UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCD.C. 20549
FORM 10-Q
(Mark one)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended:ended September 30, 20172023
OrOR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: toCommission File No. 000-55825
Commission File Number:0-30746
FRONTIER OILFIELD SERVICES, INC.
(Exact name of registrant as specified in its charter)
CORRELATE ENERGY CORP. | |
(Exact name of registrant as specified in its charter) |
Nevada | 84-4250492 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification | |
176 S. Capitol Blvd., 2nd Floor Boise, Idaho | 83702 | |
(Address of | (Zip Code) |
(972) 243-2610(855)-264-4060
(Registrant’s telephone number, including area code)
N/A220 Travis Street, Suite 501, Shreveport, LA 71101
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ YesNo ☐ 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large | ☐ | Smaller reporting company | ☒ | |
Accelerated Filer | ☐ | Emerging growth company | ☐ | |
Non-accelerated Filer | ☒ |
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 12b-2 of the Exchange Act). Yes ☐ YesNo ☒ No
AsAPPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of October 26, 2017, there were 13,868,788 shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. The number of shares of Common Stock, par value $0.01$0.0001 per share, outstanding.
outstanding as of November 13, 2023 was 36,181,457.
FRONTIER OILFIELD SERVICES, INC.
Index
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Name of each exchange on which registered | |
None | N/A | N/A |
CORRELATE ENERGY CORP.
Index
Pg. No. | |||||
3 | |||||
3 | |||||
4 | |||||
5 | |||||
6 | |||||
Notes to Condensed Consolidated Financial Statements | 7 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
20 | |||||
20 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
21 | |||||
22 | |||||
23 |
Table of Contents |
PART 1 — FINANCIAL INFORMATION
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIESCORRELATE ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)SEPTEMBER 30, 2023 AND DECEMBER 31, 2022
(Unaudited)
September 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 4,271 | $ | 20,253 | ||||
Accounts receivable, net | 82,817 | 73,836 | ||||||
Advance to shareholder | 29,413 | 132,190 | ||||||
Total current assets | 116,501 | 226,279 | ||||||
Property and equipment, at cost | 8,481,948 | 8,481,948 | ||||||
Less: accumulated depreciation | (4,657,122 | ) | (4,366,035 | ) | ||||
Property and equipment, net | 3,824,826 | 4,115,913 | ||||||
Intangibles, net | 353,659 | 408,537 | ||||||
Deposits | 2,302 | 2,302 | ||||||
Total other assets | 355,961 | 410,839 | ||||||
Total Assets | $ | 4,297,288 | $ | 4,753,031 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current Liabilities: | ||||||||
Current maturities of long-term debt, primarily stockholders, net of deferred loan fees | $ | 7,929,660 | $ | 7,773,114 | ||||
Accounts payable | 1,970,953 | 2,430,722 | ||||||
Accrued liabilities | 1,171,295 | 2,171,848 | ||||||
Total current liabilities | 11,071,908 | 12,375,684 | ||||||
Long-term debt, less current maturities | — | — | ||||||
Total Liabilities | 11,071,908 | 12,375,684 | ||||||
Commitments and Contingencies (Note 7) | ||||||||
Stockholders’ Deficit: | ||||||||
Common stock- $.01 par value; authorized 100,000,000 shares; | ||||||||
13,868,788 and 11,855,276 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively | 138,689 | 118,553 | ||||||
Additional paid-in capital | 34,918,653 | 32,925,243 | ||||||
Accumulated deficit | (41,831,962 | ) | (40,666,449 | ) | ||||
Total stockholders’ deficit | (6,774,620 | ) | (7,622,653 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 4,297,288 | $ | 4,753,031 |
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Assets |
| |||||||
Current assets |
|
|
|
|
|
| ||
Cash |
| $ | 3,218,263 |
|
| $ | 96,308 |
|
Contract assets |
|
| 128,103 |
|
|
| 684,185 |
|
Prepaid expenses and other current assets |
|
| 697,542 |
|
|
| 395,953 |
|
Total current assets |
|
| 4,043,908 |
|
|
| 1,176,446 |
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
| 114,970 |
|
|
| 4,004 |
|
Total property and equipment |
|
| 114,970 |
|
|
| 4,004 |
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
Intangible assets - customer relationships, net |
|
| 151,970 |
|
|
| 187,040 |
|
Intangible assets - developed technology, net |
|
| 3,460 |
|
|
| 13,870 |
|
Intangible assets - development rights, net |
|
| 668,065 |
|
|
| 112,744 |
|
Goodwill |
|
| 762,851 |
|
|
| 762,851 |
|
Total other assets |
|
| 1,586,346 |
|
|
| 1,076,505 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 5,745,224 |
|
| $ | 2,256,955 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit | ||||||||
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 204,741 |
|
| $ | 396,743 |
|
Accounts payable, related parties |
|
| 750,346 |
|
|
| 673,000 |
|
Accrued expenses |
|
| 772,683 |
|
|
| 1,285,898 |
|
Customer deposits |
|
| 3,076,771 |
|
|
| - |
|
Shareholder advances |
|
| 96,519 |
|
|
| 96,519 |
|
Line of credit |
|
| 30,000 |
|
|
| 30,000 |
|
Notes payable, current portion, net of discount |
|
| 522,456 |
|
|
| 67,468 |
|
Notes payable, related parties, current portion, net of discount |
|
| 1,227,089 |
|
|
| 1,446,078 |
|
Convertible notes payable, current portion, net of discount |
|
| 683,103 |
|
|
| - |
|
Convertible notes payable, related party, current portion, net of discount |
|
| 45,448 |
|
|
| - |
|
Derivative liability |
|
| - |
|
|
| 722,328 |
|
Total current liabilities |
|
| 7,409,156 |
|
|
| 4,718,034 |
|
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion and discount |
|
| - |
|
|
| 315,786 |
|
Notes payable, related parties, net of current portion and discount |
|
| - |
|
|
| 28,809 |
|
Convertible notes payable, net of current portion and discount |
|
| 683,297 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
| 8,092,453 |
|
|
| 5,062,629 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
|
|
Preferred stock $.0001 par value; authorized 50,000,000 shares with -0- issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
| - |
|
|
| - |
|
Common stock $0.0001 par value; authorized 400,000,000 shares with 36,181,457 and 35,323,626 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively |
|
| 3,618 |
|
|
| 3,532 |
|
Additional paid-in capital |
|
| 14,280,986 |
|
|
| 5,459,220 |
|
Accumulated deficit |
|
| (16,631,833 | ) |
|
| (8,268,426 | ) |
Total stockholders' deficit |
|
| (2,347,229 | ) |
|
| (2,805,674 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit |
| $ | 5,745,224 |
|
| $ | 2,256,955 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
Table of Contents |
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
CORRELATE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||||
Revenue, net of discounts | $ | 321,863 | $ | 284,345 | $ | 885,719 | $ | 1,004,162 | ||||||||
Costs and expenses: | ||||||||||||||||
Operating costs | 198,360 | 246,574 | 678,814 | 862,460 | ||||||||||||
General and administrative | 92,117 | 71,733 | 302,875 | 431,396 | ||||||||||||
Depreciation and amortization | 115,321 | 115,322 | 345,965 | 345,965 | ||||||||||||
Total costs and expenses | 405,798 | 433,629 | 1.327,654 | 1,639,821 | ||||||||||||
Operating loss | (83,935 | ) | (149,284 | ) | (441,935 | ) | (635,659 | ) | ||||||||
Other (income) expense: | ||||||||||||||||
Interest expense | 168,516 | 272,887 | 723,578 | 842,658 | ||||||||||||
(Gain) loss on disposal of property and equipment | — | (57,511 | ) | — | (102,931 | ) | ||||||||||
Loss before provision for income taxes | (252,451 | ) | (364,660 | ) | (1,165,513 | ) | (1,375,386 | ) | ||||||||
Provision for income taxes | — | 4,026 | — | 4,916 | ||||||||||||
Net loss | $ | (252,451 | ) | $ | (368,686 | ) | $ | (1,165,513 | ) | $ | (1,380,302 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.12 | ) | ||||
Weighted Average Common Shares Outstanding: | ||||||||||||||||
Basic and Diluted | 12,533,742 | 11,864,962 | 12,083,917 | 11,724,327 |
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Revenues |
| $ | 930,277 |
|
| $ | 2,312,577 |
|
| $ | 5,139,133 |
|
| $ | 2,617,675 |
|
Cost of revenues |
|
| 698,256 |
|
|
| 2,169,138 |
|
|
| 3,827,429 |
|
|
| 2,432,198 |
|
Gross profit |
|
| 232,021 |
|
|
| 143,439 |
|
|
| 1,311,704 |
|
|
| 185,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
| 1,611,987 |
|
|
| 2,301,539 |
|
|
| 3,994,739 |
|
|
| 3,496,747 |
|
Insurance |
|
| 2,826 |
|
|
| 1,487 |
|
|
| 8,171 |
|
|
| 4,879 |
|
Legal and professional |
|
| 76,592 |
|
|
| 75,552 |
|
|
| 206,578 |
|
|
| 1,014,474 |
|
Travel |
|
| 39,314 |
|
|
| 35,340 |
|
|
| 127,097 |
|
|
| 85,820 |
|
Depreciation and amortization |
|
| 89,841 |
|
|
| 15,560 |
|
|
| 152,485 |
|
|
| 45,880 |
|
Total operating expenses |
|
| 1,820,560 |
|
|
| 2,429,478 |
|
|
| 4,489,070 |
|
|
| 4,647,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
| (1,588,539 | ) |
|
| (2,286,039 | ) |
|
| (3,177,366 | ) |
|
| (4,462,323 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (183,273 | ) |
|
| (43,381 | ) |
|
| (437,524 | ) |
|
| (113,745 | ) |
Amortization of debt discount |
|
| (1,611,905 | ) |
|
| (257,497 | ) |
|
| (3,700,034 | ) |
|
| (685,639 | ) |
Financing costs |
|
| - |
|
|
| - |
|
|
| (4,156,291 | ) |
|
| - |
|
Change in fair value of derivative liability |
|
| - |
|
|
| - |
|
|
| 3,107,808 |
|
|
| - |
|
Total other income (expense) |
|
| (1,795,178 | ) |
|
| (300,878 | ) |
|
| (5,186,041 | ) |
|
| (799,384 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (3,383,717 | ) |
| $ | (2,586,917 | ) |
| $ | (8,363,407 | ) |
| $ | (5,261,707 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share |
| $ | (0.09 | ) |
| $ | (0.07 | ) |
| $ | (0.23 | ) |
| $ | (0.15 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic |
|
| 36,175,490 |
|
|
| 35,139,920 |
|
|
| 35,937,305 |
|
|
| 34,876,184 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
FRONTIER OILFIELD SERVICES, INC. AND SUBSIDIARIES
4 |
Table of Contents |
CORRELATE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN STOCKHOLDERS' DEFICIT
(UNAUDITED)FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net loss | $ | (1,165,513 | ) | $ | (1.380,302 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 345,965 | 345,965 | ||||||
Amortization of deferred loan fees to interest expense | 156,546 | 150,657 | ||||||
Stock compensation | — | 29,700 | ||||||
