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: June 30, 2015
 
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
 
47-1579622
(State or other jurisdiction
 
(IRS Employer
of incorporation)
 
Identification No.)
 
201 Penn Center Blvd. Suite 401
Pittsburgh, PA 15235
 (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 August 13, 2015, there were 112,817,334 shares outstanding of the registrant’s common stock.
 
 
 

 
 
TABLE OF CONTENTS
 
 
PART I – FINANCIAL INFORMATION
 
     
     
     
     
     
 
PART II – OTHER INFORMATION
 
     
     
     
     
     
     
     
     
 

 
2



PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
UNAUDITED CONSOLIDATED BALANCE SHEETS
 
AS OF JUNE 30, 2015 AND DECEMBER 31, 2014
 
             
ASSETS
           
   
June 30, 2015
   
December 31, 2014
 
             
CURRENT ASSETS
           
Cash and cash equivalents
  $ 50,318     $ 9,230  
Accounts receivable, net
    88,606       75,143  
Inventory
    52,317       43,199  
Cost in excess of billings
    125,696       -  
Other current assets
    3,430       3,430  
TOTAL CURRENT ASSETS
    320,367       131,002  
                 
PROPERTY, PLANT AND EQUIPMENT, NET
    200,979       223,189  
                 
TOTAL ASSETS
  $ 521,346     $ 354,191  
                 
LIABILITIES AND SHAREHOLDERS' (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 1,080,732     $ 1,124,602  
Accounts payable - related parties
    85,439       66,467  
Notes payable
    216,787       203,787  
Notes payable - related parties
    58,537       65,947  
Convertible notes payable, net of discount of $47,228 and $2,853
    401,564       265,147  
Accrued liabilities
    571,804       564,049  
Billings in excess of cost on uncompleted contracts
    -       46,148  
Derivative liabilities
    305,240       15,668  
TOTAL CURRENT LIABILITIES
    2,720,103       2,351,815  
                 
LONG-TERM LIABILITIES
               
Convertible notes payable, net of discount of $78,769 and $0
    1,231       -  
TOTAL LONG-TERM LIABILITIES
    1,231       -  
                 
TOTAL LIABILITIES
    2,721,334       2,351,815  
                 
STOCKHOLDERS' (DEFICIT)
               
Preferred stock, $.001 par value, 25,000,000 shares authorized; none of which issued
and outstanding as of June 30, 2015 and December 31, 2014, respectively
    -       -  
 
               
Common stock, $0.001 par value, 300,000,000 shares authorized, 100,705,275 and 97,348,713
shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively
    100,705       97,349  
 
         
Additional paid in captial
    5,964,868       4,984,037  
Accumulated deficit
    (8,265,561 )     (7,079,010 )
TOTAL STOCKHOLDERS' (DEFICIT)
    (2,199,988 )     (1,997,624 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)
  $ 521,346     $ 354,191  
                 
                 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 

 
F-1

 
CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
 
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
 
             
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30, 2015
   
June 30, 2014
   
June 30, 2015
   
June 30, 2014
 
               
 
       
Revenues
                       
Sales
  $ 227,688     $ (149,467   $ 312,106     $ 44,552  
                                 
Operating expenses
                               
Cost of sales
    185,472       335,118       329,922       486,643  
Selling, general and administrative
    211,635       374,825       1,194,918       655,842  
Depreciation and amortization expense
    11,105       13,065       22,210       24,901  
Total operating expenses
    408,212       723,008       1,547,050       1,167,386  
                                 
Loss from operations
    (180,524 )     (872,475 )     (1,234,944 )     (1,122,834 )
                                 
Other (expenses)
                               
Interest expense
    (21,042 )     (33,539 )     (34,719 )     (67,899 )
Loss on extinguishment of debt
    -       (303,411 )     -       (303,411 )
Gain/loss due to changes in derivative liabilities
    (170,241     (12,038 )     (178,736 )     (12,038 )
Other income (expenses)
    -       (6,476 )     261,848       (11,187 )
Total other (expenses)
    (191,283 )     (355,464 )     48,393       (394,535 )
                                 
Net (loss)
  $ (371,807 )   $ (1,227,939 )   $ (1,186,551 )   $ (1,517,369 )
                                 
