 | $ | 246,134 | |||
Note Payable - Related Party | December 31, 2017 | 601,500 | ||||
Note Payable | June 30, 2016 | 9,675,000 | ||||
Note Payable | September 21, 2018 | 296,681 | ||||
Convertible Notes | 1st Quarter 2018 | 535,612 | ||||
Convertible Notes | 2nd Quarter 2018 | 314,391 | ||||
Convertible Notes | 3rd Quarter 2018 | 541,600 | ||||
Convertible Notes | 4th Quarter 2018 | 1,066,475 | ||||
Convertible Notes | 1st Quarter 2019 | 405,000 | ||||
Convertible Notes - Related Parties | August 17, 2018 | 1,388,122 | ||||
Total | $ | 15,070,515 |
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.
Cash Flows from OperatingActivities
We have not generated positive cash flows from operating activities. During the first threetwo quarters ended SeptemberJune 30, 2016,2017, we used $369,147$1,871,446 in operating activities compared to $406,079$301,203 during the first threetwo quarters ended SeptemberJune 30, 2015.2016. The increase is primarily due to accrued interest and accruedoperating expenses.
Cash Flows from InvestingActivities
Our use of cash flow for investing activities during the first threetwo quarters ended SeptemberJune 30, 20162017 totaling $302,923$352,646 compared to the same period in 20152016 of $47,672.$302,923. The increase is due to loans made to CEN Ukraine beginningacquisition of fixed assets and advance on acquisitions in the second quarter of 2016.2017.
Cash Flows from FinancingActivities
During the first threetwo quarters ended SeptemberJune 30, 2016,2017, financing activities equaled $700,627.$2,333,347. This included loans (net foreign exchange) to fund our working capital requirements of $960,928.$14,631,605. This includes new convertible notes held by investors during the first threetwo quarters ended SeptemberJune 30, 20162017 totaling $850,002$1,461,475 with conversion rights totaling up to 542,3501,461,475 common shares.
CEN has no committed source of debt or equity financing. Our President is seeking additional financing from his business contacts, but no assurances can be given that such financing will be obtained or, if obtained, on what terms. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the fiscal period ended December 31, 20152016 that states that our lack of committed resources causes substantial doubt about our ability to continue as a going concern
Fluctuations of foreign exchange rates may adversely affect our reported results.
Our planned operations will be conducted solely in Canada. Exchange rate fluctuations between the U.S. and Canadian dollar result in fluctuations in reported amounts from Canadian operations in our consolidated financial statements. Currently, the US Dollar is the functional currency, because the bulk of the Company’s transactions have been in US dollars, and because the Company has received the vast majority of its funding in US dollars. Therefore, any change in the exchange rate will affect our reported sales, expenses and net income.
We have not entered into hedging transactions with respect to our foreign currency exposure, but may do so in the future. We cannot be assured that fluctuations in foreign currency exchange rates will not have a material adverse impact on our business, financial condition or results of operations.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Critical Accounting Policies
The preparation of 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 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 2to the financial statements, included elsewhere in this prospectus, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.
Seasonality
The Company does not currently expect its planned business to be seasonal in nature.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, obligations under any guarantee contracts or contingent obligations. We also have no other commitments, other than the costs of being a public company that will increase our operating costs or cash requirements in the future.
Summary of Material Contractual Commitments
The following is a summary of our material contractual commitments as of June 30, 2017. The Company currently leases space for operations in Canada. The commitments shown below were converted as of June 30, 2016. [Converted from ??? need to explain. Alternatively, delete this section because as a smaller reporting company, you do not need to have this disclosure]
Payments due by Period | ||||||||||||||||||||
Operating Lease | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
Office Lease | $ | 166,450 | $ | 18,494 | $ | 73,978 | $ | 73,978 | $ | - | ||||||||||
Total | $ | 166,450 | $ | 18,494 | $ | 73,978 | $ | 73,978 | $ | - |
Inflation
Management believes that inflation has not had a significant effect on our results of operations.