Changes in operating assets and liabilities: | ||||||||
(Increase) decrease in operating assets: | ||||||||
Accounts receivable | (8,981 | ) | 99,046 | |||||
Inventory | — | 947 | ||||||
Increase (decrease) in operating liabilities: | ||||||||
Accounts payable | (27,535 | ) | (163,571 | ) | ||||
Accrued liabilities | 580,759 | 712,403 | ||||||
Net cash used in operating activities | (118,759 | ) | (205,155 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Repayment of advance to shareholder | 102,777 | 215,847 | ||||||
Proceeds from disposition of CD | — | 77,614 | ||||||
Net cash provided by investing activities | 102,777 | 293,461 | ||||||
Cash Flows from Financing Activities: | ||||||||
Payments on debt | — | (104,230 | ) | |||||
Net cash used in financing activities | — | (104,230 | ) | |||||
Net decrease in cash | (15,982 | ) | (15,924 | ) | ||||
Cash at beginning of the period | 20,253 | 22,400 | ||||||
Cash at end of the period | $ | 4,271 | $ | 6,476 | ||||
Supplemental Cash Flow Disclosures | ||||||||
Interest paid | $ | — | $ | 15,845 | ||||
Taxes paid | $ | — | $ | 4,916 | ||||
Settlement of liabilities through common stock issuance | $ | 2,013,546 | $ | 206,000 |
|
| Class A Common Stock |
|
| Class B Common Stock |
|
| Common Stock |
|
| Additional Paid in |
|
| Accumulated |
|
|
|
| ||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balances, December 31, 2021 |
|
| 34,639,920 |
|
| $ | 3,464 |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 1,534,474 |
|
| $ | (1,105,518 | ) |
| $ | 432,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 799,128 |
|
|
| - |
|
|
| 799,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 150,504 |
|
|
| - |
|
|
| 150,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for cash |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 150,000 |
|
|
| - |
|
|
| 150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (973,460 | ) |
|
| (973,460 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2022 |
|
| 34,639,920 |
|
| $ | 3,464 |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
| $ | 2,634,106 |
|
| $ | (2,078,978 | ) |
| $ | 558,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elimination of Class A and Class B common stock for single class of common stock |
|
| (34,639,920 | ) |
|
| (3,464 | ) |
|
| - |
|
|
| - |
|
|
| 34,639,920 |
|
|
| 3,464 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 179,234 |
|
|
| - |
|
|
| 179,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 500,000 |
|
|
| 50 |
|
|
| 499,950 |
|
|
| - |
|
|
| 500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,701,330 | ) |
|
| (1,701,330 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 35,139,920 |
|
| $ | 3,514 |
|
| $ | 3,313,290 |
|
| $ | (3,780,308 | ) |
| $ | (463,504 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 417,314 |
|
|
| - |
|
|
| 417,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,306,773 |
|
|
| - |
|
|
| 1,306,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,586,917 | ) |
|
| (2,586,917 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 35,139,920 |
|
| $ | 3,514 |
|
| $ | 5,037,377 |
|
| $ | (6,367,225 | ) |
| $ | (1,326,334 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 35,323,626 |
|
| $ | 3,532 |
|
| $ | 5,459,220 |
|
| $ | (8,268,426 | ) |
| $ | (2,805,674 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 17,045 |
|
|
| 2 |
|
|
| 14,998 |
|
|
| - |
|
|
| 15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for financing costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,245 |
|
|
| - |
|
|
| 4,500 |
|
|
| - |
|
|
| 4,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for the payment of accrued interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,655 |
|
|
| 1 |
|
|
| 7,587 |
|
|
| - |
|
|
| 7,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 253,851 |
|
|
| - |
|
|
| 253,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative liability |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,582 |
|
|
| - |
|
|
| 50,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,410,353 | ) |
|
| (3,410,353 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 35,350,571 |
|
| $ | 3,535 |
|
| $ | 5,790,738 |
|
| $ | (11,678,779 | ) |
| $ | (5,884,506 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 500,000 |
|
|
| 50 |
|
|
| 132,762 |
|
|
| - |
|
|
| 132,812 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for the payment of accrued interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,661 |
|
|
| 1 |
|
|
| 6,512 |
|
|
| - |
|
|
| 6,513 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 330,524 |
|
|
| - |
|
|
| 330,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,334 |
|
|
| - |
|
|
| 28,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for intangible assets |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 362,319 |
|
|
| 36 |
|
|
| 249,964 |
|
|
| - |
|
|
| 250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for property and equipment |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 92,010 |
|
|
| 9 |
|
|
| 57,498 |
|
|
| - |
|
|
| 57,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of returnable shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,200,000 |
|
|
| 120 |
|
|
| (120 | ) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return of returnable shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,360,000 | ) |
|
| (136 | ) |
|
| 136 |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of derivative liability |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5,844,608 |
|
|
| - |
|
|
| 5,844,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,569,337 | ) |
|
| (1,569,337 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 36,152,561 |
|
| $ | 3,615 |
|
| $ | 12,440,956 |
|
| $ | (13,248,116 | ) |
| $ | (803,545 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for the payment of accrued interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,896 |
|
|
| 3 |
|
|
| 18,553 |
|
|
| - |
|
|
| 18,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,843 |
|
|
|
|
|
|
| 39,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 458,986 |
|
|
| - |
|
|
| 458,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants in connection with debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,322,648 |
|
|
| - |
|
|
| 1,322,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3,383,717 | ) |
|
| (3,383,717 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, September 30, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| 36,181,457 |
|
| $ | 3,618 |
|
| $ | 14,280,986 |
|
| $ | (16,631,833 | ) |
| $ | (2,347,229 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
FRONTIER OILFIELD SERVICES, INC.
5 |
Table of Contents |
CORRELATE ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND SUBSIDIARIES2022
(Unaudited)
|
| For the nine months ended |
| |||||
|
| September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net loss |
| $ | (8,363,407 | ) |
| $ | (5,261,707 | ) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 152,485 |
|
|
| 45,880 |
|
Amortization of debt discount |
|
| 3,700,034 |
|
|
| 685,639 |
|
Stock issued for services |
|
| 187,655 |
|
|
| 500,000 |
|
Stock-based compensation |
|
| 1,043,361 |
|
|
| 1,636,511 |
|
Financing costs |
|
| 4,156,291 |
|
|
| - |
|
Change in fair value of derivative liability |
|
| (3,107,808 | ) |
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| - |
|
|
| (383,028 | ) |
Contract assets |
|
| 556,082 |
|
|
| - |
|
Inventory |
|
| - |
|
|
| (174,843 | ) |
Prepaid expenses and other current assets |
|
| (301,589 | ) |
|
| (94,983 | ) |
Accounts payable |
|
| (114,656 | ) |
|
| (4,633 | ) |
Accrued expenses |
|
| (401,629 | ) |
|
| 1,043,152 |
|
Customer deposits |
|
| 3,076,771 |
|
|
| 32,816 |
|
Net cash provided by (used in) operating activities |
|
| 583,590 |
|
|
| (1,975,196 | ) |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (65,785 | ) |
|
| (8,305 | ) |
Purchase of intangible assets |
|
| (400,000 | ) |
|
| - |
|
Net cash used in investing activities |
|
| (465,785 | ) |
|
| (8,305 | ) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable |
|
| - |
|
|
| 1,930,000 |
|
Proceeds from issuance of convertible notes payable |
|
| 3,474,950 |
|
|
| - |
|
Repayment of notes payable |
|
| (470,800 | ) |
|
| - |
|
Proceeds from issuance of common stock |
|
| - |
|
|
| 150,000 |
|
Net cash provided by financing activities |
|
| 3,004,150 |
|
|
| 2,080,000 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash |
| $ | 3,121,955 |
|
| $ | 96,499 |
|
Cash - beginning of period |
|
| 96,308 |
|
|
| 252,189 |
|
Cash - end of period |
| $ | 3,218,263 |
|
| $ | 348,688 |
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | - |
|
| $ | - |
|
Cash paid for interest |
| $ | 245,136 |
|
| $ | 32,141 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Discount on notes payable from derivative liability |
| $ | 1,563,929 |
|
| $ | - |
|
Discount on convertible notes payable from derivative liability |
| $ | 2,564,950 |
|
| $ | - |
|
Shares issued for settlement of accrued interest |
| $ | 32,657 |
|
| $ | - |
|
Accrued interest settled through note payable |
| $ | 78,929 |
|
| $ | - |
|
Settlement of derivative liability |
| $ | 5,895,190 |
|
| $ | - |
|
Shares issued for intangible assets |
| $ | 250,000 |
|
| $ | - |
|
Shares issued for property and equipment |
| $ | 57,507 |
|
| $ | - |
|
Returnable shares issued in connection with notes payable |
| $ | 120 |
|
| $ | - |
|
Return of returnable shares issued in connection with notes payable |
| $ | 136 |
|
| $ | - |
|
Discount on note payable from issuance of warrants |
| $ | 1,350,982 |
|
| $ | 1,216,442 |
|
Original issuance discount on note payable |
| $ | - |
|
| $ | 135,000 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(UNAUDITED)
NOTE 1 – NATURE OF |
Frontier Oilfield Services, Inc. (“Nature of the Company”Business
On June 8, 2023, Correlate Energy Corp. (the "Company") has preparedfiled a certificate of amendment to its articles of incorporation with the consolidated financial statements included herein, without audit,Secretary of State of the State of Nevada pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessarywhich it changed its corporate name from Correlate Infrastructure Partners Inc. to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2016 (including the notes thereto) set forth in Form 10-K.Correlate Energy Corp.
