UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: March 31, 2014
 
OR
 
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File No. 0-54360
 
CARDINAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
20-8736115
(State or other jurisdiction
 
(IRS Employer
of incorporation)
 
Identification No.)
 
203 Main Street
East Pittsburgh, PA 15112
 (Address of principal executive offices)
 
(412) 374-0989
 (Registrant’s telephone number, including area code)
 
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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.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 [X] No [  ]
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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
[  ]
Accelerated filer
[  ]
Non-accelerated filer
[  ]
Smaller reporting company
[X]
 
 
 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]
 
As of May 20, 2014, there were 87,026,331 shares outstanding of the registrant’s common stock.
  
TABLE OF CONTENTS
 
     
       
 
       
 
       
 
       
 
       
     
       
 
       
 
       
 
       
 
       
 
       
 
       
 
       
 
 
 
 


PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements.

CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
 
AS OF MARCH 31, 2014 AND DECEMBER 31, 2013 (Unaudited)
 
             
             
   
March 31, 2014
   
December 31, 2013
 
ASSETS            
CURRENT ASSETS
           
Cash and cash equivalents
  $ 76,093     $ 545,714  
Accounts receivable, net
    883,435       589,965  
Inventory
    14,137       14,137  
Other current assets
    28,430       28,430  
TOTAL CURRENT ASSETS
    1,002,095       1,178,246  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    249,273       261,109  
                 
TOTAL ASSETS
  $ 1,251,368     $ 1,439,355  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 1,568,650     $ 1,602,968  
Accounts payable - related parties
    62,528       62,528  
Notes payable
    222,657       222,657  
Notes payable - related parties
    55,415       55,415  
Convertible notes payable, net of discount of $55,419 and $77,011
    202,581       180,989  
Accrued liabilities
    573,189       560,421  
TOTAL CURRENT LIABILITIES
    2,685,020       2,684,978  
                 
TOTAL LIABILITIES
    2,685,020       2,684,978  
                 
STOCKHOLDERS' (DEFICIT) / EQUITY
               
Preferred stock, $.001 par value, 25,000,000 shares authorized; none of which issued and outstanding
as of March 31, 2014 and December 31, 2013, respectively
    -       -  
Common stock, $0.001 par value, 300,000,000 shares authorized, 87,026,331 shares
issued and outstanding as of March 31, 2014 and December 31, 2013, respectively
    87,026       87,026  
Additional paid in captial
    954,815       954,815  
Accumulated deficit
    (2,475,493 )     (2,287,464 )
TOTAL STOCKHOLDERS' (DEFICIT) / EQUITY
    (1,433,652 )     (1,245,623 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) / EQUITY
  $ 1,251,368     $ 1,439,355  
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-1

 
CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unaudited)
 
             
             
   
For the Three Months Ended
 
   
March 31, 2014
   
March 31, 2013
 
   
 
   
 
 
Revenues
           
Sales
  $ 295,420     $ 140,842  
                 
Operating expenses
               
Cost of sales
    151,525       80,018  
Selling, general and Administrative
    281,017       173,949  
Depreciation and amortization expenses
    11,836       13,852  
Total operating expenses
    444,378       267,819  
                 
Loss from operations
    (148,958 )     (126,977 )
                 
Other expenses
               
Interest expense
    (34,360 )     (7,758 )
Interest income
    -       24  
Other expenses
    (4,711 )     -  
Total other expenses
    (39,071 )     (7,734 )
                 
Income (loss) before income taxes
    (188,029 )     (134,711 )
                 
Income taxes
    -       -  
                 
Net income (loss)
  $ (188,029 )   $ (134,711 )
                 
Earnings (loss) per share
               
Basic
  $ (0.00 )   $ (0.00 )
Dilutive
  $ (0.00 )   $ (0.00 )
                 
Weighted average number of shares outstanding
               
Basic
    87,026,331       46,623,554  
Dilutive
    97,325,435       46,623,554  
The accompanying notes are an integral part of the financial statements
 
 
F-2

 
CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013 (Unaudited)
 
             
   