(Loss) per common share
                               
Basic net (loss) per common share
    **     $ (0.01 )   $ (0.01 )   $ (0.01 )
                                 
                                 
Basic weighted average number of shares outstanding
    100,369,011       88,066,578       100,057,019       87,549,328  
                                 
                                 
** Less than $.01
                            (0.011 )
                                 
                                 
The accompanying notes are an integral part of the unaudited consolidated financial statements
 

 
F-2


CARDINAL RESOURCES, INC. AND SUBSIDIARY
 
 
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
 
             
   
For the Six Months Ended
 
   
June 30, 2015
   
June 30, 2014
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income (loss)
  $ (1,186,551 )   $ (1,517,369 )
Adjustments to reconcile net loss to
               
net cash provided by operating activities:
               
Depreciation and amortization expense
    22,210       24,901  
Amortization of debt discounts
    11,855       50,309  
Loss on extinguishment of debt
    -       303,411  
Gain/loss due to changes in derivative liabilities
    178,736       12,038  
Common stock issued for services
    902,850       200,000  
Warrants granted for services
    41,854       -  
Changes in operating assets and liabilities:
               
Accounts receivable
    (13,463 )     (12,121 )
Inventory
    (9,118 )     -  
Accounts payable
    (43,870 )     233,850  
Accounts payable - related parties
    18,972       -  
Cost in excess of billings
    (125,696 )     -  
Billings in excess of cost on uncompleted contracts
    (46,148 )     -  
Accrued liabilities
    10,075       121,540  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    (151,002 )     (583,441 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equipment
    -       (11,055 )
NET CASH (USED IN) INVESTING ACTIVITIES
    -       (11,055 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from notes payable
    13,000       -  
Proceeds from notes payable - related parties
    4,200       -  
(Repayments to) notes payable - related parties
    (11,610 )     -  
Proceeds from convertible notes payable
    191,500       55,000  
(Repayments to) convertible notes payable
    (5,000 )     -  
Proceeds from options exercises
    -       22,378  
Proceeds from sales of common stock
    -       165,000  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    192,090       242,378  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    41,088       (352,118 )
                 
CASH AND CASH EQUIVALENTS:
               
Beginning of year
    9,230       545,714  
End of year
  $ 50,318     $ 193,596  
                 
Supplemental disclosure of cash flow information:
               
Cash paid for income taxes
  $ -     $ -  
Cash paid for interest
  $ -     $ -  
                 
Supplemental disclosures of non-cash investing and financing activities:
 
Debt discount issued with convertible notes
  $ 135,000     $ 58,000  
Shares issued for conversion of debt, including accrued interest
  $ 15,320     $ -  
Relcassification of derivative liability to APIC
  $ 24,163     $ -  
Stock issued to settle partial accrued salaries
  $ -     $ 111,015  
Stock issued to settle related parties notes
  $ -     $ 19,038  
                 
                 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 

 
F-3

CARDINAL RESOURCES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(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 consolidated 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, 2014.
 
NOTE – 2 GOING CONCERN
 
These consolidated 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 June 30, 2015, 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 consolidated financial results and operating cash flows. The actions involve certain cost-saving initiatives and growing strategies, including (a) utilization of outsourced build-to-order production; (b) expansion 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, 2015. 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 RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2015 and 2014, the increase in accounts payable to related parties was $18,972 and $0, respectively. Accordingly, accounts payable to related parties were $85,439 and $66,467 as of June 30, 2015 and December 31, 2014, respectively.

Notes payable to related parties were $58,537 and $65,947 as of June 30, 2015 and December 31, 2014, respectively. The Company had proceeds from related parties’ loan in amount of $4,200 and repayments of $11,610 to related parties’ loan during the six months ended June 30, 2015. Neither proceeds nor repayments to related parties’ loan during the six months ended June 30, 2014. The funds borrowed from the Company’s related parties were to fund the Company’s daily operations.

 
F-4

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


 
NOTE – 4 NOTES PAYABLE

As of June 30, 2015 and December 31, 2014, the Company had notes payable of $216,787 and $203,787, respectively, which were conventional debts due on demand without conversion feature. During the six months ended June 30, 2015, the Company had proceeds of $13,000 from notes payable with interest at a rate of 7% per annum.

