Investors Impressed with CEN Biotech Financials
Financial reports are SEC disclosures that provide nominal information regarding a company’s earnings expectations, current financial standing, revenue, and most importantly, transparent financial decisions important to the structural framework of a firm. There has been much speculation and anticipation towards the financial statements (ending Sept 30th 2014) of CEN Biotech, posted on January 13th 2015 in OTCIQ. Many investors believe that the financial statements, (though unaudited) highlighted several key elements that merit discussion as they are instrumental to the company’s future pipeline.
Financial Statement Brief History
On January 22, 1998, the Securities and Exchange Commission (SEC) made a valiant effort to make financial disclosure documents from public companies available in an understandable style of writing, and adopted the “plain English disclosure rule”. In other words, efforts were made for the average investor with relatively little financial background to understand and adequately interpret financial statements to help reduce analysis inefficiencies driven by misinformation and complicated jargon. With the advent of social media platforms, much of the financial statements today can be readily dissected and investigated almost immediately.
To this end, investors of CEN Biotech began a crusade almost instantly to adequately understand the company’s financial statements. Likewise, opponents of the company also reflected with information and collectively addressed their own opinions of the company’s prospects. Unfortunately, today, more than ever, CEN Biotech investors require a “plain English disclosure” analysis of the financial statements to deter the underlying agendas of some opponents aimed to create adverse information regarding the company.
#1 Revenue increase
One of the most important components in a financial statement entails the revenue, or income of the company. Though CEN Biotech is in its early stages of development and structuring, revenue is intrinsically negligible in its quantity, however can speak volumes with the management mechanisms of the company. Investors gave insight that Bill Chaaban and management were able to increase revenue by 1.52% from the subsequent year. Furthermore, CEN Biotech was able to decrease cost of revenue by 80.81%, a record breaking percent change for the company. See chart below:
#2 CEN Biotech Renegotiates Equity
Investors have witnessed profound changes in the last two financial filings of CEN Biotech. Foremost among these changes has been a substantial increase in the ownership of Hemp Technologies, which previously was indicated at 51%. Most recently, the filings reveal that Hemp Technologies, with SCD Enterprise, and Science Defined Nutrition are “wholly-owned subsidiaries” and thus 100% acquired. See filings below:
#3 Note 13- Sale of Net Revenue Interest
Investors indeed showed some concern as to the debt of $9.6 million dollars awarded to CEN Biotech with an interest rate of 12%. However, more research indicated this to be a strategic plan that would allow CEN Biotech to utilize the funds for operational costs and to tease out ventures in Las Vegas.
Delving further with the loan and debt sustainability analyses, investors sought this to be an extremely strategic plan. CEN Biotech recognized the potential of obtaining 100% ownership in revenue. Initially, negotiations with private lenders agreed a substantial 25% stake of revenue of CEN Biotech, leaving CEN Biotech with 75% of total revenue. Per recent financials, the terms of the agreement were modified to allow CEN Biotech to own 100% equity of the company, while paying a total debt of roughly $9.6 million dollars. This debt is a fraction of the cost CEN Biotech would accrue in terms of equity; ultimately saving millions long term (contingent on obtaining license, growth prospects of Hemp, and merger acquisitions).
This may seem alarming to investors, as efforts to maintain zero debt through an equity ownership have been dampened. However, based on long term growth prospects, ownership with 100% equity, and the potential to generate conservatively 300-400 million dollars a year, is one that tremendously benefits the company. Few marijuana companies, if any can claim to have zero lenders, and have 100% equity of their own company, eliminating any corporate hostile take-over effectively.
This new financial restructuring would allow CEN Biotech to utilize 100% of their revenue to aggressively grow the company. With an equity partner, the distribution of profits may otherwise exceed this loan; hindering growth prospects indefinitely. The opportunity of obtaining 100% equity ownership of CEN Biotech would rather quickly allow the debt to be paid within on average 6-10 years, (depending on interest rate and minimum payment of debt financing) saving ultimately millions, if not billions in the process.
#4 Cash Surplus
The analysis of a company’s financial statement also relies heavily on the cash flow from various financial transactions. A salient point investors rely on is the management’s ability to prudently consolidate cash expenses/gains to augment the company’s growth prospects. Though CEN Biotech does not have by any means an impressive cash balance yet, they are one of the few marijuana companies that have recorded an increase in their cash fund. The subsequent year of 2013 compared to 2014 financial period, indicated a cash flow increase from $52,192 to $110,110, yielding a 110 % increase in the company’s cash balance.
#5 Share Dilution Not an Issue
There are a plethora of penny stock scams that implement various share dilution scenarios to cause a sharp decrease in the security for personal gain. Historically, share dilutions have hurt the share price temporarily, depending on the underlying reasons behind the dilution. While a great deal of attention has been made at the shares outstanding (3.5 billion shares), few have pointed out that Bill Chaaban has not directed the company to execute a reverse split in the near future, and or a dilution of shares. Investors should take notice that Bill Chaaban has again taken the best interest of shareholders at hand. Accordingly, the company cancelled 75,000,000 shares to be diluted and also plans to cancel or retire an additional 9,530,000 more shares in the near future. The total number of shares retired would be at 89,530,000 shares total to date. CEN Biotech has strategically utilized the share quantity to build prudent business relations and global dominance.
#6 Hemp Technologies invested in CEN Biotech
Merger acquisitions have been a major component of the corporate market. Strong companies (Apple, Yahoo! Google) with more cash than they can spend are readily able to acquire and merge valuable firms to increase the intrinsic value of their own company. Likewise, the acquired company would also benefit from the merger or acquisition as they can potentially be part of a global market or flourish in a less competitive atmosphere. CEN Biotech has strategically utilized their share structure to acquire Hemp Technologies on March 7th 2014.
As of date, investors did not know the exact details of the acquisition, but financial documents indicated the company issued 15,000,000 shares of its common stock in the quarter ended June 30, 2014 for an estimated amount of $643,500. Speculative questions regarding the acquisition agreement has left much to be desired. Why would a powerful company such as Hemp Technologies be sold at such bargain price, when their net worth and profit margins are well above the amount purchased? Delving further, long investors have speculated that Hemp Technologies inherently recognized the opportunity and growth potential for its company, as well as their potential profit margin in share purchase of common stock. Hence, it would be reasonable to assume, Hemp Technologies invested in CEN Biotech’s long term future potential, similar to most investors worldwide.
Spin Off: Quiet Period Ending Soon
The current financials were paramount to understand. The initiatives of CEN Biotech have both opportunities and risks. In my opinion, the improved financial outlook of 100% equity ownership in revenue provides much greater flexibility for CEN Biotech and a more traditional platform to grow and navigate the company with complete control.
On November 19th, CEN Biotech announced its spin off from Creative Edge Nutrition. As discussed by investors, SEC requires a quiet period of 40-90 days for the company that intends to be spun off. Hence, it has been 62 days since the announcement of the period, and investors are now anticipating news regarding the new company’s operation. CEN Biotech has alas graduated to a more mature phase of the period and has shown exponential improvement in its financial policies and management. As of this writing, the stock price of CEN Biotech has increased 4%, indicating market makers are turning bullish for the 5th consecutive trading day.