UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-09047
AMERIGO ENERGY, INC.
(Exact name of Smaller Reporting Company as specified in its charter)
Delaware 20-3454263
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2580 Anthem Village Drive
Henderson, NV 89052
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(Address of principal executive offices)
(702) 399-9777
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
(Title if Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company[X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) [ ] Yes [X] No
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. 20,559,050 shares of common
stock outstanding as of April 15, 2009
Documents Incorporated by Reference: None
TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF BUSINESS................................................ 5
ITEM 1A.RISK FACTORS.......................................................... 6
ITEM 2. DESCRIPTION OF PROPERTY................................................ 12
ITEM 3. LEGAL PROCEEDINGS...................................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................... 16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............... 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 19
ITEM 7. FINANCIAL STATEMENTS...................................................F-2
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................... 23
ITEM 8A.CONTROLS AND PROCEDURES................................................ 23
ITEM 8B.OTHER INFORMATION...................................................... 24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE................ 25
ITEM 10.EXECUTIVE COMPENSATION................................................. 27
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS............................................ 29
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 30
ITEM 13.PRINCIPAL ACCOUNTING FEES AND SERVICES................................. 30
PART IV
ITEM 14.EXHIBITS............................................................... 31
2
PART I
Forward-Looking Statements
References in this annual report to "the Company," "we," "us" or "our" are
intended to refer to the Company. This report contains numerous "forward-
looking statements" that involve substantial risks and uncertainties. These
include, without limitation, statements relating to future drilling and
completion of wells, well operations, production, prices, costs and expenses,
cash flow, investments, business strategies and other plans and objectives of
our management for future operations and activities and other such matters
including, but not limited to:
- - Failure to obtain, or a decline in, oil or gas production, or a decline in
oil or gas prices,
- - Incorporate estimates of required capital expenditures,
- - Increase in the cost of drilling, completion and oil production or other
costs of production and operations,
- - An inability to meet growth projections, and
- - Other risk factors set forth under "Risk Factors" in this annual report. In
addition, the words "believe", "may", "could", "when", "estimate", "continue",
"anticipate", "intend", "expect", and similar expressions, as they relate to
the Company, our business or our management, are intended to identify forward-
looking statements.
These statements are based on our beliefs and the assurances we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties and assumptions. Our actual results could differ materially from
the results discussed in the forward-looking statements. Some, but not all, of
the factors that may cause these differences include those discussed below
under the section entitled "Risk Factors" in this annual report. You should not
place undue reliance on these forward-looking statements. You should also
remember that these statements are made only as of the date of this report and
future events may cause them to be less likely to prove to be true.
Glossary of Terms
DEPLETION is the reduction in petroleum reserves due to production.
FORMATION is a reference to a group of rocks of the same age extending over
a substantial area of a basin.
HYDROCARBONS refer to oil, gas, condensate and other petroleum products.
PARTICIPATION INTEREST or WORKING INTEREST is an equity interest
(compared with a royalty interest) in an oil and gas property whereby the
participating interest holder pays its proportionate percentage share of
development and operating costs and receives a corresponding net revenue
interest share of the proceeds of hydrocarbon sales after deduction of
royalties due on the gross income.
PROSPECT is a potential hydrocarbon trap which has been confirmed by
geological and geophysical studies to the degree that drilling of an
exploration well is warranted.
3
PROVED RESERVES of crude oil, natural gas, or natural gas liquids are
estimated quantities that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation tests or if core analysis
and/or log interpretation demonstrates economic producibility with reasonable
certainty. The area of a reservoir considered proved includes (1) that portion
delineated by drilling and defined by fluid contacts, if any, and (2) the
immediately adjoining portions not yet drilled that can be reasonably judged as
economically productive on the basis of available geological and engineering
data. In the absence of data on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.
Proved reserves are estimates of hydrocarbons to be recovered from a given data
forward. They are expected to be revised as hydrocarbons are produced and
additional data become available.
Reserves that can produced economically through the application of
established improved recovery techniques are included in the proved
classification when these qualifications are met: (1) successful testing by a
pilot project, or the operation of an installed program in that reservoir,
provides support for the engineering analysis on which the project or program
was based, and (2) it is reasonably certain the project will proceed. Estimates
of proved reserves do not include the following: (1) oil that may become
available from known reservoirs but is classified separately as indicated
additional reserves; (2) crude oil, natural gas, and natural gas liquids, the
recovery of which is subject to reasonable doubt because of uncertainty as to
geology, reservoir characteristics, or economic factors; (3) crude oil, natural
gas, and natural gas liquids, that may occur in undrilled prospects; and (4)
crude oil, natural gas, and natural gas liquids, that may be recovered from oil
shales, coal, gilsonite and other such sources.
PROVED DEVELOPED RESERVES A subcategory of proved reserves. They are those
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Additional oil and gas expected
to be obtained through application of fluid injection or other improved
recovery techniques for supplementing the natural forces and mechanisms of
primary recovery are considered developed only after testing by a pilot project
or after the operation of an installed program has confirmed through
production response that increased recovery will be achieved.
PROVED UNDEVELOPED RESERVES is a subcategory of proved reserves. They are
reserves that are expected to be recovered from new wells on undrilled acreage,
or from existing wells where a relatively major expenditure is required for
recompletion. Reserves on undrilled acreage are limited to those drilling units
offsetting productive units that are reasonably certain of production when
drilled. Proved reserves for other undrilled units are claimed only where it
can be demonstrated with certainty that there is continuity of production from
the existing productive formation. Estimates for proved undeveloped reserves
are not attributable to any acreage for which an application of fluid injection
or other improved recovery technique is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same
reservoir.
RESERVOIR is a porous and permeable sedimentary rock formation containing
adequate pore space in the rock to provide storage space for oil, gas or water.
TRAP is a geological structure in which hydrocarbons aggregate to form an oil
or gas field.
4
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS OVERVIEW
Strategic Gaming Investments, Inc., a Delaware corporation ("SGME" or the
"Company"), formerly named Left Right Marketing Technology, Inc., was
incorporated in 1973. Prior to June 2003, the Company was involved in
various businesses, none of which were successful. On June 30, 2003, the
Company executed a binding letter of intent which resulted in a merger with
Left Right Marketing & Technology, Inc., a Nevada corporation ("LRMT"), in
September 2003.
On November 4, 2005, the Company entered into an agreement and plan of
reorganization, or the Merger Agreement, with Strategic Gaming Investments,
Inc., a Nevada corporation, or SGI. The transaction between the Company and SGI
has been accounted for as a recapitalization. Since SGI was the only operating
company in the exchange and the stockholders of SGI received a substantial
majority of the voting securities of the combined companies, the transaction
exchange has been accounted for as a "reverse acquisition" and, effectively, as
a recapitalization, in which SGI has been treated as the accounting acquirer
(and the legal acquiree), and the Company has been treated as the accounting
acquiree (and the legal acquirer).
In August of 2008, our Board of Directors voted to get approval from the
shareholders of the Company for a name change from Strategic Gaming
Investments, Inc. to Amerigo Energy, Inc. The company received the approval
from a majority of its stockholders and filed the amendment to its Articles of
Incorporation with the State of Delaware. The name change became effective by
the State of Delaware on August 26, 2008. The Company also requested a new
stock symbol as a result of the name change. Our new trading symbol is "AGOE".
On October 31, 2008, The Company entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008. In the Reorganization,
Granite Energy, Inc. transferred to the Company substantially all of
its assets and operations, including its subsidiary, Amerigo, Inc., and
its controlling interest in GreenStart, Inc. in exchange for 10,000,000
restricted shares of Common Stock of the Company.
