CRCE 10-Q
Circle Energy, Inc./NV (CRCE)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended:
Commission File Number:
CIRCLE ENERGY, INC.
(Exact Name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered |
|
|
|
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
x
1
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ |
Smaller reporting company | |
Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).
The registrant has one class of common stock of which
2
INDEX
Circle Energy, Inc.
For the Quarter Ended March 31, 2023
PART I – FINANCIAL INFORMATION
4 | |
4 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 17 |
17 | |
18 | |
18 | |
19 |
3
Item 1. Financial Statements
CIRCLE ENERGY, INC.
BALANCE SHEET
(Unaudited)
|
| March 31, |
| December 31, |
As of |
| 2023 |
| 2022 |
ASSETS |
|
|
|
|
Current Assets |
|
|
|
|
Cash and cash equivalents |
| $ |
| $ |
Prepaid assets and retainers |
|
| ||
Total Current Assets |
|
| ||
Properties and Equipment |
|
|
|
|
Oil and natural gas properties not subject to amortization |
|
| ||
Total Properties and Equipment |
|
| ||
Total Assets |
| $ |
| $ |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
| $ |
| $ |
Total Current Liabilities |
|
| ||
Total Liabilities |
|
| ||
Stockholders' Equity |
|
|
|
|
Common stock - $ |
|
| ||
Additional paid-in capital |
|
| ||
Accumulated deficit |
| ( |
| ( |
Total Stockholders' Equity |
|
| ||
Total Liabilities and Stockholders' Equity |
| $ |
| $ |
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim financial statements.
4
CIRCLE ENERGY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
| For the three months ended | ||
|
| March 31, 2023 |
| March 31, 2022 | |||
|
|
|
|
|
|
|
|
Revenues |
|
| $ |
| $ | ||
|
|
|
|
|
|
|
|
Costs and Operating Expenses |
|
|
|
|
| ||
| General and administrative expense |
|
|
| |||
|
|
|
|
|
|
|
|
Total Costs and Operating Expenses |
|
| |||||
|
|
|
|
|
|
|
|
Loss from Operations |
|
| ( |
| ( | ||
|
|
|
|
|
|
|
|
Net Other Income (Expense) |
|
|
| ||||
|
|
|
|
|
|
|
|
Loss Before Provision for Income Taxes |
| ( |
| ( | |||
|
|
|
|
|
|
|
|
Benefit from (Provision for) Income Taxes |
|
| |||||
|
|
|
|
|
|
|
|
Net Loss |
|
| $( |
| $( | ||
|
|
|
|
|
|
|
|
Basic and Diluted Loss per share |
|
| $( |
| $ | ||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim financial statements.
5
CIRCLE ENERGY, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
| Additional |
| Retained Earnings |
| Total |
| Common Stock |
| Paid-in | (Accumulated | Stockholders' | ||||
| Shares | Amount |
| Capital |
| Deficit) |
| Equity | |
Balance, December 31, 2021 | |
| $ |
| $ |
| $ ( |
| $ |
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash, net | |
| |
| |
| |
| |
Net loss | |
| |
| |
| ( |
| ( |
Balance, March 31, 2022 | |
| $ |
| $ |
| $ ( |
| $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2022 | |
| $ |
| $ |
| $ ( |
| $ |
|
|
|
|
|
|
|
|
|
|
Net loss | |
| |
| |
| ( |
| ( |
Balance, March 31, 2023 | |
| $ |
| $ |
| $ ( |
| $ |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim financial statements.
6
CIRCLE ENERGY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, |
| 2023 |
| 2022 | ||
Cash Flows From Operating Activities |
|
|
|
| ||
| Net loss |
| $ ( |
| $ ( | |
| Adjustments to reconcile net loss to net cash |
|
|
|
| |
| provided by operating activities: |
|
|
|
| |
| Changes in assets and liabilities: |
|
|
|
| |
| Prepaid expenses and retainers |
| |
| | |
| Accounts payable |
| |
| | |
| Net Cash Provided by (Used in) Operating Activities |
| ( |
| | |
Cash Flows From Investing Activities |
|
|
|
| ||
| Purchase of unproven oil and gas properties |
| |
| | |
| Net Cash Used in Investing Activities |
| |
| | |
Cash Flows From Financing Activities |
|
|
|
| ||
| Proceeds from founding shares issuance |
| |
| | |
| Proceeds from issuance of common stock, net of offering costs |
| |
| | |
| Net Cash Provided by Financing Activities |
| |
| | |
Net Increase (Decrease) in Cash |
| ( |
| | ||
Cash at Beginning of Period |
| |
| | ||
Cash at End of Period |
| $ |
| $ | ||
Supplemental Cash Flow Information |
|
|
|
| ||
| Cash paid for interest |
| $ |
| $ | |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited interim financial statements.