Frontier Oilfield Services, Inc. a Texas corporation (and collectively with its subsidiaries, “we”, “our”, “Frontier”, “FOSI”, or the “Company”), was organized on March 24, 1995. The accompanying condensed consolidated financial statements include the accounts of the Company, and Frontier Acquisition I, Inc., and its subsidiary Chico Coffman Tank Trucks, Inc. (CTT) and its subsidiary Coffman Disposal, LLC, and Frontier Income and Growth, LLC (FIG) and its subsidiaries Trinity Disposal & Trucking,Correlate, Inc. (“Correlate”), a Delaware corporation, and Loyal Enterprises LLC and Trinity Disposal Wells, LLC.dba Solar Site Design (“Loyal”), a Tennessee limited liability company.
Frontier operatesCorrelate Energy Corp., together with its businesssubsidiaries, is a technology-enabled vertically integrated sales, development, and fulfillment platform focused on distributed clean and resilient energy solutions North America.
Loyal provided consulting services on acquisitions and project development tools to customers in the oilfield service industrycommercial solar industry. Effective November 2022, all of Loyal’s assets and is primarily involved in the disposal of saltwateroperations were transferred to Correlate and other oilfield fluids in Texas. The Company currently owns and operates nine disposal wells in Texas, six within the Barnett Shale in North Texas and three in east Texas near the Louisiana state line. The Company’s customers include national, integrated, and independent oil and gas exploration companies.Loyal was dissolved.
Going Concern
The Company’saccompanying condensed consolidated financial statements arehave been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) applicable toassuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and liquidationsatisfaction of liabilities in the normal course of business. As of the date of the financial statements, theThe Company has incurred losses since inception and has not generated lossespositive cash flows from operations, has an accumulated deficit and working capital deficiency.operations. These factorsmatters, among others, raise substantial doubt regardingabout the Company’sCompany's ability to continue as a going concern.
To continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, to increase its business volume and grow revenues, reduce its operating expenses, raise additional capital resources and develop new and stable sources of revenue sufficient to meet its operating expenses.
The Company’s ability to continue as a going concern will bein existence is dependent upon management’son its ability to successfully implement management’sdevelop additional sources of capital, and/or achieve profitable operations and positive cash flows. Management’s plans with respect to pursueoperations include aggressive marketing, acquisitions, and raising additional business volumes from new and existing customers, reduce indebtednesscapital through sales of non-performing assetsequity or debt securities as may be necessary to pursue its business plans and conversions of debt to equity,sustain operations until such time as the Company can achieve profitability. Management believes that aggressive marketing combined with acquisitions and rationalize the Company’s cost structure to achieveadditional financing as necessary will result in improved operations and cash flow in 2024 and beyond. However, there can be no assurance that management will be successful in obtaining additional funding or in attaining profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary ifresult from the outcome of this uncertainty.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
The accompanying condensed consolidated financial statements of the Company is unable to continue as a going concern. The Company’s continued existence will ultimately be dependent on its ability to generate sufficient cash flows to support its operations as well as provide sufficient resources to retire existing liabilities on a timely basis. The Company faces significant riskhave been prepared in implementing its business planaccordance with generally accepted accounting principles in the United States of America (“GAAP”) and there can be no assurance that financing for its operations and business plan will be available or, if available, such financing will be on satisfactory terms.
In May 2014, the FASB issued ASU 2014-09,Revenue from Contracts with Customers, which provides guidance on a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The effective date for this ASU, which was deferred by ASU 2015-14 issued in August 2015, is for fiscal years beginning after December 15, 2017. In March 2016, the FASB also issued ASU 2016-08, an amendment to the guidance in ASU 2014-09 which revises the structureinterim reporting rules of the indicators to provide indicatorsSecurities and Exchange Commission (“SEC”) and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report filed with the SEC on Form 10-K. In the opinion of when the entity is the principal or agent inmanagement, all adjustments, consisting of normal recurring adjustments (unless otherwise indicated), necessary for a revenue transaction, and eliminated twofair presentation of the indicators (“the entity’s consideration is in the form of a commission”financial position and “the entity is not exposed to credit risk”) in making that determination. This amendment also clarifies that each indicator may be more or less relevant to the assessment depending on the terms and conditions of the contract. In April 2016, the FASB also issued ASU 2016-10, which clarifies the implementation guidance on identifying promised goods or services and on determining whether an entity’s promise to grant a license with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments, collectively, should be applied retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. Early adoption of the guidance is not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 and the related updates to it on its financial position, results of operations and disclosures.for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
In January 2016, the FASB issued ASU 2016-01,Recognition and MeasurementPrinciples of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation, and disclosure of financial assets and liabilities. The guidance will be effective for the fiscal year beginning after December 15, 2017, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.Consolidation
In February 2016, the FASB issued ASU 2016-02,Leases,which will, among other impacts, change the criteria under which leases are identified and accounted for as on- or off-balance sheet. The guidance will be effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. Once effective, the new guidance must be applied for all periods presented. The Company is in the process of evaluating the impacts of the adoption of this ASU.
In March 2016, the FASB issued ASU 2016-09,Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment award transactions. The guidance will be effective for the fiscal year beginning after December 15, 2016, including interim periods within that year. The Company is in the process of evaluating the impacts of the adoption of this ASU.
Principles of Consolidation
Thecondensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company transactions and balances have been eliminated in consolidation.
Fair ValueUse of Financial Instruments
In accordance with the reporting requirements of ASC Topic 825,Financial Instruments, the Company calculates the fair value of its assets and liabilities, which qualify as financial instruments under this standard, and includes this additional information in the notes to the financial statements when the fair value is different from the carrying value of those financial instruments. The Company does not have any assets or liabilities measured at fair value on a recurring basis Consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value at the balance sheet dates, nor gains or losses reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held during the nine months ended September 30, 2017 and 2016, except as disclosed.
Earnings (Loss) Per Share (EPS)
Basic earnings per common share are calculated by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options and warrants. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an anti-dilutive effect on earnings per common share. Anti-dilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations. Currently there are no stock options in 2017 excluded from EPS that could potentially have a dilutive effect on EPS in the future.
The Board of Directors of the Company elected to suspend all stock based compensation in 2015 as part of the Company’s cost cutting and restructuring measures.
In April 2016, the Board of Directors of the Company approved the issuance of an aggregate of 54,000 shares of common stock to the members of the Board of Directors. The three members of the Board of Directors received 18,000 shares each.
Borrowings as of September 30, 2017 and December 31, 2016 were as follows:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Revolving credit facility and term loan (a) | $ | 747,757 | $ | 747,757 | ||||
Term note (b) | 4,330,820 | 4,330,820 | ||||||
Loans from stockholders (c) (d) | 2,870,484 | 2,870,484 | ||||||
Installment notes (e) | 11,941 | 11,941 | ||||||
Deferred loan fees (f) | (31,342 | ) | (187,888 | ) | ||||
Total debt | 7,929,660 | 7,773,114 | ||||||
Less current portion | (7,929,660 | ) | (7,773,114 | ) | ||||
Total long-term debt | $ | — | $ | — |
|
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Term Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017. In connection with the exchange, the holder of the Term Loan Agreement agreed to lower the interest rate on the Loan Agreement to 3% per annum effective July 1, 2017.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
Statements in this report, which are not purely historical facts, including statements regarding the Company’s anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Act of 1934, as amended. All forward-looking statements in this report are based upon information available to us on the date of the report. Any forward-looking statements involve risks and uncertainties that could cause actual results or events to differ materially from events or results described in the forward-looking statements. Important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from the Company’s expectations (“Cautionary Statements”), are disclosed in the Company’s annual report on Form 10-K, including, without limitation, in conjunction with the forward-looking statements under the caption “Risk Factors.” In addition, important factors that could cause actual results to differ materially from those in the forward-looking statements included herein include, but are not limited to, limited working capital, limited access to capital, changes from anticipated levels of sales and revenues changes in the oil and gas markets especially in the oil field services markets and fluids disposal business, future national or regional economic and competitive conditions, changes in relationships with customers, difficulties in developing new business in the disposal business, difficulties integrating any new businesses or products acquired, replacing the lost customer revenue, regulatory change, the ability of the Company to meet its stated business goals, the Company’s restructuring initiatives, the Company’s ability to sustain profitability, the Company’s ability to service its debt, its ability to comply with covenants contained in its financing arrangements, the current defaults existing under the Company’s senior and subordinated credit arrangements, and general economic and business conditions. Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements. We do not undertake to update any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
DESCRIPTION OF PROPERTIES
Our principal executive offices are located at 220 Travis St. Suite 501, Shreveport, Louisiana 71101.
We owned 7.055 acres at 503 W. Sherman St., Chico, Texas on which we had three buildings. These facilities served as our executive and administrative offices and headquarters for CTT operations including repair & maintenance facilities for its saltwater disposal services business. CTT has three operating wells near Chico, Texas. Two of these disposal well locations have small buildings for well monitoring and operations. We also own 7.49 acres in Harrison County, Texas on which three of our disposal wells are located, along with a small office and repair shop for the operation of these wells.
In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.
We are obligated under long-term leases for the use of land where seven of our disposal wells are located. Three of the leases are for extended periods. The first lease expires on February 7, 2023 (with two options to renew for an additional 10 years each). The second lease expires on December 1, 2034 with a one-year renewal option and the third lease expires on May 31, 2018 with no option to renew. The aggregate monthly lease payments for the disposal well leases are $11,080.
SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 3 to the audited consolidated financial statements included on Form 10-K for the year ended December 31, 2016 as filed with the United States Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about our operating results and financial condition.Estimates
The preparation of financial statements in conformity with US Generally Accepted Accounting PrinciplesGAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results maycould differ from those estimates.
7 |
Table of Contents |
RESULTS OF OPERATIONS
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. There were no cash equivalents as of September 30, 2023 and December 31, 2022.