The Amerigo Energy's business plan includes developing oil and gas reserves
while increasing the production rate base and cash flow. It plans to continue
acquiring oil and gas leases for drilling and to take advantage of other
opportunities and strategic alliances.
As an independent energy company headquartered in Henderson, Nevada, Amerigo
Energy, through its wholly owned subsidiary, Amerigo, is focused on obtaining
oil and gas reserves through acquisition of proved developed producing wells,
developing economical and viable exploitation and exploration drilling
prospects, optimizing the production from Amerigo Energy's current base oil and
gas properties, and optimizing the processing of marketable oil and gas sold at
the optimum oil and gas prices for Amerigo Energy's area of operations. Through
analysis and research, Amerigo Energy seeks to reduce risk by following
investment criteria which identify low to medium risk drilling opportunities
within existing oil and gas fields, while selecting optimal drilling sites with
the optimal potential of developing the maximum amount of oil and gas reserves.
Amerigo Energy believes that this increases the probability of developing
economic oil and gas reserves and cash flows that will benefit both Amerigo
Energy and shareholders.
Our wholly-owned subsidiary, Amerigo, Inc., incorporated in Nevada on January
11, 2008, holds certain assets formerly of Granite, including oil lease
interests, computers, software, telephone system, small office equipment,
machinery, and furniture. Amerigo was a subsidiary of Granite prior to the
transaction between Amerigo Energy and Granite.
5
GENERAL DISCUSSION OF OPERATIONS
EMPLOYEES AND CONSULTANTS
The Company currently has no employees. We contract the services of consultants
in the various areas of expertise, as required. S. Matthew Schultz, Chief
Executive Officer of the Company, and Jason Griffith, Chief Financial Officer
of the Company, currently devote no more than 50% of their time to the
operations of the Company.
The amount of time devoted to the Company currently by officers and consultants
is due to the limited operations and resources of the Company. However, the
Company feels the time devoted to operations is enough to cover the current
operational requirements.
Expected Significant Changes In The Number Of Employees
The Company does not expect any significant change in the number of employees
over the next 12 months of operations. As noted previously, the Company
currently coordinates all operations, using its Officers and various
consultants as necessary.
The Company's website address is http://www.amerigoenergy.com
ITEM 1A. RISK FACTORS
Risks Related to Amerigo Energy's Business
Amerigo Energy is subject to a high degree of risk as Amerigo Energy is
considered to be in unsound financial condition. The following risks, if any
one or more occurs, could materially harm our business, financial condition or
future results of operations. If that occurs, the trading price of the Amerigo
Energy's Common Stock could further decline.
We Have a History
Since Amerigo Energy's inception (formerly known as Strategic Gaming
Investments, Inc.) we have not been profitable and have reported net losses.
For the years ended December 31, 2008 and December 31, 2007 we incurred net
losses of $719,413 and $8,952,895, respectively. Our accumulated deficit as of
December 31, 2008 was $13,01,897. No assurance can be given that Amerigo
Energy will be successful in reaching or maintaining profitable operations,
particularly given Amerigo Energy's lack of current business operations.
Accordingly, we will likely continue to experience liquidity and cash flow
problems.
6
Lack of Liquidity
Amerigo Energy's Common Stock is currently quoted for public trading on the
Over-the-Counter Bulletin Board under the ticker symbol "AGOE". The trading
price of the Amerigo Energy's common stock has been subject to wide
fluctuations. Trading prices of Amerigo common stock may fluctuate in response
to a number of factors, many of which will be beyond Amerigo Energy's control.
The stock market has generally experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of companies with limited or no business operations.
These broad market and industry factors may adversely affect the market price
of Amerigo Energy's Common Stock, regardless of our operating performance.
Further, until such time as Amerigo Energy is an operating company, it is
unlikely that a measurable trading market will exist for Amerigo Energy's
Common Stock.
Amerigo Energy's Common Stock is a "Penny Stock" and should be Considered "High
Risk" and Subject to Marketability Restrictions.
Since Amerigo Energy's Common Stock is a "penny stock", as defined in Rule
3a51-1 under the Securities Exchange Act, it will be more difficult for
investors to liquidate their investment. Until the trading price of the Common
Stock rises above $5.00 per share, if ever, trading in the Common Stock is
subject to the "penny stock" rules of the Securities Exchange Act specified in
rules 15g-1 through 15g-10. Those rules require broker-dealers, before
effecting transactions in any penny stock, to:
- Deliver to the customer, and obtain a written receipt for, a
disclosure document;
- Disclose certain price information about the stock;
- Disclose the amount of compensation received by the broker-dealer or
any associated person of the broker-dealer;
- Send monthly statements to customers with market and price
information about the penny stock; and
- In some circumstances, approve the purchaser's account under certain
standards and deliver written statements to the customer with information
specified in the rules.
Consequently, the "penny stock" rules may restrict the ability or willingness
of broker-dealers to sell the Common Stock and may affect the ability of
holders to sell their Common Stock in the secondary market and the price at
which such holders can sell any such securities. These additional procedures
could also limit our ability to raise additional capital in the future.
7
Funding Difficulties
Given Amerigo Energy's historical operating results, obtaining financing will
be extremely difficult. This is further compounded by the extremely limited
liquidity in Amerigo Energy's Common Stock and the lack of business operations.
Financing, if available, will likely be significantly dilutive to our common
stockholders and will not necessarily improve the liquidity of Amerigo Energy's
common stock without a vast improvement in our operating results. In the event
we are unsuccessful in procuring adequate financing, our financial condition
and results of operations will be further materially adversely affected.
"Going Concern" Qualification
As a result of Amerigo Energy's deficiency in working capital at December 31,
2008 and other factors, Amerigo Energy's auditors have stated in their report
that there is substantial doubt about Amerigo Energy's ability to
continue as a going concern. In addition, Amerigo Energy's cash position is
inadequate to pay the costs associated with its operations. No assurance can
be given that any debt or equity financing, if and when required, will be
available. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets and classification of
liabilities that might be necessary should Amerigo Energy be unable to continue
existence.
Risks Applicable to Amerigo Energy's Oil and Gas Business
Speculative Nature of Oil and Gas Development Activities ("Project"); Natural
and Other Hazards. Exploration, drilling and development of oil and gas
properties is not an exact science and involves a high degree of risk. There is
no assurance that oil or gas will be found within any prospects or that, if
found, sufficient oil or gas production will be obtained to enable Amerigo
Energy to recoup its investment in the Project. During any drilling or
completion of any prospect, Amerigo Energy could encounter hazards including
unusual or unexpected formations, high formation, pressures or other
conditions, blow-outs, fires, failure of equipment, and downhole collapses.
There can be no assurance that in the event of such problems Amerigo Energy
will have sufficient funds to solve such problems. Furthermore, the Project may
be subject to liability for pollution and other damages and will be subject to
statutes and regulations relating to environmental matters. Although Amerigo
Energy and/or the operator drilling the prospects will obtain and maintain the
insurance coverage, Amerigo Energy may suffer losses due to hazards against
which it cannot insure or against which it may elect not to insure.
Drilling and Production Risks. Exploration for oil and gas is speculative by
its very nature, and involves a high risk of loss. A large number of prospects
result in dry holes, and others do not produce oil or gas in sufficient
quantities to make them commercially profitable to complete or place in
production. Many risks are involved that experience, knowledge, scientific
information and careful evaluation cannot avoid. An investor must be prepared
to lose all of an investment as there can be no assurance that any prospect
will result in or continue to have oil or gas production or that production, if
obtained, will be profitable. Oil and gas prospects sometimes experience
production decline that is rapid and unexpected. Initial production from a
prospect (if any) does not accurately indicate any consistent level of
production to be derived from it.