7
CIRCLE ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations – Circle Energy, Inc. is a Nevada corporation. Circle Energy, Inc. is referred to herein as the “Company.” The Company owns interests in oil and natural gas properties located in Texas and is engaged primarily in the acquisition, exploration and development of oil and natural gas properties.
In the opinion of the Company, the accompanying unaudited condensed interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of March 31, 2023, and its results of operations for the three months ended March 31, 2023, and cash flows for the three months ended March 31, 2023. The condensed balance sheet at December 31, 2022 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Operating results for the three-month period ended March 31, 2023, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.
These unaudited condensed interim financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (“U.S. GAAP”). These unaudited condensed interim financial statements should be read in conjunction with the annual audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission.
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to U.S. GAAP and have been consistently applied in the preparation of the financial statements.
Emerging Growth Company Status – As a company with less than $1.07 billion in revenue during our last fiscal year, the Company qualifies as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, the Company may, for up to five years, take advantage of specified exemptions from reporting and other regulatory requirements that are otherwise applicable generally to public companies. These exemptions include:
·the presentation of only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations;
·deferral of the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting;
·exemption from the adoption of new or revised financial accounting standards until they would apply to private companies;
·exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the Company; and
·reduced disclosure about executive compensation arrangements.
8
CIRCLE ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company may take advantage of these provisions until it is no longer an emerging growth company, which will occur on the earliest of (i) the last day of the fiscal year following the fifth anniversary of the Company’s IPO, (ii) the last day of the fiscal year in which it has more than $1.07 billion in annual gross revenue, (iii) the date on which it issues more than $1.0 billion of non-convertible debt over a three-year period and (iv) the date on which it is deemed to be a “large accelerated filer,” as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has elected to take advantage of each of the exemptions for emerging growth companies.
Accordingly, the information that is provided in these financial statements may be different than what other public companies provide.
Use of Estimates – The preparation of financial statements in conformity with “U.S. GAAP” requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Changes in the future estimated oil and natural gas reserves or the estimated future cash flows attributable to the reserves that are utilized for impairment analysis could have a significant impact on the future results of operations.
Fair Value Measurements – Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Financial Accounting Standards Board (“FASB”) has established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels. Level 1 inputs are the highest priority and consist of unadjusted quoted prices in active markets for identical assets and liabilities. Level 2 are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Level 3 are unobservable inputs for an asset or liability.
Fair Values of Financial Instruments –The carrying amounts of receivables and accounts payable and other current assets and liabilities approximate fair value because of the short-term maturities and/or liquid nature of these assets and liabilities.
Fair Value of Non-financial Assets and Liabilities – The Company also applies fair value accounting guidance to initially, or as events dictate, measure non-financial assets and liabilities such as those obtained through business acquisitions, property and equipment and asset retirement obligations. These assets and liabilities are subject to fair value adjustments only in certain circumstances and are not subject to recurring revaluations. Fair value may be estimated using comparable market data, a discounted cash flow method, or a combination of the two as considered appropriate based on the circumstances. Under the discounted cash flow method, estimated future cash flows are based on management’s expectations for the future and include estimates of future oil and natural gas production or other applicable sales estimates, operational costs and a risk-adjusted discount rate. The Company may use the present value of estimated future cash inflows and/or outflows or third-party offers or prices of comparable assets with consideration of current market conditions to value its non-financial assets and liabilities when circumstances dictate determining fair value is necessary.
Concentration of Credit Risk and Accounts Receivable – Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash and accounts receivable. The Company places its cash with a high credit quality financial institution.
Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
9
CIRCLE ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Oil and Gas Properties – The Company uses the full cost method of accounting for oil and natural gas properties. Under this method, all costs (direct and indirect) associated with acquisition, exploration, and development of oil and natural gas properties are capitalized. Costs capitalized include acquisition costs, geological and geophysical expenditures, lease rentals on undeveloped properties and costs of drilling and equipping productive and non-productive wells. Drilling costs include directly related overhead costs. Capitalized costs are categorized either as being subject to amortization or not subject to amortization.
The Company records a liability in the period in which an asset retirement obligation (“ARO”) is incurred, in an amount equal to the discounted estimated fair value of the obligation that is capitalized. Thereafter this liability is accreted up to the final retirement cost. An ARO is a future expenditure related to the disposal or other retirement of certain assets. The Company’s ARO relates to future plugging and abandonment expenses of its oil and natural gas properties and related facilities disposal.
All capitalized costs of oil and natural gas properties, including the estimated future costs to develop proved reserves and estimated future costs to plug and abandon wells and costs of site restoration, less the estimated salvage value of equipment associated with the oil and natural gas properties, are amortized on the unit-of-production method using estimates of proved reserves as determined by independent petroleum engineers. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is offset to the capitalized costs to be amortized. As the Company has no production and its properties are currently not subjection to amortization, no depletion expense has yet been incurred.
In addition, capitalized costs less accumulated depreciation, depletion and amortization and related deferred income taxes shall not exceed an amount (the full cost ceiling) equal to the sum of:
1) the present value of estimated future net revenues discounted ten percent computed in compliance with SEC guidelines;
2) plus the cost of properties not being amortized;
3) plus the lower of cost or estimated fair value of unproven properties included in the costs being amortized;
4) less income tax effects related to differences between the book and tax basis of the properties.
Land, Buildings, Equipment and Leasehold Improvements – Land, buildings, equipment and leasehold improvements are carried at historical cost, adjusted for impairment loss and accumulated depreciation. Historical costs include all direct costs associated with the acquisition of land, buildings, equipment and leasehold improvements and placing them in service.
Depreciation of buildings equipment, software and leasehold improvements is calculated using the straight-line method based upon the following estimated useful lives:
Leasehold improvements |
| |
Office equipment and software |
| |
Equipment |
|
Revenue Recognition – The Company accounts for revenues according to Accounting Standards Update (“ASU”) 2014-09 Revenues from Contracts with Customers (Topic 606) (“ASU 2014-09”). The Company does not currently have any revenues.
Income Taxes – Provisions for income taxes are based on taxes payable or refundable for the current year and deferred taxes. Deferred taxes are provided on differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, and tax carry forwards. Deferred tax assets and liabilities are included in the
10
CIRCLE ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. No provision has been made for income taxes as the Company has not recorded or received any revenues.
For the three months ended March 31, 2023 and 2022, the Company recorded a full valuation allowance against the deferred tax asset of $
Accounting for Uncertainty in Income Taxes – In accordance with generally accepted accounting principles, the Company has analyzed its filing positions in all jurisdictions where it is required to file income tax returns for the open tax years in such jurisdictions. The Company has identified its federal income tax return as a “major” tax jurisdiction. Therefore, the Company has no significant reserves for uncertain tax positions and no adjustments to such reserves were required by generally accepted accounting principles. No interest or penalties have been levied against the Company and none are anticipated; therefore, no interest or penalty has been included in our provision for income taxes in the statements of operations.
Earnings (Loss) Per Share – Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the year. Diluted earnings (loss) per share are calculated to give effect to potentially issuable dilutive common shares. There are currently no stock options or other share-based compensation outstanding to create a dilutive effect on our earnings per share.
Major Customers – The Company does not currently have customers.
Stock-Based Employee and Non-Employee Compensation – The Company accounts for its equity grants in accordance with generally accepted accounting principles. Generally accepted accounting principles require the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. Generally accepted accounting principles also requires equity grant compensation expense to be recognized over the period during which an employee or non-employee is required to provide service in exchange for the award (the vesting period).
