UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED May 31, 2015 |
Commission File Number: 333-167804
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 M3B 3H9
(Address of principal executive offices, including
zip code)
416-510-2991
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act: |
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Securities registered pursuant to section 12(g) of the Act: |
NONE |
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NONE |
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o
NO x
Indicate
by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act: YES x
NO o
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 past 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 (§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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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” 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 |
|
(Do not check if a smaller reporting company) |
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x
As at November 30, 2014, the aggregate
market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common equity was $2,500,000.
At September 15, 2015, 56,100,000 shares of
the registrant’s common stock were outstanding.
TABLE OF CONTENTS
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Page |
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PART
I |
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Item
1. |
Business. |
3 |
Item
1A. |
Risk
Factors. |
6 |
Item
1B. |
Unresolved
Staff Comments. |
13 |
Item
2. |
Properties. |
|
Item
3. |
Legal
Proceedings. |
13 |
Item
4. |
Mine
Safety Disclosures |
13 |
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PART
II |
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Item
5. |
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
14 |
Item
6. |
Selected
Financial Data. |
14 |
Item
7. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operation. |
14 |
Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk. |
19 |
Item
8. |
Financial
Statements and Supplementary Data. |
F-1 |
Item
9. |
Changes
in and Disagreements With Accountants on Accounting and Financial Disclosure. |
20 |
Item
9A. |
Controls
and Procedures. |
20 |
Item
9B. |
Other
Information. |
21 |
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PART
III |
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Item
10. |
Directors,
Executive Officers and Corporate Governance. |
22 |
Item
11. |
Executive
Compensation. |
23 |
Item
12. |
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
25 |
Item
13. |
Certain
Relationships and Related Transactions, and Director Independence. |
25 |
Item
14. |
Principal
Accountant Fees and Services. |
25 |
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PART
IV |
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Item
15. |
Exhibits
and Financial Statement Schedules. |
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Signatures |
27 |
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Exhibit
Index |
29 |
PART I
ITEMS 1 BUSINESS AND PROPERTY GENERAL
CN
Resources Inc. (the "Company" or "CNRR" or "we" or "us") 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.
CN Resources Inc. is an independent energy company
engaged in the exploration, development, production, and sale of crude oil. The Company owns a proved developed and producing joint
venture (50% W.I) light oil well in the Redwater area in Alberta, Canada.
Our principal office is located at 255 Duncan
Mill Road, Suite 203, Toronto, Ontario, Canada and our telephone number is (416) 510-2991.
STRATEGY
Our strategies to create shareholder value encompass
three steps:
i) |
Acquire Proved Developed and Producing light oil assets with optimization potentials.
We will source, identify, analyze and acquire producing light oil assets with significant optimization opportunities. Once we
have acquired a producing asset we will increase production by de-bottleneck the obstacles in production by investing optimization
capital. |
ii) |
Drill and operate low risk production wells (off-set, re-entry and recompletion)
to increase oil production with measured risks; |
iii) |
Acquire light oil land with identified resources to develop a large resources
play. |
We are committed to a measured-risk optimization
capital and growth strategy and focused on determining the most efficient way to create greatest value and highest returns for
our shareholders.
SIGNIFICANT DEVELOPMENTS IN FISCAL YEAR 2015
During fiscal year 2015, the Company experienced
the substantial drop in oil price, from a high of $110 per barrel to below $40 per barrel now. The oil and gas industry in Alberta
and around the world has experienced unprecedented capital spending cuts, lay-offs, and bankruptcies. The current stage of the
oil market still lacks visibility, and the crude price is still experiencing downward pressure.
Our Company is a small but financially sound company, our philosophy
is to take a measured risk approach to our growth, As a result, the Company has taken a prudent step by evaluating various alternative
growth strategies in the coming year.
Financial Performance
Revenues For the fiscal year
ended May 31, 2015, revenues totaled $222,380 compared to $252,679 in the prior year, the Company Revenue decrease is due to the
crude price decrease and production decrease in 2015.
Net loss and Earnings per Share. For
the fiscal year ended May 31, 2015, net loss was $460,693 ($0.01 /basic share), compared to net loss of $3,782 ($(0.00)/basic
share) for the prior fiscal year ended May 31, 2014. The increase in loss is primarily due to legal due diligence cost in a potential
acquisition for which the Company did not proceed due to the sustained crude oil price drop in the energy industry.
Cash. As of May 31, 2015,
the Company had $226,786 in cash and cash equivalents as compared to $6,052,324 at the end of the prior fiscal year. The decrease
is primarily due to the Company provided a $5,741,730 (CAD $6,700,000) notes to an arm’s length party. The Note is called
for payment, and repayment is not expected to be an issue.
OUTLOOK FOR FISCAL YEAR 2016
During fiscal year 2015, the Crude oil has dropped
from a high of $110 per barrel to below $40 per barrel, and the consensus view is that the crude price probably will stay at the
low price for a long period of time. The oil industry is experiencing unprecedented capital spending cut, lay-offs and bankruptcies.
The consensus view in the crude oil industry is
that the crude price may drop even further, and the low crude price may be for a long period of time. Management is cautious in
evaluating all alternatives available to the Company. The Company will monitor the sector and directions carefully and formulate
the growth strategy that best suits the company in the long run.
RESERVES
Estimates of reserves are inherently imprecise
and continually subject to revision based on production history, results of additional exploration and development, price changes,
and other factors.
During the fiscal year ended May 31, 2015, the
global crude oil price has experienced a substantial decrease and stated at a low level at the low 40 dollar range per barrel from
the high price of over $100 per barrel, this price level and the bleak outlook of the world demand for oil have made the oil industry
experience massive layoffs, capital spending reductions, assets write downs. We have assessed the situation and determined it is
appropriate to provide an impairment charge for the entire oil and gas assets on the balance sheet.
The below table presents a summary of our proved
and probable reserves as of May 31, 2015 and 2014. In view if the current crude oil price and markets, management has made an impairment
provision for the entire reserves. The Company wants to present a conservative view of the company’s oil assets given the
substantial uncertainties in the crude oil sector.
| |
Oil | |
Proved developed and producing (PDP) | |
| nil | | |
| 22,000 | |
Proved plus Probable Producing | |
| nil | | |
| 31,000 | |
The Company's proved developed reserves in Canada
consist of only one location at Redwater, Alberta, Canada.
Proved Undeveloped Reserves
As of May 31, 2015, we had no proved undeveloped
reserves.
Probable Reserves
Estimates of probable developed and undeveloped
reserves are inherently imprecise. When estimating the amount of oil and gas that is recoverable from a particular reservoir, an
estimated quantity of probable reserves is an estimate that more likely than not will be achieved. Estimates of probable reserves
are continually subject to revision based on production history, results of additional exploration and development, price changes,
and other factors.
We use deterministic methods to estimate probable
reserve quantities, and when deterministic methods are used, it is as likely as not that actual remaining quantities recovered
will exceed the sum of estimated proved plus probable reserves. Probable reserves may be assigned to areas of a reservoir adjacent
to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir
continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to
areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir. Probable
reserves estimates also include potential incremental quantities associated with a lower percentage recovery of the hydrocarbons
in place than assumed for proved reserves.
Internal Controls Over Reserve Estimates
Our internal controls over the recording of proved
reserves are structured to objectively and accurately estimate our reserve quantities and values in compliance with regulations
established by the SEC. The Company relies upon independent third party consulting arrangements for reserve estimation and review.
The proved reserve estimate for fiscal year ending
May 31, 2014 was provided by GLJ Petroleum. The reserve estimate for 2015 was not conducted as the impairment was provided in full.
Third Party Reserve Audit
For 2014 fiscal year, our reserve estimates were
audited by GLJ Petroleum Consultant, an independent petroleum engineering firm located in Calgary, Alberta, Canada. A copy of the
summary reserve report is provided as Exhibit 99.1 to this Annual Report on Form 10-K. GLJ does not own an interest in any of our
oil and gas properties and is not employed by us on a contingent basis.
Detailed information regarding reserves, costs
of oil and gas activities, capitalized costs, discounted future net cash flows, and results of operations is disclosed in the supplemental
information to this Annual Report on this Form 10-K.
VOLUMES AND REALIZED PRICES
The following table summarizes volumes and prices
realized from the sale of oil from property in which we owned an interest during the periods stated. The table also summarizes
operational costs per barrel of oil equivalent.
| |
Oil volume | |
| Average
realized price | |
For the year ended May 31, 2015 | |
9bbl/day | |
$ | 67.29
per bbl | |
For the year ended May 31, 2014 | |
13 bbl/day | |
$ | 82.50 per
bbl | |
DRILLING ACTIVITY
The Company at present has no further drilling
activities, and management intends to execute its growth strategy by acquiring quality oil producing assets rather than drilling
for new exploratory or development wells. Due to the substantial decrease in crude oil price, we may not engage in any drilling
activities in the foreseeable future.
ACREAGE
The Company at present is only have one joint
venture well pumping oil and does not own any other acreage of oil and gas land. The Company intends to acquire proved-developed-and-developed
light oil assets in Western Canada, if successful, will own oil and gas mineral rights on the acreage of land.
TITLES TO PROPERTY, PERMITS, AND LICENSES
CN Resources Inc. maintains interests in its oil
and gas properties directly or through contractual arrangements with its Joint Venture partner, customary to the oil and gas industry
and relevant to the local jurisdictions of its assets in Alberta, Canada.
MARKETING ACTIVITIES AND CUSTOMERS
Customers
The Company operates in Canada and has a sole
arm’s length customer who purchased all light oil produced from the joint venture well in the fiscal year ended May 31, 2015
and 2014.
CURRENT MARKET CONDITIONS AND COMPETITION
Cyclical Seasonality of Business
There
are many factors directly impact the crude oil price, such as but not limited to, world economic growth, geopolitical stabilities,
technological advancements in exploration and development in energy sectors, government regulations. The past year, crude oil
price as plunged to below $40 a barrel. No consensus exists as to when and how the crude oil price will recover.
Demand
and prices for oil and gas can also be impacted by seasonal factors. Increased demand for heating oil in the winter and gasoline
during the summer driving season can positively impact the price of oil during those times. Unusual weather patterns can increase
or dampen normal price levels. Our ability to carry out drilling activities can be adversely affected by weather conditions during
winter months in Alberta, Canada. In general, the Company's working capital balances are not materially impacted by seasonal factors.
The
Company faces enormous uncertainties in the oil industry and at present we do not foresee the oil price recover any time soon.
The Company will proceed with caution in the oil development space.
Competitive Conditions in the Business
The
oil and gas industry is highly competitive. We face competition from numerous major and independent oil and gas companies, many
of whom have greater technical, operational, and financial resources, or who have vertically integrated operations in areas such
as pipelines and refining. Our ability to compete in this industry depends upon such factors as our ability to identify and economically
acquire prospective oil and gas properties; the geological, geophysical, and engineering capabilities of management; the financial
strength and resources of the Company; and our ability to secure drilling rigs and other oil field services in a timely and cost-effective
manner. The oil and gas industry
itself faces competition from alternative fuel sources, which include other fossil fuels, such as coal and renewable energy sources.
EMPLOYEES AND OFFICE SPACE
As of May 31, 2015, the Company had no full time
employee. All work are completed through subcontracts. We use office space provided by our President and CEO and on rent free and
month-to-month basis.
GOVERNMENT REGULATIONS
Our business is extensively regulated by numerous
federal, provincial and local laws and governmental regulations in the United States and in Canada. These laws and regulations
may be changed from time to time in response to economic or political conditions, or other developments, and our regulatory burden
may increase in the future. Laws and regulations have the potential of increasing our cost of doing business and, consequently,
could affect our results of operations.
ITEM 1A: RISK FACTORS
In addition to the other information included
in this report, the following risk factors should be carefully considered when evaluating an investment in us. These risk factors
and other uncertainties may cause our actual future results or performance to differ materially from any future results or performance
expressed or implied in the forward-looking statements contained in this report and in other public statements we make. In addition,
because of these risks and uncertainties, as well as other variables affecting our operating results, our past financial performance
is not necessarily indicative of future performance.