Importance of Future Prices, Supply and Demand for Oil and Gas. The revenues
which might be generated from the activities of Amerigo Energy will be highly
dependent upon the future prices and demand for oil and gas. Factors which may
affect prices and demand include worldwide supply; the price of oil produced in
the United States or imported from foreign countries; consumer demand; price
and availability of alternative fuels; federal and state regulation; and
general, national and worldwide economic and political conditions.
8
In addition to the widely-recognized volatility of the oil market, the gas
market is also unsettled due to a number of factors. In the past, production
from gas prospects in many geographic areas of the United States has been
curtailed for considerable periods of time due to a lack of market demand, and
such curtailments may exist in the future. Further, there may be an excess
supply of gas in the area of the prospects. In that event, it is possible that
prospects will be shut in or that gas in those areas will be sold on terms less
favorable than might otherwise be obtained. The combination of these factors,
among others, makes it particularly difficult to estimate accurately future
prices of oil and gas, and any assumptions concerning future prices may prove
incorrect.
Competition. There are large numbers of companies and individuals engaged in
exploration for oil and gas and the development of oil and gas properties.
Accordingly, Amerigo Energy will encounter strong competition from independent
operators and major oil companies. Many of the companies so encountered have
financial resources and staffs considerably larger than those available to
Amerigo Energy. There are numerous companies and individuals engaged in the
organization and conduct of oil and gas programs and there is a high degree of
competition among such companies in the offering of their programs.
Markets for Sale of Production. The ability of Amerigo Energy to market oil and
gas found and produced, if any, will depend on numerous factors beyond the
control of Amerigo Energy, the effect of which cannot be accurately predicted
or anticipated. Some of these factors include, without limitation, lifting and
transportation costs, the availability of a ready market, the effect of federal
and state regulation of production, refining, transportation and sales, and
general national and worldwide economic conditions. There is no assurance that
Amerigo Energy will be able to market oil or gas produced by the prospects at
prices that will prove to be economic after costs.
Price Control and Possible Energy Legislation. There are currently no federal
price controls on oil or gas production so that sales of oil or gas by Amerigo
Energy can be made at uncontrolled market prices. However, there can be no
assurance that Congress will not enact controls at any time. No prediction can
be made as to what additional energy legislation may be proposed, if any, nor
which bills may be enacted nor when any such bills, if enacted, would become
effective.
Environmental Regulations. The exploration, development and production of oil
and gas is subject to various federal and state laws and regulations to protect
the environment. Various states and governmental agencies are considering, and
some have adopted, laws and regulations regarding environmental control which
could adversely affect the business of Amerigo Energy. Compliance with such
legislation and regulations, together with any penalties resulting from
noncompliance therewith, will increase the cost of oil and gas development and
production. Some of these costs may ultimately be borne by Amerigo Energy.
Government Regulation. The oil and gas business is subject to extensive
governmental regulation under which, among other things, rates of production
from wells may be fixed. Governmental regulation also may limit or otherwise
affect the market for production and the price which may be paid for that
production. Governmental regulations relating to environmental matters could
also affect Amerigo Energy's operations. The nature and extent of various
regulations, the nature of other political developments and their overall
effect upon Amerigo Energy are not predictable. The availability of a ready
market for oil and gas, if any, discovered by Amerigo Energy or from existing
production and the price obtained for the oil and gas will depend upon numerous
factors, including the extent of domestic production and foreign imports of gas
and/or oil, the proximity and capacity of pipelines, intrastate and interstate
market demand, the extent and effect of federal regulations on the sale of oil
and/or natural gas in interstate and intrastate commerce, and other government
regulation affecting the production and transportation of oil and/or gas. In
addition, certain daily allowable production constraints may change from time
to time, the effect of which cannot be predicted by management. There is no
assurance that Amerigo Energy will be able to market any oil or gas found or
acquired by it at favorable prices, if at all.
9
Uninsured Risks and Other Potential Liabilities. Amerigo Energy's operations
will be subject to all of the operating risks normally connected with drilling
for and producing oil and gas, such as blow-outs, pollution, premises
liability, workplace injury and other risks and events which could result in
the Program incurring substantial losses or liabilities. Amerigo Energy
anticipates securing insurance as it deems prudent, affordable, necessary and
appropriate. Certain risks of Amerigo Energy, the Project, the Operator and
Non-Operating interest holders are uninsurable and others may be either
uninsured or only partially insured or limited because of high premium costs,
the unavailability of such insurance and/or for other reasons. In the event
Amerigo Energy and/or the Project incurs uninsured losses or liabilities, all
parties may be at risk and the Project's funds available for exploration and
development, as well as funds available for Amerigo Energy's other and ongoing
operations, may be reduced or lost completely.
Decline Curve. Production from all oil and gas wells declines over time. The
actual rate of decline is subject to numerous factors and cannot, in normal
circumstances, be calculated in advance. Production also fluctuates for many
reasons. Prospective investors should understand that production from any well
may fluctuate and will ultimately decline, rendering the well non-commercial.
Dependence upon Amerigo and the Operators. The operations and financial success
of Amerigo Energy depends significantly on its management and of the drilling
guarantor. In the event that management of any of these companies becomes
unable or unwilling to continue to direct the operations of Amerigo Energy,
Amerigo Energy could be adversely affected.
Unpredictability of Oil and Gas Investment. Numerous factors, including
fluctuations in oil and gas prices and operating costs and the productive life
of the wells make it difficult to predict returns with any accuracy.
Marketing and Pricing. The market for oil and gas produced from the wells is
difficult to predict, as well as the costs incurred in connection with such
production. Particularly in the case of natural gas, a market may not
immediately be available for the gas from a well because of its distance from a
pipeline. The gas may therefore remain unsold for an indefinite period of
time. Nevertheless, Amerigo Energy will exercise its best efforts to obtain a
market for any natural gas produced from the well as soon as possible if
production is achieved.
Costs of Treating Natural Gas. Companies that own natural gas production often
require that natural gas have certain characteristics before they will purchase
it. Gas from an Amerigo Energy well may have to be treated so that the
purchasers will take delivery. This treatment might include increasing the
pressure, dehydrating it, removing CO2 or other impurities and other items of a
similar nature. These treatments may require that additional facilities be
built or services be performed. Because these costs concern the operation of a
gas well they are treated as lease operating expenses and are generally
recouped out of production. The costs of any additional facilities are often
paid initially by the first purchasers or gatherers of production, who then
reimburse themselves by recouping these capital costs through a minimal
reduction of the price paid for the gas. If any gas produced by a well
requires special treatment as described above, Amerigo Energy will attempt to
minimize the costs associated with treatment and maximize the Project's profits
from the sale of the gas.
Delays in Receipt of Cash. Amerigo Energy is involved in the exploration for
and development of oil and gas reserves. The unavailability of, or delay in
obtaining, necessary materials for drilling and completion activities, or in
securing title opinions dated to the first production, may delay, for
significant periods after the discovery and production of hydrocarbons, the
distribution of any cash to Amerigo Energy. Because each prospect will be
drilled and completed in succession and not concurrently, revenue, if any, from
each prospect will also be distributed in succession with the completion of the
prospect.
10
The loss of executive officers or key employees could have a material adverse
effect on our business.
The Company depends greatly on the efforts of our executive officers and other
key personnel to manage our operations. The loss or unavailability of any of
our executive officers or other key personnel could have a material adverse
effect on our business.
The company has no plans to pay dividends on its common stock, and you may not
receive funds without selling your common stock.
