Note 13 - Related Party Transactions

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

NOTE

13

– RELATED PARTY TRANSACTIONS

The Company has received loans from several related parties, as described above in Notes

8

and

10.

There are advances of

$1,035,325

and

$875,328

to CEN Ukraine as of

September 30, 2019

and

December 31, 2018,

respectively, which such advances were made for the purpose of funding the operations of CEN Ukraine. CEN Ukraine was founded by Bill Chaaban and he also serves as the Chief Executive Officer and Chairman of the Board of CEN Biotech Ukraine LLC, since

November 2014.

Prior to

December 3, 2017,

Bill Chaaban directly owned

51%

of CEN Ukraine. Subsequent to

December 3, 2017,

Mr. Chaaban directly owned

25.5%

of CEN Ukraine. CEN Ukraine was founded to seek agricultural and pharmaceutical opportunities in Ukraine. Bill Chaaban personally funded the establishment and initial phases of CEN Ukraine. On

December 14, 2017,

the Company entered into a controlling interest purchase agreement with Bill Chaaban and another shareholder of CEN Ukraine for

51%

of the outstanding equity interests of CEN Ukraine. The consideration will be paid by issuing common shares of the Company. The agreement, which is subject to certain conditions, has

not

closed as of

November 18, 2019,

as the Company needs to raise additional funds in order to proceed with the closing.

On

July 12, 2017,

the Company’s Shareholders elected individuals to serve as Directors on the Board. These individuals hold long-term convertible notes payable issued prior to the election. All notes payable bear interest at

5%

per annum and are convertible to common shares with various maturity dates. They became related parties when they were elected.

During the

three

-months ended

September 30, 2019

and

2018,

the Company incurred payroll and consulting expenses of

$39,000

and

$35,014,

respectively, and

$104,000

and

$112,053

during the

nine

-months ended

September 30, 2019

and

2018,

respectively, with certain Board Members and Officers. As of

September 30, 2019

and

December 31, 2018,

$228,800

and

$124,800,

respectively, were payable for such services.

During

2017,

the Company purchased equipment from R&D Labs Canada, Inc., whose president is Bill Chaaban, in exchange for a

$300,000

note payable. This equipment was then sold to CEN Ukraine for a loss of

$255,141

in exchange for a

$44,859

note receivable, payable in

10

equal installments beginning in

2017

through

2026.

No

payments have been received as of

September 30, 2019,

however, management expects this balance to be collectible.

The Company leases

20

North Rear Road, a

10.4

acre site of land in Canada, through a sublease from a relative of the Company’s President. There are

two

buildings on the site –

one

of

27,000

square feet and

one

of

53,000

square feet. There is also a

4,000

square foot vault for security purposes. The Company constructed improvements to this property, including structures and equipment for growing marijuana, security fencing required for licensing as a marijuana producer, and other infrastructure. These improvements were fully impaired during the

4

th

quarter of

2018.

The

20

North Rear Road lease agreement began on

September 1, 2013

and required annual rent payments of CAD

$339,000,

including tax. At

December 31, 2016,

the balance sheet included accrued rent of

$552,934,

owed to Jamaal Shaban (“Lessor”), cousin of Bill Chaaban. Concurrently, the Lessor had fallen behind on a mortgage payable on the property. Effective

January 2017,

the Company entered into agreements to terminate the initial lease, enter into a convertible debt note with the Lessor’s creditor, and begin a new lease agreement for the same property. The new lease agreement calls for monthly rental payments of CAD

$4,000

plus taxes for a period of

five

years. In exchange, the Company issued convertible notes payable of

$824,446

in satisfaction of the accrued rent and future rent. The lease has been accounted for as an operating lease, and the amount of the note in excess of the accrued rent was treated as a deferred lease asset amortized over the

5

-year lease. However, in conjunction with the impairment in the

4

th

quarter of

2018,

the remaining deferred lease asset was fully expensed. As of

September 30, 2019,

the operating right of use asset was

$74,902

and the associated liability was

$71,882,

utilizing an

8%

discount rate. During the

three

-months ended

September 30, 2019

and

2018,

lease expenses of

$9,098

and

$22,846,

respectively, and

$24,190

and

$68,417

during the

nine

-months ended

September 30, 2019

and

2018,

respectively, related to this agreement were recognized within general and administrative expenses.

The Company also leases office space in Windsor, Ontario from R&D Labs Canada, Inc., whose president is Bill Chaaban. Under the lease agreement effective

October 1, 2017,

monthly rents of CAD

$2,608

are due through

September 2022,

at which point monthly rents of CAD

$3,390

are due. As of

September 30, 2019,

the operating right of use asset was

$161,405

and the associated liability was

$162,692,

utilizing an

8%

discount rate. During the

three

-months ended

September 30, 2019

and

2018,

lease expenses of

$5,945

and

$6,044,

respectively, and

$17,983

and

$18,054

during the

nine

-months ended

September 30, 2019

and

2018,

respectively, related to this agreement were recognized within general and administrative expenses.

As of

September 30, 2019,

the weighted average remaining lease term was approximately

6.5

years and the weighted average discount rate used to determine operating lease liabilities was

8%.