The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”). The FDIC provides coverage of up to $250,000 per depositor, per financial institution, for the aggregate total of depositors' interest and non-interest-bearing accounts. The Company's cash balances may exceed FDIC limits. The Company has not experienced any losses on these accounts and management does not believe that the Company is exposed to any significant risks.
Intangible Assets
Intangible assets are amortized over their estimated useful lives. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Management tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
Impairment Assessment
The Company evaluates intangible assets and other long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. This includes but is not limited to significant adverse changes in business climate, market conditions or other events that indicate an asset's carrying amount may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future cash flows the asset is expected to generate. If the cash flows used in the test for recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.
The Company evaluates and tests the recoverability of its goodwill for impairment at least annually during its fourth quarter of each fiscal year or more often if and when circumstances indicate that goodwill may not be recoverable.
Revenue Recognition
The Company accounts for revenue in accordance with FASB ASC 606, "Revenue from Contracts with Customers."
A performance obligation is a promise in a contract to transfer a distinct good or service to the client and is the unit of accounting in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation based on the relative standalone selling price. Determining relative standalone selling price and identifying separate performance obligations requires judgment. Contract modifications may occur in the performance of the Company’s contracts. Contracts may be modified to account for changes in the contract specifications, requirements or duration. If a contract modification results in the addition of performance obligations priced at a standalone selling price or if the post-modification services are distinct from the services provided prior to the modification, the modification is accounted for separately. If the modified services are not distinct, they are accounted for as part of the existing contract.
The Company’s revenues are derived from contracts for engineering, procurement and construction services (“EPC”) and consulting. These contracts may have different terms based on the scope, performance obligations and complexity of the engagement, which may require us to make judgments and estimates in recognizing revenues.
8 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s performance obligations are satisfied as work progresses or at a point in time (for defined milestones). The selection of the method to measure progress towards completion requires judgment and is based on the contract and the nature of the services to be provided.
The Company’s contracts for consulting services are typically less than a year in duration and require us to a) assist the client in achieving certain defined milestones for milestone fees or b) provide a series of distinct services each period over the contract term for a pre-determined fee for each period. When contractual billings represent an amount that corresponds directly with the value provided to the client, revenues are recognized as amounts become billable in accordance with contract terms.
The Company’s contracts for EPC services are typically less than a year in duration and require us to a) provide engineering services, b) obtain materials, and c) install materials to agreed-upon specifications. The Company recognizes revenues for engineering services as the services are provided. Revenues for materials are recognized as materials are transferred to the client. Installation results in enhancements to customer-controlled assets and therefore installation revenues are recognized over time utilizing the input method wherein revenues are recognized on the basis of efforts or inputs to the satisfaction of the performance obligation.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, receivables, payables, and debt and are accounted for under the provisions of ASC Topic 825, “Financial Instruments”. The carrying amount of these financial instruments, with the exception of discounted debt, as reflected in the accompanying condensed consolidated balance sheets approximates fair value.
Fair Value Measurement
ASC Topic 820, “Fair Value Measurement”, requires that certain financial instruments be recognized at their fair values at our condensed consolidated balance sheet dates. However, other financial instruments, such as debt obligations, are not required to be recognized at their fair value, but GAAP provides an option to elect fair value accounting for these instruments. GAAP requires the disclosure of the fair values of all financial instruments, regardless of whether they are recognized at their fair values or carrying amounts in our condensed consolidated balance sheets. For financial instruments recognized at fair value, GAAP requires the disclosure of their fair values by type of instrument, along with other information, including changes in the fair values of certain financial instruments recognized in income or other comprehensive income. For financial instruments not recognized at fair value, the disclosure of their fair values is provided below under “Financial Instruments.”
Nonfinancial assets, such as property, plant and equipment, and nonfinancial liabilities are recognized at their carrying amounts in the Company’s condensed consolidated balance sheets. GAAP does not permit nonfinancial assets and liabilities to be remeasured at their fair values. However, GAAP requires the remeasurement of such assets and liabilities to their fair values upon the occurrence of certain events, such as the impairment of property, plant and equipment. In addition, if such an event occurs, GAAP requires the disclosure of the fair value of the asset or liability along with other information, including the gain or loss recognized in income in the period the remeasurement occurred.
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
9 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company did not have any Level 1 or Level 2 assets and liabilities at September 30, 2023 or December 31, 2022. The derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the nine months ended September 30, 2023:
Balance - December 31, 2022 |
| $ | 722,328 |
|
Additions |
|
| 8,280,670 |
|
Settlement |
|
| (5,895,190 | ) |
Change in fair value |
|
| (3,107,808 | ) |
Balance - September 30, 2023 |
| $ | - |
|
Under the Company’s contract ordering policy, the Company first considers common shares issued and outstanding as well as reserved but unissued equity awards, such as under an equity award program. All remaining equity linked instruments such as, but not limited to, options, warrants, and debt and equity with conversion features are evaluated based on the date of issuance. If the number of shares which may be issued under the Company’s agreements exceed the authorized number of shares or are unable to be determined, equity linked instruments from that date forward are considered to be derivative liabilities until such time as the number of shares which may be issued under the Company’s agreements no longer exceed the authorized number of shares and are able to be determined.
On November 7, 2022 and December 21, 2022, the Company issued note payable agreements (Note 4) which contained default provisions that contain a conversion feature meeting the definition of a derivative liability which therefore require bifurcation. Further, pursuant to the Company’s contract ordering policy, the warrant and convertible note issuances subsequent to November 7, 2022, resulted in derivative liabilities.
At December 31, 2022, the Company estimated the fair value of the conversion feature derivatives embedded in the notes payable and warrants based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock of $1.06; risk-free interest rates ranging from 4.41% to 4.73%; expected volatility of the Company’s common stock ranging from 164% to 379%; exercise prices of $1.00; and terms from one to two years.
During the six months ended June 30 2023, the Company repaid the November 7, 2022 and December 21, 2022 note payable agreements resulting in the reclassification of derivative liabilities totaling $546,654 to additional paid in capital on the accompanying condensed consolidated statements of stockholders’ deficit. Additionally, pursuant to the Company’s contract ordering policy, the warrant (Note 5) and convertible note (Note 4) issuances from November 7, 2022 to June 30, 2023 no longer met the definition of derivative liabilities requiring bifurcation. Accordingly, pursuant to the Company’s contract ordering policy and ASC 815-15-35-4, derivative liabilities related to the warrants and convertible notes, which were estimated to have fair values of $202,551 and $5,145,985, respectively, as of June 30, 2023, were derecognized and reclassified to additional paid in capital on the accompanying condensed consolidated statements of stockholders’ deficit.
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when management assesses that it is probable that a liability has been incurred and the amount can be reasonably estimated.
Income Taxes
In accordance with FASB ASC Topic 740, "Income Taxes," the Company provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes. If the Company has interest or penalties associated with insufficient taxes paid, such expenses are reported in income tax expense.
10 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basic and Diluted Loss Per Share
FASB ASC Topic 260, “Earnings Per Share”, requires a reconciliation of the numerator and denominator of the basic and diluted earnings (loss) per share (“EPS”) computations.
Basic earnings (loss) per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
The Company had potential additional dilutive securities outstanding at September 30, 2023 and 2022, as follows.
|
| September 30, |
|
| September 30, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Options |
|
| 7,204,068 |
|
|
| 4,184,068 |
|
Warrants |
|
| 14,474,494 |
|
|
| 3,280,000 |
|
Convertible notes payable |
|
| 1,085,922 |
|
|
| - |
|
|
|
| 22,764,484 |
|
|
| 7,464,068 |
|
Recently Issued Accounting Standards
During the period ended September 30, 2023, there were several new accounting pronouncements issued by the FASB. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s condensed consolidated financial statements.
NOTE 3 – COMMITMENTS AND CONTINGENCIES |
From time to time, the Company may be involved in litigation in the ordinary course of business. The Company is not currently involved in any litigation that the Company believes could have a material adverse effect on its financial condition or results of operations.
NOTE 4 – DEBT |
Convertible Notes Payable
From January 24, 2023 to June 6, 2023, the Company entered into fourteen 14% convertible note payable agreements with proceeds totaling $2,564,950. The convertible notes, which have identical terms, require quarterly interest payments with the principal due at maturity eighteen months from issuances and are convertible at $3.20 per share of common stock. The conversion features were valued at $461,238 and recorded as a derivative liability pursuant to the Company’s contract ordering policy (Note 1). In connection with the convertible notes, the Company issued a total of 5,129,900 warrants to purchase shares of common stock exercisable at $0.85 per share. The warrants, which were immediately vested, were valued at $4,510,387 and recorded as a derivative liability pursuant to the Company’s contract ordering policy. As a result of the derivative liabilities from the conversion features and warrants, and pursuant to ASC 815-15-30, the Company recorded debt discounts totaling $2,564,950, which were limited to the net proceeds from the convertible notes, with the remaining $2,406,675 recognized as financing costs on the accompanying condensed consolidated statements of operations.
Included in the fourteen convertible notes payable is a 14% convertible note payable agreement with proceeds totaling $100,000 with the Company’s CEO issued on January 24, 2023. The convertible note requires quarterly interest payments with the principal due at maturity eighteen months from issuance and is convertible at $3.20 per share of common stock. The conversion feature was valued at $22,569 and recorded as a derivative liability pursuant to the Company’s contract ordering policy (Note 1). In connection with the convertible note, the Company issued 200,000 warrants to purchase shares of common stock exercisable at $0.85 per share. The warrants, which were immediately vested, were valued at $209,180 and recorded as a derivative liability pursuant to the Company’s contract ordering policy. As a result of the derivative liabilities from the conversion features and warrants, and pursuant to ASC 815-15-30, the Company recorded a debt discount totaling $100,000, which were limited to the net proceeds from the convertible notes, with the remaining $131,749 recognized as financing costs on the accompanying condensed consolidated statements of operations.
11 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
From June 30, 2023 to August 31, 2023, the Company entered into seven 14% convertible note payable agreements with proceeds totaling $910,000. The convertible notes, which have identical terms, require quarterly interest payments with the principal due at maturity eighteen months from issuance and are convertible at $3.20 per share of common stock. In connection with the note agreements, the Company issued a total of 1,820,000 warrants exercisable at $0.85 per share which expire two years from issuance. The warrants, which were immediately vested, were valued at $1,160,925 and resulted in additional discount on the notes totaling $508,607 pursuant to ASC 470-20-30, “Debt”.