The Board of Directors of the Company does not intend to declare or pay
dividends on the Company's Common Stock in the foreseeable future. Instead, the
Board of Directors generally intends to invest any future earnings in the
business. Subject to Nevada law, the Company's Board of Directors will
determine the payment of future dividends on the Company's Common Stock, if
any, and the amount of any dividends in light of any applicable contractual
restrictions limiting the Company's ability to pay dividends, the Company's
earnings and cash flow, the Company's capital requirements, the Company's
financial condition, and other factors the Company's Board of Directors deems
relevant. Accordingly, you may have to sell some or all of your Common Stock in
order to generate cash flow from your investment. You may not receive a gain on
your investment when you sell the Company's Common Stock and may lose the
entire amount of your investment.
Dilution could have an adverse affect on the ownership of the stockholder in
the registrant.
The Company may issue more Common Stock at prices determined by the board of
directors in any private placements or offerings of securities, possibly
resulting in dilution of the value of the Common Stock, and, given there is no
preemptive right to purchase Common Stock, if a stockholder does not purchase
additional Common Stock, the percentage share ownership of the stockholder in
the Company will be reduced.
The business of the company may be adversely affected if the company has
material weaknesses or significant deficiencies in its internal control over
financial reporting in the future.
As a public company the Company will incur significant legal, accounting,
insurance and other expenses. The Sarbanes-Oxley Act of 2002, as well as
compliance with other SEC and exchange listing rules, will increase our legal
and financial compliance costs and make some activities more time-consuming and
costly. Furthermore, SEC rules require that our chief executive officer and
chief financial officer periodically certify the existence and effectiveness of
our internal control over financial reporting. Our independent registered
public accounting firm will be required, beginning with our Annual Report on
Form 10-K for our fiscal year ending on December 31, 2010, to attest to our
assessment of our internal control over financial reporting.
During the course of our testing, we may identify deficiencies that would have
to be remediated to satisfy the SEC rules for certification of our internal
controls over financial reporting. As a consequence, we may have to disclose in
periodic reports we file with the SEC significant deficiencies or material
weaknesses in our system of internal controls. The existence of a material
weakness would preclude management from concluding that our internal control
over financial reporting is effective, and would preclude our independent
auditors from issuing an unqualified opinion that our internal control over
financial reporting is effective. In addition, disclosures of this type in our
SEC reports could cause investors to lose confidence in our financial reporting
and may negatively affect the trading price of our Common Stock. Moreover,
effective internal controls are necessary to produce reliable financial reports
and to prevent fraud. If we have deficiencies in our disclosure controls and
procedures or internal control over financial reporting it may negatively
impact our business, results of operations and reputation.
11
Cautionary note regarding forward-looking statements and other information
contained in this prospectus
This Prospectus contains some forward-looking statements. Forward-looking
statements give our current expectations or forecasts of future events. You can
identify these statements by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements involve risks and
uncertainties. Forward-looking statements include statements regarding, among
other things, (a) our projected sales, profitability, and cash flows, (b) our
growth strategies, (c) anticipated trends in our industries, (d) our future
financing plans and (e) our anticipated needs for working capital. They are
generally identifiable by use of the words "may," "will," "should,"
"anticipate," "estimate," "plans," "potential," "projects," "continuing,"
"ongoing," "expects," "management believes," "we believe," "we intend" or the
negative of these words or other variations on these words or comparable
terminology. These statements may be found under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as in this Prospectus generally. In particular, these include statements
relating to future actions, prospective products or product approvals, future
performance or results of current and anticipated products, sales efforts,
expenses, the outcome of contingencies such as legal proceedings, and financial
results.
Any or all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this Prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. You
should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are
made, and, except to the extent required by federal securities laws, we
undertake no obligation to publicly update any forward-looking statements,
whether as the result of new information, future events, or otherwise.
ITEM 2. DESCRIPTION OF PROPERTY
The corporate offices of the Company are located in Henderson, Nevada, at 2580
Anthem Village Drive, Henderson, NV 89052. The Company rents this space on a
month-to-month basis for $998 per month. We also lease on a month-to-month
basis a small office in Bountiful, Utah at a rate of $1,200 per month.
12
CURRENT OIL AND GAS PROPERTIES
The Company recently, in October 2008, acquired its first oil and gas interests
and properties as a part of the reorganization that it entered into with
Granite Energy, Inc. The Company acquired substantially all of Granite Energy's
assets for 10,000,000 shares of our common stock. The following descriptions of
our oil interests include the amounts acquired in the reorganization as well as
interests that were purchased with shares of our Common Stock in December of
2008. Please see the Note 2 to the Financial Statements for accounting policies
related to these oil and gas properties.
OIL PRODUCING PROPERTIES
WEST BURKE
The West Burke lease consists of 115.27 acres of land. The lease has a total of
7 wells, with 5 pumping wells and 2 injection wells. The lease is located in
Witchita County, Texas
The Company acquired a 18.49% working interest and 13.78% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 13.93%
working interest and 10.38% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil programs from
Granite Energy.
As of December 31, 2008, the Company holds a 32.42% total working interest and
24.16% net revenue interest in West Burke.
During November and December of 2008, the lease produced 335.33 barrels of oil
and for the year ended December 31, 2008, net revenues of $559 have been
recognized from revenues of $1,559 net of lease operating expenses in the
amount of $1,000.
PHILLIPS B
The Phillips B leases are located in Cotton County, Oklahoma and are currently
operated by SJ OK Oil Company. We receive any revenues from oil sold to Teppco
Oil (US) Company, net of oil lease expenses for that period.
In December of 2008, the Company acquired an additional 6.53% working interest
and 4.90% net revenue interest with the issuance of our Common Stock to
investors that had previously purchased oil programs from Granite Energy.
During December 2008, the lease produced 343.17 barrels of oil, however, no
revenues were recognized because lease expenses for that period were higher
than the oil revenues and no revenues were received from Teppco Oil Company.
Our gross revenue in our interest in Phillips B for the year ended were $572
and our portion of the lease expenses were also $572 which netted to $0 net
revenue recognized.
13
KUNKEL
The Kunkel lease has a total of 13 wells, with 7 pumping wells, 1 injection
well, and 5 wells that were shut in. The leases are located in Archer County,
Texas. West Burke is currently operated by SWJN Oil Company and we receive any
revenues from oil sold to Conoco Oil Company, net of oil lease expenses for
that period.
The Company acquired a 61.60% working interest and 48.80% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 25.60%
working interest and 20.28% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil programs from
Granite Energy.
As of December 31, 2008, the Company holds a 87.20% total working interest and
69.08% net revenue interest in the Kunkel leases.
During November and December of 2008, the lease produced 346.02 barrels of oil
and for the year ended December 31, 2008, net revenues of $6,689 have been
recognized from $8,477 from our interest in gross oil sales net of $1,788 in
lease operating expenses.
RAY
The Ray lease consists of 100 acres of land in Archer County, Texas and is
operated by SWJN Oil Company. The lease has a total of 4 wells, with 2 pumping
wells, 1 injection well, and 1 well that was shut in. The Company acquired a
100% working interest and 87.50% net revenue interest as part of the
reorganization with Granite Energy on October 31, 2008.
During the year ended December 31, 2008, the lease produced an immaterial
amount of oil, 55 barrels. The oil gatherer for the least will not collect and
purchase amounts of oil below 150 barrels so no revenue will be recognized
until the lease produces the minimum amount.
OIL AND GAS PRODUCING PROPERTIES
MELISSA HENSLEY
The Melissa Hensley well is located in Kingfisher County, Oklahoma and is
operated by H Petro R, Inc. Revenues from this interest are received net of any
lease expenses.