RISKS RELATING TO OUR BUSINESS
Our growth strategy may not be successful.
Our strategy as described may not be successful
because our strategy is not unique. For our strategies to be successful, we will need financing and available and reasonable acquision
opportunities. Even the opportunity is there, competition for quality assets may increase the acquisition cost to a level that
we may not be intested to acquir the assets.
We currently only have one joint venture producing well in Alberta,
Canada, making us vulnerable to ricks associated with high concentration and single asset.
Because our current revenue-producing operation
is only one joint venture well and is geographically concentrated in the Redwater area in Alberta, Canada, the success and profitability
of our operations are disproportionally exposed to risks associated with such high concentration and single asset operation. If
the joint venture well stopped production, we will have no revenue to cover expenses.
Our acquisitions of or investments in new oil and gas properties
or other assets may not be worth what we paid due to uncertainties in evaluating recoverable reserves and other expected benefits,
as well as potential liabilities.
Successful property or other acquisitions or investments
require an assessment of a number of factors sometimes beyond our control. These factors include exploration potential, future
crude oil and natural gas prices, operating costs, and potential environmental and other liabilities. These assessments are not
precise, and their accuracy is inherently uncertain.
In connection with our acquisitions or investments,
we typically perform a customary review of the properties that will not necessarily reveal all existing or potential problems.
In addition, our review may not allow us to fully assess the potential deficiencies of the properties. We do not inspect every
well, and even when we inspect a well we may not discover structural, subsurface, or environmental problems that may exist or arise.
We may not be entitled to contractual indemnification for pre-closing liabilities, including environmental liabilities. Normally,
we acquire interests or otherwise invest in properties on an "as is" basis with limited remedies for breaches of representations
and warranties.
In addition, significant acquisitions can change
the nature of our operations and business if the acquired properties have substantially different operating and geological characteristics
or are in different geographic locations than our existing properties. To the extent acquired properties are substantially different
than our existing properties, our ability to efficiently realize the expected economic benefits of such acquisitions may be limited.
Integrating acquired properties and businesses
involves a number of other special risks, including the risk that management may be distracted from normal business concerns by
the need to integrate operations and systems as well as retain and assimilate additional employees. Therefore, we may not be able
to realize all of the anticipated benefits of our acquisitions.
These factors could have a material adverse effect
on our business, financial condition, results of operations, and cash flows. Consideration paid for any future acquisitions or
investments could include our stock or require that we incur additional debt and contingent liabilities. As a result, future acquisitions
or investments could cause dilution of existing equity interests and earnings per share.
Exploration and development drilling may not result in commercially
producible reserves.
Crude oil and natural gas drilling and production
activities are subject to numerous risks, including the risk that no commercially producible crude oil or natural gas will be
found. The cost of drilling and completing wells is often uncertain, and crude oil or natural gas drilling and
production activities may be shortened, delayed, or canceled as a result of a variety of factors, many of which are beyond our
control. These factors include:
● |
unexpected drilling conditions; |
● |
disputes with owners or
holders of surface interests on or near areas where we intend to drill; |
● |
pressure or geologic irregularities
in formations; |
● |
engineering and construction
delays; |
● |
equipment failures or accidents; |
● |
adverse weather conditions; |
● |
compliance with environmental
and other governmental requirements; and |
● |
shortages or delays in the
availability of or increases in the cost of drilling rigs and crews, equipment, pipe, water, and other supplies. |
The
prevailing prices for crude oil and natural gas affect the cost of and demand for, drilling rigs, completion and production equipment,
and other related services. However, changes in costs may not occur simultaneously with corresponding changes in commodity
prices. The availability of drilling rigs can vary significantly from region to region at any particular time. Although land drilling
rigs can be moved from one region to another in response to changes in levels of demand, an undersupply of rigs in any region
may result in drilling delays and higher drilling costs for the rigs that are available in that region. In addition, the recent
economic and financial downturn has adversely affected the financial condition of some drilling contractors, which may constrain
the availability of drilling services in some areas.
The wells we drill may not be productive and we
may not recover all or any portion of our investment in such wells. The seismic data and other technologies we use do not allow
us to know conclusively prior to drilling a well if crude oil or natural gas is present, or whether it can be produced economically.
The cost of drilling, completing, and operating a well is often uncertain, and cost factors can adversely affect the economics
of a project. Drilling activities can result in dry holes or wells that are productive but do not produce sufficient net revenues
after operating and other costs to cover initial drilling and completion costs.
The loss of key personnel could adversely affect our ability to
operate.
We depend, and will continue to depend in the
foreseeable future, on the services of our executive management team. The ability to retain officers is important to our success
and growth. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on our business.
Our drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract
and retain experienced geologists, engineers, landman, and other professionals. Competition for many of these professionals is
intense. If we cannot retain our technical personnel or attract additional experienced technical personnel and professionals, our
ability to compete could be harmed.
There are risks inherent in foreign operations, such as adverse
changes in currency values and foreign regulations relating to our business operations.
Our
well and operations are located outside the US and are subject to certain risks related to the indirect ownership and development
of foreign properties, including adverse changes in currency values, foreign taxes, US taxes on the repatriation of funds to the
US, and other laws and regulations, any of which may have a material adverse effect on our properties, financial condition, results
of operations, or cash flows.
We have limited management and staff and will be dependent upon
contract arrangements.
We have no full time employee as of May 31, 2014.
We expect that we will continue to require the services of independent consultants and contractors to perform various professional
services, including reservoir engineering, land, legal, environmental, and tax services. We also plan to pursue alliances with
partners in the areas of geological and geophysical services and prospect generation, evaluation, and prospect leasing. Our dependence
on third party consultants and service providers creates a number of risks, including but not limited to:
● |
the possibility that such third parties may not be available to us as and when
needed; and |
● |
the risk that we may not be able to properly control the timing and quality of
work conducted with respect to our projects. |
If we experience significant delays in obtaining
the services of such third parties or poor performance by such parties, our results of operations may be materially adversely affected.
Oil and natural gas prices are volatile. A decline in prices could
adversely affect our financial condition, results of operations, cash flows, access to capital, and ability to grow.
Our revenues, results of
operations, future rate of growth, and the carrying value of our oil and gas properties depend heavily on the prices we receive
for the crude oil and natural gas we sell. Prices also affect the amount of cash flow available for capital expenditures and our
ability to borrow money or raise additional capital. The markets for crude oil and natural gas have historically been, and are
likely to continue to be, volatile and subject to wide fluctuations in response to numerous factors, including the following:
● |
worldwide and domestic supplies of oil and gas, and the productive capacity of
the oil and gas industry as a whole; |
● |
changes in the supply and the level of consumer demand for such fuels; |
● |
overall global and domestic economic conditions; |
● |
political conditions in oil, natural gas, and other fuel-producing and fuel-consuming
areas; |
● |
the extent of US and Canadian domestic oil and gas production and the consumption
and importation of such fuels and substitute fuels in US and Canada and other relevant markets; |
● |
the availability and capacity of gathering, transportation, processing, and/or
refining facilities in regional or localized areas that may affect the realized price for crude oil or natural gas; |
● |
the price and level of foreign imports of crude oil, refined petroleum products,
and liquefied natural gas; |
● |
weather conditions, including effects of weather conditions on prices and supplies
in worldwide energy markets; |
● |
technological advances affecting energy consumption and conservation; |
● |
the ability of the members of the Organization of Petroleum Exporting Countries
and other exporting countries to agree to and maintain crude oil prices and production controls; |
● |
the competitive position of each such fuel as a source of energy as compared
to other energy sources; |
● |
strengthening and weakening of the US dollar relative to other currencies; and |
● |
the effect of governmental regulations and taxes on the production, transportation,
and sale of oil, natural gas, and other fuels. |
These factors and the volatility of the energy
markets make it extremely difficult to predict future oil and gas price movements with any certainty, but in general we expect
oil and gas prices to continue to fluctuate significantly.
Sustained declines in oil and gas prices would
not only reduce our revenues but also could reduce the amount of oil and gas that we can produce economically and, as a result,
could have a material adverse effect on our financial condition, results of operations, cash flows, and reserves. Further, oil
and gas prices do not necessarily move in tandem. Prices for sales of our oil production are primarily affected by global oil prices,
and the volatility of those prices will affect future oil revenues.
Competition in the oil and natural gas industry is intense, and
many of our competitors have greater financial, technical, and other resources than we do.
We face intense competition from major oil and
gas companies and independent oil and gas exploration and production companies who seek oil and gas investments throughout the
world, as well as the equipment, expertise, labor, and materials required to explore, develop, and operate crude oil and natural
gas properties. Many of our competitors have financial, technical, and other resources vastly exceeding those available to us,
and many crude oil and natural gas properties are sold in a competitive bidding process in which our competitors may be able and
willing to pay more for development prospects and productive properties, or in which our competitors have technological information
or expertise that is not available to us to evaluate and successfully bid for the properties. In addition, shortages of equipment,
labor, or materials as a result of intense competition may result in increased costs or the inability to obtain those resources
as needed. We may not be successful in acquiring, exploring, and developing profitable properties in the face of this competition.
We also compete for human resources. The need
for talented people across all disciplines in the industry has grown, while the number of talented people available has not grown
at the same pace, and in many cases, is declining due to the demographics of the industry.
Our operations are subject to complex laws and regulations, including
environmental regulations that result in substantial costs and other risks.
Legislation and regulations affecting the industry
are under constant review for amendment or expansion, raising the possibility of changes that may become more stringent and, as
a result, may affect, among other things, the pricing or marketing of crude oil and natural gas production. Noncompliance with
statutes and regulations and more vigorous enforcement of such statutes and regulations by regulatory agencies may lead to substantial
administrative, civil, and criminal penalties, including the assessment of natural resource damages, the imposition of significant
investigatory and remedial obligations, and may also result in the suspension or termination of our operations. The overall regulatory
burden on the industry increases the cost to place, design, drill, complete, install, operate, and abandon wells and related facilities
and, in turn, decreases profitability.
Governmental authorities regulate various aspects
of drilling for and the production of crude oil and natural gas, including the permit and bonding requirements of drilling wells,
the spacing of wells, the unitization or pooling of interests in crude oil and natural gas properties, rights-of-way and easements,
environmental matters, occupational health and safety, the sharing of markets, production limitations, plugging, abandonment, and
restoration standards, and oil and gas operations. Public interest in environmental protection has increased in recent years, and
environmental organizations have opposed, with some success, certain projects. Under certain circumstances, regulatory authorities
may deny a proposed permit or right-of-way grant or impose conditions of approval to mitigate potential environmental impacts,
which could, in either case, negatively affect our ability to explore or develop certain properties. Governmental authorities also
may require any of our ongoing or planned operations on their leases or licenses to be delayed, suspended, or terminated. Any such
delay, suspension, or termination could have a material adverse effect on our operations.
Our operations are also subject to complex and
constantly changing environmental laws and regulations adopted by federal, state, tribal, and local governmental authorities in
jurisdictions where we are engaged in exploration or production operations. New laws or regulations, or changes to current requirements,
could result in material costs or claims with respect to properties we own or have owned. We will continue to be subject to uncertainty
associated with new regulatory interpretations and inconsistent interpretations between various regulatory agencies. Under existing
or future environmental laws and regulations, we could incur significant liability, including joint and several liability or strict
liability under federal, state, and tribal environmental laws for noise emissions and for discharges of crude oil, natural gas,
and associated liquids or other pollutants into the air, soil, surface water, or groundwater. We could be required to spend substantial
amounts on investigations, litigation, and remediation for these discharges and other compliance issues. Any unpermitted release
of petroleum or other pollutants from our operations could result not only in cleanup costs but also natural resources, real or
personal property, and other compensatory damages and civil and criminal liability. Existing environmental laws or regulations,
as currently interpreted or enforced, or as they may be interpreted, enforced, or altered in the future, may have a material adverse
effect on us.