Future Legislation
The federal government of Canada is reviewing the Cannabis laws. Possessing and selling cannabis for non-medical purposes is still illegal everywhere in Canada and until new legislation and new rules are in place, current laws remain in force. We understand that the Canadian government has a commitment to revise the regulatory regime. We cannot provide any assurance that the cannabis regulatory scheme will be revised, the date that Canada will enact any new legislation or if the legislation will be beneficial to our future prospects.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item.
ITEM 4
CONTROLS AND PROCEDURES
Management’s Report on Internal Controls overDisclosure Controls and Procedures andFinancial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control over financial reportingis designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principlesU.S. GAAP and to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Our internal control over disclosure controls and procedures and financial reporting includes those policies and procedures that:
● | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with |
● | that our receipts and expenditures are being made only in accordance with authorizations of the Company's management and directors; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
As of SeptemberJune 30, 2016,2017, our management conducted an assessment of the effectiveness of the Company's internal control over disclosure controls and procedures and financial reporting. In making this assessment, management followed an approach based on the framework set forth inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (known as “COSO”). Based on this assessment, management determined that the Company's internal control over disclosure controls and procedures and financial reporting as of SeptemberJune 30, 20162017 was effective.
During the quarter ended SeptemberJune 30, 2016,2017, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over disclosure controls and procedures and financial reporting.
The Company’s management, including the Company’s CEO/CFO, does not expect that the Company’s disclosure controls and procedures or the Company’s internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this quarterly report.
PART II
Item 1 Legal Proceedings
JUDICIAL REVIEW:Health Care - Canada
On March 11, 2015, the Company’s application under the MMPR for a license to produce marijuana for medical purposes was formally rejected by Health Canada. The Company filed an application for judicial review in Canadian federal court on April 10, 2015 in order to obtain a reversal of this decision.
The file is currently making its way through the legal processWe discontinued this action in Federal Court. The steps to this appeals process are:
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The appeals process, as of August 15, 2016 is up to Step8. The outcome and timing of this legal proceeding cannot be predicted.
On February 24, 2016 decision in a case in which the case of NEIL ALLARD, TANYA BEEMISH,DAVID HEBERT AND SHAWN DAVEYCompany was not a party (Neil Allard, Tanya Beemish, David Hebert and Shawn Davey v. HER MAJESTY THE QUEEN IN RIGHT OF CANADA,Her Majesty The Federal Court ruled the following:
“VIII. Conclusion
[289] For all these reasons, the Court has concludedQueen In Right Of Canada). The Canadian federal court decision determined that the Plaintiffs have established that their s 7plaintiff’s Charter rights have been infringed by the MMPR and that such infringement is not in accordance with the principles of fundamental justice or otherwise justified under s 1.
IX. Disposition and Remedy
[290] For these reasons, I findjustified. We understand that the federal government of Canada is re-evaluating the MMPR regime infringesand the Plaintiffs’ s 7 Charter rightslegalization or permitting of marijuana for medical and such infringement is not justified.
[291] In several decisions regardingother uses including the MMAR, the Courts have struck out either certain provisions or certain words in certain provisions, but otherwise left the structureright of the regulation in place. Most of these decisionspersons to grow, harvest, manufacture and distribute marijuana related to criminal charges where such narrow, feasible and effective excising was appropriate.
[292] In the present case, the attack has been on the structure of the new regulation. It would not be feasible or effective to strike certain words or provisions. That exercise would eviscerate the regulation and leave nothing practical in place.
The Defendant has recognized the integrated nature of the MMPR provisions.
[293] It is neither feasible nor appropriate to order the Defendant to reinstate the MMAR (as amended by current jurisprudence). It is not the role of the Court to impose regulations. The MMAR may be a useful model for subsequent consideration; however, it is not the only model,
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nor is a MMAR-type regime the only medical marihuana regime, as experience from other countries has shown.
[294] The remedy considerations are further complicated by the fact that there is no attack on the underlying legislation. Striking down the MMPR merely leaves a legislative gap where possession of marihuana continues as a criminal offence. Absent a replacement regulation or exemption, those in need of medical marihuana – and access to a Charter compliant medical marihuana regime is legally required – face potential criminal charges.