The Company acquired a 27.96% working interest and 20.97% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 26.14%
working interest and 19.61% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil and gas programs
from Granite Energy.
As of December 31, 2008, the Company holds a 54.11% total working interest and
40.58% net revenue interest in the Melissa Hensley lease.
During Nov. and Dec. of 2008 the lease produced 4,830 MCF's of Gas and 180.18
barrels of oil. This resulted in estimated revenue of $8,608 and estimated
lease operating expenses of $6,484 for a net estimated revenue to the Company
of $2,124. This money is being held in a receivable suspense account until all
of the paperwork for the exchanges is finalized.
14
DJ HANKS
The DJ Hanks well is located in Kingfisher County, Oklahoma and is operated by
H Petro R, Inc. Revenues from this interest are received net of any lease
expenses.
The Company acquired a 5.27% working interest and 3.95% net revenue interest as
part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 43.62%
working interest and 32.71% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil and gas programs
from Granite Energy.
As of December 31, 2008, the Company holds a 48.89% total working interest and
36.67% net revenue interest in the DJ Hanks lease.
During Nov. and Dec. of 2008 the lease produced 1,377 MCF's of Gas and 182.20
barrels of oil. This resulted in estimated revenue of $5,458 and estimated
lease operating expenses of $2,371 for a net estimated revenue to the Company
of $3,088. This money is being held in a receivable suspense account until all
of the paperwork for the exchanges is finalized.
RICHARD HENSLEY
The Richard Hensley well is located in Kingfisher County, Oklahoma and is
operated by H Petro R, Inc. Revenues from this interest are received net of any
lease expenses.
The Company acquired a 19.55% working interest and 14.66% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 35.77%
working interest and 26.83% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil and gas programs
from Granite Energy.
As of December 31, 2008, the Company holds a 55.33% total working interest and
41.49% net revenue interest in the Richard Hensley lease.
During Nov. and Dec. of 2008 the lease produced 73.81 MCF's of gas. This
resulted in estimated revenue of $92 and estimated lease operating expenses of
$989 for a net estimated expense to the Company of $897. This money is being
held to net against a receivable suspense account until all of the paperwork
for the exchanges is finalized.
BROOKS HENSLEY
The Brooks Hensley well is located in Kingfisher County, Oklahoma and is
operated by H Petro R, Inc. Revenues from this interest are received net of any
lease expenses.
The Company acquired a 49.58% working interest and 37.23% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 15.17%
working interest and 11.32% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil and gas programs
from Granite Energy.
As of December 31, 2008, the Company holds a 64.75% total working interest and
48.55% net revenue interest in the Brooks Hensley lease.
During Nov. and Dec. of 2008 the lease produced 1239.28 MCF's of gas. This
resulted in estimated revenue of $2,350 and estimated lease operating expenses
of $2,298 for a net estimated revenue to the Company of $52. This money is
being held in a receivable suspense account until all of the paperwork for the
exchanges is finalized.
15
UNPROVED LEASES AND PROPERTY
JJ YOUNG
The Company acquired a 100% working interest and 76.25% net revenue interest as
part of the reorganization with Granite Energy on October 31, 2008. The JJ
Young lease currently does not have any wells on the lease. The Company is
currently evaluating the costs and requirements to drill on this lease.
TIGERSHARK
The Company acquired a 27.96% working interest and 20.97% net revenue interest
as part of the reorganization with Granite Energy on October 31, 2008.
Additionally, In December of 2008, the Company acquired an additional 26.14%
working interest and 19.61% net revenue interest with the issuance of our
Common Stock to investors that had previously purchased oil and gas programs
from Granite Energy.
As of December 31, 2008, the Company holds a 54.11% total working interest and
40.58% net revenue interest in the Tigershark lease.
OTHER UNPROVED LEASES
In December of 2008, the Company acquired a working interest and net revenue
interest with the issuance of our Common Stock to investors that had previously
purchased oil and gas programs from Granite Energy. The unproved leases that
were acquired as part of these conversions were Evergreen 1, Roadrunner,
Southgold 1 (Tony), Southgold 2, Southgold 3, and name pending - Escavada.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2008, the Company is not a party to any pending material
legal proceeding. To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against the
Company. To the knowledge of management, no director, executive officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of the Company's Common Stock is a party adverse to the Company or has
a material interest adverse to the Company in any proceeding.
Subsequent to year end, the Company became the plaintiff in a petition filed
against South Texas Oil Company for defaulting on the terms of a purchase
agreement entered into in September of 2007 by being late of several payments
and entirely not paying other payments due. As of the date of this filing, no
restitution has occurred.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to the Company's security holders during
the fourth quarter of 2008.
16
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Amerigo Energy (formerly known as Strategic Gaming Investments, Inc.) shares of
Common Stock are not traded on an established market. Amerigo Energy Stock is
traded through broker/dealers and in private transactions, and quotations are
reported on the OTC Bulletin Board under the symbol "AGOE". OTC Bulletin Board
quotations reflect interdealer prices, without mark-up, mark-down or commission
and may not represent actual transactions. The table below sets forth the range
of high and low prices paid for transactions in Amerigo Energy shares of Common
Stock as reported on the OTC Bulletin Board for the periods indicated. No
dividends have been declared or paid on Amerigo Energy Common Stock and none
are likely to be declared or paid in the near future.
The following table sets forth the quarterly high and low bid prices for our
Common Stock during our last two fiscal years, adjusted for the recent stock
split. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and do not necessarily represent actual buy and sell
transactions.
COMMON STOCK
--------------
High Low
------ ------
FISCAL YEAR ENDED DECEMBER 31, 2006:
Fiscal Quarter Ended March 31, 2006 190.00 130.00
Fiscal Quarter Ended June 30, 2006 130.00 100.00
Fiscal Quarter Ended September 30, 2006 130.00 100.00
Fiscal Quarter Ended December 31, 2006 125.00 75.00
FISCAL YEAR ENDED DECEMBER 31, 2007:
Fiscal Quarter Ended March 31, 2007 75.00 47.00
Fiscal Quarter Ended June 30, 2007 63.00 51.00
Fiscal Quarter Ended September 30, 2007 63.00 34.00
Fiscal Quarter Ended December 31, 2007 34.00 30.00
FISCAL YEAR ENDED DECEMBER 31, 2008:
Fiscal Quarter Ended March 31, 2008 30.00 12.00
Fiscal Quarter Ended June 30, 2008 15.00 12.00
Fiscal Quarter Ended September 30, 2008 18.00 4.00
Fiscal Quarter Ended December 31, 2008 10.01 3.75
SHAREHOLDERS OF RECORD AND OUTSTANDING SHARES
The authorized capital stock of the Company consists of 100,000,000
shares of common stock with a par value of $.001 and 25,000,000 shares of
preferred stock at a par value of $.001.
Common Stock. The holders of the common stock are entitled to one vote per
share on each matter submitted to a vote at any meeting of the shareholders.
Shares of common stock do not carry cumulative voting rights, and therefore a
majority of the shares of outstanding common stock will be able to elect the
entire Board of Directors, and if they do so, minority stockholders would not
be able to elect any persons to the Board of Directors. Our Amended
By-laws provide that a majority of the issued and outstanding shares of the
Company shall constitute a quorum for shareholders' meeting except with respect
to certain matters for which a greater percentage quorum is required by statute
or our Articles of Incorporation or By-laws.
17
Shareholders of The Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption and carries no subscription or conversion rights.