NOTE – 5 CONVERTIBLE NOTES
 
As of June 30, 2015 and December 31, 2014, the Company had outstanding balances on its convertible notes in the amount of $401,564 and $265,147, respectively, net of discounts of $125,997 and $2,853, respectively. The detailed terms were set forth as follows:

(A)
Convertible Notes Payable

As of June 30, 2015 and December 31, 2014, the Company had convertible notes payable in amount of $20,000 and $25,000, respectively, which would be converted automatically upon the completion of a Qualified Financing at a conversion price based upon the Qualified Financing.  The amounts were in default and due on demand as of June 30, 2015, with interest at a rate of 12%. During the six months ended June 30, 2015, principal of $5,000 plus accrued interests of $1,272 were repaid in cash, and interest expense of $1,190 was recorded, which was included under accrued liabilities as of June 30, 2015.

During the six months ended June 30, 2015, the Company issued a convertible note of $12,500 to a third party, which bears interest at a rate of 7% per annum and due on January 8, 2016. At any time while this Note is outstanding, the holder of this Note may convert all or any portion of the Note into the common shares of the Company at a price of $.25 per share (the “Conversion Price”); provided, that if this Note has not been paid or prepaid or converted before the due date, the Conversion Price will be reduced to $.10 per share on the due date. The Company recorded interest expense of $434 related to this Note during the six months ended June 30, 2015. The interest expense of $434 has been included under accrued liabilities as of June 30, 2015.

 On November 22, 2013, the Company completed a private placement pursuant to which the Company issued a convertible promissory note to certain accredited investors, which notes are convertible into shares of our common stock at $0.25 per share. In addition, the Company granted to the same investors’ three−year warrants to purchase an aggregate of 276,000 shares of the Company’s common stock at $0.25 per share. As a result, the Notes were discounted in the amount of $86,368 due to the intrinsic value of the beneficial conversion option and relative fair value of the warrants. As of June 30, 2015 and December 31, 2014, the aggregate carrying value of the Notes was $230,000 and $230,000, respectively. The discount of $86,368 to the convertible notes was amortized in full. As of June 30, 2015, the Notes were in default and due on demand.
 
During the six months ended June 30, 2015 and 2014, the Company recorded interest expense related to the Notes in amount of $7,984 and $8,095, respectively, which was included under accrued liabilities as of June 30, 2015 and 2014, respectively.
On January 15, 2015, the Company issued a convertible promissory note of $124,000 (the “Note II”) to a third party. The Note bears an interest rate of 8% per annum and is due on October 20, 2015, pursuant to which the holder of the Note has an option to convert all or any portion of the accrued interest and unpaid principal balance of the Note into the common stock of the Company after 180 days upon commencement, at 58% of the Market Price, which means the average of the lowest three trading price during the ten trading days prior to the conversion date. Due to the restriction period for conversion, the Company has determined the Note II is considered to be conventional debt until July 14, 2015. The Company recorded interest expense of $4,512 related to the Note II during the six months ended June 30, 2015. The interest expense of $4,512 has been included under accrued liabilities as of June 30, 2015.
 

 
F-5

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


 
NOTE – 5 CONVERTIBLE NOTES (CONTINUED)

(B)
Convertible Notes Payable – Derivative liabilities

On May 28, 2014, the Company issued a convertible promissory note of $58,000 with an original issue discount of $3,000 (the “Note”) to a third party. The Note bears an interest rate of 8% per annum and is due on March 2, 2015, pursuant to which the holder of the Note has an option to convert all or any portion of the accrued interest and unpaid principal balance of the Note into the common stock of the Company after 180 days upon commencement, at 58% of the Market Price, which means the average of the lowest three trading price during the ten trading days prior to the conversion date. During the year ended December 31, 2014, a portion of the principal in amount of $45,000 was converted into 1,002,777 shares of common stock. The remaining balance of $13,000 plus accrued interest of $2,320 were converted into 76,562 shares on January 6, 2015. Accordingly, the related debt discounts of $2,853 were amortized in full and the related derivative liability of $24,163 was reclassified to additional paid in capital.