[295] It would be possible for the Court to suspend the operation of the provisions which make it an offence to possess, use, grow and/or distribute marihuana for those persons holding a medical prescription or medical authorization. However, this is a blunt instrument which may not be necessary if a Charter compliant regime were put in place or different legislation were passed.
[296] The appropriate resolution, following the declaration of invalidity of the MMPR, is to suspend the operation of the declaration of invalidity to permit Canada to enact a new or parallel medical marihuana regime. As this regime was created by regulation, the legislative process is simpler than the requirement for Parliament to pass a new law.
[297] The declaration will be suspended for six (6) months to allow the government to respond to the declaration of invalidity”products.
The MMPR has been declaredCEN continues to be of no force and effect, but that declaration is put on hold for 6 months to allow the government to deal with new legislation. In the interim, both the MMPR and MMAR stay in effect pursuant to the terms of the Injunction of Manson J of March 21, 2014.
CEN filed a discontinuance of the Application for Judicial Review ('AJR') filed in Canadian Federal Court.
In no way is the discontinuance of the Application an indication that the Company has abandoned its quest forpursue relief and damages from Health Canada's decision to deny the Company a license under the MMPR Program. CEN Biotech completed everything required under the law and to the specification requested by Health Canada officials in order to achieve the important milestone of a pre-license inspection.
After the pre-license inspection, the Health Canada inspector recommended licensure as evidenced in the report.
In its quest for transparency, on October 30, 2014 the company press released the pre-license inspection report. The press release stated “The names and signatures of Health Canada inspectors have been removed to protect their privacy and security. The two minor deficiencies sited in the report were remedied very quickly. Our facility awaits its award of its License to Grow, Harvest and Sell medical marihuana.” A link to the report follows:
https://www.otciq.com/otciq/ajax/showFinancialReportById.pdf?id=128236
The recommendation for licensure is evidenced in the aforementioned link.
As stated in the February 3, 2016 press release: On or about February 2, 2016, CEN Biotech filed a Statement of Claim against the Attorney General of Canada in the Ontario Superior Court of Justice.
In its claim, CEN Biotech claimsJustice, claiming the following:
(a) damages for detrimental reliance in the sum of FIFTEEN MILLION DOLLARS ($15,000,000.00)$15,000,000.00);
(b) damages for pure economic loss in an undetermined amount;
(c) prejudgment and post judgment interest in accordance with sections 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, and section 31 of the Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50, as amended;
(d) the costs of this proceeding on a substantial indemnity basis, plus all applicable taxes; and
(e) such further and other Reliefrelief as to this Honorable Court may seemthe court seems just.
http://finance.yahoo.com/news/creative-edge-nutrition-inc-announces-121300187.htmlThis case is in the discovery phase. We cannot provide any assurances as to the timing or decision or outcome related to our action seeking damages.
Most recently, the license sought by the company under the MMPR has been declared to be of no force and effect by the Federal Court (but that declaration is put on hold for 6 months to allow the government to deal with new legislation).SEC Comment.
In connection with the interim, bothdistribution by Creative of CEN’s common stock on February 29, 2016 and the MMPR and MMAR stay in effect pursuantForm 10 registration statement filed by CEN to register its shares of common stock under the termsExchange Act, CEN received comments by the Staff of the InjunctionSecurities and Exchange Commission, including a letter dated May 4, 2016 in which the Staff noted that they “…continue to question the absence of Manson J of March 21, 2014. A link to the courts decision follows:
http://cas-cdc-www02.cas-satj.gc.ca/rss/T-2030-13%20reasons%2024-02-2016%20(ENG).pdf
The company, in consultation with its legal strategists and attorneys have made the decision to file a discontinuanceSecurities Act registration of the Judicial review and continue on with its suit against Health Canada in Ontario Superior Court.