The following table presents a summary of the Company’s convertible notes payable at September 30, 2023:
|
|
|
|
|
|
| Conversion |
| Balances - At Issuance |
|
| Balances - 9/30/2023 |
| |||||||||||
Origination |
| Maturity |
| Interest |
|
| Rate |
| Principal |
|
| Discount |
|
| Principal |
|
| Discount |
| |||||
1/24/2023 |
| 7/24/2024 |
|
| 14 | % |
| $3.20/Share |
| $ | 100,000 |
|
| $ | 100,000 |
|
| $ | 100,000 |
|
| $ | 54,552 |
|
1/25/2023 |
| 7/25/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 74,975 |
|
|
| 74,975 |
|
|
| 74,975 |
|
|
| 41,155 |
|
1/30/2023 |
| 7/30/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 100,000 |
|
|
| 55,552 |
|
2/17/2023 |
| 8/17/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 1,000,000 |
|
|
| 1,000,000 |
|
|
| 1,000,000 |
|
|
| 583,330 |
|
3/7/2023 |
| 9/7/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 100,000 |
|
|
| 62,664 |
|
3/14/2023 |
| 9/10/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 250,000 |
|
|
| 250,000 |
|
|
| 250,000 |
|
|
| 159,666 |
|
3/27/2023 |
| 9/27/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 100,000 |
|
|
| 66,164 |
|
3/30/2023 |
| 9/30/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 79,975 |
|
|
| 79,975 |
|
|
| 79,975 |
|
|
| 53,316 |
|
4/6/2023 |
| 10/6/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| 33,332 |
|
4/7/2023 |
| 10/7/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 400,000 |
|
|
| 400,000 |
|
|
| 400,000 |
|
|
| 266,668 |
|
5/5/2023 |
| 11/5/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 200,000 |
|
|
| 200,000 |
|
|
| 200,000 |
|
|
| 144,445 |
|
5/9/2023 |
| 11/9/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| 37,388 |
|
5/12/2023 |
| 11/12/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
|
| 37,388 |
|
6/6/2023 |
| 12/6/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 10,000 |
|
|
| 10,000 |
|
|
| 10,000 |
|
|
| 7,776 |
|
6/30/2023 |
| 12/30/2024 |
|
| 14 | % |
| $3.20/Share |
|
| 50,000 |
|
|
| 28,334 |
|
|
| 50,000 |
|
|
| 23,612 |
|
7/7/2023 |
| 1/7/2025 |
|
| 14 | % |
| $3.20/Share |
|
| 25,000 |
|
|
| 14,775 |
|
|
| 25,000 |
|
|
| 12,315 |
|
7/21/2023 |
| 1/21/2025 |
|
| 14 | % |
| $3.20/Share |
|
| 35,000 |
|
|
| 20,103 |
|
|
| 35,000 |
|
|
| 17,319 |
|
7/26/2023 |
| 1/26/2025 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 56,527 |
|
|
| 100,000 |
|
|
| 49,747 |
|
8/10/2023 |
| 2/10/2025 |
|
| 14 | % |
| $3.20/Share |
|
| 500,000 |
|
|
| 268,545 |
|
|
| 500,000 |
|
|
| 243,625 |
|
8/24/2023 |
| 2/24/2023 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 60,313 |
|
|
| 100,000 |
|
|
| 56,412 |
|
8/31/2023 |
| 2/28/2025 |
|
| 14 | % |
| $3.20/Share |
|
| 100,000 |
|
|
| 60,010 |
|
|
| 100,000 |
|
|
| 56,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,474,950 |
|
| $ | 2,063,102 |
|
Notes Payable
On May 29, 2020, Loyal received a $20,400 Economic Injury Disaster Loan through the Small Business Administration. The note bears interest at 3.75% until maturity in March 2050. The note requires $100 monthly payments beginning in May 2022 until maturity.
On January 11, 2022, the Company entered into a 10% note agreement with P&C Ventures, Inc. totaling $1,485,000, including an original issuance discount of $135,000. The note requires quarterly interest payments with the principal due at maturity on January 11, 2023.
On January 11, 2023, the Company and P&C Ventures, Inc. agreed to amend the January 11, 2022, note payable. The Company accounted for the amendment as an extinguishment of existing debt and issuance of new debt pursuant to ASC 470-50-40. As part of the agreement, $78,929 in accrued and unpaid interest was added to the principal balance, bringing the total principal balance of the note payable to $1,563,929. Additionally, the interest rate and maturity date were amended to 14% and October 11, 2023, respectively. In connection with the amendment, the Company issued P&C Ventures, Inc. 3,127,858 warrants to purchase shares of common stock exercisable at $0.85 per share. The warrants, which were immediately vested, were valued at $3,309,045 and recorded as a derivative liability pursuant to the Company’s contract ordering policy (Note 1). As a result of the derivative liability from the warrants, and pursuant to ASC 815-15-30, the Company recorded a debt discount totaling $1,563,929, which was limited to the net proceeds from the note, with the remaining $1,745,116 recognized as financing costs on the accompanying condensed consolidated statements of operations. On July 10, 2023, the Company and P&C Ventures, Inc. agreed to extend the maturity of the note payable, which had an outstanding principal balance of $1,563,929, from October 11, 2023 to December 11, 2023. The Company accounted for the amendment as an extinguishment of existing debt and issuance of new debt pursuant to ASC 470-50-40. In connection with the amendment, the Company agreed to extend the exercise date of 2,700,000 warrants to purchase shares of common stock exercisable at $0.25 per share from July 11, 2023 to December 11, 2023. The extension of the warrants, which were revalued at $1,825,800, resulted in a discount on the note totaling $842,375 pursuant to ASC 470-20-30.
12 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table presents a summary of the Company’s notes payable at September 30, 2023:
|
|
|
|
|
|
| Balances - At Issuance |
|
| Balances - 9/30/2023 |
| |||||||||||
Origination |
| Maturity |
| Interest |
|
| Principal |
|
| Discount |
|
| Principal |
|
| Discount |
| |||||
5/29/2020 |
| 3/31/2050 |
|
| 4 | % |
| $ | 20,400 |
|
| $ | - |
|
| $ | 20,400 |
|
| $ | - |
|
7/29/2022 |
| 1/29/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,664 |
|
|
| 50,000 |
|
|
| 6,592 |
|
8/11/2022 |
| 2/11/2024 |
|
| 10 | % |
|
| 150,000 |
|
|
| 88,247 |
|
|
| 150,000 |
|
|
| 22,058 |
|
8/15/2022 |
| 2/15/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,513 |
|
|
| 50,000 |
|
|
| 7,373 |
|
8/31/2022 |
| 2/28/2024 |
|
| 10 | % |
|
| 80,000 |
|
|
| 45,827 |
|
|
| 80,000 |
|
|
| 12,729 |
|
9/1/2022 |
| 3/1/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,922 |
|
|
| 50,000 |
|
|
| 8,316 |
|
9/7/2022 |
| 3/7/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,922 |
|
|
| 50,000 |
|
|
| 8,316 |
|
9/12/2022 |
| 3/12/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 30,316 |
|
|
| 50,000 |
|
|
| 9,266 |
|
9/29/2022 |
| 3/29/2024 |
|
| 10 | % |
|
| 100,000 |
|
|
| 59,839 |
|
|
| 100,000 |
|
|
| 19,947 |
|
11/9/2022 |
| 5/9/2024 |
|
| 10 | % |
|
| 25,000 |
|
|
| 25,000 |
|
|
| 25,000 |
|
|
| 10,416 |
|
11/15/2022 |
| 5/15/2024 |
|
| 10 | % |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 100,000 |
|
|
| 41,663 |
|
7/10/2023 |
| 12/11/2023 |
|
| 14 | % |
|
| 1,563,929 |
|
|
| 1,563,929 |
|
|
| 1,563,929 |
|
|
| 393,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,289,329 |
|
| $ | 539,784 |
|
The following table presents a summary of the Company’s notes payable at December 31, 2022:
|
|
|
|
|
|
| Balances - At Issuance |
|
| Balances - 12/31/2022 |
| |||||||||||
Origination |
| Maturity |
| Interest |
|
| Principal |
|
| Discount |
|
| Principal |
|
| Discount |
| |||||
5/29/2020 |
| 3/31/2050 |
|
| 4 | % |
| $ | 20,400 |
|
| $ | - |
|
| $ | 20,400 |
|
| $ | - |
|
1/11/2022 |
| 1/11/2023 |
|
| 10 | % |
|
| 1,350,000 |
|
|
| 934,128 |
|
|
| 1,485,000 |
|
|
| 38,922 |
|
7/29/2022 |
| 1/29/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,664 |
|
|
| 50,000 |
|
|
| 21,424 |
|
8/11/2022 |
| 2/11/2024 |
|
| 10 | % |
|
| 150,000 |
|
|
| 88,247 |
|
|
| 150,000 |
|
|
| 66,185 |
|
8/15/2022 |
| 2/15/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,513 |
|
|
| 50,000 |
|
|
| 22,133 |
|
8/31/2022 |
| 2/28/2024 |
|
| 10 | % |
|
| 80,000 |
|
|
| 45,827 |
|
|
| 80,000 |
|
|
| 35,643 |
|
9/1/2022 |
| 3/1/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,922 |
|
|
| 50,000 |
|
|
| 23,274 |
|
9/7/2022 |
| 3/7/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 29,922 |
|
|
| 50,000 |
|
|
| 23,274 |
|
9/12/2022 |
| 3/12/2024 |
|
| 10 | % |
|
| 50,000 |
|
|
| 30,316 |
|
|
| 50,000 |
|
|
| 24,422 |
|
9/29/2022 |
| 3/29/2024 |
|
| 10 | % |
|
| 100,000 |
|
|
| 59,839 |
|
|
| 100,000 |
|
|
| 49,866 |
|
11/7/2022 |
| 11/7/2023 |
|
| 7 | % |
|
| 200,000 |
|
|
| 220,000 |
|
|
| 235,400 |
|
|
| 192,499 |
|
11/9/2022 |
| 5/9/2024 |
|
| 10 | % |
|
| 25,000 |
|
|
| 25,000 |
|
|
| 25,000 |
|
|
| 22,917 |
|
11/15/2022 |
| 5/15/2024 |
|
| 10 | % |
|
| 100,000 |
|
|
| 100,000 |
|
|
| 100,000 |
|
|
| 91,667 |
|
12/21/2022 |
| 12/21/2023 |
|
| 7 | % |
|
| 200,000 |
|
|
| 220,000 |
|
|
| 235,400 |
|
|
| 210,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 2,681,200 |
|
| $ | 823,059 |
|
Line of Credit
On October 3, 2014, the Company entered into a $30,000 line of credit agreement with a former member of Loyal. The line of credit has no maturity with interest at 8.00%. As of September 30, 2023 and December 31, 2022, the outstanding principal and accrued interest totaled $31,408 and $42,130, respectively.
