Cirque Energy Inc. (fka CRQE)

[LCJR]

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6-Jan-2016

Quarterly Report

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Background

Cirque Energy, Inc. ("Cirque," the "Company," "we," "us" or "our company") was originally incorporated in Florida on July 16, 1998 under the name of Salty's Warehouse, Inc. and was engaged in selling name-brand consumer products over the Internet. The Company focused on selling consumer electronics and audio-video equipment such as speakers, amplifiers, and tuners, though the Company also sold assorted other goods such as watches, sunglasses and sports games. On December 11, 2006, owners of an aggregate of 22,450,000 shares of common stock sold all of them to a group of approximately 54 investors. As a result of this transaction, a change of control in the Company occurred resulting in a change in its name to E World Interactive, Inc. ("E World"). At that time, E World was principally engaged in the sale of online game services and had a media production business in mainland China.

Having operated in this sector for some time, the Company then disposed of its subsidiaries Shanghai E World China Information Technologies Co., Ltd. and Mojo Media Works Ltd. in August 2008, and, following these sales, ceased all activities in the online game and media production businesses and became a shell company.

In March 2009, the Company entered into a stock purchase agreement with Blue Atelier, Inc. Blue Atelier acquired 25,000,000 newly issued common shares of E World after the Company had executed a forty-to-one reverse split of its issued and outstanding common stock and also entered into a series of agreements with various holders of convertible notes to convert its notes payable plus accumulated interest into 6,872,830 shares of E World's common stock. As a result of this transaction, a change of control in E World occurred with Blue Atelier then owning 75% of the outstanding common stock of E World.

In May 2010, the Company acquired 100% of the outstanding common stock of Media and Technology Solutions, Inc. ("MTS"), a Nevada corporation with a variety of media and related interests and rights and emerged from shell status. The consideration for the purchase of MTS was 10,000,000 shares of E World common stock. Blue Atelier, the principal shareholder of MTS, was also the largest shareholder in E World. Following this acquisition, E World moved its principal office to Las Vegas, Nevada. The acquisition of MTS was accounted for in a manner similar to a pooling of interests in accordance with accounting principles generally accepted in the United States because the entities were under common control.

On September 17, 2011, E World entered into a letter of intent with Green Renewable Energy Solutions, Inc. ("GRES"), the purpose of which was to acquire the assets of GRES which included certain contracts for the acceptance, processing and disposal of construction and demolition waste and as part of this agreement, E World changed its name to Green Energy Renewable Solutions ("GERS"), effective December 12, 2011. On January 26, 2012, GERS completed a 1-for-5 reverse split and on February 4, 2012 E World, including its subsidiary, MTS, was spun out as a separate private company by way of a special share dividend with one E World share issued for every share held on the date of the approval of the reverse split. FINRA approved the name change and the reverse split on January 26, 2012.

On February 4, 2012 GRES executed an asset purchase agreement (the "Purchase Agreement") with GERS. Under the terms of the Purchase Agreement, GERS acquired all of the assets of GRES for 6,209,334 shares of its common stock and a further 4,604,666 common shares of deferred consideration.

GERS is focused on the acquisition of waste streams and maximizing its value utilizing recycling, renewable energy production, and environmentally responsible disposal strategies. On June 27, 2012, the Company approved a 1-for-1 stock dividend for shares held on June 29, 2012 and the dividend shares were issued following FINRA approval on July 27, 2012.

On April 29, 2013, the Company formed Green Harvest Landfill, LLC as a Delaware limited liability company to be a wholly owned subsidiary for the sole purpose of acquiring the Davison Landfill. An offer was made and accepted by the bankruptcy trustee who was in possession of the Davison Landfill. Subsequently, the transaction did not close and the Green Harvest Landfill, LLC lies dormant.

On May 15, 2013 GERS entered into a contribution agreement with Cirque Energy II, LLC ("Cirque LLC") whereby Cirque LLC would contribute all of its assets in exchange for common stock in the Company. Included in Cirque LLC's assets were three subsidiary limited liability companies: The Prototype Company, LLC; Gaylord Power Station, LLC; and Midland Renewable Energy Station, LLC. This contribution agreement has not yet been consummated.

General

Cirque's core business components include proprietary deployable gasification unit ("DGU") technology and the delivery of clean energy generation solutions as an energy services company ("ESCO").

DGU Business

? Under a contract with the Northrop Grumman Corporation, Cirque investigated and obtained research and technical data regarding the ability to produce a mobile, deployable gasification unit capable of producing field electricity for use by the U.S. military and other government users.