This decisionspin-off distribution”. In the event that the distribution of shares of CEN’s common stock was made because a license issued indistribution that required registration under the Securities Act of 1933, as amended (the “Securities Act”), then the Company could be subject to enforcement action by the SEC that claims a program deemed unconstitutional appears to hold no intrinsic value. Although the continuanceviolation of Section 5 of the Judicial Review would allow Bahige (Bill) Chaaban, the President & CEOSecurities Act and could be subject to a private right of CEN Biotech Inc the ability to fight the libel to his name, it is in the best interest of shareholders to pursue the best legal avenueaction for the company, this being the Ontario Superior court suit. rescission or damages.
OMB HEARING:
CEN Biotech in conjunction with the property owner of 20 North Rear Rd filed appeals to the Town of Lakeshores zoning bylaws and the Official Plan regarding Medical Marihuana facilities.
The property owner withdrew his appeal before the OMB. CEN filed a discontinuance of its Appeal before the Ontario Municipal Board.
In no way is the discontinuance of the Appeal an indication that the Company has abandoned its quest for relief and damages from Health Canada's decision to deny the Company a license under the MMPR Program and the Town of Lakeshore’s interference with the company’s licensing process.
Most recently, the license sought by the company under the MMPR has been declared to be of no force and effect by the Federal Court (but that declaration is put on hold for 6 months to allow the government to deal with new legislation).
In the interim, both the MMPR and MMAR stay in effect pursuant to the terms of the Injunction of Manson J of March 21, 2014. A link to the courts decision follows:
http://cas-cdc-www02.cas-satj.gc.ca/rss/T-2030-13%20reasons%2024-02-2016%20(ENG).pdf
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The company, in consultation with its legal strategists and attorneys have made the decision to file a discontinuance of the Ontario Municipal Board Appeal. The company will continue on with its suit against Health Canada in Ontario Superior Court. It is likely that the Town of Lakeshore will be added as a party to the lawsuit.
This decision was made because a license issued in a program deemed unconstitutional appears to hold no intrinsic value. In light of prospective nationwide legalization, the company believes it is the best use of resources and in the best interest of shareholders to pursue the best legal avenue for the company, this being the Ontario Superior court suit.
ONTARIO SUPERIOR COURT CASE
On or about February 2, 2016, CEN Biotech filed a Statement of Claim against the Attorney General of Canada in the Ontario Superior Court of Justice. In its claim, CEN Biotech claims the following:
(a) damages for detrimental reliance in the sum of FIFTEEN MILLION DOLLARS ($15,000,000.00);
(b) damages for pure economic loss in an undetermined amount;
(c) prejudgment and post judgment interest in accordance with sections 128 and 129 of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended, and section 31 of the Crown Liability and Proceedings Act, R.S.C., 1985, c. C-50, as amended;
(d) the costs of this proceeding on a substantial indemnity basis, plus all applicable taxes; and
(e) such further and other Relief as to this Honourable Court may seem just.
Item 1A. Risk Factors
You should be aware that there are various risks to an investment in our common stock. You should carefully consider these risk factors, together with all of the other information included in this Form 10-Q, before you decide to invest in shares of our common stock.
If any of the following risks develop into actual events, then our business, financial condition, results of operations and/or prospects could be materially adversely affected. If that happens, the market price of our common stock, if any, could decline, and investors may lose all or part of their investment.
CEN Biotech, Inc. Announces the use of Social Media For Company Announcements in addition to Press Releases
As done by its former parent company Creative Edge Nutrition Inc., CEN Biotech a specialty pharmaceutical company announces that The Securities and Exchange Commission issued a report that makes clear that companies can use social media outlets like Facebook and Twitter to announce key information in compliance with Regulation Fair Disclosure (Regulation FD) so long as investors have been alerted about which social media will be used to disseminate such information. See link below
https://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513574
Bill Chaaban commented, "In the fast paced business environment, we cannot keep our shareholders up to date with daily press releases on the news wire. The SEC with its forward thinking has allowed companies to update shareholders daily if required through the use of our company’s social media outlets. This allows our shareholders to make quick educated decisions in their investments.