Preferred Stock. As of December 31, 2008, there were no preferred shares
issued or outstanding. The Board of Directors is authorized by the Articles of
Incorporation to prescribe by resolution the voting powers, designations,
preferences, limitations, restrictions, reactive rights and distinguishing
designations of the preferred shares if issued.
The stock transfer agent for the Company is American Stock Transfer and
Trust Company, located at 59 Maiden Lane, Plaza Level, New York, NY 10038.
Their telephone number is (800) 937-5449.
HOLDERS
On December 31, 2008, there were approximately 63 direct holders of Amerigo
Energy, Inc. Common Stock. Due to the prior name change and reverse stock split
there are additional beneficial holders which have not converted their stock.
DIVIDENDS AND OTHER DISTRIBUTIONS
Amerigo Energy has never paid cash dividends on our common stock or preferred
stock. We currently intend to retain earnings, if any, for use in our business
and do not anticipate paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On March 16, 2008, all outstanding convertible notes ("Notes"), in the
collective original principal amount of $1,095,945, plus accrued interest in
the collective amount of $65,600, were converted into 1,653,832
(pre=reverse slit) shares of common stock. The balance of the notes were
settled by giving the 2,500,000 shares of Power Play Development
Corporation to the note holders.
Additionally, during the three months ended March 31, 2008, the Company issued
warrants to purchase 800,000 shares of common stock, exercisable for a period
of ten (10) years at $0.35 per share, to third party consultants. Such warrants
were valued at $476,418 using the Black-Scholes valuation methodology, and all
of such amount has been expensed on the financial statements of the Company.
On August 18, 2008, our Board of Directors authorized a reverse stock split of
the outstanding common stock on the basis of one share for every twenty shares
currently issued and outstanding, effective September 5, 2008 (the "Effective
Date"). Each twenty shares of common stock of the Company outstanding on the
Effective Date were converted automatically into a single share of common
stock. There was no change in the par value of the common stock of Strategic
Gaming. To avoid the existence of fractional shares of common stock, if a
stockholder would otherwise be entitled to receive a fractional share, the
number of shares to be received was rounded up to the next whole share.
18
On October 31, 2008, The Company entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008. In the Reorganization,
Granite Energy, Inc. transferred to the Company substantially all of
its assets and operations, including its subsidiary, Amerigo, Inc., and
its controlling interest in GreenStart, Inc. in exchange for 10,000,000
restricted shares of Common Stock of the Company. Additionally, the Company
issued 182,030 shares of our Common Stock for the settlement of certain
accounts payable as part of the reorganization agreement.
On November 14, 2008, the Company issued 80,000 shares of Common Stock on
behalf of a related party as part of a settlement of a lawsuit. The shares were
issued at fair market value on the date of issuance at $8.32 per share for a
total of $665,600. The amount has been recorded as a receivable from the
related party and is expected to be repaid in common stock.
On December 1, 2008, The Company issued 9,254,429 shares of our Company Common
Stock in exchange for the transfer of various oil interests that were
previously sold by Granite Energy, Inc.
As of December 31, 2008, a total of 2,335,945 shares of common stock were
subscribed to prior warrant holders. As of December 31, 2008, we have received
$12,000 in payments for the warrants and a stock payable has been recorded
accordingly. See Note 7, Commitments and Contingencies, for information
related to the remaining warrants that may be exercised.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements. The reader should
understand that several factors govern whether any forward-looking statement
contained herein will be or can be achieved. Any one of those factors could
cause actual results to differ materially from those projected herein. These
forward-looking statements include plans and objectives of management for
future operations, including plans and objectives relating to the products and
the future economic performance of the Company. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions, future business decisions, and the
time and money required to successfully complete development projects, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of those assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in any of the forward-
looking statements contained herein will be realized. Based on actual
experience and business development, the Company may alter its marketing,
capital expenditure plans or other budgets, which may in turn affect the
Company's results of operations. In light of the significant uncertainties
inherent in the forward-looking statements included therein, the inclusion of
any such statement should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
INTRODUCTION
The Company derives its revenues from its producing oil and gas
properties, of which the substantial majority are predominantly oil properties.
These properties consist of working interests in producing oil wells having
proved reserves. Our capital for investment in producing oil properties has
been provided by the sale of common stock to its shareholders.
The following is a discussion of the Company's financial condition, results of
operations, financial resources and working capital. This discussion and
analysis should be read in conjunction with the Company's financial statements
contained in this Form 10-K.
19
OVERVIEW
RESULTS OF OPERATIONS
REVENUES
For the year ended December 31, 2008, the Company generated $50,743 in revenues
from the sale of oil lease interests in addition to royalties on producing oil
and gas properties. For the period ended December 31, 2007, the Company did not
recognize any revenues because we did not have any significant business
operations during that time.
OPERATING EXPENSES
Lease Operating - Lease operating expense for the year ended December 31, 2008
totaled $16,184 as compared to $0 for the prior year. The Company acquired its
oil and gas interest during the quarter ended December 31, 2008 therefore we
did not have any lease operating expenses prior to that acquisition.
Consulting- Consulting expenses were $586,498 for the year ended December 31,
2008 as compared to $0 for the year ended December 31, 2007. The increase of
$586,498 was primarily related to the issuance of 800,000 warrants in March of
2008 to consultants that were valued with the Black-Scholes valuation model at
$476,418 and expensed accordingly.
General and Administrative - General and administrative expenses were $81,710
for the year ended December 31, 2008, compared to $605,181 for the period from
inception to December 31, 2007, representing a decrease of $523,471. The
significant decrease in general and administrative expense reflects the lack of
significant operations for most of 2008 until the reorganization on October 31,
2008.
Professional Fees - Professional fees for the year ended December 31, 2008 were
$119,700 as compared to $0 for the period ended December 31, 2007. The increase
was related to the increase in operations and the use of consultants in
addition to filing fees and stock transfer agent fees for the reverse split,
reorganization, and associated filings that took place during the year.
Depreciation, Amortization, and Depletion - Depreciation and amortization
expenses on the acquired assets from the reorganization were $5,818 for the
year ended December 31, 2008. The depletion expense for the year ended December
31, 2008 was $38,357 and was calculated based on an estimate using the straight
line method over the estimated lives of the proved interests until production
studies have been completed on the recently acquired oil and gas properties.
There was $0 in depreciation, amortization, and depletion for the year ended
December 31, 2007 because the Company had no depreciable assets until 2008.
OTHER INCOME AND EXPENSES
During the twelve months ended December 31, 2008, interest income was $18,527,
compared to $0 during year ended December 31, 2007, representing an increase of
$18,527. The increase relates to the accrued interest on the $358,948 note
receivable from a related party. See Note 7 for further information on the
related party note payable.
A gain on the extinguishment of debt in the amount of $62,852 for the year
ended December 31, 2008, as compared to $0 for the prior year is directly
related to the write off of debts as part of the reorganization on October 31,
2008.
20
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
We realized a net loss of $739,686 for the year ended December 31, 2008,
compared to a net loss of $8,934,368 for the year ended December 31, 2007, a
decrease of $8,934,369. The decrease in net loss is attributable to $2,576,786
in a loss related to a rescinded merger and $4,361,888 in compensation expenses
related to stock options issued to employees in 2007.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2008, we had cash in the amount of $1,300, and a working
capital deficit of $300,308, as compared to cash in the amount of $0 and a
working capital deficit of $1,134,938 as of December 31, 2007. In addition, our
stockholders' deficit was $12,993,406 at December 31, 2008, compared to
stockholders' deficit of $815,774 at December 31, 2007.
Our accumulated deficit decreased from $13,366,985 at December 31, 2007 to
$13,017,985 at December 31, 2008.
