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  NOVEMBER 30, 2016

 

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 January 23, 2017

 

 

 

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

 

		November 30, 2016				May 31, 2016
Assets
Current assets
Cash and cash equivalents		$	2,847,785			$	4,980,735
Accounts receivable - Oil and Gas			21,036				26,351
Investment			1,986,810				-
Other current assets			4,551				1,584
Total current assets		$	4,860,182			$	5,008,670
Total assets		$	4,860,182			$	5,008,670
Liabilities and Stockholders' Equity
Liabilities
Current Liabilities
Accounts payable			12,481				7,448
Due to director			76,464				45,629
Total current liabilities			88,945				53,077
Asset retirement obligation			7,828				7,282
Total liabilities			96,773				60,359
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			(938,934	)			(790,882	)
Accumulated deficits			(812,857	)			(776,007	)
Total stockholders' equity			4,763,409				4,948,311
Total liabilities and stockholders' equity		$	4,860,182			$	5,008,670

 

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

 

 

CN RESOURCES INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

		For the Three Months Ended								For the Six Months Ended
		November 30,				November 30,				November 30,				November 30,
		2016				2015				2016				2015
Revenue
Oil production (net of royality)		$	11,077			$	19,898			$	22,786			$	43,952
Operating expenses
Accretion expenses			273				273				546				546
Bank service charge			25				49				104				103
Production cost			5,434				10,510				18,120				11,328
General and administrative expenses			9,000				9,000				18,000				18,000
Management fee			6,000				6,000				12,000				12,000
Professional fees			18,574				7,687				18,574				17,510
Regulatory filing			1,633				2,158				11,733				10,208
Total operating expenses			40,939				35,677			$	79,077				69,695
Interest income			10,532				2,592			$	19,441				3,561
Net loss for the period		$	(19,330	)		$	(13,187	)		$	(36,850	)		$	(22,182	)
Loss per common share - basic and diluted		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.00	)
Comprehensive income:
Net income (loss)		$	(19,330	)		$	(13,187	)		$	(36,850	)		$	(22,182	)
Foreign currency translation adjustment			(130,797	)			(28,807	)			(148,052	)			(306,096	)
Total comprehensive income (loss)			(150,127	)			(41,994	)			(184,902	)			(328,278	)
Weighted average common shares outstanding - basic and diluted			56,100,000				56,100,000				56,100,000				56,100,000

 

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

 

CN RESOURCES INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Six Months				For the Six Months
		ended				ended
		November 30, 2016				November 30, 2015
Cash Flows From Operating Activities
Net loss for the period		$	(36,850	)		$	(22,182	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation, depletion and accretion			546				546
Changes in operating assets and liabilities
Accounts receivable			5,315				(2,447	)
Other current assets			(2,967	)			5,307
Accounts payable			5,033				5,643
Net cash used in operating activities			(28,923	)			(13,133	)
Cash Flows from Investing Activities
Purchase of investment			(1,986,810	)			4,718,126
Net cash provided by investing activities			(1,986,810	)			4,718,126
Cash Flows from Financing Activities
Proceeds from Director advances			30,835				20,928
Net cash provided by financing activities			30,835				20,928
Effective of foreign currency rates			(148,052	)			(56,767	)
Net increase (decrease) in cash and cash equivalents			(2,132,950	)			4,669,154
Cash and cash equivalents, begininng of the period			4,980,735				226,786
Cash and cash equivalents, end of the period			2,847,785				4,895,940
Supplemental cash disclosure
Cash paid for interest payment		$	-			$	-
Cash paid for tax		$	-			$	-
Non cash transaction		$	-			$	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)

November 30, 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.

 

Recent Accounting Pronouncements

 

There are no new accounting pronouncements issued or effective that had, or are expected to have, a material impact on the Company’s financial statements.

 

3. INVESTMENT

 

At the end of quarter, the Company made an investment in DX Mortgage Income Fund, an unrelated party, in the amount of CAD $2,700,000 (USD1,986,810), with an annualized interest rate payment of approximately 6%. The investment is redeemable at anytime by written notice to the fund manager.

 

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 November 30, 2016 total amount advanced was $76,464 (May 31, 2016 - $45,629). 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.

 

 

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.

 

During the Quarter ended November 30, 2016, Crude oil price is still depressed at an historical low level with WTI of $45 to $53 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.

 

The Company’s immediate core strategy is to create and enhance shareholder value by acquiring sustainable business with stable cash flow. The Company will not acquire any business in early stage of development.

 

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-month and six-month ended November 30, 2016 and November 30, 2015.

 

		Three-month ended								Six-month ended
		November 30, 2016				November 30, 2015				November 30, 2016				November 30, 2015
Production revenue (net of royalty)		$	11,077			$	19,898			$	22,786			$	43,952
Production cost		$	5,434			$	10,510			$	18,120			$	11,328

 

The decrease in production and revenue for the three-month and six-month periods ended November 30, 2016 and November 30, 2015 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 decrease in production costs are due to production volume is slightly lower for the quarter ended November 30, 2016 and November 30, 2015.

 

For the period three-month and six-month periods ended November 30, 2016 and November 30, 2015, the following table indicates major variances compared with previous period. The other expense items on the Consolidated Statements of Operations have no material variances.

 

		Three-month ended								Six-month ended
		November 30, 2016				November 30, 2015				November 30, 2016				November 30, 2015
Professional fee		$	18,574			$	7,687			$	18,574			$	17,510

 

The professional fee increase in the three-month period ended on November 30, 2016 as compared with the three-month ended November 30, 2015 was due to timing difference, the Company received our auditing firm fee invoice in the quarter ended November 30, 2016. For the six-month period ended November 30, 2016, the professional fee did not change materially.

 

 

Cash Flow Analysis

 

For the six months ended November 30, 2016, we used $28,923 cash in operating activities (November 30, 2015 - $(13,133)), cash used in investing activities is $1,986,810 (November 30, 2015 – ($4,718,126)) and Cash flow generated from financing activities is $30,835 (November 30, 2015 - $20,928).

 

Liquidity and Capital Resources

 

At November 30, 2016, we have cash and cash equivalents on hand of $2,847,785 (May 31, 2016 - $4,980,735), oil revenue receivable of $21,036 (May 31, 2016 - $26,351). We have short-term investment of $1,986,810 (May 31, 2016 - $ nil). We have accounts payable of $12,481 (May 31, 2016 – $7,448) 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 November 30, 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 November 30, 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: January 23, 2017	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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