Risks Related to the Business
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We plan on being a specialty pharmaceutical business with an initial emphasis on supplying medical marijuana in Canada. However, we have not yet generated any revenues nor received necessary licenses that are needed to commence business. We cannot provide any assurances that we will generate revenues and, if we do, when and how much the initial revenue will be. If we are unable to generate revenue our business will fail.
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We have not yet generated any revenue and have no committed sources of ongoing debt or equity financing. At September 30, 2016, we had cash of $31,573 and a working capital deficit of $14,154,436. Our independent registered auditors included an explanatory paragraph in their opinion on our financial statements as of and for the year ended December 31, 2015 that states that this lack of resources causes substantial doubt about our ability to continue as a going concern. No assurances can be given that we will generate sufficient revenue or obtain necessary financing to continue as a going concern.
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On March 11, 2015, the Company’s application for a license to produce marijuana for medical purposes was formally rejected by Health Canada. The Company filed an application for judicial review in Canadian federal court on April 10, 2015 in order to obtain a reversal of this decision. The outcome of this legal proceeding cannot be predicted. The file is currently making its way through the legal process in Federal Court in Canada. We cannot predict the likely outcome of this litigation. CEN withdrew its application for Judicial Review becausethe MMPR has been declared to be of no force and effect, but that declaration is put on hold for 6 months to allow the government to deal with new legislation. In the interim, both the MMPR and MMAR stay in effect pursuant to the terms of the Injunction of Manson J of March 21, 2014. The company has withdrawn its application for Judicial Review based on the court’s declaration.
There is no assurance that our request for a license to produce and market medical marijuana will be approved by Health Canada. Our failure to obtain a license from Health Canada would materially and adversely affect our company's operations, and we would need to revise or abandon our business plan accordingly.
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Our site was chosen in conjunction with meetings with the Economic Development Officer for the Town of Lakeshore. We chose this location because of assurances from Town officials stating that the property had the proper zoning to undertake our stated business plan. We also provided a written notice was given to the Town of Lakeshore of our intent to use our agricultural zoned land for growing medical marihuana. We then applied for and received building permits from the Town of Lakeshore. We underwent numerous building inspections from the Town’s building department and successfully closed out the permits. We contend that our site is grandfathered for its agricultural use since we relied on the statements and actions from the Town. The Town is now retroactively attempting to enact a bylaw to change the zoning required. We have filed a claim against the Town before the Ontario Municipal Board but cannot predict the timing or outcome of this action.The property owner withdrew his appeal before the OMB.
CEN filed a discontinuance of its Appeal before the Ontario Municipal Board.
In no way is the discontinuance of the Appeal an indication that the Company has abandoned its quest for relief and damages from Health Canada's decision to deny the Company a license under the MMPR Program and the Town of Lakeshore’s interference with the company’s licensing process.
Most recently, the license sought by the company under the MMPR has been declared to be of no force and effect by the Federal Court (but that declaration is put on hold for 6 months to allow the government to deal with new legislation).
In the interim, both the MMPR and MMAR stay in effect pursuant to the terms of the Injunction of Manson J of March 21, 2014. A link to the courts decision follows:
http://cas-cdc-www02.cas-satj.gc.ca/rss/T-2030-13%20reasons%2024-02-2016%20(ENG).pdf
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The company, in consultation with its legal strategists and attorneys have made the decision to file a discontinuance of the Ontario Municipal Board Appeal. The company will continue on with its suit against Health Canada in Ontario Superior Court. It is likely that the Town of Lakeshore will be added as a party to the lawsuit.
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Demand for medical marijuana is dependent on a number of social, political and economic factors that are beyond the control of our company. While we believe that demand for medical marijuana will continue to grow in Canada, there is no assurance that such increase in demand will happen or that our business venture will be profitable.