For the Three Months Ended
 
   
March 31, 2014
   
March 31, 2013
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (188,029 )   $ (134,711 )
Adjustments to reconcile net loss to
net cash provided by operating activities:
               
Depreciation and amortization expenses
    11,836       13,852  
Amortization of debt discounts
    21,592       -  
Bad debt expense
    -       47,112  
Changes in operating assets and liabilities:
               
Accounts receivable
    (293,470 )     (32,920 )
Accounts payable
    (34,318 )     (23,182 )
Accounts payable - related parties
    -       24,400  
Accrued liabilities
    12,768       118,172  
NET CASH PROVIDED BY OPERATING ACTIVITIES
    (469,621 )     12,723  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Repayments of notes payable
    -       (25,408 )
Repayments of notes payable - related parties
    -       (18,398 )
Proceeds from convertible notes payable
    -       20,000  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    -       (23,806 )
                 
NET INCREASE IN CASH AND CASH EQUIVALENTS
    (469,621 )     (11,083 )
                 
CASH AND CASH EQUIVALENTS:
               
Beginning of period
    545,714       11,133  
End of period
  $ 76,093     $ 50  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for income taxes
  $ -     $ -  
Cash paid for interest
  $ -     $ 828  
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-3

 
CARDINAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(UNAUDITED)
 
NOTE – 1 BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with both generally accepted accounting principles for interim financial information, and the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.
 
The unaudited condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the Company’s annual audited consolidated financial statements for the preceding fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2013.
 
NOTE – 2 GOING CONCERN
 
These financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. However, as of March 31, 2014, the Company had an accumulated deficit and a working capital deficit. In addition, the Company currently has limited liquidity and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
Management has taken certain actions and continues to implement changes designed to improve the Company’s financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) reductions in raw materials costs, as well as packaging costs; (b) expansion of the business model into new markets, (c) commercialization of patented products and; (c) significant reductions in lease costs. Management believes that these actions will enable the Company to improve future profitability and cash flow in its continuing operations through December 31, 2014. As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.
 
NOTE – 3 CONVERTIBLE NOTES
 
 The Company had outstanding balances on its convertible notes in the amount of $202,581 and $180,989 as of March 31, 2014 and December 31, 2013, respectively.
 
 The Notes were discounted at their issuance date in the amount of $86,368 due to the intrinsic value of the beneficial conversion option and relative fair value of the warrants. The Company recorded interest expense related to the Notes of $4,025 and amortization of debt discount in amount of $21,592 during the three months ended March 31, 2014. The interest expense of $4,025 has been included under accrued liabilities.

NOTE – 4 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The Company has one long term contract in progress at March 31, 2014:
 
 
1


 
Total Contract
 
Job
 
Revenues
   
Cost of Revenues
   
Estimated
Gross Profit
   
Gross Profit %
 
Bayelsa
  $ 6,300,000     $ 3,443,651     $ 2,856,349       45 %
 
Three Months Ended March 31, 2014
 
Job
 
Revenues
   
Cost of Revenues
   
Gross Profit
   
Billed to Date
   
% Complete
   
Over (Under) Billed
 
Bayelsa
  $ 2,114,068     $ 1,155,573     $ 958,495     $ 2,114,068       34 %   $ -  
Less: previously
recognized
    (1,826,448 )     (998,357 )     (828,091 )                        
                                                 
Totals
  $ 287,620     $ 157,216     $ 130,404     $ 2,114,068             $ -  
 
NOTE – 5 CONCENTRATION AND RISK
 
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company performs ongoing credit evaluations of its customers’ financial condition, but does not require collateral to support such receivables. For international sales the Company requires financial payment guarantees such as Letters of Credit or Sovereign Guarantees. Based on a number of factors the Company may require credit insurance.
 
During three months ended March 31, 2014, two customers composed approximately 99% of total revenue. During three months ended March 31, 2013, three customers composed approximately 73% of total revenue.
 
During three months ended March 31, 2014, three vendors composed approximately 76% of total purchases. During three months ended March 31, 2013, three vendors composed approximately 71% of total purchases.
 