Our operations used net cash of $73,724 during the year ended December 31, 2008
compared to $476,944 during the year ended December 31, 2007, a decrease of
$403.219.
Our cash used for investing activities was $0 for the year ended December 31,
2008 and $0 for the year ended December 31, 2007.
Our financing activities provided net cash of $75,024 during the year ended
December 31, 2008, compared to net cash of $451,728 during the year ended
December 31, 2007.
INFLATION
The Company's results of operations have not been affected by inflation and
management does not expect inflation to have a material impact on its
operations in the future.
OFF- BALANCE SHEET ARRANGEMENTS
The Company currently does not have any off-balance sheet arrangements.
21
ITEM 7. FINANCIAL STATEMENTS
Larry O'Donnell, CPA, P.C.
Telephone (303) 745-4545
2228 South Fraser Street
Fax (303) 369-9384
Unit I
Email larryodonnellcpa@msn.com
Aurora, Colorado 80014
www.larryodonnellcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Amerigo Energy, Inc.
I have audited the accompanying consolidated balance sheet of Amerigo Energy,
Inc. as of December 31, 2008 and 2007, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor was I engaged to perform, an audit of its internal
control over financial reporting. My audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Amerigo Energy,
Inc as of December 31, 2008 and 2007, and the consolidated results of its
operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit of $13,013,897 at December 31, 2008.
Additionally, for the year ended December 31, 2008, the Company a net loss of
$719,413. These matters raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
LARRY O'DONNELL, CPA, P.C.
March 26, 2009
F-2
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEET
As of As of
December 31, 2008 December 31, 2007
----------------- -----------------
ASSETS
Current assets
Cash $ 1,300 $ -
Receivables 22,187 -
----------------- -----------------
Total current assets 23,487 -
Other current assets
Bank recievable - 3,693
Advances to related party 30,559 500,100
Notes receivable - related party 358,949
Accrued interest receivable - related party 18,287
Property, plant and equipment
Leasehold Improvements 76,460 -
Office equipment, net of depreciation 20,648 -
Vehicles, net of depreciation 12,883 -
Property and Equipment, net 129,372 -
Proved reserves, net of depletion 6,032,016 -
Unproved reserves, net of depletion 5,512,163 -
Software, net 6,724 -
- -
Other Assets - -
Investment in Greenstart 42,236 -
Note receivable 386,590 -
Deposits 950 -
Intercompany receivables - -
----------------- -----------------
Total assets $ 12,651,323 $ 503,793
================= =================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 164,186 $ 208,623
Accounts payable - related party 46,216 179,533
Accrued interest - 65,030
Advances from related parties 38,361 97,401
Bank overdraft - 7,116
Payroll liabilities 70,666 577,235
----------------- -----------------
Total current liabilities $ 319,429 $ 1,134,938
Convertible notes payable to related party - 184,629
Long-term liabilities - -
Intercompany liabilites -
----------------- -----------------
Total liabilities $ 319,429 $ 1,319,567
Stockholders' (deficit)
Preferred stock (25,000,000 shares
auth & 0 shares outstanding) $ - $ -
Common stock; $.001 par value;
100,000,000 shares authorized;
20,071,235 shares outstanding
at December 31, 2008 30,613 9,447
Additional paid-in capital 25,968,778 12,541,764
Stock receivable (665,600)
Common stock payable 12,000
Subscribed stock - -
Accumulated deficit (13,013,897) (13,366,985)
----------------- -----------------
Total stockholders' (deficit) $ 12,331,894 $ (815,774)
----------------- -----------------
Total liabilities and stockholders' (deficit) $ 12,651,323 $ 503,793
================= =================
See Accompanying Notes to Financial Statements
F-3
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended Year Ended
December 31, 2008 December 31, 2007
----------------- -----------------
Revenue $ - $ -
Oil revenues 14,312 -
Gas revenues 10,431 -
Sale on oil packages 26,000 -
----------------- -----------------
Total Revenue 50,743 -
Cost of Sales
Cost of oil packages 19,173 -
----------------- -----------------
Total cost of goods sold 19,173 -
Gross Profit 31,570 -
Operating expenses
Lease operating expenses
Compensation expense - 4,361,888
Consulting expense 586,498 1,175,129
Selling, general and administrative 81,748 605,181
Professional fees 119,700
Depreciation and amortization expense 5,818
Depletion expense 38,357
----------------- -----------------
Total operating expenses 832,122 6,142,198
----------------- -----------------
Loss from operations (800,552) (6,142,198)
Other income (expenses):
Amortization of discount on convertible
notes payable - (78,012)
Loss from rescinded merger - (2,576,786)
Interest expense on warrant with
convertible ntoes payable - (59,973)
Interest expense - (95,927)
Interest income 18,287
Gain on extinguishment of debt 62,852 -
----------------- -----------------
Total other income (expenses) 81,139 (2,810,698)
----------------- -----------------
Loss before provision for income taxes (719,413) (8,952,896)
Provision for income taxes - 1
Net loss $ (719,413) $ (8,952,895)
================= =================
Basic and diluted (loss) per common share (0.04) (0.98)
================= =================
Basic and diluted weighted average common shares
outstanding 20,071,235 9,180,470
================= =================
See Accompanying Notes to Financial Statements
F-4
AMERIGO ENERGY, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
Additional Stock Stock Total
Paid-in Subscriptions Subscriptions Accumulated Stockholders'
Shares Amount Capital Receivable Payable Deficit Deficit
------- ------- ------------ ------------- ------------- ------------ ------------
Balance,
December 31, 2006 402,357 $ 8,047 $ 3,580,849 $ - $ - $ (4,414,090) (825,194)
Shares issued for
merger with Neolink 40,000 800 2,479,200 (2,500) - - 2,477,500
Issuance of
convertible debt
agreements - - 377,558 - - - 377,558
Shares issued for
settlement of merge
rescission 30,000 600 - - - - 600
Issuance of stock
options for services - - 1,031,050 - - - 1,031,050
Issuance of stock
options of compensation - - 4,361,888 - - - 4,361,888
Issuance of convertible
debt agreements - - 602,524 - - - 602,524
Write off of stock
receivable 2,500 - 2,500
Issuance of convertible
debt agreements - - 108,695 - - - 108,695
Net loss - - - - - (8,952,893) (8,952,893)
------- ------- ------------ ------------- ------------- ------------ ------------
Balance, December 31, 2007 472,357 9,447 12,541,764 - - (13,366,983) (815,772)
======= ======= ============ ============= ============= ============ ============
Settlement of
accrued payroll - - 441,963 - - - 441,963
Conversion of
notes payable 82,419 1,648 846,765 - - - 848,413
Issuance of stock
options for services - - 476,418 - - - 476,418
Write off of previously
consolidated interco. loan - - (1,028,949) - - - (1,028,949)
Write off of disolved
and spun off entities - - (1,088,776) - - 1,088,684 (92)
Settlement of debts as
part of the reorganization 182,030 182 454,893 - - - 455,075
Shares issued for assets
as part of reorganization 10,000,000 10,000 3,414,006 - - - 3,424,006
Stock receivable issued -
see note 4 80,000 80 665,520 (665,600) - - -
Shares issued for purchase
of oil intersts 9,254,429 9,254 9,245,175 - - - 9,254,429
Stock payable for
warrants - - - - 12,000 - 12,000
-
Net loss - - - - - (719,413) (719,413)
---------- ------- ------------ ------------- ------------- ------------ ------------
Balance,
December 31, 2008 20,071,235 $30,612 $25,968,778 $ (665,600) $ 12,000 $(12,997,712) $ 12,348,078
========== ======= ============ ============= ============= ============ ============
See Accompanying Notes to Financial Statements
F-5
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
12 months ended 12 months ended
December 31, 2008 December 31, 2007
----------------- -----------------
Cash flows from operating activities:
Net loss $ (719,413) $ (8,952,895)
Adjustments to reconcile net loss to
net cash used by operating activities:
Changes in operating assets and liabilities:
Accounts receivable $ (43,233) $ -
Stocks and options issued for services / to settle debt (2,169) 5,392,938
Increase / (decrease) in stock subscription - 2,500
Interest expense on warrant with convertible notes payable - 113,416
Amortization of discount on convertible notes payable - 71,213
Forgiveness of related party payable 61,881 -
Cost associated with rescinded merger - 600
Loss associated with rescinded merger - 2,467,808