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If we receive our license from Health Canada, we will be operating in a highly competitive marketplace with various competitors. Increased competition may result in lower than anticipated gross margins and/or loss of market share, either of which would seriously harm its business and results of operations. Management cannot be certain that we will be able to compete against current or future competitors or that competitive pressure will not seriously harm our business. Some of our potential competitors are much larger and have greater access to capital, sales, marketing and other resources. These competitors may be able to respond more rapidly to new regulations or devote greater resources to the development and promotion of their business model than we can. Furthermore, some of these competitors may make acquisitions or establish co-operative relationships among themselves or with third parties in the industry to increase their ability to rapidly gain market share.
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Our operations and business strategy are completely dependent upon the knowledge and business connections of Mr. Chaaban, our President, Chief Executive Officer and Chairman. If he should choose to leave us for any reason or become ill and is unable to work for an extended period of time before we have hired additional personnel, our operations will likely fail. Even if we are able to find additional personnel, it is uncertain whether we could find someone who could develop our business along the lines described in this information statement. We will fail without the services of Mr. Chaaban or an appropriate replacement(s).
We intend to acquire key-man life insurance on the life of Mr. Chaaban naming us as the beneficiary when and if we obtain the resources to do so and if he is insurable at the time of application. We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such insurance in the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel and independent contractors.
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Mr. Chaaban currently has an employment agreement calling for annual compensation of $1,200,000 per year and will make all decisions determining the amount and timing of his compensation for the foreseeable future until, if ever, we establish a compensation committee of the board of directors. His decisions about compensation may not be in the best interests of other shareholders.
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At December 31, 2015, CEN has current notes and loans and accrued expenses aggregating $13,808,984 all of which are included in the spinoff at February 29, 2016. Since CEN has no current revenue, we will have to locate other sources of debt or equity financing in order to meet these obligations. If we are unable to do so, we may default on some commitments which could have a very negative effect on our business.
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Following the filing of our registration statement on Form 10, we became required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be specifically predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys. However, based on conversations with our professionals, the annual costs are likely to range from $25,000 to $75,000 in the first year or two after our Registration statement goes effective. The incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
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Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Our internal controls may become inadequate or ineffective if our operations grow, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
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As a planned producer and a retailer of a controlled substance in Canada that has been commonly associated with various other narcotics, violence, and criminal activities, there is a risk that our business would result in negative publicity and public opinion. Lack of understanding and awareness of the medical benefits associated with cannabis is poorly understood across the mainstream public despite various efforts to build such awareness. These conditions could adversely impact our ability to operate and could have a negative impact on our stock price.
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Given the nature of our planned initial product and its lack of legal availability outside of the therapeutic channels, as well as the planned concentration of abundant stock within one facility, despite meeting or exceeding Health Canada’s security requirements, there remains a risk of shrinkage as well as theft. Also, as an agricultural product, despite meeting or exceeding Health Canada’s requirements regarding good production practices, there remains a risk of diseases and pests impacting not only yield and revenue but overall product quality to consumers.
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We may be subject to liability of our products and must ensure quality control of the product at every stage. As a planned manufacturer and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of our planned products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of our products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with its clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our potential products.
Risks Related to Our Common Stock
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We have no committed source of financing. Wherever possible, we may attempt to use non-cash consideration to satisfy obligations or obtain financing. Our board of directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions would result in dilution of the ownership interests of existing shareholders may further dilute common stock book value, and that dilution may be material.
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As of April 18, 2016, we had not received a trading symbol for our common stock, and there is currently no established public market whatsoever for our securities. A market maker has agreed to file an application with FINRA on our behalf so as to be able to quote the shares of our common stock on the OTCQB maintained by the OTC Markets Group. There can be no assurance that the market maker’s application will be accepted by FINRA nor can we estimate as to the time period that the application will require or that any buying of our shares will ever take place.
Because of the possible low price of our securities, many brokerage firms may not be willing to effect transactions in these securities. Purchasers and holders of our securities should be aware that any market that develops in our stock may be subject to the penny stock restrictions.
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If we become able to have our shares of common stock quoted on the OTCQB, we will then try, through a broker-dealer and its clearing firm, to become eligible with the Depository Trust Company ("DTC") to permit our shares to trade electronically. If an issuer is not “DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (especially the OTCQB), means that shares of asmaller reporting company, will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions - like all companies on the OTCQB. What this boils down to is that while DTC-eligibility is not a requirement to trade on the OTCQB, it is a necessity to process trades on the OTCQB if a company’s stock is going to trade with any volume.