During the second quarter of 2015, the Company issued convertible promissory notes with derivative liabilities totaled of $142,292, the detailed terms of which were set forth as follows:

Principal
Amount
 
Due Date
Interest
Rate
 
Conversion Price
$55,000
February 22, 2016
10%
55% of the lowest Trading Price during the twenty-five Trading Day period prior to the conversion date
       
$80,000
December 31, 2018
10%
50% of the average of the volume weighted average prices during the 5 trading days prior to conversion date
       
$7,292
November 18, 2015
8%
A price equal to the lesser of 75% of the lowest trade price during the 10 trading days prior to conversion date or $.25 per share
 
The Company has determined that the conversion feature of the Notes represents an embedded derivative since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. Therefore, the fair value of the derivative instruments have been recorded as liabilities on the balance sheet with the corresponding amount recorded as discounts to the Notes. Such discounts will be accreted from the issuance date to the maturity date of the Notes. The change in the fair value of the derivative liabilities will be recorded in other income or expenses in the statement of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. The fair value of the embedded derivative liabilities were determined using the Black-Scholes valuation model on the issuance dates with the assumptions in the table below.

 
F-6

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


NOTE – 5 CONVERTIBLE NOTES (CONTINUED)

(B)
Convertible Notes Payable – Derivative liabilities (continued)

   
Derivative Liabilities
Fair value at the commitment dates
 
$
245,431
 
Fair value mark to market adjustment
   
  59,809
 
Balances as of June 30, 2015
   
305,240
 

Reporting Date
 
 
Fair Value
 
 
Term
(Years)
Assumed Conversion Price
Market Price on Valuation Date
 
Volatility Percentage
 
Risk-free
Rate
5/22 – 6/10, 2015
$245,431
0.76 – 3.56
$0.025 - $0.021
$0.050 - $0.036
602 - 394%
0.23% - 1.15%
             
6/30/2015
$305,204
0.65 - 3.51
$0.015 - $0.038
$0.050
618%
0.28% - 1.01%
 
As of June 30, 2015, the carrying value of the Notes were $16,294, net of debt discounts of $125,998. The Company recorded interest expense of $1,186 related to the Notes and amortization of debt discounts in the amount of $9,002 during the six months ended June 30, 2015. The interest expense of $1,186 has been included under accrued liabilities as of June 30, 2015.
 
The Note
 
6/30/2015
 
Proceeds
 
$
142,292
 
Less derivative liabilities on initial recognition
 
$
   (135,000
)
Value of the Note on initial recognition
   
7,292
 
Add accumulated accretion expense
   
9,002
 
Balance as at June 30, 2015
 
$
16,294
 

NOTE – 6 CAPITAL TRANSACTIONS
 
During the first quarter of 2015, the Board of Directors of the Company approved to reduce the price per share on the subscription agreement, dated between April 30, 2014 and July 28, 2014 from $.40 to $.25 per share. Accordingly, the Company issued total 330,000 shares of common stock to the investors for the difference. Neither gain nor loss was recognized in connection with the issuance of 330,000 shares since it was part of the equity financing.

 
F-7

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


NOTE – 7 WARRANTS
 
During the second quarter of 2015, the Company issued two-year warrants for the purchase of total 700,000 shares of the Company’s common stock in the aggregate at $0.10 per share for services.  The warrants were valued at $41,854 using the Black-Scholes valuation model on the grant date with the assumptions in the table below.
Grant Date
Term
(Years)
Exercise Price
Market Price on Grant Date
 
Volatility Percentage
 
Risk-free
Rate
5/22/2015
2
$0.10
$0.061
342%
0.65%
 
The following table summarizes all warrant outstanding as of June 30, 2015, and the related changes during this period.
 