Derivative Instruments and Hedging Activities – The Company may periodically enter into derivative contracts to manage its exposure to commodity risk. These derivative contracts, which are generally placed with major financial institutions, may take the form of forward contracts, futures contracts, swaps, or options. The oil and gas reference prices upon which the commodity derivative contracts are based reflect various market indices that have a high degree of historical correlation with actual prices received by the Company for its oil and natural gas production.
When applicable, the Company records all derivative instruments, other than those that meet the normal purchases and sales exception, on the balance sheet as either an asset or liability measured at fair value. Changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met.
NOTE 2 – REVENUE RECOGNITION
The Company does not currently have any revenues.
11
CIRCLE ENERGY, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – LEASES
The Company adopted ASU 2016-02 Leases (Topic 842) effective January 1, 2022. The Company does not have any leases to which this standard applies.
The Company has a month-to-month lease for executive office-sharing space. This lease is month to month at $
NOTE 4 – LOSS PER SHARE INFORMATION
|
| For the three months ended | ||
|
| March 31, 2023 |
| March 31, 2022 |
Net Loss |
| $ ( |
| $ ( |
Basic and Diluted Weighted-Average Shares Outstanding |
| |
| |
Basic and Diluted Loss per Share |
| $ ( |
| $ |
There are currently no stock options or other share-based compensation outstanding to create a dilutive effect on our earnings per share.
NOTE 5 – LEGAL MATTERS
In the ordinary course of business, we may be, from time to time, a claimant or a defendant in various legal proceedings. We do not presently have any material litigation pending or threatened requiring disclosure under this item.
NOTE 6 – SUBSEQUENT EVENTS
None.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of operations. This section should be read in conjunction with our audited financial statements included in our Form 10-K filed for the year ended December 31, 2022 and our interim unaudited financial statements and accompanying notes to these financial statements contained herein.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words anticipate, believe, continue, could, estimate, expect, intends, may, might, plan, possible, potential, predict, project, should, would and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:
•our ability to select appropriate oil and gas companies, project, or property;
•our expectations around the performance of a prospective target company, project, or property;
•our potential ability to obtain additional financing to completely fund our oil and gas projects;
•our pool of prospective target oil and gas companies, projects, or properties;
•our ability to consummate acquisitions due to the uncertainty resulting from the recent COVID-19 pandemic;
•the ability of our officers and directors to generate a number of potential target opportunities;
•our public securities’ potential liquidity and trading;
•changes in the oil and gas industry;
•regulatory developments; or
•Factors affecting the economy or otherwise caused by war, terrorist attacks, severe weather conditions, climate change, supply chain delays, pandemic or other public health conditions, or similar events.
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in our prospectus. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
13
Overview
We were incorporated on December 7, 2021, as a Nevada company for the purpose of acting as an independent exploration and production company to engage in oil and natural gas development, production, acquisition, and exploration activities currently focused in Texas. We have acquired a 75% working interest in an 80-acre oil and gas lease located in Andrews County, Texas, and have entered into a joint venture agreement to explore the area of mutual interest surrounding the current lease for further acquisitions and development.
Results of Operations and Known Trends or Future Events
We are in our startup phase of operations and have not generated any revenues to date. Activities since inception include corporate organizational activities, our recently completed private offering, those activities necessary to prepare for the registration of shares for the Selling Stockholders, acquisition of our first oil and gas lease interest, and arrangements to expand operations in the current area of interest through a joint venture with a third party. We have incurred operating expenses related to legal and accounting services, and oil and gas lease acquisition costs. We expect to incur expenses to develop the oil and gas lease and anticipate increased expenses as a result of being a public company (for legal, financial reporting, accounting, and auditing compliance), as well as for due diligence expenses related to future oil and gas business growth. We expect our expenses to increase substantially as a result.
Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022
Production, sales, production costs and production taxes. The Company does not currently have any producing wells and thus has no production, sales, production costs or production taxes nor has it ever had any to date.
Depreciation, depletion and amortization. We have no production and our current oil and gas properties thus are not yet subject to amortization. Further, we have no depreciable assets.
General and administrative expenses. General and administrative expenses were $24,496 for three months ended March 31, 2023, as compared to $764 for the same period of 2022. The largest costs in 2023 were legal, audit and other fees related to our annual 10K filing and additional costs to finalize the listing of our common shares, none of which were incurred during the three months ended March 31, 2022.