? The goal of this engagement was to determine the potential ability to develop, engineer and fabricate a DGU or other system capable of converting the currently available byproducts or wastes generated by the U.S. military in a typical forward operating base into electricity.

? The goal is to make systems simple to operate, highly transportable, reliable, and have minimal special training and maintenance requirements.

? Northrop Grumman and Cirque are committed to continue technology development for the DGU toward commercialization.

? Northrop Grumman, in partnership with Cirque, is producing the first working DGU prototypes for testing and demonstration for military, government, and commercial customers.

? We anticipate the deployment of the DGU prototypes.

? Under the agreement, Cirque will lead the development, manufacturing, and testing of the initial demonstration DGUs, with input from Northrop Grumman.

? Upon successful demonstration, Northrop Grumman will manufacture DGUs for exclusive sale by Northrop Grumman and Cirque.

Clean Energy Generation Solutions as Energy Services Company ("ESCO")

Delivery of clean energy Combined Heat and Power ("CHP") projects, to industrial, commercial, and municipalities, universities, schools, hospitals ("MUSH") market customers as well as local, state, and federal governments.

? Projects to be developed and owned by Cirque.

? Energy sold to customers using various structures which required little or no capital outlay by customers:

? ESPC - energy savings performance contract; customer pays Cirque money which otherwise would have been paid to utility company in exchange for guaranteed savings.

? PPA - traditional power purchase agreement.

? Services contract - energy purchased as a service, thereby allowing a customer to treat a project as "off-credit."

? Lease - Cirque to design, build, finance and lease system to a customer.

The Company anticipates acquiring Cirque II. Management expects that this acquisition will provide the Company the new entity with several benefits:

? Strengthen management team to successfully execute our business plan, including plant operations, project development, construction, start-up, commissioning, fuel procurement and transportation.

? Skill sets of the new team will mitigate execution risk.

? New and expanded pipeline of projects and programs in various stages of development.

? Expanded client relationships, large industrial clients, universities, hospitals, and utilities resulting in more opportunities.

? Expanded network of project finance relationships and contacts.

? Our team has experience in development, design, financing, construction, and operations, which positions us to successfully take a potential energy project from vision to completion.

Energy Services and Performance Contracting

Cirque is keenly aware of the impact U.S. shale oil and gas developments has had on natural gas markets and consumers. Because of the relatively low prices of natural gas (which have ranged between $2.80 and $3.80 during the first nine months of 2015) and high electric utility prices, the opportunities for onsite combined heat and power projects have never been greater. Cirque sees many opportunities at facilities in the municipal, university, schools and hospital market and industries that burn natural gas. Typically, these facilities use natural gas boilers for heat and power. By replacing these facilities with CHP systems such as micro turbines, reciprocating engines, or gas turbines with heat recovery boilers, these facilities can benefit from dramatic energy cost savings.

Cirque plans to pursue projects as an energy services company to design, build, own, operate, and finance CHP projects in the MUSH and industrial markets. Under this model, Cirque intends to provide an initial energy audit or feasibility study for the customer in order to demonstrate the economic savings that can be realized by installing a CHP system. Further, using our strategic partners (Hannon Armstrong and Veolia Energy), Cirque can offer these customers an energy savings performance contract, whereby Cirque will capitalize the project for the customer, with payments from the customer coming from their current utility expense budget. Therefore, the customer can realize the energy savings without having to incur the capital expense of the project. Typically, the ESPC is expected to extend over a term of 10-20 years.

Energy Technology Development - Small Scale CHP Gasifier

In 2012, Northrop Grumman retained us to research the potential to develop a viable deployable gasification unit for the U.S. military. The objective of the unit design was to provide a cost-effective, reliable yet simple to operate system that would utilize garbage and other wastes generated by the military at its forward operating bases to generate energy. The system would be capable of operating in the 100kW to 500kW output range utilizing the military's existing inventory of diesel generators, while using a diverse range of waste fuels comparable to those generated in the field.

Further, the Company determined that the potential for commercial deployment of the system in the private sector expands the system applications far beyond the original government/military market assumptions. The resulting conclusion that the concept design capabilities and market applications met and exceeded the established project parameters led to the Cirque/Northrop Grumman partnership.