   
Number of Warrants
 
Weighted
Average Exercise Price
Weighted
Average
Remaining Life
(Years)
Stock Warrants
         
Balance at December 31, 2014
   
5,422,133
   
$
0.37
 
2.2
Granted
   
700,000
   
$
0.10
 
2
Exercised
   
0
   
0
   
Expired
   
0
   
0
   
Balance at June 30, 2015
   
6,122,133
     
0.34
 
2.18
Warrants Exercisable at June 30, 2015
   
6,122,133
   
$
0.34
 
2.18

NOTE – 8 STOCK ISSUED FOR SERVICES

During the first quarter of 2015, the Board of Directors of the Company approved the issuance of 2,000,000 shares of common stock to the founders of the subsidiary as bonus. The value of the shares in amount of $800,000 was determined using the trading price of the Company’s common stock on the issuance date, or $.40 per share.  Accordingly, the Company calculated stock based compensation of $800,000 as its fair value and recognized the expense during the six months ended June 30, 2015.

During the first quarter of 2015, the Board of Directors of the Company approved the issuance of 100,000 shares of common stock to an unrelated consultant for services rendered during such quarter. The value of the shares in amount of $51,000 was determined using the trading price of the Company’s common stock on the issuance date, or $.51 per share. Accordingly, the Company calculated stock based compensation of $51,000 as its fair value and recognized the expense during the six months ended June 30, 2015.

During the second quarter of 2015, the Board of Directors of the Company approved the issuance of 850,000 shares of common stock to an unrelated consultant for services rendered during such quarter. The value of the shares in amount of $51,850 was determined using the trading price of the Company’s common stock on the issuance date, or $.061 per share. Accordingly, the Company calculated stock based compensation of $51,850 as its fair value and recognized the expense during the six months ended June 30, 2015.

 
F-8

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)



NOTE - 9 FAIR VALUE MEASUREMENTS

As defined in FASB ASC Topic 820, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This Topic requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Pricing inputs other than quoted market prices included in Level 1 that are based on observable market data and are directly or indirectly observable for substantially the full term of the asset or liability. These include quoted market prices for similar assets or liabilities, quoted market prices for identical or similar assets in markets that are not active, adjusted quoted market prices, inputs from observable data such as interest rate and yield curves, volatilities or default rates observable at commonly quoted intervals or inputs derived from observable market data by correlation or other means.

Level 3: Pricing inputs that are unobservable or less observable from objective sources. Unobservable inputs should only be used to the extent observable inputs are not available. These inputs maintain the concept of an exit price from the perspective of a market participant and should reflect assumptions of other market participants. An entity should consider all market participant assumptions that are available without unreasonable cost and effort. These are given the lowest priority and are generally used in internally developed methodologies to generate management's best estimate of the fair value when no observable market data is available.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

Certain assets and liabilities are reported at fair value on a recurring or nonrecurring basis in the Company’s consolidated balance sheets. The following methods and assumptions were used to estimate the fair values:

Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and Accrued Liabilities

The carrying amounts approximate fair value because of the short-term nature or maturity of the instruments.

Derivatives

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2015:
 
 
F-9

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


 
NOTE - 9 FAIR VALUE MEASUREMENTS (CONTINUED)

                         
   
Fair Value Measurements at June 30, 2015
 
Description
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
Carrying
Value
 
Derivative liability – 12/31/2014
  $ -     $ -     $ 15,668     $ 15,668  
Reclassification to APIC due to partial conversion
                    (24,163 )     (24,163 )
Debt discount due to derivative liabilities
                    135,000       135,000  
Change in Derivative liabilities
                    178,735       178,736  
Derivative liability – 6/30/2015
  $ -     $ -     $ 305,240     $ 305,240  

NOTE – 10 COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

The Company has three long term contract in progress at June 30, 2015.  Work has started on one additional long term contract that will have costs and earnings in the following periods:
 
Job
 
Bayelsa
   
CAM WATER
   
AquaSaludable
   
Total
 
                         
Contract Revenues
  $ 6,300,000     $ 27,808,820     $ 265,542        
Estimated COGS
  $ 5,104,961     $ 17,720,883     $ 177,515        
Estimated Gross Profit
  $ 1,195,039     $ 10,087,937     $ 88,027        
Gross Margin
    19 %     36 %     33 %      
                               
COGS in 2013 & 2014
  $ 1,362,712     $ 215,047     $ 22,630        
COGS in 2015 Q1
  $ 24,440     $ 8,257     $ 18,710     $ 51,407  
COGS in 2015 Q2
  $ 1,319     $ 48,024     $ 117,651     $ 166,994  
Total actual COGS
  $ 1,388,470     $ 271,328     $ 158,992     $ 218,401  
                                 
