Attached files
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| EXCEL - IDEA: XBRL DOCUMENT - CN Resources Inc. | Financial_Report.xls |
| EX-32.01 - EX-32.01 - CN Resources Inc. | ex32-01.htm |
| EX-31.01 - EX-31.01 - CN Resources Inc. | ex31-01.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2014
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 000-54482
CN RESOURCES INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
255 Duncan Mill Road, Suite 203
Toronto, Ontario
Canada M3B 3H9
(Address of principal executive offices, including zip code)
(416) 510-2991
(Registrant’s telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 last 90 days. YES x NO o
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 (SS 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 o NO x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 26,100,000 as of April 14, 2014.
TABLE OF CONTENTS
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Page
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PART I
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Item 1.
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3
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Item 2.
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9
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Item 3.
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10
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Item 4.
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10
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PART II
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Item 1.
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11
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Item 1A.
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11
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Item 2.
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11
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Item 6.
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11
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12
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PART I. FINANCIAL INFORMATION
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February 28, 2014
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May 31, 2013
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Assets
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Current assets
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Cash and cash equivalents
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$ | 12,019 | $ | 25,468 | ||||
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Other receivable
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4,430 | 288 | ||||||
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Accounts receivable
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24,128 | - | ||||||
| Total current assets | 40,577 | 25,756 | ||||||
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Equipment
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91,837 | - | ||||||
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Accumulated depreciation
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(1,913 | ) | ||||||
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Oil and gas properties - proved
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419,515 | 419,515 | ||||||
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Accumulated depreciation, depletion, and amortization
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(4,370 | ) | - | |||||
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Total assets
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$ | 545,646 | $ | 445,271 | ||||
| Liabilities and Stockholders' Equity | ||||||||
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Liabilities
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Current Liabilities
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Accounts payable
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$ | 7,077 | $ | 13,180 | ||||
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Due to director
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288,755 | 190,718 | ||||||
| Total current liabilities | 295,832 | 203,898 | ||||||
| Stockholders' equity | ||||||||
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Common stock, 100,000,000 of shares authorized
with $0.00001 par value, 26,100,000 issued and |
261 | 261 | ||||||
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Preferred stock, 100,000,000 shares authorized
with $0.00001 par value, none issued |
- | - | ||||||
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Additional paid-in capital
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514,939 | 514,939 | ||||||
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Accumulated deficit during the development stage
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(265,386 | ) | (273,827 | ) | ||||
| Total stockholders' equity | 249,814 | 241,373 | ||||||
| Total liabilities and stockholders' equity | $ | 545,646 | $ | 445,271 | ||||
The accompanying notes are an integral part of these unaudited interim financial statements.
CN RESOURCES INC.
Statements of Operations
(Unaudited)
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For the Three Months Ended
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For the Nine Months Ended
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February 28
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February 28
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February 28
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February 28
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2014
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2013
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2014
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2013
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Revenue
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$ | 97,354 | - | $ | 138,389 | - | ||||||||||
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Royalty and production cost
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44,086 | - | 60,657 | - | ||||||||||||
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Gross profit
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53,268 | - | 77,732 | - | ||||||||||||
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Operating expenses
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| Advertising | - | - | - | - | ||||||||||||
| Bank service charge and bad debt | 98 | - | 234 | 6 | ||||||||||||
| Depreciation and depletion | 3,770 | 6,283 | ||||||||||||||
| Management fee | 6,000 | 6,000 | 18,000 | 18,000 | ||||||||||||
| Professional fees | 3,200 | 1,600 | 13,378 | 7,200 | ||||||||||||
| Regulatory filing | 2,859 | - | 2,859 | - | ||||||||||||
| General and administrative expenses | 9,274 | 11,208 | 27,824 | 39,254 | ||||||||||||
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Total operating expenses
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25,201 | 18,808 | 68,578 | 64,460 | ||||||||||||
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Foreign Exchange Gain/Loss
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(713 | ) | - | (713 | ) | 10,478 | ||||||||||
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Interest income
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$ | - | $ | 6,018 | $ | - | $ | 18,082 | ||||||||
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Net income (loss) for the period
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$ | 27,354 | $ | (12,790 | ) | $ | 8,441 | $ | (35,900 | ) | ||||||
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Loss per common share - basic and diluted
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$ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
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Weighted average common shares
outstanding - basic and diluted |
26,100,000 | 26,100,000 | 26,100,000 | 26,100,000 | ||||||||||||
The accompanying notes are an integral part of these unaudited interim financial statements.
CN RESOURCES INC.