Net loss. The Company had net loss of $24,496 for three months ended March 31, 2023, as compared to $764 for the same period of 2022. This increase in loss was the result of increased general and administrative costs incurred for the audit and finalizing the listing of our common.
Liquidity and Capital Resources
Management believes it has on hand sufficient cash resources to meet its material cash requirements for the next 12 months but will require further funding or other arrangements to commence extensive drilling operations or acquire further oil and gas interests. As discussed further below, management believes that through its resources and relationships, appropriate arrangements for required funding can be reasonably obtained. Mr. Rochford, one of our founders, paid $240,000 for his founder’s shares in the Company. In addition, we received $264,000 in gross proceeds from the sale of shares of our common stock in a non-public offering of the shares. We have no capital commitments for expenditures, other than those existing under our current oil and gas lease. We anticipate primarily utilizing these funds to increase our acreage position adjacent to our initial acreage position. Any remaining funds would be used to cover the initial costs of drilling wells on the Company’s existing lease, to seek drilling partners for the costs of the wells, and to secure additional oil and gas properties.
Under our current oil and gas lease, we are required to drill two wells on the property within three years from the lease date. If we fail to commence, drill or develop one or both of the wells within the three-year period, the undrilled tract or tracts will automatically revert to the lessor.
Before commencing development activity, management first intends to increase our acreage position adjacent to our initial acreage position. Once this process is complete, we can determine how best to proceed, particularly as it relates
14
to whether we would drill vertically or horizontally. The amount and configuration of the acreage will determine whether to implement vertical or horizontal drilling.
If the Company is not successful in adding additional acreage, we would proceed with developing our initial acreage, beginning with the drilling of the two vertical wells as required by the current oil and gas lease. Each of these wells would cost approximately $750,000 to drill and complete. To fund this drilling, the Company would likely enter into agreements with industry partners who would provide funding in return for a portion of the working interest in the wells. Management has not yet entered into any agreements but has had extended conversations with those industry partners regarding potential participation in the drilling. These discussions have concluded with positive indications that they would wish to participate and so the required funding would be available. In the alternative, management may seek funding through the sale of equity in the Company after the Common Stock commences trading, if ever.
Cash Flows. During the three months ended March 31, 2022 we had net cash inflow from issuance of common stock of $231,446. There were no cash inflows during the three months ended March 31, 2023. During the three months ended March 31, 2023 we had cash outflow of $10,155 from operating activities as compared to cash inflow from operations of $5,960 for the same period of 2022. As of March 31, 2023, we had cash on hand of $326,086 and working capital of $321,746, as compared to cash on hand of $336,241 and working capital of $346,242 as of December 31, 2022.
15
BUSINESS
We are a corporation incorporated in Nevada formed for the purpose of acquiring and developing oil and gas prospects, primarily in the state of Texas and surrounding states. We anticipate acquiring these properties either directly from the owners or through one or more acquisitions of smaller oil and gas companies with existing oil and gas assets and established management teams. We have acquired an interest in our first oil and gas lease and have entered into an arrangement to develop an area of mutual interest in the same area. Management has also had ongoing preliminary discussions with multiple potential sellers and management teams as well as with contacts within the banking community to further develop the company’s ongoing business. Through management’s prior relationships, we acquired our first prospect and have identified a selection of additional potential acquisition targets. Further, the Company has filed with the Texas Railroad Commission to be established as an operator of oil and gas properties in Texas. In addition, Mr. Rochford, one of our founders, paid $240,000 for his founder’s shares in the Company, and in March 2022, we completed a non-public offering of our common stock in which we raised gross proceeds of $264,000, all of which we intend to be used for general operating expenses, for our current project, and to search for additional suitable oil and gas properties or projects.
C. W. Logsdon Lease
Under the terms of a Farmout Agreement and Conditional Lease Assignment dated May 16, 2022, we have acquired a 75% working interest, and 55.5% net revenue interest, in the C. W. Logsdon Lease, an 80-acre tract located in Andrews County, Texas. We acquired the interest from Aspen Energy Partners, LTD., a Florida limited partnership which holds the remaining 25% working interest. Under the lease agreement, we are required to drill at least two wells, one on each 40-acre farmout tract, within three years or the rights under the lease to any undrilled tract or tracts will automatically revert to Aspen.