Percentage of completion
    27 %     2 %     90 %        
                                 
Revenues - POC
  $ 1,713,502     $ 425,786     $ 237,833          
Less: previously recognized
  $ (1,711,875 )   $ -     $ (61,840 )        
Less: uncertainty in collectability *
            (425,786 )                
Recognized in 2015
  $ 1,627     $ 0     $ 175,993     $ 177,620  
                                 
* The revenues from CAM WATER were delayed due to uncertainty in collectability
 
As of June 30, 2015 and December 31, 2014, the Company had cost in excess of billings in amount of $125,696 and $0, respectively, recorded in current assets.
 
 
 
F-10

CARDINAL RESOURCES, INC. AND SUBSIDIARY
FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)


As of June 30, 2015 and December 31, 2014, the Company had billings in excess of costs in amount of $0 and $46,148, respectively, recorded in current liabilities representing billings in excess of revenues recognized.

NOTE – 11 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.  The Company has enrolled in an Accounts Receivable Insurance program for new export sales.
 
During six months ended June 30, 2015, three customers comprised approximately 74% of total revenue. During six months ended June 30, 2014, two customers composed approximately 99% of total revenue.
 
During six months ended June 30, 2015 and 2014, there was no significant concentration in vendors.
 
NOTE – 12 SUBSEQUENT EVENTS

During the third quarter KBM converted their note in full to 9,912,064 shares of common stock.
 
In accordance with ASC Topic 855-10, the Company has analyzed its operations subsequent to June 30, 2015 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements other than the followings:

On July 7, 2015, the holder of the convertible note of $7,292 elected to convert all principal and accrued interest into 511,760 shares of common stock of the Company.

On July 27, 2015, the Board of Directors of the Company approved the issuance of 700,000 shares of common stock, or 350,000 shares each, to two unrelated consultants for services rendered during the second quarter of 2015. The value of the shares was determined by the trading price of the Company’s common stock on the grant dates and recognized the expense during the second quarter of 2015. The total consulting expense of $26,350 has been included under accrued liabilities as of June 30, 2015.

During the third quarter of 2015, the holder of the KBM Note elected to convert the principal of $120,000 into 5,829,872 shares of common stock of the Company. The balance of KBM Note is $4,000 after the conversion.
 

 
F-11


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 June 30, 2015, and 2014.  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. 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.

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.  In 2013 we signed significant Red Bird System contracts and began implementation.

In 2014 work was on going on the Bayelsa Nigeria contract, but production slowed as payments slowed.  Based on recent discussions and partial payments we anticipate the work re-starting in 2015.  Work commenced on the CAMWATER contract with the completion of the required Environmental Assessments, and design work for custom components.  The majority of the work is scheduled for 2015-2016 pending the final approvals of the customers financing.  Work is underway in Panama and the opportunity pipeline is growing.
 
 
 
3


The transition from primarily a services company to a systems/services company has been a significant challenge as reflected in the Company’s financial statements.  The Company while focused on the implementation of its existing contracts and expanding our base of business continues to work to resolve issues, including judgements, related to the past downturn.  While those challenges are real, the Company continues to make progress in paying down past obligations and moving the business forward.

As of June 30, 2015 the US Export Import Bank’s (EXIM) Charter was not re-authorized by the US Congress. While the lapse in authority continues, the United States Senate recently voted 64 to 29 for a five-year EXIM reauthorization bill as part of a long-term highway bill.  That bill has now moved to the House for consideration.  The super majority vote in the U.S. Senate was a strong signal of bipartisan support for EXIM and we do anticipate that EXIM will be back in business before the end of the year.  However, until it is reauthorized it will limit the size of projects we can undertake overseas.  While authorization is pending, the Company has been seeking alternative financing for our international projects.
 