The concept of the DGU is to take waste materials of up to 10 tons per day and use the material as fuel in a small gasifier to provide up to 1.0mW of electricity and thermal heat. The DGU as planned is small in size, occupying the space of approximately 2-3 standard 20-foot shipping containers. Power generation is accomplished by gasifying the waste (garbage) to generate a combustible syngas that is co-fired in a standard diesel or natural gas internal combustion engine. The engine runs constantly on the syngas, but the primary fuel can be utilized when no waste fuels are available.

In the commercial areas, Cirque envisions using the system for customers who are generating a waste material and have a constant electric demand. This could include industrial customers, wastewater treatment plants, big box stores, distribution centers, universities, schools, and large hospitals. These facilities can see substantial cost savings by avoiding paying for waste disposal, as well as by offsetting utility costs. Cirque plans to deliver these systems to customers using the ESCO business model.

Northrop Grumman has exclusive marketing rights to the U.S. military and government in addition to being one of the leading contract suppliers for the military and government. Their reputation and access insures rapid access and the highest probability of success for sales within these market sectors.

Cirque will maintain patents rights on certain key components of the DGU systems and will be responsible for the manufacturing and supply of these components to Northrop Grumman for inclusion in the complete DGU system, both for military and commercial units.

Results of Operations

Below is a comparison of results of operations for the three months and nine months ended September 30, 2015 and September 30, 2014.

The Company reported a net loss of $1,314,993 for the three months ended September 30, 2015 versus a net loss of $608,166 for the three months ended September 30, 2014. The Company reported a net loss of $2,399,121 for the nine months ended September 30, 2015 versus a net loss of $2,585,815 for the nine months ended September 30, 2014.

For the three months ended September 30, 2015, the primary contributors to the net loss of $1,314,993 were a loss on derivative liability of $653,623, executive and directors' compensation expense of $198,746, professional fees of $138,831, and a loss on settlement of promissory convertible notes of $137,203.For the three months ended September 30, 2014, the primary contributors to the net loss of $608,166 were executive and directors' compensation expense of $282,204, amortization of debt discount of $193,734, and interest expense of $124,837.

For the nine months ended September 30, 2015, the primary contributors to the net loss of $2,399,121 were executive and directors' compensation expense of $706,357, a loss on settlement of promissory convertible notes of $625,616, professional fees of $333,069, amortization of debt discount of $262,847, interest expense of $173,699, and derivative expense of $135,215. For the nine months ended September 30, 2014, the primary contributors to the net loss of $2,585,815 were amortization of debt discount of $735,142, executive and directors' compensation expense of $717,073, interest expense of $392,611, other financing costs of $346,250, a loss on settlement of promissory convertible notes of $324,082, derivative expense of $191,921, loss on settlement of debt of $171,564, and professional fees of $159,703, which were only partially offset by a gain on derivative liability of $730,200.

Prior period comparisons of results are impacted by developing operations during the periods covered.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported. Note 2 of the accompanying notes to the consolidated financial statements describe the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes:

? We are required to make assumptions about matters that are highly uncertain at the time of the estimate; and

? Different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

a) Impairment of Long-Lived Assets and Intangible Assets

Long-lived assets and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses the recoverability of the long-lived assets and intangible assets (other than goodwill) by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. The Company recognizes impairment of long-lived assets and intangible assets in the event that the net book value of such assets exceeds the estimated future undiscounted cash flow attributed to such assets. The Company uses estimates and judgments in its impairment tests and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

b) Share-based Payments

The Company records stock-based compensation issued to non-employees or other external entities for goods and services at either the fair market value of the shares issued or the value of the services received, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50-30.

Liquidity and Capital Resources

During the nine months ended September 30, 2015, net cash used in operating activities totaled $(397,639). Cash provided by financing activities was $396,485, resulting primarily from the issuance of convertible promissory notes and preferred stock, and cash used in investing activities was $2,002. Increase in cash for the period was $848.

Cash Flow Requirements for Operations

As of September 30, 2015 the Company had available cash of $848. Based on our historical cash needs and our business plan, we require approximately $1,500,000 for operations for the year ending December 31, 2015. We currently have payroll, legal, accounting, general and administrative expenses with no revenue generating operations. Until now we have relied on the issuance of convertible debt and the sale of our common and preferred shares to fund our operating cash requirements. However, these sources of cash are no longer available to us. As of January 6, 2016, the Company had available cash of $(3).

Going Concern

Our continuation as a going concern is dependent upon obtaining additional working capital to sustain our current status. As shown in the accompanying financial statements, the Company had an accumulated deficit of $17,512,324 at September 30, 2015. The Company is insolvent. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event the Company cannot continue in existence.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements or financing activities with special purpose entities.