Legislative and regulatory initiatives related to global warming
and climate change could have an adverse effect on our operations and the demand for crude oil and natural gas.
Due to concerns about the risks of global warming
and climate change, a number of various national and regional legislative and regulatory initiatives to limit greenhouse gas emissions
are currently in various stages of discussion or implementation. For example, the US Environmental Protection Agency has been adopting
and implementing various rules regulating greenhouse gas emissions under the US Clean Air Act, the US Congress has from time to
time considered other legislative initiatives to reduce emissions of greenhouse gases, and almost one-half of the states have already
taken legal measures to reduce emissions of greenhouse gases, primarily through the planned development of greenhouse gas emission
inventories and/or regional greenhouse gas cap and trade programs. Most of these cap and trade programs work by requiring major
sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and gas processing plants,
to acquire and surrender emission allowances. The number of allowances available for purchase is reduced each year in an effort
to achieve the overall greenhouse gas emission reduction goal.
Legislative and regulatory programs to reduce
emissions of greenhouse gases could require us to incur substantially increased capital, operating, maintenance, and compliance
costs, such as costs to purchase and operate emissions control systems, costs to acquire emissions allowances, and costs to comply
with new regulatory or reporting requirements. Any such legislative or regulatory programs could also increase the cost of consuming,
and thereby reduce demand for, the oil and natural gas we produce. Consequently, legislative and regulatory programs to reduce
emissions of greenhouse gases could have an adverse effect on our business, financial condition, results of operations, and cash
flows.
In addition, there has been public discussion
that climate change may be associated with more extreme weather conditions, such as increased frequency and severity of storms,
droughts, and floods. Extreme weather conditions can interfere with our development and production activities, increase our costs
of operations or reduce the efficiency of our operations, and potentially increase costs for insurance coverage in the aftermath
of such conditions. Significant physical effects of climate change could also have an indirect effect on our financing and operations
by disrupting the transportation or process related services provided by midstream companies, service companies, or suppliers with
whom we have a business relationship. We may not be able to recover through insurance some or any of the damages, losses, or costs
that may result from potential physical effects of climate change.
Our estimated reserves are based on many assumptions that may
turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions may materially affect
the quantities and present value of our reserves.
This report contains estimates of our proved and
probable reserves and the estimated future net revenues from our proved reserves. These estimates are based upon various assumptions,
including assumptions required by the SEC relating to oil and gas prices, drilling and operating expenses, capital expenditures,
taxes, and availability of funds. The process of estimating oil and gas reserves is complex. The process involves significant decisions
and assumptions in the evaluation of available geological, geophysical, engineering, and economic data for each reservoir. Actual
future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses, and quantities of recoverable
oil and gas reserves will most likely vary from these estimates. Any significant variation of any nature could materially affect
the estimated quantities and present value of our proved reserves, and the actual quantities and present value may be significantly
less than we have previously estimated. In addition, we may adjust estimates of proved reserves to reflect production history,
results of exploration and development drilling, prevailing oil and natural gas prices, costs to develop and operate properties,
and other factors, many of which are beyond our control. Our properties may also be susceptible to hydrocarbon drainage from production
by operators on adjacent properties. Probable reserves are less certain to be recovered than proved reserves.
The present value of future net cash flows from
our proved reserves is not necessarily the same as the current market value of our estimated oil and natural gas reserves. We base
the estimated discounted future net cash flows from our proved reserves on the average, first-day-of-the-month price during the
12-month period preceding the measurement date, in accordance with SEC rules. However, actual future net cash flows from our oil
and natural gas properties also will be affected by factors such as:
● |
actual prices we receive for oil and natural gas; |
● |
actual costs of development and production expenditures; |
● |
the amount and timing of actual production; |
● |
supply of and demand for oil and natural gas; and |
● |
changes in governmental regulations or taxation, including severance and excise
taxes. |
The timing of production from oil and natural
gas properties and of related expenses affects the timing of actual future net cash flows from proved reserves, and thus their
actual present value. In addition, the 10% discount factor required by the SEC to be used to calculate discounted future net cash
flows for reporting purposes may not be the most appropriate discount factor in view of actual interest rates, costs of capital,
and other risks to which our business or the oil and natural gas industry in general are subject.
SEC rules could limit our ability to book additional proved undeveloped
reserves in the future.
SEC rules require that, subject to limited exceptions,
proved undeveloped reserves may only be booked if they relate to wells scheduled to be drilled within five years after the date
of booking. This requirement may limit our ability to book additional proved undeveloped reserves as we pursue drilling programs
on our undeveloped properties in the future. In addition, we may be required to write down our proved undeveloped reserves if we
do not drill the scheduled wells within the required five-year timeframe in the future.
Substantial capital is required for our business.
Our exploration, development, and acquisition
activities require substantial capital expenditures. Our cash flows from operations are not sufficient to fund our planned capital
expenditures, we may need to raise additional capital through debt, equity, or other financings. Debt or equity financing may not
always be available to us in sufficient amounts or on acceptable terms.
If we are not able to replace reserves, we will not be able to
sustain production.
Our future success depends largely upon our ability
to find, develop, or acquire additional oil and gas reserves that are economically recoverable. Unless we replace the reserves
we produce through successful exploration, development, or acquisition activities, our reserves will decline over time. Recovery
of any additional reserves will require significant capital expenditures and successful drilling operations. We may not be able
to successfully find and produce reserves economically in the future. In addition, we may not be able to acquire proved reserves
at acceptable costs.
Future price declines may result in write-downs of our asset carrying
values.
We follow the successful efforts method of accounting
for our oil and gas operations. Under this method, all property acquisition costs and costs of exploratory and development wells
are capitalized when incurred, pending determination of whether proved reserves have been discovered. If proved reserves are not
discovered with an exploratory well, the costs of drilling the well are expensed.
The capitalized costs of our oil and natural gas
properties, on a depletion pool basis, cannot exceed the estimated undiscounted future net cash flows of that depletion pool. If
net capitalized costs exceed undiscounted future net revenues, we generally must write down the costs of each depletion pool to
the estimated discounted future net cash flows of that depletion pool. A significant decline in oil or natural gas prices from
current levels, or other factors, could cause a future impairment write-down of capitalized costs and a non-cash charge against
future earnings. Once incurred, a write-down of oil and natural gas properties cannot be reversed at a later date, even if oil
or natural gas prices increase.
Oil and gas drilling and producing operations are hazardous and
expose us to environmental liabilities.
Oil and gas operations are subject to many risks,
including well blowouts, cratering and explosions, pipe failure, fires, formations with abnormal pressures, uncontrollable flows
of oil, natural gas, brine, or well fluids, and other environmental hazards and risks. Our drilling operations involve risks from
high pressures and from mechanical difficulties such as stuck pipes, collapsed casings, and separated cables. If any of these risks
occur, we could sustain substantial losses as a result of:
● |
injury or loss of life; |
● |
severe damage to, or destruction of, property, natural resources, and equipment; |
● |
pollution or other environmental damage; |
● |
clean-up responsibilities; |
● |
regulatory investigations and penalties; and |
● |
suspension of operations. |
Our liability for environmental hazards may include
those created either by the previous owners of properties that we purchase or lease or by acquired companies prior to the date
we acquire them. We will maintain insurance against some, but not all, of the risks described above. Our insurance may not be adequate
to cover casualty losses or liabilities, and in the future we may not be able to obtain insurance at premium levels that justify
its purchase.
Weakness in economic conditions or uncertainty in financial markets
may have material adverse impacts on our business.
US, Canadian and global economies and financial
systems have recently experienced turmoil and upheaval characterized by extreme volatility and declines in prices of securities,
diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure, collapse, or sale of
financial institutions, increased levels of unemployment, and an unprecedented level of government intervention. Although some
economies appear to have stabilized and begun to recover, the extent and timing of recovery, and whether it can be sustained, are
uncertain. Continued weakness in the US, Canadian or other large economies could materially adversely affect our business, financial
condition, results of operations, and cash flows.
In addition, our oil properties are operated by
our joint venture partner that we depend on for timely performance of contractual obligations and, for distribution to us of our
proportionate share of revenues from sales of oil production. If weak economic conditions adversely impact our operator, we are
exposed to the risk that revenue disbursements to us could be delayed.
We have limited control over the activities on property we do
not operate.
The joint venture oil well in which we have an
ownership interest of 50% are operated by our joint venture partner. As a result, we have limited ability to exercise influence
over, and control the risks associated with, the development and operation of those properties. The timing and success of drilling
and development activities on those properties depend on a number of factors outside of our control, including the operator's:
● |
determination of the nature and timing of drilling and operational activities; |
● |
determination of the timing and amount of capital expenditures; |
● |
expertise and financial resources; |
● |
approval of other participants in drilling wells; and |
● |
selection of suitable technology. |
The failure of an operator of our properties to
adequately perform development and operational activities, an operator's breach of the applicable agreements, or an operator's
failure to act in ways that are in our best interests could reduce our production, revenues, and reserves, and have a material
adverse effect on our financial condition, results of operations, and cash flows.
Currency exchange rate fluctuations may negatively affect our
operating results.
The exchange rates between the Canadian dollar
and the US dollar have changed in recent periods and may fluctuate substantially in the future. We expect that a majority of our
revenues will be denominated in Canadian dollars in the future. However, the US dollar has strengthened against the Canadian dollar,
which has had, and may continue to have, a negative impact on our revenues generated in the Canadian dollar, as well as our operating
income and net income. Any appreciation of the US dollar against the Canadian dollar is likely to have a negative impact on our
revenue, operating income, and net income.
RISKS RELATED TO OUR COMMON STOCK
The market price of our common stock may fluctuate significantly,
which may result in losses for investors.
During the past several years, the stock markets
in general and for oil and gas exploration and production companies in particular have experienced significant price and volume
fluctuations that have often been unrelated or disproportionate to the operating results and asset values of the underlying companies.
In addition, due to relatively low trading volumes for our common stock, the market price for our common stock may fluctuate significantly
more than the markets as a whole. The market price of our common stock could fluctuate widely in response to a variety of factors,
including factors beyond our control. These factors include:
● |
changes in crude oil or natural gas commodity prices; |
● |
our quarterly or annual operating results; |
● |
any investment recommendations by securities analysts following our business
or our industry; |
● |
additions or departures of key personnel; |
● |
changes in the business, earnings estimates, or market perceptions of comparable
companies; |
● |
changes in industry, general market, or regional or global economic conditions;
and |
● |
announcements of legislative or regulatory changes affecting our business or
our industry. |
Fluctuations in the market price of our common
stock may be significant, and may result in declines in the market price and losses for investors.
We may establish a stock option plan in the future and issue a
significant number of shares of common stock under the stock options, and common stockholders may be adversely affected by the
issuance and sale of those shares.
As of May 31, 2014 we do not have a stock option
plan. However, in the future we may establish a Stock Option Plan to align key management interest with that of our common stockholders.
Sales of the shares under the stock option plan, if established, could adversely affect the market price of our common stock, even
if our business is doing well.
Our common stock is illiquid, its liquidity and value could be
reduced.
Our common stocks are quoted for trading on the
OTCQB, however, our stock is very thinly traded. The value of the of our common stocks may be significantly adversely affected.
We do not intend to pay cash dividends on our common stock in
the foreseeable future, and therefore only appreciation of the price of our common stock will provide a return to our common stockholders.
We do not intend to pay cash dividends on our
common stock in the foreseeable future. Any future determination as to the declaration and payment of cash dividends on our common
stock will be at the discretion of our board of directors and will depend upon our financial condition, results of operations,
contractual restrictions, capital requirements, business prospects, and any other factors that our board determines to be relevant.
As a result, only appreciation of the price of our common stock, which may not occur, will provide a return to our common stockholders.
Our largest stockholder beneficially owns a significant percentage
of our common stock, and its interests may conflict with those of our other stockholders.
