CEN BIOTECH INC - Quarter Report: 2017 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the transition period from _______to________

Commission file number 001-37567.

CEN BIOTECH, INC.

(Exact name of registrant as specified in its charter)

7405 Tecumseh Road East Suite 300 Windsor, Ontario N8T 1G2, Canada

(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 [ X ] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer [  ]   Accelerated Filer [  ]       Non-Accelerated Filer [  ]      

Smaller Reporting Company [X ] Emerging growth company [  ]      

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [  ] No [X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

At November 17, 2017, the number of shares of the Registrant’s common stock outstanding was 10,525,000.

CEN BIOTECH, INC.

INDEX

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

There are statements in this quarterly report that are not historical facts. These “forward-looking statements” can be identified by use of terminology such as “anticipate,” “believe,” “estimate,” “expect,” “hope,” “intend,” “may,” “plan,” “positioned,” “project,” “propose,” “should,” “strategy,” “will,” or any similar expressions. You should be aware that these forward-looking statements are subject 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. You are cautioned to not place 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

CEN BIOTECH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2017 (Unaudited) and DECEMBER 31, 2016

See accompanying notes to financial statements.

CEN BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

AND THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Unaudited)

See accompanying notes to financial statements.

CEN BIOTECH, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(Unaudited)

See accompanying notes to financial statements.

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, 2016 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 as a wholly-owned subsidiary of the Company and was terminated on March 20, 2017. Intercompany account balances and transactions are eliminated in 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 Marijuana 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 jurisdictions where it the use of marijuana is 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 U.S. GAAP.  The Company has elected a calendar year end. The functional currency of the Company is the U.S. Dollar. All amounts presented in the Company’s financial statements are in U.S. Dollars.

Use of Estimates and Assumptions

Preparation of the financial statements in conformity with U.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.  

Impairment of Long-Lived Assets

The Company's 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 September 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 September 30, 2017 or 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.

Reclassification

Certain amounts in prior period consolidated financial statements have been reclassified to conform current period presentation.

NOTE 2 – GOING CONCERN

The accompanying condensed financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, a substantial doubt has been raised with regard to the ability of the Company to continue as a going concern as the Company had total liabilities in excess of its total assets, the Company had an accumulated deficit of $16,889,864 at September 30, 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. 

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

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. We 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 the Ontario Superior Court of Justice, 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 related to our action seeking damages.

NOTE 4 – NOTES PAYABLE

Short term loans payable consists of the following at September 30, 2017 and December 31, 2016:

NOTE 5 – SHORT TERM LOANS PAYABLE – RELATED PARTY

Short term loans payable to related parties consist of the following at September 30, 2017 and December 31, 2016:

NOTE 6 – SHORT TERM CONVERTIBLE NOTES

Short term convertible notes consist of the following at September 30, 2017 and December 31, 2016:

NOTE 7 – LONG TERM CONVERTIBLE NOTES

Long term convertible notes consist of the following at September 30, 2017 and December 31, 2016:

NOTE 8 – LONG TERM CONVERTIBLE NOTES RELATED PARTY

Long term convertible notes to related parties consist of the following at September 30, 2017 and December 31, 2016:

NOTE 9 – 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 Canadian Corporation, and Stevan (Steve) Pokrajac.

The material consideration given by Company was:

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.

The Company intends to explore using the Cold 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 Company has assigned no value to these since their value was not relevant to or calculated in the Company’s offer for acquisition. Therefore no impairment will be necessary if these assets are disposed of.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Our $21,475,002 of indebtedness includes accrued interest of $4,519,540, as well as notes payable, notes payable to related parties, convertible notes and convertible notes to related parties totaling $16,579,050 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.

NOTE 11 – LEASE

The Company leases space for operations in Canada which requires a monthly rent payment of $3,205. Installment amounts at September 30, 2017 for the following five years are as follows:

NOTE 12 – RELATED PARTY TRANSACTIONS

On July 12, 2017, Mr. Bill Chaaban resigned as Chief Executive Officer of the Company. The resignation did not result from any disagreements with the Company or its management. Mr. Chaaban will continue to serve as Chairman of the Board and as President of the Company. Mr. Chaaban holds long term convertible notes bearing interest 12% per annum and are convertible to 871,576 common shares with a maturity date of August 17, 2018.

