UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

x QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED  FEBRUARY 29, 2016

OR

o 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 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.

 

	Large Accelerated Filer	o	Accelerated Filer	o
	Non-accelerated Filer	o	Smaller Reporting Company	x

 

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: 56,100,000 as of April 14, 2016

 

 

 

TABLE OF CONTENTS

 

		Page
PART I
Item 1.	Financial Statements	1
	Consolidated Balance Sheets (unaudited)	1
	Consolidated Statements of Operations and Comprehensive Loss (unaudited)	2
	Consolidated Statements of Cash Flows (unaudited)	3
	Notes to the Consolidated Financial Statements (unaudited)	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4.	Controls and Procedures	6
PART II
Item 1.	Legal Proceedings	7
Item 1A.	Risk Factors	7
Item 2.	Changes in Securities and Use of Proceeds	7
Item 6.	Exhibits	7
Signatures		8

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

  

CN RESOURCES INC.

Consolidated Balance Sheets

(Unaudited)

 

		February 29, 2016				May 31, 2015
Assets
Current assets
Cash and cash equivalents		$	4,811,086			$	226,786
Accounts receivable			22,760				30,229
Note receivable			-				5,343,704
Other receivable			1,729				7,301
Total current assets		$	4,835,575			$	5,608,020
Total assets		$	4,835,575			$	5,608,020
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Accounts payable		$	13,658			$	16,536
Due to director			18,996				367,472
Total current liabilities			32,654				384,008
Asset retirement obligation			7,009				6,190
Total liabilities			39,663				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			(938,532	)			(559,076	)
Accumulated deficit			(780,756	)			(738,302	)
Total stockholders' equity			4,795,912				5,217,822
Total liabilities and stockholders' equity		$	4,835,575			$	5,608,020

 

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

 

 

CN RESOURCES INC.

Consolidated Statements of Operations & Comprehensive Loss

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		February 29				February 28				February 29				February 28
		2016				2015				2016				2015
Revenue
Revenue (net of royalty)		$	9,821			$	11,837			$	53,774			$	151,693
Operating expenses
Bank service charge and bad debt			102				79				205				176
Production and operating expenses			5,820				19,510				17,148				32,383
Depreciation and depletion			-				19,754				-				63,334
Management fee			6,000				6,000				18,000				18,000
Professional fees			8,250				39,396				25,760				59,456
Regulatory filing			2,031				3,200				11,160				16,447
General and administrative expenses			9,000				8,845				27,546				31,608
Total operating expenses			31,203				96,784				99,819				221,404
Operating loss			(21,382	)			(84,947	)			(46,045	)			(69,711	)
Interest income			30				44,057			$	3,591				44,058
Net loss for the period			(21,351	)			(40,890	)		$	(42,454	)			(25,653	)
Loss per common share - basic and diluted		$	(0.00	)			(0.00	)		$	(0.00	)			(0.00	)
Comprehensive income:
Net loss			(21,351	)			(40,890	)			(42,454	)			(25,653	)
Foreign currency translation adjustment			(73,360	)			(449,752	)			(379,456	)			(449,752	)
Total comprehensive loss		$	(94,711	)		$	(490,642	)			(421,910	)		$	(475,405	)
Weighted average common shares outstanding - basic and diluted			56,100,000				56,100,000				56,100,000				56,100,000

 

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

 

 

CN RESOURCES INC.

Consolidated Statements of Cash Flows

Unaudited

 