Shanghai Yuankai Group Co., Ltd. owns 39,000,000
shares of our common stocks. The concentration of ownership and voting power with Shanghai Yuankai makes it difficult for any other
holder or group of holders of our common stock to be able to affect the way we are managed or the direction of our business. The
interests of Shanghai Yuankai with respect to matters potentially or actually involving or affecting us, such as future acquisitions,
financings, and other corporate opportunities, and attempts to acquire us, may conflict with the interests of our other stockholders.
This continued concentration of ownership will make it difficult for another company to acquire us and for stockholders to receive
any related takeover premium unless Shanghai Yuankai approves the acquisition.
ITEM 1B: UNRESOLVED STAFF COMMENTS
None.
ITEM 3: LEGAL PROCEEDINGS
As of the filing date of this report, there are
no pending legal proceedings against the Company.
ITEM 4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
PRINCIPAL MARKET
Our common stock is traded on OTCQB under
the symbol CNRR. The below table presents the quarterly high and low intraday prices during the periods indicated.
Quarter ended | |
High | | |
Low | |
May 31, 2015 | |
$ | 0.51 | | |
$ | 0.45 | |
February 28, 2015 | |
$ | 0.51 | | |
$ | 0.50 | |
November 28, 2014 | |
$ | 0.82 | | |
$ | 0.45 | |
Our stocks are very
thinly traded and did not change over time in the past year.
HOLDERS
As of May 31, 2015, the number of record
holders of our common stock was approximately 50.
FREQUENCY AND AMOUNT OF DIVIDENDS
The Company has not paid any dividend
on common stock in the past. The Company does not intend to pay cash dividends on its common stock in the foreseeable future.
ISSUER PURCHASES OF EQUITY SECURITIES
The Company did not purchase its own
common stocks in the past for cancellation or placed into inventory.
ITEM 6: SELECTED FINANCIAL DATA
The Company is a smaller reporting company,
as defined by 17 CFR § 229.10(f)(1), and therefore is not required to provide the information otherwise required by this
Item.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS INTRODUCTION
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 Item 8: Financial Statements and Supplementary Data of
this Form 10-K.
Forward looking statements are not guarantees
of future performance, and our actual results may differ significantly from the results expressed or implied in the forward looking
statements. See "Forward Looking Statements" at the end of this section. Factors that might cause such differences include,
but are not limited to, those discussed in Item 1A: Risk Factors of this Form 10-K. We assume no obligation
to revise or update any forward looking statements for any reason, except as required by law.
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 Parent company have no business or financial transactions or any commercial activities.
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.
SIGNIFICANT DEVELOPMENTS IN FISCAL YEAR 2015
During fiscal year ended May 31, 2015,
the Company took important steps in a timely terminated its acquisition of producing oil assets and avoided a potential catastrophic
financial situation. Facing the sustained crude price decreases and the bleak picture of the world economy, the Company believes
it is prudent to evaluate all available alternatives in order to build shareholder value into the future.
In the fiscal year 2015, the Company
has focused on preserve cash and managed risks rather than venturing into additional acquisition or drilling activities. The Company
will monitor the situation carefully and act prudently and accordingly.
SUMMARY RESULTS OF OPERATIONS FOR THE YEAR ENDED MAY
31, 2014
For the year ended May 31, 2015, revenues
totaled $222,380 compared to $252,679 nil in the prior year. Operating loss was $460,693 compared to operating loss of $3,782
in the prior year. The changes are due to the fact that the crude oil price has dropped substantially and production decreased
as well.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded our activities
from loans and our existing cash balance. The Company has limited capital expenditure obligations pertaining to its current operations,
which allow for significant flexibility in the use of its capital resources to grow the Company in the future. Based on our existing
cash position, the Company believes, for the fiscal year 2016, it has sufficient financial resources to fund its ongoing operations
and to finance its core project acquisition in accordance with our growth strategies if opportunity presents itself
Uses of Funds
Capital Expenditures Plans. The
Company does not face significant mandatory capital expenditure requirements to maintain its operation.
The Company’s capital expenditure
is discretionary for 2016 fiscal year. Management will only commit significant capital expenditure when the right acquisition
opportunity can be captured. The acquisition must be for proved-developed-producing light oil assets with excellent cash flow,
the assets must be adequate and capable to produce oil in the future years.
Sources of Funds
Cash and Cash Equivalents. As
at May 31, 2015, the Company had approximately $226,786 of cash and cash equivalents compared to $6.1 million in 2014. As of May
31, 2015, approximately $5.4 million is note receivables from arm’s length party, the decrease in the dollar amount is entirely
due the unrealized exchange loss caused by the depreciation of the Canadian dollars, at present approximately CAD $4.9 million
of the Note Receivables has already been received, $30,229 was trade accounts receivable from our Joint Venture partner for oil
sale. We normally receive full payment in arrear when joint venture billing is completed. We have no reason to believe there would
be any bad debt.
The Company considers cash equivalents
to be short term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity
that they present insignificant risk of changes in value because of changes in interest rates.
Other Sources of Financing. In
addition to its existing liquid capital resources the Company has various alternatives to fund the development of its assets.
These alternatives could potentially include a reserve-based loan facility, a project finance loan facility, mezzanine financing
from a bank and the alternative investment markets, equity issuances or secondary offering, and potential shareholder loan from
the Company’s controlling shareholder. However, there can be no guarantee that such financing opportunities will be available
at the time of need or at reasonable cost to the Company.
Cash Flows
The following table presents the Company's
cash flow information for the fiscal years ended:
| |
May 31 | |
Cash (used in) provided by: | |
2015 | | |
2014 | |
Operating activities | |
$ | 69,694 | | |
$ | (12,875 | ) |
Investing activities | |
| (5,384,136 | ) | |
| (89,043 | ) |
Financing activities | |
| 47,980 | | |
| 6,128,774 | |
Effect of foreign currency exchange rates | |
| (559,076 | ) | |
| - | |
Net (decrease) increase in cash and cash equivalents | |
$ | (5,825,538 | ) | |
$ | (6,026,856 | ) |
Cash generated in operating activities
during the year ended May 31, 2015 was $69,694, compared to cash used of $12,875 in 2014. The increase in cash used in operating
activities primarily resulted from reduced productions and drop in crude oil price resulted in less revenue in the fiscal year.
Cash used in investing activities during
the year ended May 31, 2015 was $5,384,136, compared to cash used in investing activities of $89,043 in 2014 fiscal year. The
cash used in investing activities included the note receivable in the amount of $5,344,391. The Note has been subsequently called
and fully payment is expected shortly.
Cash provided by financing activities
during the year ended May 31, 2015 was $47,980 compared to $6,128,774 in 2014. The decrease in cash provided by financing activities
primarily due to the fact that we did not go to market to raise any additional funds other than the funds provided by the president
from time to time.
COMPARISON OF FINANCIAL RESULTS AND TRENDS BETWEEN
FISCAL 2015 AND 2014
Oil Sales Volumes
The following table presents oil sales
volumes for the fiscal years ended:
| |
May 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Difference | | |
Percent change | |
Net sales: | |
| | |
| | |
| | |
| |
Oil (Mbbls) | |
| 3.3 | | |
| 3 | | |
| 0.3 | | |
| 10 | % |
Sales volumes for the year ended May 31,
2015, totaled 3.3 Mboe, compared to 3 Mboe sold in the prior year period. The increase is due to the crude oil production in 2015
is for the full year and in 2014 was only for 7 months.
Oil and Gas Prices
The following table
presents the average realized oil and gas prices for the fiscal years ended:
| |
May 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Difference | | |
Percent change | |
Average realized price | |
| | |
| | |
| | |
| |
Company (USD/bbl) | |
$ | 67.29 | | |
| 82.07 | | |
| (14.78 | ) | |
| (18 | )% |
Price per bbl is converted into the USD
based on average exchange rate in the year for CAD to USD as per Bank of Canada published exchange rate.
Revenues
Revenues for the
year ended May 31, 2015 totaled $222,380, compared to $252,679 in the prior year period, the decrease is due to the Company price
drop in crude oil as well as production drop.
Operating and Other Expenses
The following table
presents selected operating expenses for the fiscal years ended:
| |
May 31, | | |
| | |
| |
| |
2015 | | |
2014 | | |
Difference | | |
Percent change | |
Selected operating expenses: | |
| | |
| | |
| | |
| |
Depletion, depreciation, amortization, and accretion | |
$ | 86,994 | | |
$ | 63,475 | | |
$ | 23,519 | | |
| 37.05 | % |
General and administrative | |
$ | 43,501 | | |
$ | 39,136 | | |
$ | 4,365 | | |
| 11.15 | % |
| |
| | | |
| | | |
| | | |
| | |
Selected operating expenses: ($/bbl): | |
| | | |
| | | |
| | | |
| | |
Depletion, depreciation, amortization, and accretion | |
$ | 26.32 | | |
$ | 19.21 | | |
$ | 7.12 | | |
| 37.05 | % |
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not use off-balance
sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion of financial condition
and results of operations is based upon the information reported in our financial statements. The preparation of these statements
requires us to make certain assumptions and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses
as well as the disclosure of contingent assets and liabilities at the date of our financial statements. We base our assumptions
and estimates on historical experience and other sources that we believe to be reasonable at the time. Actual results may differ
from these estimates and assumptions used in preparation of our financial statements.
Oil and Gas Properties
Successful Efforts Accounting. We
account for our oil operations using the successful efforts method of accounting. Under this method, all property acquisition
costs and costs of exploratory and development wells are capitalized when incurred, pending determination of whether proved reserves
have been discovered. If an exploratory well does not find proved reserves, the costs of drilling the well are charged to expense
and included within the statement of cash flows and reported as capital expenditures under investing activities when initially
incurred. The costs of development wells are capitalized whether those wells are successful or unsuccessful. The application of
the successful efforts method of accounting requires managerial judgment to determine the proper classification of wells designated
as developmental or exploratory, which classification will ultimately determine the proper accounting treatment of the costs incurred.
Oil and Gas Reserve Quantities. Reserve
quantities and the related estimates of future net cash flows affect our periodic calculations of depletion and the assessment
of impairment. As a result, adjustments to depletion and evaluation of impairment are made concurrently with changes to reserves
estimates. Reserve quantities and future cash flows included in this report are prepared in accordance with guidelines established
by the SEC and the Financial Accounting Standards Board (the "FASB"). Our independent third party engineering firms
adhere to the same guidelines when auditing our reserve reports. The accuracy of our reserve estimates is a function of many factors
including the following: the quality and quantity of available data, the interpretation of that data, the accuracy of various
mandated economic assumptions, and the judgments of the individuals preparing the reserves estimates. Estimates prepared by others
may be higher or lower than our estimates. Because these estimates depend on many assumptions, all of which may differ substantially
from actual results, reserve estimates may be different from the quantities of oil and gas that are ultimately recovered. As a
result, material revisions to existing reserves estimates may occur from time to time. Although every reasonable effort is made
to ensure that the reported reserves estimates represent the most accurate assessments possible, the subjective decisions and
variances in available data for various fields make these estimates generally less precise than other estimates included in our
financial statements.
Depreciation, Depletion, and Amortization. The
provision for depletion of oil and gas properties is calculated on a field-by-field basis using the unit-of-production method
and is dependent upon our estimates of total proved and proved developed reserves, which estimates incorporate various assumptions
regarding future development and abandonment costs as well as our level of capital spending. If the estimates of total proved
or proved developed reserves decline, the rate at which we record depreciation, depletion and amortization ("DD&A")
expense increases, which in turn, increases DD&A expense. This decline may result from lower market prices, which may make
it uneconomic to drill for and produce higher cost fields. We are unable to predict changes in reserve quantity estimates with
a high level of precision as such quantities are dependent on the success of our exploitation and development program, as well
as future economic conditions.