On July 12, 2017, the Company 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.

NOTE 13 - SUBSEQUENT EVENTS

In accordance with ASC 855, Subsequent Events, the Company has evaluated subsequent events from September 30, 2017 through November 17, 2017, the date of issuance of the last quarterly financial statements, and has determined that it has no material subsequent events to disclose.

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Explanatory Note

Unless otherwise noted, references in this Form 10-Q to “CEN,” the “Company,” “we,” “our” or “us” means CEN Biotech, Inc., the 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, 2016. Because of its nature of a development stage company, the reported results will not necessarily reflect the future.

Corporate Overview and History

In November 2013, Creative announced plans to separate into two publicly-traded companies: one comprising of its planned specialty pharmaceutical business located in Canada, the other comprised of its nutritional supplements business. As part of the separation, Creative transferred substantially all of the assets and liabilities of the planned specialty pharmaceutical business to CEN. The distribution was through a pro rata distribution of CEN shares to Creative shareholders on February 29, 2016 that was 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 a transaction to acquire assets, including patented Cold LED Lighting Technology, from Tesla Digital, Inc., a Canadian Corporation, and Stevan (Steve) Pokrajac.

The material consideration given by Company in this acquisition was:

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.

The Company intends to explore using the Cold 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 Company has assigned no value to these since their value was not relevant to or calculated in the Company’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.

        Our historical financial statements have been prepared on a stand-alone basis in conformity with U.S. GAAP.

RESULTS 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 will seek to raise additional capital through, among other things, the sale of equity or debt securities. There are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.

We 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 September 30, 2017 and 2016

Revenue

We recognized $0 in revenue during the three months ended September 30, 2017 and during the three months ended September 30, 2016, as we have not commenced revenue generating operations to date.

Operating Expenses

During the three months ended September 30, 2017, our operating expenses were $516,913 compared to $182,668 during the same period for the prior fiscal year. During the three months ended September 30, 2017, our operating expenses were comprised of salary and consulting fees of $195,381, foreign currency exchange loss of $49,094, as well as other general and administrative item of $272,438. By comparison, for the three months ended September 30, 2016, our operating expenses were comprised of salary and consulting fees of $24,000, foreign currency gain of $1,480 as well as other general and administrative items of $160,148.

Expenses incurred during the three months ended September 30, 2017 compared to the three months ended September 30, 2016 increased primarily due to increases in the use of consultants 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 three months ended September 30, 2017, our other income and expense items totaled $604,841 expense compared to $413,669 expense for the three months ended September 30, 2016. During the three months ended September 30, 2017, our other income and expense items were comprised of interest fees of $518,894 and related parties interest of $85,947. By comparison, for the three months ended September 30, 2016, our other income and expense items were of interest fees of $353,727 and related parties interest of $59,942. The Company has not produced revenue and has borrowed money to fund operating activities, resulting in higher interest expenses.

Net Loss

Our net loss for the three months ended September 30, 2017 was $1,121,754 compared to a net loss of $596,337 for the three months ended September 30, 2016 primarily due to the factors discussed above.

Operating Summary for the Nine Months Ended September 30, 2017 and 2016

Revenue

We recognized $0 in revenue during the nine months ended September 30, 2017 and during the nine months ended September 30, 2016, as we have not commenced revenue generating operations to date.

Operating Expenses

During the nine months ended September 30, 2017, our operating expenses were $1,737,027 compared to $617,539 during the same period for the prior fiscal year. During the nine months ended September 30, 2017, our operating expenses were comprised of salary and consulting fees of $498,158, foreign currency exchange loss of $93,237, as well as other general and administrative item of $1,145,632. By comparison, for the nine months ended September 30, 2016, our operating expenses were comprised of salary and consulting fees of $95,239, salary and consulting fees related parties, $24,000, foreign currency loss of $54,123 as well as other general and administrative items of $444,177.