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 in the West Africa and Latin America markets.  From there we plan to move aggressively to close on other opportunities in our pipeline, good opportunistic situations and expand into our next geographic targets of India, 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

Cardinal Resources has over $30.0 million in commercial contracts to provide the Red Bird System, ancillary equipment, and associated services in the US, Cameroon, Nigeria, Senegal and Panama.  These contracts, which are backed by a combination of bank guarantees, sovereign guarantees, and export bank financing, are scheduled for completion in 2015 and 2016.  The two stage process, typical on projects using export bank financing, where you first obtain a commercial contract followed by a finance agreement does increase the time from contract to implementation.  The Company does take steps, including prescreening deals with the banks to shorten this time frame  The Company continues to provide environmental services, primarily to three customers on a smaller scale in the US and is working to increase that source of revenue.
 
Revenues
 
We generate our revenue sales from the sale of the patented Red Bird System, ancillary equipment, and environmental services.  Revenue from system sales are recognized on a Cost-to-Cost Percentage of Completion basis, while services revenue is recognized is recognized on an accrual basis as invoiced.  Many projects will have a combination of systems and services.
 
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.  Currently internal labor costs exceed projected costs as we are refining certain design aspects for specific markets.  Over time this labor component should decrease.  Other items contributing to our cost of sales are the direct assembly labor at the outsourced manufacturer.
 
 
 
4

 
Gross Profit
 
Gross profit is affected by numerous factors, including our average selling prices, scheduling, ramp up point, and our manufacturing costs.  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.  We anticipate these costs rising as we begin to work on new technologies.
 
Selling, General and Administrative
 
Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expense, and other normal selling expenses. 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.

The use of common stock to pay for services, while not a cash outlay, has a significant impact on SG&A.  Typically the stock is issued to pay for services over an extended period, for example a year-long agreement for legal or accounting services.  The value of the stock is accounted for at the time it was granted which causes an impact in the quarter.
 
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
 
The first six months of 2015 was focused on closing the project finance for our largest commercial contract, expansion in Latin America, and India, collections from existing contracts, and production of the CRB-10 for Panama.  No new contracts were signed.  Revenue has increased compared to the same period in 2014 and compared to the 1st Quarter of 2015.  The Touba Senegal contract, which was scheduled to begin in early 2015 is still pending and management is considering whether to cancel the contract given the unresponsive nature of the Senegalese government.
 
Revenue from system sales is recognized on a cost-to-cost percentage of completion (POC) basis.  As a result invoicing on projects and recognized revenues may not match during the course of a project.  Services revenue are recognized on an accrual basis as invoiced to the customer.

Stock was issued as compensation for consulting services in the second quarter.  The valuation of the stock varied as noted in the Company’s financials and footnotes.
 
 
 
5

 
Results of Operations for the Three Months Ended June 30, 2015 and 2014:
 
   
Three Months Ended
 
   
June 30, 2015
   
June 30, 2014
 
Sales
 
$
227,688
   
$
(149,467
Gross Profit (Loss)
 
$
42,216
   
$
(484,585
                 
General and Administrative Expenses
 
$
211,635
   
$
374,825
 
Operating Expenses
 
$
222,635
   
$
387,890
 
Other Income (Expense)
 
$
(191,283)
   
$
(355,464)
 
Net Loss
 
$
(371,807)
   
$
(1,227,939)
 
 
For the three months ended June 30, 2015 and 2014, the Company reported a net loss of $371,807 and $1,227,939 respectively. The change in net loss was primarily attributable to the reduction of costs.
 
Sales - Net sales for the three months ended June 30, 2015, were $227,688 compared to $(149,467) for the three months ended June 30, 2014.
 
Gross Profit/(Loss) - During the three months ended June 30, 2015 our gross profit was 42,216 compared to a gross profit of $(484,585) in the same period of 2014.  
 
Operating Expenses
 
General and Administrative Expenses – General and Administrative for the three months ended June 30, 2015, were $211,635 as compared to $374,825 for the three months ended June 30, 2014.
 
Total Operating expenses for the three months ended June 30, 2015 were $222,635, as compared to $387,890 for the three months ended June 30, 2014.
 
We anticipate that as our operations increase our research and development expenses will increase because we believe that maintaining state of the art products is a key to our continued success.  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.  In addition we will reduce the use of stock in compensation for services.

Other Income (Expense) - Other income (expense) for the three months ended June 30, 2015 was $ (191,283), as compared to $(355,464) for the three months ended June 30, 2014.
   