Impairment of Oil and Gas Properties. Oil
and gas properties are assessed quarterly, or more frequently as economic events dictate, for potential impairment. Any impairment
loss is the difference between the carrying value of the asset and its fair value. We estimate the fair value using expected future
cash flows of our oil and gas properties and compare these undiscounted future cash flows to the carrying amount of the oil and
gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future
cash flows, the cost of the property is written down to fair value, which is determined using net discounted future cash flows
from the producing property. Different pricing assumptions or discount rates could result in a different calculated impairment.
Asset Retirement Obligation. Our
asset retirement obligations ("AROs") consist primarily of estimated future costs associated with the plugging and abandonment
of oil and gas properties. The discounted fair value of an ARO liability is required to be recognized in the period in which it
is incurred, with the associated asset retirement cost capitalized as part of the carrying cost of the oil and gas asset. The
recognition of an ARO requires that management make numerous estimates, assumptions, and judgments regarding such factors as costs
to satisfy plugging and abandonment and other obligations, future advances in technology, timing of settlements, the credit-adjusted
risk-free rate, and inflation rates. In periods subsequent to the initial measurement of the ARO, we must recognize period-to-period
changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate
of undiscounted cash flows. Increases in the ARO liability due to the passage of time impact operating results as accretion expense.
The related capitalized cost, net of estimated salvage values, including revisions thereto, is charged to expense through DD&A
over the life of the oil and gas property.
Revenue Recognition
We record revenues from the sale of oil
and gas in the month in which the delivery to the purchaser occurred and title transferred. We receive payment one to three months
after delivery. At the end of each month, we estimate the amount of production delivered to purchasers and the price we will receive.
Variances between our estimated revenue and actual payment are recorded in the month the payment is received. Historically, any
differences have been insignificant.
Stock Based Compensation
We have not established a stock based
Compensation arrangement with our officers and directors of the Company or anyone else. However, we may establish such a system
in the future.
If we establish such a system, we will
recognize compensation expense for all share-based payment awards made to employees and directors. Stock based compensation expense
will be measured at the grant date based on the fair value of the award. Judgments and estimates are made regarding, among other
things, the appropriate valuation methodology to follow in valuing stock compensation awards and the related inputs required by
those valuation methodologies. The Black-Scholes-Merton pricing model is used to value time based and performance based awards
that do not contain performance or market conditions which impact the valuation of the award. This pricing model uses assumptions
regarding expected volatility of our common stock, the risk-free interest rates, expected term of the awards, and other valuation
inputs, which are subject to change. Any such changes could result in different valuations and thus impact the amount of stock
based compensation expense recognized.
Costs related to time based stock options
are recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.
Performance based options are recognized over the performance period when the achievement of the performance conditions is considered
probable. Management re-assesses whether satisfaction of performance conditions are probable at the end of each reporting period.
As of May 31, 2015, there were no performance based options outstanding.
Income Taxes and Uncertain Tax Positions
We record deferred tax assets and liabilities
to account for the expected future tax consequences of events that have been recognized in our financial statements and our tax
returns. We routinely assess the realizability of our deferred tax assets. If we conclude that it is more likely than not that
some portion or all of our deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. We consider
future taxable income in making such assessments. Numerous judgments and assumptions are inherent in the determination of future
taxable income, including factors such as future operating conditions.
Accounting guidance for recognizing and
measuring uncertain tax positions prescribes a more likely than not recognition threshold that a tax position must meet for any
of the benefit of the uncertain tax position to be recognized in the financial statements. Previously recognized uncertain tax
positions that no longer meet the more-likely-than-not threshold should be derecognized in the first subsequent financial reporting
period in which that threshold is no longer met. There are no uncertain tax positions that would meet the more-likely-than-not
recognition threshold for the fiscal year ended May 31, 2015 and 2014.
Foreign Currencies and Foreign Currency Adjustment
of Intercompany Loans
When foreign currency transactions are
of a long term investment nature (i.e., those for which settlement is not planned or anticipated in the foreseeable future) foreign
currency translation adjustments resulting from those transactions are included in stockholders' equity as accumulated other comprehensive
(loss) income. However, when transactions are deemed to be of a short term nature, translation adjustments are required to be
included in the statement of operations.
Accounting for Business Combinations
The Company intends to pursue acquisitions
as opportunities arise in order to grow our business. We will account for all of our business combinations in accordance with
guidelines established by the Financial Accounting Standards Board, using the acquisition method of accounting, which involves
the use of significant judgment.
In estimating the fair values of assets
acquired and liabilities assumed in a business combination, we make various assumptions. The most significant assumptions relate
to the estimated fair values assigned to proved and unproved crude oil and natural gas properties. We estimate future prices to
apply to the estimated reserves quantities acquired, and estimate future operating and development costs, to arrive at estimates
of future net cash flows. For estimated proved reserves, the future net cash flows are discounted using a market based weighted
average cost of capital rate, adjusted for risk, determined to be appropriate at the time of the acquisition.
The calculation of the contingent consideration
payable is a significant management estimate and is calculated using production projections and the estimated timing of production
payouts. The Company also utilized a discount which is consistent with the Company’s credit adjusted incremental borrowing
rate.
MANAGEMENT ANALYSIS OF CERTAIN MARKET RISK ISSUES
The Company's exposure to market risk
relates to fluctuations in foreign currency and world prices for crude oil, as well as market risk related to investment in marketable
securities. The exchange rates between the Canadian dollar and the US dollar have changed in recent periods and may fluctuate
substantially in the future. Any appreciation of the US dollar against the Canadian dollar is likely to have a negative impact
on our revenue, operating income, and net income.
At May 31, 2015, the carrying value of
cash and cash equivalents was approximately $226,786, which approximates the fair value.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company is a smaller reporting company,
as defined by 17 CFR § 229.10(f)(1), and therefore is not required to provide the information otherwise required by this
Item.
ITEM 8. FINANCIAL STATEMENTS.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CN
Resources, Inc.
Toronto,
Canada
We
have audited the accompanying balance sheets of CN Resources, Inc., (the “Company”) as of May 31, 2015 and 2014, and
the related statements of operations, stockholders’ equity and cash flows for each of the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion,
the financial statements referred to above present fairly, in all material respects, the financial position of the Company as
of May 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that CN Resources, Inc. will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has incurred cumulative losses since inception and has negative cash flow from
operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding
those matters also are described in Note 1. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/
MaloneBailey, LLP
www.malonebailey.com
Houston,
Texas
September
15, 2015
PART
I - FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS.
CN
RESOURCES INC.
Balance
Sheets
| |
May 31,
2015 | | |
May 31,
2014 | |
Assets | |
| | |
| |
| |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 226,786 | | |
$ | 6,052,324 | |
Accounts receivable | |
| 30,229 | | |
| 61,332 | |
Other receivable | |
| 7,301 | | |
| 4,296 | |
Note receivable | |
| 5,343,704 | | |
| - | |
Total current assets | |
$ | 5,608,020 | | |
$ | 6,117,952 | |
| |
| | | |
| | |
Oil and gas properties (successful efforts), net | |
$ | - | | |
$ | 451,043 | |
| |
| | | |
| | |
Total assets | |
$ | 5,608,020 | | |
$ | 6,568,995 | |
| |
| | | |
| | |
Liabilities and Stockholders' Equity | |
| | | |
| | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current Liabilities | |
| | | |
| | |
Accounts payable | |
| 16,536 | | |
$ | 5,952 | |
Due to director | |
| 367,472 | | |
| 319,492 | |
Total current liabilities | |
| 384,008 | | |
| 325,444 | |
| |
| | | |
| | |
Asset retirement obligation | |
| 6,190 | | |
| 5,960 | |
| |
| | | |
| | |
Total liabilities | |
| 390,198 | | |
| 331,404 | |
| |
| | | |
| | |
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 | |
| (559,076 | ) | |
| - | |
Accumulated deficit | |
| (738,302 | ) | |
| (277,609 | ) |
Total stockholders' equity | |
| 5,217,822 | | |
| 6,237,591 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
$ | 5,608,020 | | |
$ | 6,568,995 | |
The
accompanying notes are an integral part of these financial statements.
CN
RESOURCES INC.
Statements
of Operations
| |
For the year | | |
For the year | |
| |
ended | | |
ended | |
| |
May 31,
2015 | | |
May 31,
2014 | |
| |
| | |
| |
Revenue | |
| | |
| |
Oil production (net of royalty) | |
$ | 174,336 | | |
$ | 203,265 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Bank service charge | |
| 185 | | |
| 358 | |
Depreciation, depletion and accretion | |
| 86,994 | | |
| 63,475 | |
Impairment | |
| 404,024 | | |
| - | |
Management fee | |
| 24,000 | | |
| 24,000 | |
Production cost | |
| 37,893 | | |
| 52,011 | |
Professional fees | |
| 67,156 | | |
| 15,778 | |
Regulatory filing | |
| 18,269 | | |
| 12,289 | |
General and administrative expenses | |
| 40,566 | | |
| 39,136 | |
Total operating expenses | |
$ | 679,087 | | |
$ | 256,461 | |
| |
| | | |
| | |
Interest income | |
| 44,058 | | |
| - | |
| |
| | | |
| | |
Net (loss) | |
$ | (460,693 | ) | |
$ | (3,782 | ) |
| |
| | | |
| | |
Loss per common share - basic and diluted | |
$ | (0.01 | ) | |
$ | (0.00 | ) |
| |
| | | |
| | |
Weighted average common shares outstanding - basic and
diluted | |
| 56,100,000 | | |
| 26,346,575 | |
| |
| | | |
| | |
Comprehensive loss | |
| | | |
| | |
Net loss | |
$ | (460,693 | ) | |
$ | (3,782 | ) |
Foreign currency translation adjustment | |
| (559,076 | ) | |
| - | |
Total comprehensive loss | |
$ | (1,019,769 | ) | |
$ | (3,782 | ) |
The
accompanying notes are integral part of these financial statements.
CN
Resources, Inc
Statement
of Changes in Stockholders' Equity (Deficit)
For
the year ended May 31, 2015 and 2014
| |
| | |
| | |
Additional | | |
Other | | |
| | |
| |
| |
Common Stock | | |
Paid In | | |
Comprehensive | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Income(Loss) | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance at May 31, 2013 | |
| 26,100,000 | | |
$ | 261 | | |
$ | 514,939 | | |
| - | | |
$ | (273,827 | ) | |
$ | 241,373 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common shares issued for cash | |
| 30,000,000 | | |
| 300 | | |
| 5,999,700 | | |
| - | | |
| - | | |
| 6,000,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,782 | ) | |
| (3,782 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at May 31, 2014 | |
| 56,100,000 | | |
$ | 561 | | |
$ | 6,514,639 | | |
| - | | |
$ | (277,609 | ) | |
$ | 6,237,591 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| | | |
| (460,693 | ) | |
| (460,693 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign Currency translation Adjustment | |
| - | | |
| - | | |
| - | | |
| (559,076 | ) | |
| | - | |
| (559,076 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at May 31, 2015 | |
$ | 56,100,000 | | |
$ | 561 | | |
$ | 6,514,639 | | |
$ | (559,076 | ) | |
$ | (738,302 | ) | |
$ | 5,217,822 | |
The
accompanying notes are an integral part of these financial statements
CN
RESOURCES INC.