13 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Future Maturities
The table below summarizes future maturities of the Company’s debt as of September 30, 2023:
December 31, |
| Amount |
| |
2023 |
| $ | 1,593,929 |
|
2024 |
|
| 3,319,950 |
|
2025 |
|
| 860,000 |
|
2026 |
|
| - |
|
2027 |
|
| - |
|
Thereafter |
|
| 20,400 |
|
|
|
| 5,794,279 |
|
Less - Discounts |
|
| (2,602,886 | ) |
|
| $ | 3,191,393 |
|
NOTE 5 – EQUITY |
Common Stock
During January 2023, the Company issued 4,245 shares of common stock valued at $4,500 for financing costs.
During January 2023, the Company paid $7,589 in accrued interest due to four noteholders by issuing 5,655 shares of common stock.
During March 2023, the Company issued 17,045 shares of common stock valued at $15,000 for services.
During April 2023, the Company entered into a consulting agreement. Pursuant to the consulting agreement, the Company issued 500,000 shares of common stock valued at $425,000. 125,000 shares vested immediately, with the remaining 375,000 shares vested over 24 months.
During April 2023, the Company paid $6,995 in accrued interest due to four noteholders by issuing 7,661 shares of common stock. Included in these shares were 1,350 shares issued to the wife of the Company’s CEO and 2,815 shares issued to the Company’s CEO.
In connection with a repayment plan created for the November 7, 2022 and December 21, 2022 notes payable (Note 4), the Company issued 1,200,000 shares of returnable common stock as security. On June 30, 2023, the notes were paid in full and 1,360,000 returnable shares were returned to the Company and retired.
During April 2023, the Company issued 92,010 shares of common stock valued at $57,507 in connection with the purchase of software.
During June 2023, the Company issued 362,319 shares of common stock valued at $250,000 in connection with a settlement agreement wherein the Company acquired development rights.
During July 2023, the Company paid $18,537 in accrued interest due to eight noteholders by issuing 28,896 shares of common stock. Included in these shares were 1,943 shares issued to the wife of the Company’s CEO and 5,441 shares issued to the Company’s CEO.
14 |
Table of Contents |
CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Warrants
During the period ended September 30, 2023, the Company calculated the fair value of the warrants granted based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance; risk-free interest rates ranging from 3.66% to 5.00%; volatility ranging from 195% to 346% based on the historical volatility of the Company’s common stock; exercise prices ranging from $0.70 to $0.85; and terms of 24 to 60 months.
On January 11, 2023, the Company issued 3,127,858 warrants valued at $3,309,000 as part of a note agreement amendment (Note 4).
From January 24, 2023 to August 31, 2023, the Company issued warrants to purchase 6,949,900 shares of common stock valued at approximately $5,671,000 as part of note agreements (Note 4). Included in these warrants is a warrant to purchase 200,000 shares of common stock which was issued to the Company’s CEO.
During April 2023, the Company issued 58,496 warrants to purchase shares of common stock exercisable at $0.85 per share for two years. The warrants, which were immediately vested, were valued at $47,858.
During July 2023, the Company issued 58,240 warrants to purchase shares of common stock exercisable at $0.70 per share for two years. The warrants, which were immediately vested, were valued at $35,952.
During August 2023, the Company issued 500,000 warrants to purchase shares of common stock exercisable at $0.70 per share for five years. The warrants, which vest over 24 months, were valued at $329,434.
The table below summarizes the Company’s warrants for the period ended September 30, 2023:
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (in years) |
| |||
Warrants as of December 31, 2022 |
|
| 3,780,000 |
|
| $ | 0.48 |
|
|
| 0.87 |
|
Issued |
|
| 10,694,494 |
|
| $ | 0.84 |
|
|
| 3.02 |
|
Exercised |
|
| - |
|
| $ | - |
|
|
| - |
|
Warrants as of September 30, 2023 |
|
| 14,474,494 |
|
| $ | 0.75 |
|
|
| 1.96 |
|
Options
During the period ended September 30, 2023, the Company calculated the fair value of the options granted based on assumptions used in the Cox-Ross-Rubinstein binomial pricing model using the following inputs: the price of the Company’s common stock on the date of issuance; risk-free interest rates ranging from 3.39% to 4.29%; volatility ranging from 277% to 281% based on the historical volatility of the Company’s common stock; exercise prices ranging from $0.54 to $0.99; and terms of 5 years. The fair value of options granted is expensed as vesting occurs over the applicable service periods.
During September 2023, the Company’s Stockholders approved an amendment of the 2021 Equity Incentive Plan to increase the numbers of issuable shares from 5,000,000 to 10,000,000
From March 1, 2023 to September 1, 2023, the Company issued 1,920,000 options to purchase shares of common stock exercisable at prices ranging from $0.54 to $0.99 per share. The options, which vest over 12 to 36 months, were valued at $1,549,018.
Included in the 1,920,000 options issued above were 250,000 options to purchase shares of common stock exercisable at $0.77 per share for five years which were issued to the Company’s former CFO for ongoing consulting services.
The following table summarizes the Company’s options for the period ended September 30, 2023:
|
| Number of Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Life (in years) |
| |||
Options as of December 31, 2022 |
|
| 5,284,068 |
|
| $ | 0.80 |
|
|
| 4.17 |
|
Issued |
|
| 1,920,000 |
|
| $ | 0.83 |
|
|
| 5.00 |
|
Exercised |
|
| - |
|
| $ | - |
|
|
| - |
|
Options as of September 30, 2023 |
|
| 7,204,068 |
|
| $ | 0.81 |
|
|
| 3.76 |
|
At September 30, 2023, options to purchase 3,617,041 shares of common stock were vested and options to purchase 3,587,027 shares of common stock remained unvested. The Company expects to incur expenses for the unvested options totaling $2,602,630 as they vest.
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CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – RELATED PARTY TRANSACTIONS |
Shareholder Advances and Payables
At September 30, 2023 and December 31, 2022, the Company had advances payable of $22,154, respectively, due to the Company’s President and CEO, Mr. Todd Michaels. Mr. Michaels is also a member of the Company’s Board of Directors and holds approximately 10% of the Company’s common stock.
At September 30, 2023 and December 31, 2022, the Company had advances payable of $11,865, respectively, due to an individual who holds less than 5% of the Company’s common stock.
At September 30, 2023 and December 31, 2022, the Company had advances payable of $62,500 due to an individual who is the Company’s largest shareholder.
At September 30, 2023 and December 31, 2022, the Company had accounts payable of $258,000 and $256,000, respectively, due to Elysian Fields Disposal, LLC, an entity owned by the Company’s largest shareholder. The Company incurred $3,000 of operating expenses with the entity during the period ended September 30, 2023.
At September 30, 2023 and December 31, 2022, the Company had accounts payable of $78,346 and $73,000, respectively, due to Loutex Production Company, an entity owned by the Company’s largest shareholder. The Company incurred $4,900 of operating expenses with the entity during the period ended September 30, 2023.
At September 30, 2023, the Company had accounts payable of $70,000 due to P&C Ventures, Inc. The Company incurred $160,000 of operating expenses with P&C Ventures Inc. during the period ended September 30, 2023. Mr. Cory Hunt, who was named a director of the Company on December 28, 2021, is an officer of P&C Ventures, Inc.
Michaels Consulting
At September 30, 2023 and December 31, 2022, the Company had accounts payable of $344,000, respectively, due to Michaels Consulting, an entity owned by the wife of Mr. Michaels.
Notes Payable
During January 2023, the Company amended the January 2022 note agreement with P&C Ventures, Inc. and issued warrants related to the amendment, as disclosed in Note 4. During July 2023, the Company amended the January 2023 agreement and modified warrants related to the original note, as disclosed in Note 4.
Convertible Notes Payable
During January 2023, the Company entered into a convertible note agreement with Mr. Michaels totaling $100,000 and issued 200,000 warrants, valued at approximately $209,000, related to the note, as disclosed in Note 4.
Accrued Bonus
At September 30, 2023, the Company accrued bonus compensation for its CEO and former CFO of approximately $150,000 and $115,000, respectively. The accrued bonus compensation was unchanged from December 31, 2022.
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CORRELATE ENERGY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – INTANGIBLE ASSETS |
The Company’s intangible assets as of September 30, 2023 are summarized as follows:
|
|
|
|
| Accumulated |
|
|
| ||||||
Type |
| Useful Life |
| Amount |
|
| Amortization |
|
| Net |
| |||
Development rights |
| 2-3 years |
| $ | 769,383 |
|
| $ | 101,318 |
|
| $ | 668,065 |
|
Customer relationships |
| 5 years |
|
| 233,800 |
|
|
| 81,830 |
|
|
| 151,970 |
|
Developed technology |
| 2 years |
|
| 27,750 |
|
|
| 24,290 |
|
|
| 3,460 |
|
|
|
|
| $ | 1,030,933 |
|
| $ | 207,438 |
|
| $ | 823,495 |
|
The Company’s intangible assets as of December 31, 2022 are summarized as follows:
|
|
|
|
| Accumulated |
|
|
| ||||||
Type |
| Useful Life |
| Amount |
|
| Amortization |
|
| Net |
| |||
Development rights |
| 2-3 years |
| $ | 119,383 |
|
| $ | 6,639 |
|
| $ | 112,744 |
|
Customer relationships |
| 5 years |
|
| 233,800 |
|
|
| 46,760 |
|
|
| 187,040 |
|
Developed technology |
| 2 years |
|
| 27,750 |
|
|
| 13,880 |
|
|
| 13,870 |
|
|
|
|
| $ | 380,933 |
|
| $ | 67,279 |
|
| $ | 313,654 |
|
Future amortization of the Company’s intangible assets as of September 30, 2023 are as follows:
December 31, |
| Amount |
| |
2023 |
| $ | 83,431 |
|
2024 |
|
| 319,884 |
|
2025 |
|
| 286,852 |
|
2026 |
|
| 133,328 |
|
|
| $ | 823,495 |
|
NOTE 8 – SUBSEQUENT EVENTS |
The Company has evaluated subsequent events through the date these condensed consolidated financial statements were available to be issued and has determined that the following subsequent events require disclosure.
