UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

☒   QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2015

 

OR

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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 ☒   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 (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 ☐   NO ☒

 

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.

 

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐    NO  ☒

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 56,100,000 as of October 15, 2015.

 

 

 

TABLE OF CONTENTS

 

		Page
PART I
Item 1.	Financial Statements	3
	Balance Sheets (unaudited)	3
	Statements of Operations and Comprehensive Loss (unaudited)	4
	Statements of Cash Flows (unaudited)	5
	Notes to the Financial Statements (unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
PART II
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Changes in Securities and Use of Proceeds	10
Item 6.	Exhibits	10
Signatures		11

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

CN RESOURCES INC.

Balance Sheets

(Unaudited)

 

		August 31, 2015				May 31, 2015
Assets
Current assets
Cash and cash equivalents		$	3,923,575			$	226,786
Accounts receivable			41,638				30,229
Other receivable			6,368				7,301
Note receivable			988,106				5,343,704
Total current assets		$	4,959,687			$	5,608,020
Total assets		$	4,959,687			$	5,608,020
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Accounts payable		$	21,075			$	16,536
Due to director			611				367,472
Total current liabilities			21,686				384,008
Asset retirement obligation			6,463				6,190
Total liabilities			28,149				390,198
Stockholders' equity
Common stock,100,000,000 of shares authorized with $0.00001 par value, 56,100,000 issued and outstanding			561				561
Preferred stock,100,000,000 shares authorized with $0.00001 par value, none issued			-				-
Additional paid-in capital			6,514,639				6,514,639
Accumulated Other Comprehensive Loss			(836,365	)			(559,076	)
Accumulated deficit			(747,297	)			(738,302	)
Total stockholders' equity			4,931,538				5,217,822
Total liabilities and stockholders' equity		$	4,959,687			$	5,608,020

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

CN RESOURCES INC.

Statements of Operations and Comprehensive Loss

(Unaudited)

 

		For the Three Months Ended
		August 31				August 31
		2015				2014
Revenue
Oil production (net of royality)		$	24,054			$	90,657
Operating expenses
Accretion expenses			273				230
Bank service charge			54				5
Production cost			3,641				7,534
Depreciation and depletion			-				35,069
General and administrative expenses			9,000				9,000
Management fee			6,000				6,000
Professional fees			7,000				4,360
Regulatory filing			8,050				2,597
Total operating expenses			34,018				64,795
Interest income			969				-
Net income (loss) for the period		$	(8,995	)		$	25,862
Loss per common share - basic and diluted		$	(0.00	)		$	0.00
Comprehensive income:
Net income (loss)		$	(8,995	)		$	25,862
Foreign currency translation adjustment			(277,289	)			-
Total comprehensive income (loss)			(286,284	)			25,862
Weighted average common shares outstanding - basic and diluted			56,100,000				56,100,000

 

The accompanying notes are integral part of these unaudited interim financial statements.

 

 

CN RESOURCES INC.

Statements of Cash Flows

(Unaudited)

 

		For the three Months				For the three Months
		ended				ended
		August 31, 2015				August 31, 2014
Cash Flows From Operating Activities
Net Income (loss) for the period		$	(8,995	)		$	25,862
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation, depletion and accretion			-				35,299
Changes in operating assets and liabilities
Accounts receivable			(11,409	)			(31,841	)
Other receivable			933				(905	)
Accounts payable			4,812				198
Net cash used in operating activities			(14,659	)			28,613
Cash Flows from Investing Activities
Notes receivable			3,979,349				-
Cash invested in oil and gas property			-				(13,847	)
Net cash provided by (used in) investing activities			3,979,349				(13,847	)
Cash Flows from Financing Activities
Proceeds from Director advances			9,388				17,400
Payments to director for advances			-				-
Net cash provided by (used in) financing activities			9,388				17,400
Effective of foreign currency rates			(277,289	)			-
Net increase (decrease) in cash and cash equivalents			3,974,078				32,166
Cash and cash equivalents, beginning of the period			226,786			$	6,052,324
Cash and cash equivalents, end of the period			3,923,575			$	6,084,490

 

The accompanying notes are an integral part of these unaudited interim financial statements

 

 

CN RESOURCES INC.

Notes to the Financial Statements

(Unaudited)

August 31, 2015

 

1. BUSINESS OPERATIONS

 

CN Resources Inc. is an independent energy company engaged in the exploration, development, production, and sale of crude oil. Our operations are conducted through a 100% wholly owned Ontario Corporation (also named CN Resources Inc.) which owns a producing joint venture oil well in the Redwater area in Alberta, Canada.