		For the nine months				For the nine months
		ended				ended
		February 29, 2016				February 28, 2015
Cash Flows From Operating Activities
Net Income (loss) for the period		$	(42,454	)		$	(475,410	)
Adjustments to reconcile net loss to net cash in operating activities
Depreciation and depletion			-				63,334
			819
Changes in operating assets and liabilities
Accounts receivable			7,469				38,430
Accounts payable			(2,878	)			(32,443	)
Other receivable			5,572				(75,441	)
Net cash used in operating activities			(31,472	)			(481,530	)
Cash Flows used in Investing Activities
Oil and Gas properties			-				(39,516	)
Note receivable			4,718,126				(5,741,043	)
Net cash used in financing activities			4,718,126				(5,780,559	)
Cash Flows from Financing Activities
Due to Director			27,773				60,133
Payment to Director for advances			-				(24,564	)
Net cash provided by financing activities			27,773				35,569
Foreign currency adjustment			(130,127	)			449,752
Net increase (decrease) in cash and cash equivalents			4,584,300				(5,776,768	)
Cash and cash equivalents, beginning of the period			226,786				6,052,324
Cash and cash equivalents, end of the period			4,811,086				275,556
Supplemental cash flow information
cash paid for interest		$	-			$	-
cash paid for income tax		$	-			$	-
Non-cash transaction, proceeds from Note Receivable paid director loan		$	376,249			$	-

 

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

 

 

CN RESOURCES INC.

Notes to the Consolidated Financial Statements

(Unaudited)

February 29, 2016

 

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

 

The accompanying unaudited interim consolidated 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.

 

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 $42,454 for the nine months ended February 29, 2016 and has an accumulated deficit of $780,756 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 consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

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. As of November 30, 2015, we have received complete payment for the Note receivable, and no amount is outstanding. In the note receivable, $376,249 was used to pay off the outstanding director loan

 

4. DUE TO DIRECTORS

 

A director loans the Company money from time to time on an interest-free due-on-demand basis and, as of February 29, 2016 total amount advanced was $18,996. The Company pays a monthly management fee of $2,000 to the Director since the inception of the Corporation,

 

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. The president has advanced large sum of money in the past fiscal year and the President agreed to be paid by the Note receivable from 3^rd party as a result the $376,249 was paid through the Note Receivable as previously disclosed.

 

 

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 February 29, 2016, Crude oil price is still depressed at an historical low level with WTI of $30 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 February 29, 2016 and February 28, 2015.

		February 29, 2016				February 28, 2015
Production revenue (net of royalty)		$	9,821			$	11,837
Production cost		$	5,820			$	19,510

 

The decrease in production and revenue is due to the crude price depression caused production to drop and revenue to decrease because the incentive to increase production is not present.

 

The following table sets forth certain of our oil operating information for the nine months ended February 29, 2016 and 2015.

 

		February 29, 2016				February 28, 2015
Production revenue (net of royalty)		$	53,774			$	151,693
Production cost		$	17,148			$	32,383

 

For the period three-month period ended February 29, 2016, the following table indicates major variances compared with previous period. The other expense items on the Consolidated Statements of Operations have no material variances.

 

		February 29, 2016				February 28, 2015
Depreciation and depletion		$	-			$	19,754
Professional fee		$	8,250			$	39,396

  

 

There is no depreciation and depletion cost for the period ended February 29, 2016 due to the fact the Company has written off its entire oil and gas assets in previous fiscal year due to significant crude oil price decrease, in the opinion of management, such write-off of oil and gas asset is prudent.

 

Professional fee is significantly lower for this three month period due to the fact that there was no acquisition or any other activity requires extra legal or other professional services. For the three quarter ended February 28, 2015, the Company conducted business acquisition due diligence and incurred legal fees as a result.

 

Cash Flow Analysis

 

For the nine months ended February 29, 2016, we used $31,472 cash in operating activities (February 28, 2015 - $(9,870)), cash generated from investing activities is $4,718,126 (February 28, 2015 - $(5,822,212)) and Cash flow generated from financing activities is $27,773 (February 28, 2015 - $(35,569)).

 

Liquidity and Capital Resources

 

At February 29, 2016, we have cash and cash equivalent on hand of $4,811,086 (May 31, 2015 - $226,786), oil revenue receivable of $22,760 (May 31, 2015 - $30,229). We have accounts payable of $13,658 (May 31, 2015 – $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 due to the unsettling global market conditions for crude oil.

 

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 weaknesses in controls as soon as the Company considers that the financial situation allows the Company to spend the limited resources to mitigate the weaknesses in controls.

 

There were no material changes in our internal control over financial reporting during the quarter ended February 29, 2016 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 29, 2016.

 

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: April 14, 2016	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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