During October 2023, the Company issued 33,911 shares of common stock for payment of accrued interest on notes payable at September 30, 2023.
During October 2023, the Company issued 72,329 warrants to purchase shares of common stock exercisable at $0.85 per share for five years.
During October 2023, the Company issued 250,000 options to each of the non-executive members of the board of directors – Matthew Flemming, Cory Hunt, Bob Powell, and Eli Albrecht. The options exercisable at $0.86 per share for five years.
On October 10, 2023, the Company entered into a 14% convertible note payable agreement with proceeds totaling $375,000. The convertible note requires quarterly interest payments with the principal due at maturity eighteen months from issuance and is convertible at $3.20 per share of common stock. In connection with the note agreements, the Company issued a total of 750,000 warrants exercisable at $0.85 per share for two years.
From October 10, 2023 to November 7, 2023, the Company entered into four 14% convertible note payable agreements with proceeds totaling $625,000. The convertible notes, which have identical terms, require quarterly interest payments with the principal due at maturity eighteen months from issuance and are convertible at $3.20 per share of common stock. In connection with the note agreements, the Company issued a total of 1,250,000 warrants exercisable at $0.85 per share which expire two years from issuance. The warrants, which were immediately vested, were valued at $1,558,376 and resulted in additional discount on the notes totaling $439,295 pursuant to ASC 470-20-30.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contain forward looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forwarding looking statements as a result of certain factors, including but not limited to, those which are not within our control.
The following discussion and analysis of the results of financial condition and results of operations for the three and nine months ended September 30, 2023 and September 30, 2022 should be read in conjunction with our condensed consolidated financial statements, and the notes to those condensed consolidated financial statements that are included elsewhere in this prospectus.
Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue,” and the negatives thereof or similar expressions to identify forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
Overview
Correlate Energy Corp. (OTCQB: CIPI), formerly Correlate Infrastructure Partners Inc., through its main operating subsidiary, Correlate Inc., offers a complete suite of proprietary clean energy assessment and fulfilment solutions for the commercial real estate industry. The Company believes scaling distributed clean energy solutions is critical in mitigating the effects of climate change. We believe that we are at the forefront in creating an industry-leading energy solution and financing platform for the commercial and industrial sector. The Company sees tremendous market opportunity in reducing site-specific energy consumption and deploying clean energy generation and energy efficiency solutions at scale.
Recently Issued Accounting Pronouncements
During the year ended December 31, 2022, and through September 30, 2023, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s condensed consolidated financial statements.
All other new accounting pronouncements issued but not yet effective or adopted have been deemed not to be relevant to us, hence are not expected to have any impact once adopted.
Summary of Significant Accounting Policies
There have been no changes from the Summary of Significant Accounting Policies described in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023.
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Liquidity and Capital Resources
At September 30, 2023, the Company had a cash balance of $3,218,263, as compared to a cash balance of $96,308 at December 31, 2022. The Company incurred positive cash flow from operations of $583,590 for the nine months ended September 30, 2023, as compared to negative cash flow from operations of $1,975,196 in the comparable prior year period. The increase in cash flow from operations was primarily the result of increased revenues and contract assets during the current period. Cash used in investing activities during the nine months ended September 30, 2023 totaled $465,785 and were the result of the purchase of property and equipment and intangible assets. Cash flows from financing activities during the nine months ended September 30, 2023, totaled $3,004,150 and were the result of $3,474,950 in proceeds from loan agreements and $470,800 in repayments of loan agreements. Going forward, the Company expects capital expenditures to increase significantly as operations are expanded pursuant to its current growth plans. The Company anticipates the requirement to raise significant debt or equity capital in order to fund future operations.
Our ability to successfully execute our business plan is contingent upon us obtaining additional financing and/or upon realizing revenues sufficient to fund our ongoing expenses. Until we are able to sustain our ongoing operations through revenues, we intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.
The Company expects to raise significant debt or equity capital in order to fund expanding operations in the near future.
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
For the three months ended September 30, 2023 and 2022, the Company’s revenues totaled $930,277 and $2,312,577, respectively. The decrease in revenues for the three months ended September 30, 2023, is primarily driven by the timing of contracted revenue recognized for engineering, procurement and construction services (“EPC”) and consulting. We anticipate the Company’s revenues in upcoming quarters to grow as revenues are recognized from projects in progress and in the pipeline. Gross profit for the three months ended September 30, 2023, totaled $232,021 compared to $143,439 in the comparable prior year period. We anticipate future gross margins to increase from the current level as we commercialize new project opportunities and cover more fixed costs within cost of sales and expand our margins.
For the three months ended September 30, 2023, our operating expenses decreased to $1,820,560 compared to $2,429,478 for the comparable period in 2022. The decrease of $608,918, or 25%, was primarily driven by a decrease in compensation expenses, including stock-based compensation. Compensation expenses for the three months ended September 30, 2023 included approximately $533,000 and $459,000 in salaries and wages and the non-cash expenses of stock-based compensation, respectively, compared to approximately $735,000 and $1,307,000, respectively, in the prior period. We anticipate future operating expenses to increase with the expansion of operations, resulting in increased expenses related to wages and compensation, advertising, and insurance partially offset by added contribution margins from anticipated revenue growth.
For the three months ended September 30, 2023, other expenses totaled $1,795,178, compared to $300,878 in the comparable prior year period. This increase in other expenses was primarily driven by $1,611,905 and $183,273 in amortization of debt discount and interest expense, respectively, incurred during the period ended September 30, 2023 compared to $257,497 and $43,381, respectively, during the prior year period. We anticipate our other expenses to remain elevated as the Company incurs interest from debt and related financing costs to expand its operations.
The activities above resulted in net losses of $3,383,717 and $2,586,917 for the three months ended September 30, 2023 and 2022, respectively.
Comparison of the Nine Months Ended September 30, 2023 and 2022
For the nine months ended September 30, 2017, we reported2023 and 2022, the Company’s revenues totaled $5,139,133 and $2,617,675, respectively. The increase in revenues is primarily driven from a net losshigher volume of $1,165,513 as compared to a net loss of $1,380,302contracts for engineering, procurement and construction services (“EPC”) and consulting for the nine months ended September 30, 2016. The components of these results2023. We anticipate the Company’s revenues in upcoming quarters to continue to grow as revenues are explained below.
Revenue - Total revenue decreased by $118,443 or 11.7%recognized from $1,004,162projects in progress and in the pipeline. Gross profit for the nine months ended September 30, 20162023, totaled $1,311,704 compared to $885,719 for$185,477 in the comparable prior year period. We anticipate future gross margins to increase from the current level as we commercialize new project opportunities and cover more fixed costs within cost of sales and expand our margins.
For the nine months ended September 30, 2017.2023, our operating expenses decreased to $4,489,070 compared to $4,647,800 for the comparable period in 2022. The decrease of $158,730, or 3%, was due to the termination of the provisioning of transportation services in late 2016 and lower total volumes disposed in the disposal business.
Expenses -The components of ourprimarily driven by increased travel costs and compensation expenses associated with added strategic management and staff offset by a decrease in legal and professional fees and stock based compensation. Compensation expenses for the nine months ended September 30, 20172023 included approximately $1,532,000 and 2016 are as follows:$1,043,000 in salaries and wages and the non-cash expenses of stock-based compensation, respectively, compared to approximately $1,341,000 and $1,637,000, respectively, in the prior period. We anticipate future operating expenses to increase with the expansion of operations, resulting in increased expenses related to wages and compensation, advertising, and insurance partially offset by added contribution margins from anticipated revenue growth.
For the Nine Months Ended | % | |||||||||||
September 30, | September 30, | Increase | ||||||||||
2017 | 2016 | (Decrease) | ||||||||||
Costs and expenses: | ||||||||||||
Operating costs | $ | 678,814 | $ | 862,460 | -21 | % | ||||||
General and administrative | 302,875 | 431,396 | -30 | % | ||||||||
Depreciation and amortization | 345,965 | 345,965 | 0 | % | ||||||||
Total cost and expenses | $ | 1,327,654 | $ | 1,639,821 | -19 | % |
For the nine months ended September 30, 2023, other expenses totaled $5,186,041, compared to $799,384 in the comparable prior year period. This increase in other expenses was primarily driven by financing costs totaling $4,156,291 which were the result of derivative liabilities, and $3,700,034 in amortization of debt discount incurred during the period ended September 30, 2023 compared to $685,639 during the prior year period. The expenses during the period ended September 30, 2023 were partially offset by a $3,107,808 decrease in the fair value of derivative liabilities. We anticipate our other expenses to remain elevated as the Company incurs interest from debt and related financing costs to expand its operations.
The decreaseactivities above resulted in the volumesnet losses of saltwater$8,363,407 and other fluids transported and disposed of necessitated a decrease in operating expenses$5,261,707 for the nine months ended September 30, 2017. The decrease in operating costs is due to lower volumes disposed. This resulted in the reduction of the number of employees2023 and the related salaries, wages and benefits as well as the elimination of costs for repairs and maintenance for the disposal wells.
The decrease in general and administrative costs for the nine months ended September 30, 2017, is the result of an overall reduction of administrative costs, especially legal fees, insurance costs and utilities resulting from lower disposal volumes.
Interest Expenses - Interest expense for the nine months ended September 30, 2017 was $723,578. Interest expense was $842,658 for the nine months ended September 30, 2016.
Operating results for the nine months ended September 30, 2017 and 2016 reflect a net loss of $1,165,513 and $1,380,302 respectively. We have not recorded any federal income taxes for the nine months ended September 30 2017 and 2016 because of our accumulated losses and our substantial net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Liquidity
As of September 30, 2017, we had total current assets of approximately $117,000. Our total current liabilities as of September 30, 2017 were $11.1 million, including $7.9 million of debt classified as current liabilities. We had a working capital deficit of $11.0 million and $12.1 million as of September 30, 2017 and December 31, 2016,2022, respectively.