We have been advised that DTC retains the right to deny a company the ability to use their depository without providing a reason for the denial. The eligibility review process should include a clean presentation of facts and documents that meet DTC’s standards. Eligibility requirements include that the securities must be: issued in a transaction registered with the SEC pursuant to the Securities Act of 1933, as amended; or issued in a transaction exempt from registration pursuant to a '33 Act exemption, that at the time of the request for DTC eligibility no longer involves transfer or ownership restrictions; or eligible for resale pursuant to Rule 144A or Regulation S under the '33 Act (and must otherwise meet DTC's eligibility criteria).
Although we believe that we meet the requirements of DTC listing, there are no assurances that our shares will ever become DTC-eligible or, if they do, how long it will take.
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Our ultimate goal is to have our shares listed on the NYSE MKT. That market has various requirements regarding a company’s financial condition and other matters like independent directors and other corporate governance matters. We cannot predict the likelihood or timing of being accepted for listing on the NYSE MKT.
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Our shares may be considered a “penny stock.” Rule 3a51-1 of the Exchange Act establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. This classification will severely and adversely affects any market liquidity for our common stock if our shares have a market price of less than $5.00 per share. We cannot predict the likely price of our shares if a market does develop.
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CEN cannot predict the likelihood of a market developing for our shares or, if developed, what the share price will be. If the price per share is less than $5.00, the shares will be considered to be penny stocks. Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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CEN is a Canadian Company. As such it may be difficult and expensive to enforce legal judgements issued by a court in the United States against CEN and possibly its officers or directors. Similarly, it may be difficult and expensive for an American shareholder to bring litigation against CEN or its officers and directors in a Canadian court.
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We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.
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The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York Stock Exchange and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions, we have not yet adopted these measures.
We do not currently have independent audit or compensation committees. As a result, our president has the ability, among other things, to determine his own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide the information called for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.this Item.
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The Canadian Government has indicated that it intends to legalize the use of medical marijuana. With recent court rulings, it appears that the average Canadian may have the ability to grow their own medical marijuana. This could have a tremendous impact on the value of a medical marijuana license. Medical marijuana laws in Canada are in flux and there is uncertainty regarding the value a license may have.
For all of the foregoing reasons and others set forth herein, an investment in our securities in any market that may develop in the future involves a high degree of risk.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults upon Senior Securities
NoneCEN has a payment default with respect to the term loan payable to Global Holdings International, LLC, in the principal amount of $9,675,000 and which bears interest at 15% per annum which was due on June 30, 2016. The aggregate amount due under this loan as of the date of the filing of this report is $13,111,796. Interest and default interest and related fees accrue at $450,000 per month. This note is secured by certain of the Company's equipment which we value at approximately $10,533.
Item 4 Mine Safety Disclosures
N/A
Item 5 Other Information
None
Item 6 Exhibits
Exhibit Number | Description |
| Section 302 Certification of Chief Executive Officer |
31.2* | Section 302 Certification of Chief Financial Officer |
| Certification |
32.2** | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS XBRL*** | Instance |
101.SCH XBRL*** |
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101.CAL XBRL*** | Taxonomy Extension Calculation Linkbase Document |
101.DEF XBRL*** | Taxonomy Extension Definition Linkbase Document |
101.LAB XBRL*** | Taxonomy Extension Label Linkbase Document |
101.PRE XBRL*** | Taxonomy Extension Presentation Linkbase Document |
* | Filed herein. | |
** | Furnished herewith. | |
***) | Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 21, 2017
| CEN Biotech, Inc. | |||
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| By: | /s/Joseph Byrne | |
| Name: | Joseph Byrne | ||
Title: | Chief Executive Officer | |||
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By: | /s/Richard Boswell | |||
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| Richard Boswell | ||
Chief Financial Officer |
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