Statements
of Cash Flows
| |
For the year | | |
For the year | |
| |
ended | | |
ended | |
| |
May 31, 2015 | | |
May 31, 2014 | |
Cash Flows From Operating Activities | |
| | |
| |
Net (Loss) for the period | |
$ | (460,693 | ) | |
$ | (3,782 | ) |
Adjustments to reconcile net loss to net cash used in operating activities | |
| | | |
| | |
Depreciation, depletion and accretion | |
| 86,994 | | |
| 63,475 | |
Impairment | |
| 404,024 | | |
| - | |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| 31,103 | | |
| (65,340 | ) |
Other receivable | |
| (2,318 | ) | |
| - | |
Accounts payable | |
| 10,584 | | |
| (7,228 | ) |
Net cash provided by (used in) operating activities | |
| 69,694 | | |
| (12,875 | ) |
| |
| | | |
| | |
Cash Flow From Investing Activities | |
| | | |
| | |
Notes receivable | |
| (5,344,391 | ) | |
| - | |
Investment in oil & gas properties | |
| (39,745 | ) | |
| (89,043 | ) |
Net cash used in investing activities | |
| (5,384,136 | ) | |
| (89,043 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from director advances | |
| 79,478 | | |
| 128,774 | |
Payments to director for advances | |
| (31,498 | ) | |
| - | |
Proceeds from common stock sold | |
| - | | |
| 6,000,000 | |
Net cash provided by financing activities | |
| 47,980 | | |
| 6,128,774 | |
Effect of foreign currency exchange rates | |
| (559,076
| ) | |
| | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (5,825,538 | ) | |
| 6,026,856 | |
Cash and cash equivalents, beginning of the period | |
| 6,052,324 | | |
| 25,468 | |
Cash and cash equivalents, end of the period | |
$ | 226,786 | | |
$ | 6,052,324 | |
| |
| | | |
| | |
Supplemental cash disclosure: | |
| | | |
| | |
Cash paid for interest payments | |
$ | - | | |
$ | - | |
Cash paid for taxes | |
$ | - | | |
$ | - | |
The
accompanying notes are an integral part of these financial statements
CN
RESOURCES INC.
Notes
to the Financial Statements
May 31,
2015
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.
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
460,693 for the year ended May 31, 2015 and has an accumulated deficit of $738,302since 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
Allowance
for Doubtful Accounts Policy
The Company
periodically, on quarterly basis, evaluates the collectability and timing of its accounts receivables, and if evidences suggest
that collection of receivables are in doubt, management will provide an allowance based on the circumstances and the customers
past payment histories.
Foreign
currency translation
We
account for foreign currency translation in accordance with ASC 830, Foreign Currency Translation. The functional
currencies of the Company’s foreign operations are the reported local currencies. Translation adjustments result from translating
our foreign subsidiaries’ financial statements into United States dollars. The balance sheet accounts of our foreign subsidiaries
are translated into United States dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses are
translated using average exchange rates for each month during the fiscal year. The resulting translation gains or losses are recorded
as a component of accumulated other comprehensive income in stockholders’ deficit. Business is generally transacted in a
single currency not requiring meaningful currency transaction costs. We do not practice hedging as the risks do not warrant the
costs.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily
requires management to make estimates and assumption that affect the amounts reported in the financial statements. We regularly
evaluate estimates and judgements based on historical experiences and other relevant facts and circumstance. Actual results could
differ from those estimates.
Cash
and Cash equivalents
Cash
equivalents are highly liquid investments with an original maturity of three months or less.
Income
taxes
Potential
benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company follows
ASC 740 “Accounting for Income Taxes,” under which the Company computes tax assets benefits for net operating losses
carried forward. Potential benefits of net operating losses have not been recognized in these interim financial statements because
the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in the future
years.
At May
31, 2015, the Company had no unrecognized tax benefits. Management does not believe unrecognized tax benefits will significantly
change within twelve months of the reporting date. Interest and penalties related to income tax matters are recognized in income
tax expenses. As of May 31, 2015 there is no accrued interest related to uncertain tax positions.
Basic
and Diluted Net Loss per Common Share
Basic
net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during
the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average
number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Revenue
Recognition
We recognize
oil and gas revenue from interests in producing wells as the oil and gas is sold. Revenue from the purchase, transportation, and
sale of oil and natural gas is recognized upon completion of the sale and when transported volumes are delivered.
Oil
and Gas Property and impairment of Long lived Assets
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 May31, 2015 was $86,764.
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, CN Resources 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 CN
Resources’ 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 year ended May 31, 2015, CN Resources recorded impairment expense of $404,024. The impairment is based on the prevailing
market crude price of around $44 per barrel now which renders our assets to be marginalized and management believes it is
appropriate to make the impairment provision for the assets.
Asset
Retirement Obligation
The company
follows ASC 410 of the FASB Accounting Standards Codification which requires entities to record the fair value of a liability
for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred.
This standard requires the Company to record a liability for the fair value of the dismantlement and plugging and abandonment
costs excluding salvage values. When the liability is initially recorded, the entity increases the carrying amount of the related
long-lived-asset. Over time, accretion of the liability is recognized each period and the capitalized cost is amortized over the
useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount
or incurs a gain or loss upon settlement.
3.
BASIS OF PRESENTATION
The accompanying
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.. 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
year ended May 31, 2015 have been reflected herein.
4.
OIL AND GAS PROPERTIES
In
the beginning of fiscal year 2015, the Company further spent $39,745, representing the Company’s share of capital cost in
the Joint Venture well, no further capital cost is pending.
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. In the second half of the year, crude price has dropped substantially and stayed persistently at a low level,
the Company has determined to record the entire oil and gas assets as an impairment charge based on persistent low crude price
of $44 per barrel, and it is unlikely that the price will increase substantially soon, given the uncertainty of cash flow, if
any, in the future, the management has determined to provide an impairment charge of $404,024.
5.
DUE TO DIRECTOR
The
director loans the company money from time to time on an interest-free due-on-demand basis. As of May 31, 2015, the total amount
advanced and unpaid is $367,472.
The
Company is currently using the office space from its President and CEO and on rent free basis.
6.
ISSUANCE OF COMMON STOCK
On
May 28, 2014, the Company sold 25,000,000 and 5,000,000 common shares to its controlling shareholder and insiders respectively
at a price of $0.20 per share. There is no further stock issued or committed to be issued to anyone.
7.
NOTES RECEIVABLES
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. These
Notes are in Canadian dollars, and due to significant devaluation of the Canadian dollars against United States dollars, as at
May 31, 2015, we have a material unrealized foreign currency exchange loss in the amount of $398,026 in aggregate for the fiscal
year ended May 31, 2015.
Subsequent to May 31, 2015, we have recalled
the note, and we have received $3,930,780(CAD $4,900,000) of the payment, Management anticipates the entire note will be repaid
shortly thereafter.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
There have been no disagreements on accounting
and financial disclosures from the inception of our company through the date of this Form 10-K. Our financial statements for the
period from inception to May 31, 2015, included in this report have been audited by MaloneBailey, LLP, as set forth in this annual
report.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls
and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that
such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”),
under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure
Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this
Evaluation, our CEO and CFO concluded that our Disclosure Controls were not effective because of the identification of a material
weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our
disclosure controls and procedures.
The material weakness relates to the
monitoring and review of work performed by our limited accounting staff in the preparation of financial statements, footnotes
and financial data provided to our independent registered public accounting firm in connection with the annual audit. More specifically,
the material weakness in our internal control over financial reporting is due to the fact that:
In the light of management’s review
of internal control procedures as they relate to COSO and the SEC the following were identified:
● |
Our audit committee does not function as an audit committee should since there is a lack of independent directors on the committee
and the board of directors has not identified an “expert”, one who is knowledgeable about reporting and financial
statements requirements, to serve on the audit committee. |
|
|
● |
We have limited segregation of duties which is not consistent with good internal control procedures. |
|
|
● |
We do not have a written internal control procedurals manual which outlines the duties and reporting requirements of the directors
and any staff to be hired in the future. This lack of a written internal control procedurals manual does not meet the
requirements of the SEC or good internal control. |
|
|
● |
There are no effective controls instituted over financial disclosure and the reporting processes. |
Limitations on the Effectiveness of Controls
Our management, including our CEO and
CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management or board override of the control.
The design of any system of controls
also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CEO and CFO Certifications
Appearing immediately following the Signatures
section of this report there are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section
302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading
is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read
in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
Management’s Report on Internal Control over
Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management
and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.
Our internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations
of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations,
internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how
well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.
Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial
statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness
of our internal control over financial reporting as of May 31, 2015. In making this assessment, it used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
Based on our assessment, as of August 29, 2015, the Company’s internal control over financial reporting were ineffective.
In the light of management’s review
of internal control procedures as they relate to COSO and the SEC the following were identified:
● |
Our audit committee does not function as an audit committee should since there is a lack of independent directors on the committee
and the board of directors has not identified an “expert”, one who is knowledgeable about reporting and financial
statements requirements, to serve on the Audit Committee. |
|
|
● |
We have limited segregation of duties which is not consistent with good internal control procedures. |
|
|
● |
We do not have a written internal control procedurals manual which outlines the duties and reporting requirements of the directors
and any staff to be hired in the future. This lack of a written internal control procedurals manual does not meet the
requirements of the SEC or good internal control. |
|
|
● |
There are no effective controls instituted over financial disclosure and the reporting processes. |
This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Controls
There were no changes in our internal
control over financial reporting during the year ended May 31, 2015, that have affected, or are reasonably likely to affect, our
internal control over financial reporting.
ITEM 9B: OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE.
Each of our directors serves until his
or her successor is elected and qualified. Each of our officers is elected by the board of directors to a term of one (1) year
and serves until his or her successor is duly elected and qualified, or until he or she is removed from office. The board of directors
has no nominating, auditing or compensation committees.
The name, address, age and position of
our present officer and director is set forth below:
Name |
|
Age |
|
Office
Held |
|
Length
of Service as Officer |
Ruzhen Wang |
|
55 |
|
Chairman and Director |
|
Since May 1, 2014 |
Rose Huang |
|
57 |
|
Director |
|
Since May 1, 2014 |
Oliver Xing |
|
51 |
|
Director, President and Chief Executive
Officer |
|
Since May 18, 2010 inception
of the Company |
Conflicts of Interest
We believe that Mr. Xing will not be
subject to conflicts of interest. No policy has been implemented or will be implemented to address conflicts of interest.
In the event Mr. Xing resigns as Director
or Mr. Xing resigns as an Officer, we will have to evaluate and recruit additional director and officer, if a suitable officer
cannot be identified and recruited, our operations could be suspended or cease entirely.
Audit Committee Financial Expert
We do not have an audit committee financial
expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial
expert at this time is prohibitive. Further, because we have no operations, at the present time, we believe the services
of a financial expert are not warranted.
Audit Committee and Charter
We have a separately-designated audit
committee of the board. Audit committee functions are performed by our board of directors. None of our directors are
deemed independent. All directors also hold positions as our officers. Our audit committee is responsible for: (1) selection and
oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding
accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by
our employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside
auditory and any outside advisors engagement by the audit committee. A copy of the audit committee charter is filed as Exhibit
99.2 to this report.
Code of Ethics
We have adopted a corporate code of ethics.
We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full,
fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting
of code violations; and provide accountability for adherence to the code. A copy of the code of ethics is filed as Exhibit 14.1
to this report.
Disclosure Committee and Charter
We have a disclosure committee and disclosure
committee charter. Our disclosure committee is comprised of all of our officers and directors. The purpose of the committee is
to provide assistance to the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities regarding
the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial
reports. A copy of the disclosure committee charter is filed as Exhibit 99.3 to this report.
Section 16(a) of the Securities Exchange Act of 1934
As of the date of this report, we are
not subject to section 16(a) of the Securities Exchange Act of 1934.
Certain information concerning the
executive officers of the Company is included under Item 10: Directors, Executive Officers, and Corporate Governance of
this report.
ITEM 11: EXECUTIVE COMPENSATION
The following table sets forth the compensation
paid by us for the last three fiscal years ending May 31, 2015 for our officer. This information includes the dollar value of
base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation
discussed addresses all compensation awarded to, earned by, or paid or named executive officers.