Expenses incurred during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 increased primarily due to increases in the use of consultants 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 nine months ended September 30, 2017, our other income and expense items totaled $1,763,052 expense compared to $1,182,818 expense for the nine months ended September 30, 2016. During the nine months ended September 30, 2017, our other income and expense items were comprised of interest fees of $1,552,275 and related parties interest of $210,777. By comparison, for the nine months ended September 30, 2016, our other income and expense items were of interest fees of $1,020,051 and related parties interest of $165,088, as well as sale of equipment of $2,321. The Company has not produced revenue and has borrowed money to fund operating activities, resulting in higher interest expenses.

Net Loss

Our net loss for the nine months ended September 30, 2017 was $3,500,079 compared to a net loss of $1,800,356 for the nine months ended September 30, 2016 primarily due to the factors discussed above.

Liquidity and Capital Resources

As of September 30, 2017, we had assets of $4,595,233, comprised of: cash of $60,388, property, plant and equipment, net of $15,017, patent asset of $2,209,152, improvements in process of $1,412,487, loans due from CEN Biotech Ukraine of $775,328 and other accounts receivable of $122,861. As of September 30, 2017, we had liabilities of $21,475,002, comprised of: accounts payable of $85,767, accounts payable – related party of $2,994, accrued interest of $4,016,484, accrued interest to related parties of $503,056, accrued expenses of $287,650, short term convertible notes to related parties of $849,127, loans payable of $9,983,501, short term convertible notes of $885,207, long term convertible notes of $2,150,904 and long term convertible notes to related parties of $2,710,312.

Our $21,475,002 of indebtedness includes accrued interest of $4,016,484, accrued interest to related parties of $503,056 as well as notes payable, notes payable to related parties, convertible notes and convertible notes to related parties totaling $16,579,050, 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.

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 Operating Activities

We have not generated positive cash flows from operating activities. During the nine months ended September 30, 2017, we used $2,500,213 in operating activities compared to $369,147 during the nine months ended September 30, 2016. The increase is primarily due to operating expenses.

Cash Flows from Investing Activities

Our use of cash flow for investing activities during the first nine months ended September 30, 2017 totaling $492,372 compared to the same period in 2016 of $302,923. The increase is due to acquisition of fixed assets and advance on acquisitions in 2017.

Cash Flows from Financing Activities

During the first nine months ended September 30, 2017, financing activities equaled $2,990,592. This included loans (net foreign exchange) to fund our working capital requirements of $16,553,398. This includes new convertible notes held by investors during the first nine months ended September 30, 2017 totaling $2,990,592, with conversion rights totaling up to 1,842,723 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, 2016 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 U.S. Dollar is the functional currency, because the bulk of the Company’s transactions have been in U.S. dollars, and because the Company has received the vast majority of its funding in U.S. 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 1 to the financial statements, included elsewhere in this filing, 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 September, 2017. The Company currently leases space for operations in Canada.

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 effect. 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 over Disclosure Controls and Procedures and Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.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:

As of September 30, 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 in Internal 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 September 30, 2017 was effective.

During the quarter ended September 30, 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

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.

We discontinued this action in February 2016 after a February 24, 2016 decision in a case in which the Company was not a party (Neil Allard, Tanya Beemish, David Hebert And Shawn Davey V. Her Majesty The Queen In Right Of Canada). The Canadian federal court decision determined that the plaintiff’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. We understand that the federal government of Canada is re-evaluating the MMPR regime and the legalization or permitting of marijuana for medical and other uses including the right of persons to grow, harvest, manufacture and distribute marijuana related products.

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 the Ontario Superior Court of Justice, claiming 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 the court seems just.

This 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.

SEC Comment.

In connection with the distribution by Creative of CEN’s common stock on February 29, 2016 and the Form 10 registration statement filed by CEN to register its shares of common stock under the Exchange Act, CEN received comments by the Staff of the Securities and Exchange Commission, including a letter dated May 4, 2016 in which the Staff noted that they “…continue to question the absence of Securities Act registration of the spin-off distribution”. In the event that the distribution of shares of CEN’s common stock was a distribution that required registration under the Securities Act of 1933, as amended (the “Securities Act”), then the Company could be subject to enforcement action by the SEC that claims a violation of Section 5 of the Securities Act and could be subject to a private right of action for rescission or damages.

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: November 17, 2017

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