 
2

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
This quarterly report on Form 10-Q and other reports filed by Cardinal Resources, Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
 
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.
 
Basis of Presentation
 
The following management’s discussion and analysis is intended to provide additional information regarding the significant changes and trends which influenced our financial performance for the quarters ending March 31, 2014, and 2013.  This discussion should be read in conjunction with the unaudited financial statements and notes as set forth in this Report.
 
Overview
 
Cardinal Resources began operations in 2004, providing environmental engineering services, remediation, water and waste water treatment to US companies on a global basis. In 2005, we began development of proprietary technologies to create sustainable water and waste water systems to be produced by Cardinal Resources and operated globally. The prototype filters were deployed in 2007, first full prototype was built in 2008 and the first full system was built in 2009. We were issued our first patents for our technologies and applications in 2009 with subsequent patents issued in 2012.
 
During the time period when the Company was in the development of the Red Bird System and other sustainable technologies we continued to provide environmental services to our clients. As a result Cardinal Resources worked in over 20 countries including multimillion dollar projects in Australia, Brazil, Japan and China. As a result of our work we received recognition by U.S. Commercial Services as the Exporter of the Year in 2011 for Environmental and Congressional Export Achievement Awards.  In 2013 Cardinal Resources was presented the Presidential E Award for Export Promotion.
 
In 2011, the Company made the decision to begin focusing on the transition to the systems based business. While we have continued to serve existing customers in our services area, we are projecting that the systems business will be dominant going forward.
 
 
3

 
Plan of Operations
 
Our Plan of Operations is focused on becoming the global preferred provider of sustainable water treatment systems using a distributed architecture. To meet this goal our plans call for the Company to expand our financial management, technical implementation staff, and market development. Part of our plan is to continue to expand our technologies, and approaches as well beginning with distributed waste water treatment. In terms of expansion our plan is to first have implementation well underway for our three large contracts in Cameroon, Nigeria, and Senegal. We can then move aggressively to close on other opportunities in our pipeline and expand into our next targets of India, Panama, and Southeast Asia. We are planning to continue to outsource our manufacturing within the US. Depending on growth within a specific region, we may in the future, outsource a portion of the assembly overseas while retaining US manufacturing for key components, technology protection and producing the majority of the systems sold.
 
Contracts

In 2013 Cardinal Resources signed over $30.0 million in commercial contracts to provide the Red Bird System and associated services in Cameroon, Nigeria and Senegal.  These contracts, which are back by a combination of bank guarantees, sovereign guarantees, and export bank financing, are scheduled for completion in early 2015.  Over $200.0 million in contract expansions are planned by the customers based on successful execution of the initial phases of each contract.
 
 Revenues
 
We generate our net sales from the sale of the patented Red Bird System and environmental services. Historically the majority of the sales have been tied to services but beginning in 2012 and 2013 the majority of our sales are trending to the Red Bird System.
 
Cost of Sales
 
Our cost of sales includes internal labor, supply chain management, logistics and the purchase of components that are part of the Red Bird System.
 
Other items contributing to our cost of sales are the direct assembly labor and manufactured overhead from our component suppliers.
 
Gross Profit
 
Gross profit is affected by numerous factors, including our average selling prices, scheduling and our manufacturing costs. Another factor impacting gross profits is the ramp up of production going forward. As a result of the above, gross profits may vary from quarter to quarter and year to year.
 
Research and Development.
 
Research and development expense consists primarily of salaries and personnel-related costs in addition to the cost of products, materials and outside services used in our process and product research and development activities.
 
Selling, General and Administrative
 
Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expense, other selling expenses as well as share based compensation expense relating to stock options. We expect these expenses to increase in the near term, both in absolute dollars and as a percentage of net sales, to support the growth of our business as we expand our sales and marketing efforts, particularly international travel, improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required by a public company. Over time, we expect selling, general and administrative expense to decline as a percentage of net sales as our net sales increase.
 