Executive Officer Compensation
Table
| |
| |
| | |
| | |
| | |
| | |
Non- | | |
Nonqualified | | |
| | |
| |
| |
| |
| | |
| | |
| | |
| | |
Equity | | |
Deferred | | |
All | | |
| |
Name | |
| |
| | |
| | |
| | |
| | |
Incentive | | |
Compensa- | | |
Other | | |
| |
and | |
| |
| | |
| | |
Stock | | |
Option | | |
Plan | | |
tion | | |
Compen- | | |
| |
Principal | |
| |
Salary | | |
Bonus | | |
Awards | | |
Awards | | |
Compensation | | |
Earnings | | |
sation | | |
Total | |
Position | |
Year | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | |
(a) | |
(b) | |
(c) | | |
(d) | | |
(e) | | |
(f) | | |
(g) | | |
(h) | | |
(i) | | |
(j) | |
Oliver Xing | |
2015 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 60,000 | | |
| 60,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
President & CEO | |
2014 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 60,000 | | |
| 60,000 | |
| |
2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 60,000 | | |
| 60,000 | |
The $60,000 was payable to Mr. Xing in
2015 and 2014 was for overall responsibility in administering the Company operations and for sourcing and evaluating mineral properties
and general and administrative duties.
We have no employment agreements with
any of our officers. We do not contemplate entering into any employment agreements until such time as we begin profitable operations.
The compensation discussed herein addresses
all compensation awarded to, earned by, or paid to our named executive officers.
There are no other stock option plans,
retirement, pension, or profit sharing plans for the benefit of our officers and directors other than as described herein.
Compensation of Directors
The members of our board of directors
are not compensated for their services as directors. The board has not implemented a plan to award options to any directors. There
are no contractual arrangements with any member of the board of directors. We have no director’s service contracts. The
following table sets forth compensation paid to our directors from inception on May 17, 2010 to May 31, 2015. Since
that time, we have not paid any compensation to Mr. Xing or any director any fee in the capacity as a director.
Director Compensation
| |
Fees | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Earned | |
| | |
| | |
| | |
Nonqualified | | |
| | |
| |
| |
or | |
| | |
| | |
Non-Equity | | |
Deferred | | |
| | |
| |
| |
Paid in | |
Stock | | |
Option | | |
Incentive Plan | | |
Compensation | | |
All Other | | |
| |
| |
Cash | |
Awards | | |
Awards | | |
Compensation | | |
Earnings | | |
Compensation | | |
Total | |
Name | |
(US$) | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | | |
(US$) | |
(a) | |
(b) | |
(c) | | |
(d) | | |
(e) | | |
(f) | | |
(g) | | |
(h) | |
Oliver Xing | |
2015 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2014 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Ruzhen Wang | |
2015 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2014 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Rose Huang | |
2015 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2014 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
| |
2013 | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
| 0 | |
Long-Term Incentive Plan Awards
We do not have any long-term incentive
plans that provide compensation intended to serve as incentive for performance.
Indemnification
Under our Articles of Incorporation and
Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit,
because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance
expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding
as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With
respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding,
and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent
permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities
arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that,
in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and
is, therefore, unenforceable.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, the total
number of shares of common stock beneficially by each of our directors, officers and key employees, individually and as a group,
and the present owners of 5% or more of our total outstanding shares. The stockholders listed below has or indirect ownership
of his shares or possesses voting and dispositive power with respect to the shares.
| |
Number of | | |
Percentage of | |
Name and Address | |
Restricted Shares | | |
Restricted Shares | |
Beneficial Ownership [1] | |
Owned beneficially | | |
Owned beneficially | |
| |
| | |
| |
Oliver Xing | |
| 9,500,000 | | |
| 16.93 | % |
Toronto, Ontario | |
| | | |
| | |
| |
| | | |
| | |
Ruzhen (Jenny) Wang | |
| 39,000,000 | | |
| 69.52 | % |
Markham, Ontario | |
| | | |
| | |
| |
| | | |
| | |
Rose Huang | |
| - | | |
| - | |
Toronto, Ontario | |
| | | |
| | |
| |
| | | |
| | |
Total common stocks issued and outstanding | |
| 56,100,000 | | |
| | |
| |
| | | |
| | |
All Officers and Director-as a Group (3 people) | |
| 48,500,000 | | |
| 86.45 | % |
Future sales by existing stockholders
Ms. Wang and Mr. Xing’s shares
of common stock may only be resold under Rule 144 subject to volume restrictions and restrictions on the manner of sale, commencing
six months after their acquisition. Accordingly, The restricted shares may not be resold under Rule 144 of the Act for a
period on one year from the date we are no longer a shell company and we have filed a Form 8-K with the SEC and disclosed the
information required by Item 5.06 thereof.
There are no outstanding options or warrants
to purchase, or securities convertible into, our common stock.
ITEM 13: CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item
is incorporated by reference to the information provided in the Company's filing with the United States Securities Commission
on form 8-K.
Further, Mr. Xing has advanced funds
to us for some of our needs. As of May 31, 2015, Mr. Xing has outstanding advances to us in the amount of $367,472 (May 31, 2014
- $319,492). There is no due date for the repayment of the funds advanced by Mr. Xing. Mr. Xing will be
repaid from revenues or operations if and when we generate revenues to pay the obligation. The obligation to Mr. Xing
does not bear interest. Money advanced by Mr. Xing will be repaid from the proceeds of any financing or from working
capital when available and on demand.
ITEM 14: PRINCIPAL ACCOUNTING FEES
AND SERVICES
(1) Audit Fees
The aggregate fees billed for each of
the last three fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements
and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection
with statutory and regulatory filings or engagements for those fiscal years was:
2015 | |
$ | 24,900 | | |
MaloneBailey, LLP |
2014 | |
$ | 19,700 | | |
MaloneBailey, LLP |
(2) Audit-Related Fees
The aggregate fees billed in each of
the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance
of the audit or review of our financial statements and are not reported in the preceding paragraph:
2015 | |
$ | 0 | | |
MaloneBailey, LLP |
2014 | |
$ | 0 | | |
MaloneBailey, LLP |
(3) Tax Fees
The aggregate fees billed in each of
the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax
planning was:
2015 | |
$ | 0 | | |
MaloneBailey, LLP |
2014 | |
$ | 0 | | |
MaloneBailey, LLP |
(4) All Other Fees
The aggregate fees billed in each of
the last two fiscal years for the products and services provided by the principal accountant, other than the services reported
in paragraphs (1), (2), and (3) was:
2015 | |
$ | 0 | | |
MaloneBailey, LLP |
2014 | |
$ | 0 | | |
MaloneBailey, LLP |
(5) Our audit committee’s pre-approval policies and
procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approves all accounting
related activities prior to the performance of any services by any accountant or auditor.
(6) The percentage of hours expended on the principal accountant’s
engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons
other than the principal accountant’s full time, permanent employees was 0%.
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements
for filing of this Form 10-K and has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
on this 15th day of September, 2015.
|
CN RESOURCES INC. |
|
(the “Registrant”) |
|
|
|
|
BY: |
/s/ OLIVER
XING |
|
|
Oliver Xing, President, Principal Executive
Officer, |
|
|
Principal Financial Officer and Principal |
|
|
Accounting Officer, Secretary and Treasurer |
Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in
the capacities.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ OLIVER
XING |
|
President, Principal Executive Officer,
Secretary, |
|
September 15,
2015 |
Oliver Xing |
|
Treasurer, Principal
Financial Officer, Principal |
|
|
|
|
Accounting Officer
and member of the Board |
|
|
|
|
of Directors |
|
|
EXHIBIT INDEX
31.1 |
Certification of Principal
Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
32.1 |
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 |
28
Exhibit 31.1
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
1. |
I have reviewed this Form 10-K for the year ended May 31, 2015 of CN Resources Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
|
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
|
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and, |
|
|
|
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
|
5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
|
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: September 15, 2015 |
/s/ OLIVER XING |
|
Oliver Xing |
|
Principal Executive Officer and Principal Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Annual Report of
CN Resources Inc. (the “Company”) on Form 10-K for the period ended May 31, 2015, as filed with the Securities
and Exchange Commission on the date hereof (the “report”), I, Oliver Xing, Chief Executive Officer and Chief
Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
|
(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
(2) |
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
/s/ OLIVER XING |
|
Oliver Xing |
|
Chief Executive Officer and Chief Financial Officer |
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v3.3.0.814
Balance Sheets - USD ($)
|
May. 31, 2015 |
May. 31, 2014 |
Current assets |
|
|
Cash and cash equivalents |
$ 226,786
|
$ 6,052,324
|
Accounts receivable |
30,229
|
61,332
|
Other receivable |
7,301
|
$ 4,296
|
Note receivable |
5,343,704
|
|
Total current assets |
$ 5,608,020
|
$ 6,117,952
|
Oil and gas properties (successful efforts), net |
|
451,043
|
Total assets |
$ 5,608,020
|
6,568,995
|
Current Liabilities |
|
|
Accounts payable |
16,536
|
5,952
|
Due to director |
367,472
|
319,492
|
Total current liabilities |
384,008
|
325,444
|
Asset retirement obligation |
6,190
|
5,960
|
Total liabilities |
390,198
|
331,404
|
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
|
Comprehensive loss |
(559,076)
|
|
Accumulated Other Comprehensive Loss |
(738,302)
|
$ (277,609)
|
Total stockholders' equity |
5,217,822
|
6,237,591
|
Total liabilities and stockholders' equity |
$ 5,608,020
|
$ 6,568,995
|
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v3.3.0.814
Balance Sheets (Parentheticals) - $ / shares
|
May. 31, 2015 |
May. 31, 2014 |
Balance Sheets [Abstract] |
|
|
Common stock, shares authorized |
100,000,000
|
100,000,000
|
Common stock, par value |
$ 0.00001
|
$ 0.00001
|
Common stock, shares issued |
56,100,000
|
56,100,000
|
Common stock, shares outstanding |
56,100,000
|
56,100,000
|
Preferred stock, shares authorized |
100,000,000
|
100,000,000
|
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$ 0.00001
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$ 0.00001
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v3.3.0.814
Statements of Operations - USD ($)
|
12 Months Ended |
May. 31, 2015 |
May. 31, 2014 |
Revenue |
|
|
Oil production (net of royalty) |
$ 174,336
|
$ 203,265
|
Operating expenses |
|
|
Bank service charge |
185
|
358
|
Depreciation, depletion and accretion |
86,994
|
$ 63,475
|
Impairment |
404,024
|
|
Management fee |
24,000
|
$ 24,000
|
Production cost |
37,893
|
52,011
|
Professional fees |
67,156
|
15,778
|
Regulatory filing |
18,269
|
12,289
|
General and administrative expenses |
40,566
|
39,136
|
Total operating expenses |
679,087
|
$ 256,461
|
Interest income |
44,058
|
|
Net (loss) |
$ (460,693)
|
$ (3,782)
|
Loss per common share - basic and diluted |
$ (0.01)
|
$ (0.00)
|
Weighted average common shares outstanding - basic and diluted |
56,100,000
|
26,346,575
|
Comprehensive loss |
|
|
Net loss |
$ (460,693)
|
$ (3,782)
|
Foreign currency translation adjustment |
(559,076)
|
|
Total comprehensive loss |
$ (1,019,769)
|
$ (3,782)
|
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v3.3.0.814
Statement of Changes in Stockholders' Equity (Deficit) - USD ($)
|
Total |
Common Stock |
Additional Paid In Capital |
Other Comprehensive Income(Loss) |
Accumulated Deficit |
Balance at May. 31, 2013 |
$ 241,373
|
$ 261
|
$ 514,939
|
|
$ (273,827)
|
Balance, Shares at May. 31, 2013 |
|
26,100,000
|
|
|
|
Common shares issued for cash |
6,000,000
|
$ 300
|
$ 5,999,700
|
|
|
Common shares issued for cash, Shares |
|
30,000,000
|
|
|
|
Net loss |
$ (3,782)
|
|
|
|
$ (3,782)
|
Foreign Currency translation Adjustment |
|
|
|
|
|
Balance at May. 31, 2014 |
$ 6,237,591
|
$ 561
|
$ 6,514,639
|
|
(277,609)
|
Ending Balance, Shares at May. 31, 2014 |
|
56,100,000
|
|
|
|
Net loss |
(460,693)
|
|
|
|
(460,693)
|
Foreign Currency translation Adjustment |
(559,076)
|
|
|
$ (559,076)
|
|
Balance at May. 31, 2015 |
$ 5,217,822
|
$ 561
|
$ 6,514,639
|
$ (559,076)
|
$ (738,302)
|
Ending Balance, Shares at May. 31, 2015 |
|
56,100,000
|
|
|
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v3.3.0.814
Statements of Cash Flows - USD ($)
|
12 Months Ended |
May. 31, 2015 |
May. 31, 2014 |
Cash Flows From Operating Activities |
|
|
Net (Loss) for the period |
$ (460,693)
|
$ (3,782)
|
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
Depreciation, depletion and accretion |
86,994
|
$ 63,475
|
Impairment |
404,024
|
|
Changes in operating assets and liabilities |
|
|
Accounts receivable |
31,103
|
$ (65,340)
|
Other receivable |
(2,318)
|
|
Accounts payable |
10,584
|
$ (7,228)
|
Net cash provided by (used in) operating activities |
69,694
|
$ (12,875)
|
Cash Flow From Investing Activities |
|
|
Notes receivable |
(5,344,391)
|
|
Investment in oil & gas properties |
(39,745)
|
$ (89,043)
|
Net cash used in investing activities |
(5,384,136)
|
(89,043)
|
Cash Flows from Financing Activities |
|
|
Proceeds from director advances |
79,478
|
$ 128,774
|
Payments to director for advances |
$ (31,498)
|
|
Proceeds from common stock sold |
|
$ 6,000,000
|
Net cash provided by financing activities |
$ 47,980
|
$ 6,128,774
|
Effect of foreign currency exchange rates |
(559,076)
|
|
Net increase (decrease) in cash and cash equivalents |
(5,825,538)
|
$ 6,026,856
|
Cash and cash equivalents, beginning of the period |
6,052,324
|
25,468
|
Cash and cash equivalents, end of the period |
$ 226,786
|
$ 6,052,324
|
Supplemental cash disclosure: |
|
|
Cash paid for interest payments |
|
|
Cash paid for taxes |
|
|
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v3.3.0.814
Organization Business Operations and Going Concern
|
12 Months Ended |
May. 31, 2015 |
Organization Business Operations and Going Concern [Abstract] |
|
ORGANIZATION BUSINESS OPERATIONS AND GOING CONCERN |
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. 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 460,693 for the year ended May 31, 2015 and has an accumulated deficit of $738,302 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.