Management is focused on working closely with our current lenders to fund operations through current cash flows, and pay interest costs when excess cash becomes available. Management plans to work with our current lenders and debt holders to lower our cost of borrowing by renegotiating the terms of our existing debt and potentially offering debt holders an opportunity to exchange their debt for equity in the Company. Management will seek additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.Off Balance Sheet Arrangements
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Term Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017.We do not have any off-balance sheet arrangements.
Our ability to obtain access to additional capital through third parties or other debt or equity financing arrangements is strictly contingent upon our ability to locate adequate financing or equity investments on commercially reasonable terms. There can be no assurance that we will be able to obtain such financing on acceptable terms.Item 3. Qualitative and Quantitative Disclosures about Market Risk.
The following table summarizes our sourcesWe are a smaller reporting company and, uses of cash for the nine months ended September 30, 2017 and 2016:
For the Nine Months Ended | ||||||||
September 30, 2017 | September 30, 2016 | |||||||
Net cash used in operating activities | $ | (118,759 | ) | $ | (205,155 | ) | ||
Net cash provided by investing activities | 102,777 | 293,461 | ||||||
Net cash used in financing activities | — | (104,230 | ) | |||||
Net decrease in cash | $ | (15,982 | ) | $ | (15,924 | ) |
As of September 30, 2017,therefore, we had approximately $4,300 in cash, a decrease of approximately $16,000 from December 31, 2016 dueare not required to cash used in operating activities.provide information required by this item.
Net cash used in operating activities was approximately $119,000 for the nine months ended September 30, 2017 due to the operating loss. Net cash used by operating activities was approximately $205,000 for the nine months ended September 30, 2016, due to the larger net loss.Item 4. Controls and Procedures.
Net cash provided by investing activities was approximately $103,000 for the nine months ended September 30, 2017 due to repaymentEvaluation of an advance from an entity owned by one of the principal shareholders of the Company. The cash advance is in an investment account of the entity and is due on demand to the Company at any time. Net cash provided by investing activities was approximately $293,000 for the nine months ended September 30, 2016 due to a repayment of the advance to the shareholder of approximately $216,000 and proceeds from the disposition of a certificate of deposit for $77,000.
Net cash used in financing activities was $0 for the nine months ended September 30, 2017. Net cash used in financing activities was approximately $104,000 for the nine months ended September 30, 2016, which consisted of debt repayments.
Capital Expenditures
The Company suspended capital expenditures during the nine months ended September 30, 2017 due to the lower volumes disposed. The Company does not currently anticipate any major capital expenditures for the remainder of 2017. The Company made the decision to no longer provide transportation services to our customers, which led to significant disposal activities on our transportation equipment in 2015.
Indebtedness
On June 30, 2017, an affiliate of an accredited investor who is also a principal stockholder agreed to exchange approximately $2.0 million in accounts payable and accrued liabilities for 2,013,546 shares of common stock of the Company. The Board approved the exchange and issuance of the shares on June 30, 2017. The liabilities exchanged for common stock included the affiliates full interest in the accrued interest payable to the stockholder associated with the Term Loan Agreement and the Senior Loan Facility. The 2,013,546 shares of common stock were issued on August 31, 2017. In connection with the exchange, the holder of the Term Loan Agreement agreed to lower the interest rate on the Loan Agreement to 3% per annum effective July 1, 2017.
The Company and its subsidiaries entered a Term Loan, Guaranty and Security Agreement (the “Loan Agreement”) on July 23, 2012 with ICON for $5 million. The Loan Agreement has a senior secured position in the Company’s disposal wells and a subordinated position to the Senior Loan Facility on all other Company properties and assets. The covenants in the Loan Agreement are, in all material respects, the same as in the Senior Loan Facility. The Loan Agreement is held by an affiliate of an accredited investor who is also a stockholder. As of September 30, 2017, the Company did not comply with its debt covenants under the Loan Agreement and the lender had not exercised their rights under the Loan Agreement. The outstanding balance of the Loan Agreement note is included in current liabilities at September 30, 2017 and December 31, 2016 because the Company did not comply with its debt covenants.
In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.
Outlook
Management may seek to acquire other profitable oilfield service companies to broaden the Company’s customer base and capabilities. Management believes that certain acquisitions could be achieved through the issuance of the company’s equity securities or through other financings. Management may need to incur additional financing in those instances in which we believe such additional financings will assist in accomplishing our goals. There can be no assurance that management’s plan will succeed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Procedures: Our management evaluated, with the participationcarried out an evaluation of our Chief Executive Officer (CEO) and Chief Accounting Officer (CAO), the effectiveness of theand design and operation of our disclosure controls and procedures (asas defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the quarter covered by this quarterly report on Form 10-Q. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated FrameworkExchange Act). Based on that evaluation, the Company’s management, including the CEO,our Chief Executive Officer and Interim Chief Financial Officer has concluded that, the Company’s internalat September 30, 2023, such disclosure controls over financial reportingand procedures were not effective in that there was a material weakness as of September 30, 2016.effective.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, suchDisclosure controls and procedures are controls and other procedures that there is a reasonable possibilityare designed to ensure that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
The Company’s management has identified a material weakness in the effectiveness of internal control over financial reporting related to a shortage of resources in the accounting departmentinformation required to assure appropriate segregation of duties with employees having appropriate accounting qualifications related to the Company’s unique industry accounting and disclosure rules. Management has outsourced certain financial functions to mitigate the material weaknessbe disclosed in internal control over financial reporting. The Company is reviewing its finance and accounting staffing requirements.
Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)our reports filed or submitted under the Exchange Act) duringAct is recorded, processed, summarized and reported within the fiscal quartertime periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to which this report relatesensure that have materially affected,the information required to be disclosed in our reports filed or are reasonably likelysubmitted under the Exchange Act is accumulated and communicated to materially affect, the Company’s internal control over financial reporting. As a result, no corrective actions weremanagement including our Chief Executive Officer and Interim Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required or undertaken.disclosure.
Limitations on the Effectiveness of Controls
Controls: Our management, including the CEO, does not expect that its disclosure controls or its internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, canprocedures are designed to provide only reasonable, not absolute, assurance that the objectives of theour disclosure control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, and instances of fraud, if any, within thea company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
The Company was a named defendant along with the previously named officers in certain litigation in the 271st Judicial District Wise County, Texas wherein the Plaintiffs alleged they had been damaged by the failure of the Company to complete a disposal well in a joint venture between the parties. On April 23, 2016, the litigation was settled by agreement of the parties. Under the terms of the settlement, the plaintiffs returned to the Company 53,000 shares of restricted and unregistered stock of the Company issued to them in 2013. The Company issued 317,000 shares of restricted and unregistered shares of stock in the Company to the plaintiffs. The Company will have exclusive trading authority over the shares issued to the plaintiffs and will have the right of first refusal to purchase the shares upon any planned sale by the plaintiffs. The Company will also have a call option on the shares, which will entitle the Company to purchase the shares at $1.25 per share at any time. The settlement agreement resulted in the termination of the litigation. As of December 31, 2015, the Company recorded expense of $206,000 associated with the settlement of this litigation.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Item 3. DEFAULTS UPON SENIOR SECURITIES
The outstanding principal balance of the Senior Loan Facility, the Loan Agreement and the two stockholder loans are included in current liabilities at September 30, 2017 because the Company was not compliant with the debt covenants or payment terms on the indebtedness, including the timely payment of interest and principal in accordance with all of these loan agreements. To date, none of the holders of the Senior Loan Facility, the Loan Agreement or the two stockholder loans have declared that the Company is in default or have otherwise sought remedies under the respective terms of these loan agreements.
In September 2016, the holder of the Senior Loan Facility foreclosed on certain land and buildings owned by the Company in settlement of a portion of the outstanding amount of principal on the Senior Loan Facility. Consequently, the Company charged off the net book value of the land and buildings totaling $591,705 against the outstanding principal on the Senior Loan Facility totaling $1,339,462, leaving a principal balance of $747,757 remaining. The Board is considering issuing stock for the deficiency balance of this loan and the related accrued interest.
The Board of Directors and management of the Company are currently evaluating transactions that may provide the Company with an opportunity to improve its current financial condition including; (i) refinancing of all or a portion of our existing debt, (ii) the acquisition of profitable oilfield service companies that could increase the scale of our operations and improve cash flows and (iii) raising additional equity to pay down debt. There can be no assurance the Company will be successful in finding and closing any of the above options.
31.1
Certification ofOur Chief Executive Officer and Interim Chief AccountingFinancial Officer pursuant to 18 U.S.C. Section 1350,has concluded, based on his evaluation as adopted pursuant to Section 302 of the Sarbanes-Oxley Actend of 2002.the period covered by this Quarterly Report that our disclosure controls and procedures were not sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.
32.1Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the nine-month period ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
We are a smaller reporting company and, therefore, we are not required to provide information required by this item.
Item 2. Unregistered Sales of Chief Executive Officer/Chief Accounting Officer pursuantEquity Securities and Use of Proceeds.
During the three-month period ended September 30, 2023, we sold an aggregate of $860,000 of our convertible promissory notes and issued an aggregate of 1,720,000 warrants to 18 U.S.C. Section 1350, as adopted pursuant to Section 906purchase shares of our common stock in connection with the issuance of the Sarbanes-Oxleynotes. Each of the purchasers of the notes represented to the Company that such purchaser is an “accredited” for purposes of Rule 501 of Regulation D. The issuance of the warrants was made in a private placement exempt from registration under Section 4(2) of the Act and/or Rule 506 of 2002.Regulation D promulgated under the Act.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit No. | Description of Document | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Label Linkbase Document | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document |
* A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Table of Contents |
In accordance with Section 13 or 15(d)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, onNovember 14, 2017.
FRONTIER OILFIELD SERVICES, INC.authorized.
Dated: November 14, 2023 | Correlate Energy Corp. (Registrant) /s/ Todd Michaels | ||
Todd Michaels Chief Executive Officer and Interim Chief (Principal Executive Officer and Principal Financial Officer) |
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