Results of Operations for the Six Months Ended June 30, 2015 and 2014:
 
   
Six Months Ended
 
   
June 30, 2015
   
June 30, 2014
 
Sales
 
$
312,106
   
$
44,552
 
Gross Profit (Loss)
 
$
(17,816)
   
$
(442,090
                 
General and Administrative Expenses
 
$
1,194,918
   
$
655,842
 
Operating Expenses
 
$
1,217,128
   
$
680,743
 
Other Income (Expense)
 
$
48,393
   
$
(394,535)
 
Net Loss
 
$
(1,186,551)
   
$
(1,517,369)
 
 
For the six months ended June 30, 2015 and 2014, the Company reported a net loss of $1,186,551 and $1,517,369 respectively. The net loss in 2015 was affected by the valuation of stock for services in the first quarter.
 
 
 
6

 
Sales - Net sales for the three months ended June 30, 2015, were $312,106 compared to $44,552 for the six months ended June 30, 2014.  
 
Gross Profit/(Loss) - During the six months ended June 30, 2015 our gross loss was $17,816 compared to a gross loss of $442,090 in the same period of 2014.  This generally reflects the CRB-40s in production in 2014 and the CRB-10 production in 2015. 
 
Operating Expenses
 
General and Administrative Expenses – General and Administrative for the six months ended June 30, 2015, were $1,194,918 as compared to $655,842 for the six months ended June 30, 2014.  In 2015, stock for services impacted these costs.  We have reduced other G&A costs, primarily related to staffing and travel between the two periods.
 
Total Operating expenses for the six months ended June 30, 2015 were $1,217,128, as compared to $680,743 for the three months ended June 30, 2014.
 
For the first six months of 2015, we suspended Research and Development activities.  However, we anticipate that as our operations increase our research and development expenses will increase because we believe that maintaining state of the art products is a key to our continued success.  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.  In addition we will reduce the use of stock in compensation for services.

Other Income (Expense) - Other income (expense) for the six months ended June 30, 2015 was $48,393, as compared to $(394,535) for the three months ended June 30, 2014.

Liquidity and Capital Resources
 
The following table summarizes total current assets, liabilities and working capital at June 30, 2015 compared to December 31, 2014:
 
   
June 30,
2015
   
December 31,
2014
   
Increase/(Decrease)
 
Current Assets
 
$
320,367
   
$
131,002
   
$
189,365
 
Current Liabilities
 
$
2,720,103
   
$
2,351,815
   
$
368,288
 
Working Capital
 
$
(2,399,736
)
 
$
(2,220,813
)
 
$
(178,923)
 
 
As of June 30, 2015, we had negative working capital of $2,399,736 as compared to negative working capital of $2,220,813 as of December 31, 2014.  While still negative, it is improved.
 
Net cash provided by (used in) operating activities for the six months ended June 30, 2015 and 2014 was $(151,002) and $(583,441) respectively.
 
Net cash provided by (used in) all financing activities for the six months ended June 30, 2015 and 2014 was $192,090 and $242,378 respectively.
 
The estimated base working capital requirement for the next 12 months is $1,200,000 with an estimated burn rate of $100,000 per month.   As reflected in the accompanying financial statements, the Company had cash of $50,318 at June 30, 2015.
 
The ability of the Company to continue its operations is dependent on Management’s plans, which include increasing revenue, decreasing debt, 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.
 
 
 
7

 
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.
 
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.
 
 
 
8


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.  To address these concerns we have increased the use of an experienced outside accounting firm and CPA with extensive public company experience.  We have also changed procedures related to the monthly reconciliation, and quarterly closes to improve efficiency and reporting.
 
(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.  We have added addition review to the monthly reconciliation and quarterly closings as well as increased the use of an outside independent accounting firm.
 
 
 
9

  
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.  The past debts including a judgement related to the former company represent an increased risk which the Company is activity working to reduce through negotiations where appropriate and payment plans.
 
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 for the year ending December 31, 2015.
 
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.”
 
 
 
10


 
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: August 19, 2015 
By:
/s/ Kevin Jones
     
Name:
Kevin Jones
     
Title:
Chief Executive Officer (Principal Executive Officer) (Principal Financial Officer) (Principal Accounting Officer)
 

 
11