There are currently two plugged but no producing wells on the lease. These two wells were drilled on 40-acre spacing, produced from the Clear Fork and were economical. There are additional wells on surrounding acreage that have produced marketable quantities of oil and gas.
The initial intent is to drill two new Clear Fork wells based on 20-acre spacing. Management believes there is potential for further downspacing to 10-acre spacing, depending on oil and gas prices, development cost and completion results of the 20-acre development. Management also believes there is potential for San Andres development with possible 10-acre spacing, again depending on oil and gas prices, development costs and completion results.
We have also entered into a joint venture agreement with Aspen to mutually develop an area of mutual interest near the current lease. This area of mutual interest consists of approximately 880 acres including and adjoining the acquired acreage. If we are successful in acquiring additional acreage, we would jointly own mineral rights in the same percentage of ownership with Aspen as the current lease (75% Circle, 25% Aspen). The parties intend that the joint venture would use AAPL 610-19819 or AAPL 610-2015 or similar operating agreement to structure the joint venture. The liabilities of the parties would be severed and not joint, and each party would be responsible only for its share of the costs and liabilities incurred under the operating agreement. Aspen is a ten-year-old oil and gas exploration company with the majority of its projects located in Texas. During its operating history, Aspen has owned over 70 oil and gas producing wells.
Management intends to lease additional acreage within the area of mutual interest. Towards this end, we have engaged a petroleum engineer to prioritize the acreage for leasing and have engaged a landman to execute our leasing efforts. Once we have identified and acquired the specific acreage for development and evaluated our best options to develop it, we will be able to determine whether to utilize vertical or horizontal drilling. This will be determined based on the amount and configuration of any additional acquired acreage.
16
If we are unsuccessful in adding additional acreage, we intend to commence development or our existing property via vertical drilling, beginning with the two wells required under our current lease. We estimate that drilling and completing these wells would cost approximately $750,000 per well. If the results of the initial well are successful, we would commence drilling of the second well at a similar cost and timeframe. We intend to seek joint venture opportunities to fund the drilling of these wells. We anticipate that any wells drilled on the existing lease would produce primarily oil.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements, and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Our Chief Executive Officer, who serves as our principal executive officer; and our Chief Financial Officer, who serves as our principal financial officer, evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. The Chief Executive Officer and Chief Financial Officer have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to provide assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure.
We will continue to monitor and evaluate the effectiveness of our disclosure controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17
PART II – OTHER INFORMATION
Item 6. Exhibits
|
| Incorporated by Reference |
| ||||
Exhibit Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date | Filed Here-with | |
3.1 | S-1 | 333-263384 | 3.1 | 3/9/22 |
| ||
3.2 | S-1 | 333-263384 | 3.2 | 3/9/22 |
| ||
10.1 | Farmout Agreement and Conditional Lease Assignment dated May 16, 2022 | S-1/A | 333-263384 | 10.1 | 05/23/22 |
| |
10.2 | Joint Venture Agreement dated May 17, 2022 [confidential information has been redacted] | S-1/A | 333-263384 | 10.1 | 06/14/22 |
| |
31.1 |
|
|
|
| X | ||
31.2 |
|
|
|
| X | ||
32.1 |
|
|
|
| X | ||
32.2 |
|
|
|
| X | ||
101. | INS | Inline XBRL Instance Document | X | ||||
101. | SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||
101. | CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||
101. | DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||
101. | LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||
101. | PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||
104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| ||||
In accordance with Rule 402 of Regulation S-T, the XBRL information included in Exhibit 101 to this Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Circle Energy, Inc. | |
|
|
|
Date: May 15, 2023 | By: | /s/ Lloyd T. Rochford |
|
| Lloyd T. Rochford |
|
| Chief Executive Officer and Director |
|
| (Principal Executive Officer) |
|
|
|
|
|
|
Date: May 15, 2023 | By: | /s/ William R. Broaddrick |
|
| William R. Broaddrick |
|
| Chief Financial Officer and Director |
|
| (Principal Financial and Accounting Officer) |
19