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v3.3.0.814
Significant Accounting Policies
|
12 Months Ended |
May. 31, 2015 |
Significant Accounting Policies & Basis of Presentation [Abstract] |
|
SIGNIFICANT ACCOUNTING POLICIES |
2. SIGNIFICANT ACCOUNTING POLICIES
Allowance for Doubtful Accounts Policy
The Company periodically, on quarterly basis, evaluates the collectability and timing of its accounts receivables, and if evidences suggest that collection of receivables are in doubt, management will provide an allowance based on the circumstances and the customers past payment histories.
Foreign currency translation
We account for foreign currency translation in accordance with ASC 830, Foreign Currency Translation. The functional currencies of the Company’s foreign operations are the reported local currencies. Translation adjustments result from translating our foreign subsidiaries’ financial statements into United States dollars. The balance sheet accounts of our foreign subsidiaries are translated into United States dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses are translated using average exchange rates for each month during the fiscal year. The resulting translation gains or losses are recorded as a component of accumulated other comprehensive income in stockholders’ deficit. Business is generally transacted in a single currency not requiring meaningful currency transaction costs. We do not practice hedging as the risks do not warrant the costs.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires management to make estimates and assumption that affect the amounts reported in the financial statements. We regularly evaluate estimates and judgements based on historical experiences and other relevant facts and circumstance. Actual results could differ from those estimates.
Cash and Cash equivalents
Cash equivalents are highly liquid investments with an original maturity of three months or less.
Income taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company follows ASC 740 “Accounting for Income Taxes,” under which the Company computes tax assets benefits for net operating losses carried forward. Potential benefits of net operating losses have not been recognized in these interim financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in the future years.
At May 31, 2015, the Company had no unrecognized tax benefits. Management does not believe unrecognized tax benefits will significantly change within twelve months of the reporting date. Interest and penalties related to income tax matters are recognized in income tax expenses. As of May 31, 2015 there is no accrued interest related to uncertain tax positions.
Basic and Diluted Net Loss per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
Revenue Recognition
We recognize oil and gas revenue from interests in producing wells as the oil and gas is sold. Revenue from the purchase, transportation, and sale of oil and natural gas is recognized upon completion of the sale and when transported volumes are delivered.
Oil and Gas Property and impairment of Long lived Assets
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 May31, 2015 was $86,764.
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, CN Resources 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 CN Resources’ 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 year ended May 31, 2015, CN Resources recorded impairment expense of $404,024. The impairment is based on the prevailing market crude price of around $44 per barrel now which renders our assets to be marginalized and management believes it is appropriate to make the impairment provision for the assets.
Asset Retirement Obligation
The company follows ASC 410 of the FASB Accounting Standards Codification which requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. This standard requires the Company to record a liability for the fair value of the dismantlement and plugging and abandonment costs excluding salvage values. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived-asset. Over time, accretion of the liability is recognized each period and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.
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v3.3.0.814
Basis of Presentation
|
12 Months Ended |
May. 31, 2015 |
Significant Accounting Policies & Basis of Presentation [Abstract] |
|
BASIS OF PRESENTATION |
3. BASIS OF PRESENTATION The accompanying 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.. 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 year ended May 31, 2015 have been reflected herein.
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v3.3.0.814
Oil and Gas Properties
|
12 Months Ended |
May. 31, 2015 |
Oil and Gas Properties [Abstract] |
|
OIL AND GAS PROPERTIES |
4. OIL AND GAS PROPERTIES In the beginning of fiscal year 2015, the Company further spent $39,745, representing the Company’s share of capital cost in the Joint Venture well, no further capital cost is pending. 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. In the second half of the year, crude price has dropped substantially and stayed persistently at a low level, the Company has determined to record the entire oil and gas assets as an impairment charge based on persistent low crude price of $44 per barrel, and it is unlikely that the price will increase substantially soon, given the uncertainty of cash flow, if any, in the future, the management has determined to provide an impairment charge of $404,024.
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v3.3.0.814
Due to Director
|
12 Months Ended |
May. 31, 2015 |
Due to Director [Abstract] |
|
DUE TO DIRECTOR |
5. DUE TO DIRECTOR
The director loans the company money from time to time on an interest-free due-on-demand basis. As of May 31, 2015, the total amount advanced and unpaid is $367,472.
The Company is currently using the office space from its President and CEO and on rent free basis.
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v3.3.0.814
Issuance of Common Stock
|
12 Months Ended |
May. 31, 2015 |
Issuance of Common Stock [Abstract] |
|
ISSUANCE OF COMMON STOCK |
6. ISSUANCE OF COMMON STOCK
On May 28, 2014, the Company sold 25,000,000 and 5,000,000 common shares to its controlling shareholder and insiders respectively at a price of $0.20 per share. There is no further stock issued or committed to be issued to anyone.
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v3.3.0.814
Notes Receivables
|
12 Months Ended |
May. 31, 2015 |
Notes Receivables [Abstract] |
|
NOTES RECEIVABLES |
7. NOTES RECEIVABLES
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. These Notes are in Canadian dollars, and due to significant devaluation of the Canadian dollars against United States dollars, as at May 31, 2015, we have a material unrealized foreign currency exchange loss in the amount of $398,026 in aggregate for the fiscal year ended May 31, 2015.
Subsequent to May 31, 2015, we have recalled the note, and we have received $3,930,780(CAD $4,900,000) of the payment, Management anticipates the entire note will be repaid shortly thereafter.
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v3.3.0.814
Significant Accounting Policies (Policies)
|
12 Months Ended |
May. 31, 2015 |
Significant Accounting Policies & Basis of Presentation [Abstract] |
|
Allowance for Doubtful Accounts Policy |
Allowance for Doubtful Accounts Policy The Company periodically, on quarterly basis, evaluates the collectability and timing of its accounts receivables, and if evidences suggest that collection of receivables are in doubt, management will provide an allowance based on the circumstances and the customers past payment histories.
|
Foreign currency translation |
Foreign currency translation We account for foreign currency translation in accordance with ASC 830, Foreign Currency Translation. The functional currencies of the Company’s foreign operations are the reported local currencies. Translation adjustments result from translating our foreign subsidiaries’ financial statements into United States dollars. The balance sheet accounts of our foreign subsidiaries are translated into United States dollars using the exchange rate in effect at the balance sheet date. Revenue and expenses are translated using average exchange rates for each month during the fiscal year. The resulting translation gains or losses are recorded as a component of accumulated other comprehensive income in stockholders’ deficit. Business is generally transacted in a single currency not requiring meaningful currency transaction costs. We do not practice hedging as the risks do not warrant the costs.
|
Use of estimates |
Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States necessarily requires management to make estimates and assumption that affect the amounts reported in the financial statements. We regularly evaluate estimates and judgements based on historical experiences and other relevant facts and circumstance. Actual results could differ from those estimates.
|
Cash and Cash equivalents |
Cash and Cash equivalents Cash equivalents are highly liquid investments with an original maturity of three months or less.
|
Income taxes |
Income taxes Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company follows ASC 740 “Accounting for Income Taxes,” under which the Company computes tax assets benefits for net operating losses carried forward. Potential benefits of net operating losses have not been recognized in these interim financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in the future years. At May 31, 2015, the Company had no unrecognized tax benefits. Management does not believe unrecognized tax benefits will significantly change within twelve months of the reporting date. Interest and penalties related to income tax matters are recognized in income tax expenses. As of May 31, 2015 there is no accrued interest related to uncertain tax positions.
|
Basic and Diluted Net Loss per Common Share |
Basic and Diluted Net Loss per Common Share Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
|
Revenue Recognition |
Revenue Recognition We recognize oil and gas revenue from interests in producing wells as the oil and gas is sold. Revenue from the purchase, transportation, and sale of oil and natural gas is recognized upon completion of the sale and when transported volumes are delivered.
|
Oil and Gas Property and impairment of Long lived Assets |
Oil and Gas Property and impairment of Long lived Assets
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 May31, 2015 was $86,764.
Assets are grouped in accordance with the Extractive Industries - Oil and Gas Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
Amortization rates are updated quarterly to reflect: 1) the addition of capital costs, 2) reserve revisions (upwards or downwards) and additions, 3) property acquisitions and/or property dispositions and 4) impairments.
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|
Asset Retirement Obligation |
Asset Retirement Obligation The company follows ASC 410 of the FASB Accounting Standards Codification which requires entities to record the fair value of a liability for legal obligations associated with the retirement obligations of tangible long-lived assets in the period in which it is incurred. This standard requires the Company to record a liability for the fair value of the dismantlement and plugging and abandonment costs excluding salvage values. When the liability is initially recorded, the entity increases the carrying amount of the related long-lived-asset. Over time, accretion of the liability is recognized each period and the capitalized cost is amortized over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.
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v3.3.0.814
Notes Receivables (Details)
|
12 Months Ended |
|
|
May. 31, 2015
USD ($)
|
May. 31, 2015
CAD
|
Jan. 21, 2015
USD ($)
|
Jan. 21, 2015
CAD
|
Nov. 13, 2014
USD ($)
|
Nov. 13, 2014
CAD
|
Notes Receivables [Abstract] |
|
|
|
|
|
|
Actual loan amount |
|
|
$ 4,329,730
|
CAD 5,100,000
|
$ 412,000
|
CAD 1,600,000
|
Interest rate |
|
|
7.00%
|
7.00%
|
7.00%
|
7.00%
|
Unrealized foreign currency exchange loss |
$ 398,026
|
|
|
|
|
|
Proceeds from payments of debt |
$ 3,930,780
|
CAD 4,900,000
|
|
|
|
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