 
4

 
Use of Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, intangible assets, income taxes, warranty obligations, marketable securities valuation, derivative financial instrument valuation, end-of-life collection and recycling, contingencies and litigation and share based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
 
Recent Developments
 
In July 2013 the Company signed a contract and received the down payment for a contract with the State of Bayelsa Nigeria for $6.2 million to provide 10 Red Bird Systems and ancillary services. The contract is backed by a Bank Guarantee/Letter of Credit in the company’s favor. In November 2013, the company signed a Commercial Export Contract with the Cameroon Water Corporation with a value of $28.0 million to provide 35 systems, mobile laboratories, and ancillary products and services. Based on this contract the government of Cameroon is applying for credit through the U.S. Export Import Bank. This application is pending.  In December 2013 the Company signed a contract for $4.3 million with the Republic of Senegal to provide a solar powered waste water treatment system for the city of Touba.
 
Results of Operations for the Three Months Ended March 31, 2014 and 2013:
 
   
Three Months Ended
 
   
March 31, 2014
   
March 31, 2013
 
Sales
 
$
295,420
   
$
140,842
 
Gross Profit (Loss)
 
$
143,895
   
$
60,824
 
Research and Development Expenses
 
$
---
   
$
--
 
General and Administrative Expenses
 
$
281,017
   
$
173,949
 
Operating Expenses
 
$
444,378
   
$
267,819
 
Other Income (Expense)
 
$
(39,071
)
 
$
(7,734
)
Net Loss
 
$
(188,029
)
 
$
(134,711
)
 
For the three months ended March 31, 2014 and 2013, the Company reported a net loss of $188,029 and $134,711, respectively. The change in net loss between the three months ended March 31, 2014 and 2013 was primarily attributable to the ramp up costs associated with increased manufacturing activities, and we continued to reduce outstanding accounts payable from historic operations..
 
Sales - Net sales for the three months ended March 31, 2014, were $295,420, compared to $140,842 for the three months ended March 31, 2013. The increase in sales reflects the shift to the systems business and the continued work on the Bayelsa project.
 
Gross Profit/(Loss) - During the three months ended March 31, 2014, our gross loss as a percentage of sales was 48.7%, compared to a gross profit as a percentage of sales of 43.2 % for the three months ended March 31, 2013. This increase in gross profit percentage is primarily attributable to the shift from services to systems and improved supply chain management during the ramp up to meet contracted orders.
 
 
5

 
Operating Expenses
 
Research and Development - Research and Development for the three months ended March 31, 2014, and  for the three months ended March 31, 2013 were insignificant. The lack of  research and development is short term and  is primarily attributable to the focus on implementation of existing contracts and opportunities..
 
General and Administrative Expenses – General and Administrative for the three months ended March 31, 2014, were $281,017, as compared to $173,949 for the three months ended March 31, 2013. The change is primarily attributable to the expenses associated with the Company’s various public security filings, increased payroll costs, higher travel and entertainment expenses associated with obtaining new customers.
 
Total Operating expenses for the three months ended March 31, 2014 were $444,378, as compared to $267,819 for the three months ended March 31, 2013.
 
We anticipate that as our operations increase our research and development expenses may increase because we believe that maintaining state of the art products is a key to our continued success, however, we believe that such expenses will constitute a lower percentage of our operating budget.  We expect to achieve economies of scale in our general and administrative expenses as our operations increase as much of our administrative expenses are fixed costs, such as salaries of key personnel and rent. As a result, while we may need to hire additional personnel as operations increase, we believe that the increases in general and administrative expenses will be at a lower rate than the increase in revenues.

Other Income (Expense) - Other income (expense) for the three months ended March 31, 2014 was ($39,071), as compared to $(7,734) for the three months ended March 31, 2013. The increase is primarily attributable to amortization of the discount from our notes payable charged to interest expense.
   
Liquidity and Capital Resources
 
The following table summarizes total current assets, liabilities and working capital at March 31, 2014 compared to December 31, 2013:
 
   
March 31, 2014
   
December 31, 2013
   
Increase/(Decrease)
 
Current Assets
 
$
1,002,095
   
$
1,178,246
   
$
(176,151)
 
Current Liabilities
 
$
2,685,020
   
$
2,684,978
   
$
42
 
Working Capital
 
$
(1,682,925
)
 
$
(1,506,732
)
 
$
(176,193
 
As of March 31, 2014, we had negative working capital of $1,682,925 which was an improvement period to period as compared to negative working capital of $1,506,732 as of December 31, 2013. The improvement was due primarily to improved cash flow from operations and increased sources of financing.
 