Statements of Cash Flows
(Unaudited)
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For the nine months
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For the nine months
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ended
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ended
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February 28, 2014
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February 28, 2013
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| Cash Flows From Operating Activities | ||||||||
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Net Income (loss) for the period
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$ | 8,441 | $ | (35,900 | ) | |||
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Adjustments to reconcile net loss to net cash in operating activities
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Depreciation and depletion
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6,283 | - | ||||||
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Unrealized gain (loss) on foreign currency
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- | (10,479 | ) | |||||
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Changes in operating assets and liabilities
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Accounts receivable
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(24,128 | ) | - | |||||
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Accounts payable
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(97,940 | ) | (620 | ) | ||||
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Other receivable
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(4,142 | ) | (10,117 | ) | ||||
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Net cash used in operating activities
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(111,486 | ) | (57,116 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
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Due to Director
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107,449 | (5,634 | ) | |||||
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Payment to Director for advances
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(9,412 | ) | ||||||
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Net cash provided by financing activities
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98,037 | (5,634 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (13,449 | ) | (62,750 | ) | ||||
| Cash and cash equivalents, beginning of the period | 25,468 | 87,519 | ||||||
| Cash and cash equivalents, end of the period | 12,019 | 24,769 | ||||||
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Non-cash transactions
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Due to Director for equipment purchased
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91,837 | - | ||||||
The accompanying notes are an integral part of these unaudited interim financial statements.
CN RESOURCES INC.
Notes to the Unaudited Financial Statements
February 28, 2014
1. ORGANIZATION BUSINESS OPERATIONS AND GOING CONCERN
CN RESOURCES INC. (“the Company”) was incorporated in Nevada of the United States of America on May 18, 2010. The Company was in the development stage as defined under the Financial Accounting Standards Board codification 915 “Development Stage Entities” and it intends to identify, acquire, explore and develop natural resources properties in Alberta, Canada. The Company ceased development stage this past quarter when its proved oil properties achieved significant and ongoing revenues.
Going Concern
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has made an insignificant profit of $ 27,354 for the three months ended February 28, 2014 and has an accumulated deficit of $265,386 since inception; further losses are anticipated in the development of its business raising substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from director and or private placements of common stock.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
We recognize oil revenue from interests in producing well as the oil is sold. Revenue from the purchase, transportation, and sale of oil is recognized upon completion of the sale and when transported volumes are delivered.
Property and Equipment
Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful life of the asset, which is 20 years. Depreciation expense for the period ended February 28, 2014 was $1,913.
Oil and Gas Property
Oil and gas exploration and development costs are accounted for using the successful efforts method of accounting.
Oil and gas leasehold acquisition costs are capitalized and included in the balance sheet caption properties, plants and equipment. Leasehold impairment is recognized based on exploratory experience and management’s judgment. Upon achievement of all conditions necessary for the classification of reserves as proved, the associated leasehold costs are reclassified to proved properties.
Oil and gas exploration costs and the costs of carrying and retaining undeveloped properties are expensed as incurred. Exploratory well costs are capitalized, or “suspended,” on the balance sheet pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. If exploratory wells encounter potentially economic quantities of oil and gas, the well costs remain capitalized on the balance sheet as long as sufficient progress assessing the reserves and the economic and operating viability of the project is being made. For complex exploratory discoveries, it is not unusual to have exploratory wells remain suspended on the balance sheet for several years while we perform additional appraisal drilling and seismic work on the potential oil and gas field, or while we seek government or co-venture approval of development plans or seek environmental permitting. Once all required approvals and permits have been obtained, the projects are moved into the development phase, and the oil and gas reserves are designated as proved reserves.
Oil and gas development costs incurred to drill and equip development wells, including unsuccessful development wells, are capitalized.
Depreciation, depletion and amortization of the cost of proved oil and gas properties is calculated using the unit-of-production method. The reserve base used to calculate depreciation, depletion and amortization for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are taken into account. Depletion expense for the period ended February 28, 2014 was $4,370.
Assets are grouped in accordance with the Extractive Industries - Oil and Gas Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
Amortization rates are updated quarterly to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions and 4) impairments.
When circumstances indicate that an asset may be impaired, the Company compares expected undiscounted future cash flows at a producing field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on the Company’s estimate of future natural gas and crude oil prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate. During the period ended February 28, 2014, the Company recorded impairment expense of $0.
Exploration Stage Company
The financial statements are no longer presented in accordance with Accounting Standards Codification 915 and SEC Industry Guide 7. The Company ceased to be an Exploration Stage Company in fiscal year 2014 as disclosed in Note 1 above.
3. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.
4. OIL AND GAS PROPERTIES
On March 1, 2013, the Company entered into an agreement with RedWater Energy Corporation to form a joint venture to drill in the Redwater area in Alberta, Canada. The Company agreed to pay 50% of the drilling cost to acquire a 50% working interest in the unproved property. The aggregate cost of the well is estimated to be $672,787. As of February 28, 2014, the Company exchanged the $292,890 note receivable on the balance sheet at May 31, 2012 for the working interest in the well. In addition, the President of the Company invested $175,375 on behalf of the Company in the form of a related party payable. The payable is non-interest bearing and due on demand. Included in the total $419,515 paid to RedWater Energy Corporation was $71,237 for the Company’s portion of the land acquisition cost.