 

2. BASIS OF PRESENTATION

 

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 incurred a loss of $8,995 for the Quarter ended August 31, 2015 and has an accumulated deficit of $747,297 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.

 

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.

 

3. NOTES RECEIVABLE

 

On November 13, 2014, the Company provided a loan in the amount of $1,412,000 (CAD $1,600,000) to an arm’s length party with an interest of 7% per annum. On January 12, 2015 and January 21, 2015, the Company provided a further $4,329,730 (CAD $5,100,000) to the same third party with an interest of 7% per annum. These loans are unsecured and due on demand. Interest payment is due quarterly in arrears. Management intends to earn an interest on the Canadian dollar funds on hand and will call the notes as soon as it deem desirable to do so. The Company called the Notes, and as of August 31, 2015, total $3,726,450 (CAD$4,900,000) has been received, and a further $376,249 (CAD $495,000) was used to offset the loan payable to the President, effectively $4,102,898 (CAD$5,395,000) was received for the Notes. As at August 31, 2015, total amount of the notes received is $4,355,598 (CAD 5,395,000), note receivable remaining outstanding is $988,106 (CAD$1,305,000).

 

 

Subsequent to August 31, 2015, we further received $699,660 (CAD $920,000). Therefore, as of the date of filing, the note receivable outstanding is $292,793 (CAD$385,000) which management anticipates the full amount will be paid shortly.

 

4. DUE TO DIRECTOR

 

The director loans the company money from time to time on an interest-free due-on-demand basis and, as of August 31, 2015, the total amount advanced was $377,059. The Company has successfully asked the President to use the amount owing to him to offset against the outstanding note receivable, effectively shifted the risk of collection to the President. As a result, the President has agreed to be paid by the Note receivable for $376,249 (CAD $495,000) resulting to an unpaid balance is $611 as of August 31, 2015.

 

The Company is currently using the office space from its President and CEO and on rent free basis, the President is also provided telephone and administrative services for the Company on free basis, however, there is no agreement or guarantee that the President will provide the free services for any specific period of time.

 

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

This section of this annual 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.

 

The following discussion and analysis presents management's perspective of our business, financial condition, and overall performance. This information is intended to provide investors with an understanding of our past performance, current financial condition, and outlook for the future, and should be read in conjunction with our Audited Annual Financial Statements Form 10-K.

 

OVERVIEW OF THE COMPANY

 

CN Resources Inc. is an independent energy company engaged in the exploration, development, production, and sale of crude oil. Our operations are conducted through a 100% wholly owned Ontario Corporation (also named CN Resources Inc.) which owns a producing joint venture oil well in the Redwater area in Alberta, Canada.

 

The Company’s immediate core strategy is to create and enhance shareholder value by acquiring proved developed and producing light oil assets, optimize the producing assets to increase production and fully develop the assets potential for reserves. Management believes that this is the best approach to create shareholder value based on risk and rewards analysis.

 

During the Quarter ended August 31, 2105, Crude oil price is still depressed at an historical low level with WTI of $44 per barrel, the Board of Directors has decided to take a cautious approach to further investments in this sector until a clear visibility can be obtained before venturing into any capital commitment.

 

Results of Operations

 

The following is a discussion of our results of operations, financial condition and capital resources. You should read this discussion in conjunction with our Financial Statements and the Notes thereto contained elsewhere in this Form 10-Q. Comparative results of operations for the periods indicated are discussed below.

 

The following table sets forth certain of our oil operating information for the three months ended August 31, 2015 and 2014.

 

		August 31, 2015				August 31, 2014
Production revenue (net of royalty)		$	24,054			$	90,657
Production cost		$	3,641			$	7,534

 

Liquidity and Capital Resources

 

At August 31, 2015, we have cash on hand of $3,923,575 (August 31, 2014 - $6,084,490), Note receivable of $988,106 (2014 – nil) and oil revenue receivable of $41,638 (2014 - $93,173). We have accounts payable of $21,075 (2014 – $16,536) and we have no other material debts to anyone.

 

Planned Capital Expenditures

The Company is evaluating its various options in its development strategies, have not committed to any specific capital expenditure at this time.

 

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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 August 31, 2015 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 August 31, 2015.

 

ITEM 6.  EXHIBITS

 

Exhibit		Description
31.01		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
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

 

 

SIGNATURE

 

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.

 

	CN Resources Inc.
Date: October 15, 2015	By:	/s/ Oliver Xing
		Oliver Xing
		President, Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and sole member of the Board of Directors

 

 

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