Net cash used in operating activities for the three months ended March 31, 2014 and 2013 was $(469,621) and $12,723 respectively. The increase in cash used in operating activities was primarily related to the increased marketing, increased manufacturing, and increases in related working capital.
 
Net cash in all investing activities for the three months ended March 31, 2014 and 2013 was $0 and $(23,806) respectively due to the repayment of notes payable in place of salaries.
 
The estimated working capital requirement for the next 12 months is $1,800,000 with an estimated burn rate of $150,000 per month.   As reflected in the accompanying financial statements, the Company had cash of $76,093 at March 31, 2014.
 
The ability of the Company to continue its operations is dependent on Management’s plans, which include the contract specific financing, raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.
 
 
6

 
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated 
 
revenue may be insufficient to meet its cash needs for the near future if it does not receive the anticipated additional funding. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Recent Accounting Pronouncements
 
There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.
 
Critical Accounting Policies
 
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
 
Our significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
  
We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
 
Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions impact, among others, the following: allowance for bad debt, inventory obsolescence, the fair value of share-based payments.
 
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
 
 
7

 
Revenues and Cost of Revenues
 
Revenues from fixed-price and cost-plus contracts are recognized on the percentage of completion method, whereby revenues on long-term contracts are recorded on the basis of the Company’s estimates of the percentage of completion of contracts based on the ratio of actual cost incurred to total estimated costs. This cost-to-cost method is used because management considers it to be the best available measure of progress on these contacts. Revenues from cost-plus-fee contracts are recognized on the basis of costs incurred during the period plus the fee earned, measured on the cost-to-cost method.

Revenues from time-and-material and rate chart contracts are recognized currently as work is performed.

Revenues from maintenance service contracts are recognized on a straight-line basis over the life of the contract once the Company has an agreement, service has begun, the price is fixed or determinable and collectability is reasonably assumed.

Cost of revenues include all direct material, sub-contractor, labor and certain other direct costs, as well as those indirect costs related to contract performance, such as indirect labor and fringe benefits. Selling, general, and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions and estimated profitability may result in revisions to cost and income, which are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements, are accounted for as changes in estimates in the current period. Claims for additional contract revenue are recognized when realization of the claim is probable and the amount can be reasonably determined.

The asset, “cost and estimated earnings in excess of billings on uncompleted contract” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

Off Balance Sheet Arrangements:
 
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
We do not hold any derivative instruments and do not engage in any hedging activities.
 
Item 4. Controls and Procedures.
 
(a) Evaluation of Disclosure Controls and Procedures.
 
Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
 
(b) Changes in Internal Control over Financial Reporting.
 
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
  
 
8

PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business.

 
Item 1A. Risk Factors.
 
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Current Report on Form 10-K, filed with the SEC on May 16, 2014.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3. Defaults Upon Senior Securities.
 
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
 
Item 4. Mine Safety Disclosures.
 
Not applicable.
 
Item 5. Other Information.
 
There is no other information required to be disclosed under this item which has not been previously disclosed.
 
Item 6. Exhibits.
 
Exhibit No.
 
Description
31.1
 
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
     
31.2
 
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
     
32.1
 
Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
32.2
 
Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
     
101.INS
 
XBRL Instance Document **
     
101.SCH
 
XBRL Taxonomy Extension Schema **
     
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase **
     
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase **
     
101.LAB
 
XBRL Taxonomy Extension Label Linkbase **
     
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase **
 
* Filed herewith
 
** In accordance with Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith and not “filed.”
 
 
9

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  
     
CARDINAL RESOURCES, INC.
     
 
   
Date: May 20, 2014 
By:
/s/ Kevin Jones
     
Name:
Kevin Jones
     
Title:
Chief Executive Officer (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer)
 
 
10