Quarterly Report (10-q)

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, 2016

☐ 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 18, 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	6

Item 1A.	Risk Factors	6

Item 2.	Changes in Securities and Use of Proceeds	6

Item 6.	Exhibits	6

Signatures		7

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CN RESOURCES INC.

Consolidated Balance Sheets

Unaudited

	August 31, 2016			May 31, 2016
Assets

Current assets
Cash and cash equivalents	$	4,959,556		$	4,980,735
Accounts receivable - Oil and Gas		19,525			26,351
Other current assets		11,510			1,584
Total current assets	$	4,990,591		$	5,008,670

Total assets	$	4,990,591		$	5,008,670

Liabilities and Stockholders' Equity

Liabilities
Current Liabilities
Accounts payable		100			7,448
Due to director		69,401			45,629
Total current liabilities		69,501			53,077

Asset retirement obligation		7,555			7,282

Total liabilities		77,056			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		(808,137	)		(790,882	)
Accumulated deficits		(793,528	)		(776,007	)
Total stockholders' equity		4,913,535			4,948,311

Total liabilities and stockholders' equity	$	4,990,591		$	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
	August 31			August 31
	2016			2015

Revenue
Oil production (net of royalty)	$	11,708		$	24,054

Operating expenses
Accretion expenses	$	273			273
Bank service charge	$	79			54
Production cost	$	12,686			3,641
General and administrative expenses	$	9,000			9,000
Management fee	$	6,000			6,000
Professional fees	$	-			7,000
Regulatory filing	$	10,100			8,050
Total operating expenses	$	38,138			34,018

Interest income	$	8,909			969

Net loss for the period	$	(17,521	)	$	(8,995	)

Loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)

Comprehensive income:
Net income (loss)	$	(17,521	)	$	(8,995	)
Foreign currency translation adjustment	$	(17,255	)		(277,289	)
Total comprehensive income (loss)	$	(34,776	)		(286,284	)

Weighted average common shares outstanding - basic and diluted	$	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 three Months			For the three Months
	ended			ended
	August 31, 2016			August 31, 2015

Cash Flows From Operating Activities
Net loss for the period	$	(17,521	)	$	(8,995	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation, depletion and accretion		273			-
Changes in operating assets and liabilities
Accounts receivable		6,826			(11,409	)
Other current assets		(9,926	)		933
Accounts payable		(7,348	)		4,812
Net cash used in operating activities		(27,696	)		(14,659	)

Cash Flows from Investing Activities
Notes receivable		-			3,979,349
Net cash provided by investing activities		-			3,979,349

Cash Flows from Financing Activities
Proceeds from Director advances		23,772			9,388
Net cash provided by financing activities		23,772			9,388
Effective of foreign currency rates		(17,255	)		(277,289	)
Net increase (decrease) in cash and cash equivalents		(21,179	)		3,974,078
Cash and cash equivalents, beginning of the period		4,980,735			226,786
Cash and cash equivalents, end of the period		4,959,556			3,923,575

Supplemental cash disclosure
cash paid for interest payment	$	-		$	-
cash paid for tax	$	-		$	-

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

CN RESOURCES INC.

Notes to the Consolidated Financial Statements

(Unaudited)

August 31, 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

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.

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.

3. DUE TO DIRECTORS

A director loans the Company money from time to time on an interest-free due-on-demand basis and, as of August 31, 2016 total amount advanced was $69,401(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

During the Quarter ended August 31, 2016, Crude oil price is still depressed at an historical low level with WTI of $40 to $50 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 months ended August 31, 2016 and August 31, 2015.

	August 31, 2016		August 31, 2015
Production revenue (net of royalty)	$	11,708	$	24,054
Production cost	$	12,686	$	3,641

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 increase in production costs are due to some vendor invoices were not entered into prior periods because of the third party invoices late. However, this is not unusual for oil and gas industry in Canada and it is beyond the Company’s control.

For the period three-month period ended August 31, 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.

	August 31, 2016		August 31, 2015
Regulatory fee	$	10,100	$	8,050
Professional fee	$	-	$	7,000

The regulatory fee increase is due to small fee increase in the fiscal year. The professional fee was due to timing difference, the Company received the fee invoice after August 31, 2016.

Cash Flow Analysis

For the three months ended August 31, 2016, we used $27,696 cash in operating activities (August 31, 2015 - $(14,659)), cash generated from investing activities is $nil (August 31, 2015 - $3,979,349) and Cash flow generated from financing activities is $23,772(August 31,2015 - $9,388).

Liquidity and Capital Resources

At August 31, 2016, we have cash and cash equivalents on hand of $4,959,556(May 31, 2016 - $4,980,735), oil revenue receivable of $19,524 (May 31, 2016 - $26,351). We have accounts payable of $100(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 August 31, 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 August 31, 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: October 18, 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