The joint venture well is currently in commercial production. The Company has accounted for the cost of this oil and gas property as proved properties.
5. COMMITMENTS
On March 1, 2013, the Company entered into an agreement with RedWater Energy Corporation (see note 3). The Company agreed to loan RedWater Energy Corporation the other 50% of the drilling cost in the form of a note. The loan will bear interest at 10% per annum payable quarterly, is redeemable at any time without penalty, and shall be secured by a general security agreement of RedWater Energy Corporation in favour of the Company. The Company will receive an additional 10% working interest of the property until the loan is repaid in full. As of February 28, 2014, the Company has made arrangement with a related party and funded this note.
6. DUE TO DIRECTOR
The director loans the company money from time to time on an interest-free due-on-demand basis. As of February 28, 2014, the total amount advanced and unpaid is $288,755.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
This section of the quarterly report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
Our auditors have issued a going concern opinion for our annual financial statements. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues and no revenues are anticipated until we obtain an interest in a property, find mineralized material, delineate an ore body, and begin removing and selling minerals.
Plan of Operation
We have commenced joint venture operation in drilling one oil well in Alberta, Canada, for the three months ended February 28, 2014, the well has been successful in producing light oil in commercial quantity.
Our plan is to jointly develop oil wells with existing players in Alberta, Canada. The joint venture candidates we are seeking must have established oil reserve or development land with drilling locations identified, studied and ready to drill.
We then have to negotiate a reasonably favorable term with the joint venture partner before progressing to actual drilling the well.
We will consider our financial resources before entering into any joint venture arrangements.
We will engage technical expert in due diligence work before finalizing our joint venture arrangement. Once we have determined the development should proceed, we will attempt to raise additional money through a subsequent private placement, public offering or through loans. If we do not raise all of the money we need, we will have to find alternative sources of funding, like a public offering, a private placement of securities, or loans from our officers or others.
Limited Operating History
We have no material operations upon which to base an evaluation of our performance. We are an early stage corporation and have only generated insignificant amount of revenues from operations. We cannot guarantee we will be successful in our business operations in the future. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, possible delays in the exploration of properties we may secure, and possible cost overruns due to price and cost increases in services.
To become profitable and competitive, we will have to conduct research and due diligence work on the properties we intend to acquire before we start development program. We are actively sourcing and evaluating various oil and gas properties, but there is no assurance we will be able to complete an acquisition of oil property of merit and successfully producing oil and generate revenue.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Results of Operations
From Inception on May 17, 2010 to February 28, 2014
Since inception, we obtained a loan from Oliver Xing, our sole director and officer to initiate operations. Cash provided by financing activities from inception on May 17, 2010 to February 28, 2014 is $677,330 which consists of Director advances of $236,042 in addition to $515,200 from common stock issuance, and repayment to the Director of $73,912.
Liquidity and Capital Resources
On August 12, 2011, we closed our direct public offering without involvement of brokers or dealers and sold 5,000,000 shares of common stock in our public offering and raised $500,000.
As of February 28, 2014, we have cash of $12,019, accounts receivable of $24,128 and our total assets were $545,646 which consisted of proved oil and gas assets of $415,145, equipments of $89,924 and our total liabilities were $295,832.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective due to limited segregation of duties, lack of independent directors, and no written internal control procedure manual. The Company plans to address the weakness in control as soon as the Company considers that the financial situation allows the Company to spend the limited resources to mitigate the weakness in control.
There were no material changes in our internal control over financial reporting during the quarter ended February 28, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not aware of any pending or threatened litigation against us or our officers and director in their capacity as such.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
There is no change in securities in the three-month period ended February 28, 2014, except as disclosed below.
On January 12, 2011, our Form S-1 registration statement (SEC file no. 333-167804) was declared effective by the SEC. Pursuant to the S-1, we are offering 2,000,000 shares of common stock minimum, 5,000,000 shares maximum at an offering price of $0.10 per share in a direct public offering, without any involvement of underwriters or broker-dealers.
As at November 30, 2011, we have completed the maximum offering of 5,000,000 common stock at $0.10 per share and received $500,000 and closed the public offering.
There are no additional securities issued for the three months period ended February 28, 2014.
ITEM 6. EXHIBITS
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Exhibit
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Description
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31.01
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32.01
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CN Resources Inc.
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Date: April 14, 2014
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By:
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/s/ Oliver Xing
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Oliver Xing
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President, Principal Executive Officer,
Principal Accounting Officer,
Principal Financial Officer,
Secretary/Treasurer and sole member of the Board of Directors
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