Stock options issued 476,418 -
Depreciation and amortization - 2,597
(Increase) / decrease in prepaid expenses - 999
(Increase) / decrease in loans and bank receivables 11,990 4,535
Increase / (decrease) in accounts payable 220,317 115,346
Increase / (decrease) in accounts payable - related party (133,317) 149,532
Increase / (decrease) in accrued interest - 65,030
Increase / (decrease) in accrued payroll 53,801 89,438
----------------- -----------------
Net cash used by operating activities $ (73,724) $ (476,944)
Cash flows from investing activities:
Purchase of property and equipment $ - $ -
----------------- -----------------
Net cash used by investing activities $ - $ -
Cash flows from financing activities:
Increase in bank overdraft (7,116) $ 7,116
Advance to (from) related party 70,140 $ (533,858)
Proceeds from stock receivable 12,000 $ 12,500
Proceeds from issuance of convertible notes payable - $ 965,970
----------------- -----------------
Net cash provided by financing activities $ 75,024 $ 451,728
----------------- -----------------
Net increase in cash $ 1,300 $ (25,216)
Cash, beginning of period $ - $ 25,215
----------------- -----------------
Cash, end of period $ 1,300 $ (1)
================= =================
Supplementary cash flow information:
Interest paid $ - $ 10
Receivable of shares issued $ 12,000 $ 15,000
Fair value of warrants issued with convertible notes payable $ - $ 282,989
Discount on convertible notes payable $ - $ 91,761
See Accompanying Notes to Financial Statements
F-6
AMERIGO ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Description of Business and History - Strategic Gaming Investments, Inc., a
Delaware corporation ("SGME" or the "Company"), formerly named Left Right
Marketing Technology, Inc., was incorporated in 1973. Prior to June 2003, the
Company was involved in various businesses, none of which were successful. On
June 30, 2003, the Company executed a binding letter of intent which resulted
in a merger with Left Right Marketing & Technology, Inc., a Nevada corporation
("LRMT"), in September 2003.
On November 4, 2005, the Company entered into an agreement and plan of
reorganization, or the Merger Agreement, with Strategic Gaming Investments,
Inc., a Nevada corporation, or SGI. The transaction between the Company and SGI
has been accounted for as a recapitalization. Since SGI was the only operating
company in the exchange and the stockholders of SGI received a substantial
majority of the voting securities of the combined companies, the transaction
exchange has been accounted for as a "reverse acquisition" and, effectively, as
a recapitalization, in which SGI has been treated as the accounting acquirer
(and the legal acquiree), and the Company has been treated as the accounting
acquiree (and the legal acquirer).
In August of 2008, our Board of Directors voted to get approval from the
shareholders of the Company for a name change from Strategic Gaming
Investments, Inc. to Amerigo Energy, Inc. The company received the approval
from a majority of its stockholders and filed the amendment to its Articles of
Incorporation with the State of Delaware. The name change became effective by
the State of Delaware on August 26, 2008. The Company also requested a new
stock symbol as a result of the name change. Our new trading symbol is "AGOE".
On October 31, 2008, The Company entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008. In the Reorganization,
Granite Energy, Inc. transferred to the Company substantially all of
its assets and operations, including its subsidiary, Amerigo, Inc., and
its controlling interest in GreenStart, Inc. in exchange for 10,000,000
restricted shares of Common Stock of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the combined accounts of Amerigo,
Inc., a Nevada Corporation. All material intercompany transactions and accounts
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with maturities
of three months or less when purchased.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No 130, "Reporting Comprehensive
Income" ("SFAS 130")), requires that total comprehensive income be reported in
the financial statements. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. It requires
(a) classification of the components of other comprehensive income by their
nature in a financial statement and (b) the display of the accumulated balance
of the other comprehensive income separate from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company's financial statements do not include any of the
components of other comprehensive income during the year ended December 31,
2007 and the year ended December 31, 2008.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different from
the book value. When the book value approximates fair value, no additional
disclosure is made.
F-7
PROPERTY AND EQUIPMENT
On October 31, 2008, as part of the reorganization agreement, the Company
acquired substantially all of the assets from Granite Energy, Inc., including
an office building, equipment, furniture and fixtures, an automobile, and oil
interests. The Company transferred these assets at their depreciated historical
cost and has continued depreciating them using their historical cost and
remaining estimate lives.
The current and long term portions were of the asset retirement obligation was
estimated based on historical experience.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period.
Capitalized costs of producing oil and gas properties, after considering
estimated residual salvage values, are depreciated and depleted by the unit-of-
production method. Support equipment and other property and equipment are
depreciated over their estimated useful lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property, the cost is
charged to accumulated depreciation, depletion, and amortization with a
resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the
amount received is treated as a reduction of the cost of the interest retained.
Depreciation is computed primarily on the straight-line method for financial
statements purposes over the following estimated useful lives:
ESTIMATED
CATEGORY LIFE
---------------------- ---------
Office building 20 years
Vehicles 7 years
Equipment 7 years
Leasehold Improvements 7 years
Furniture and Fixtures 5 years
All assets are booked at historical cost. Management reviews on an annual basis
the book value, along with the prospective dismantlement, restoration, and
abandonment costs and estimate residual value for the assets, in comparison to
the carrying values on the financial statements.
F-8
OIL AND GAS PRODUCING ACTIVITIES
Suspended well cost - Statement of Financial Accounting Standards Statement No.
19 "Financial Accounting and Reporting by Oil and Gas Producing Companies"
(SFAS 19) as amended by Staff Position 19-1 "Accounting for Suspended Well
Costs" allows suspended well costs to remain capitalized beyond one year from
drilling if certain specific criteria are met and additional disclosures
provided.
Exploratory costs, excluding the cost of exploratory wells and acquired
exploration rights, are charged to expense as incurred. Drilling costs for
exploratory wells are capitalized pending the determination of the existence of
proved reserves. If reserves are not found, the drilling costs are charged to
operating expense. Oil and gas lease acquisition costs are capitalized when
incurred.
Unproved properties with individually significant acquisition costs are
assessed quarterly on a property-by-property basis, and any impairment in value
is recognized. Unproved properties with acquisition costs that are not
individually significant are aggregated, and the portion of such costs
estimated to be nonproductive, based on historical experience, is amortized
over the average holding period. If the unproved properties are determined to
be productive, the appropriate related costs are transferred to proved oil and
gas properties.
Development costs incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized.
REVENUE RECOGNITION
Oil, gas and natural gas liquids revenues are recognized when the products are
sold to a purchaser at a fixed or determinable price, delivery has occurred and
title has transferred, and collection of the revenue is reasonably assured.
CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counter parties failed completely to perform as contracted.
Concentrations of credit risk (whether on or off balance sheet) that arise from
financial instruments exist for groups of customers or counter parties when
they have similar economic characteristics that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic or
other conditions described below.
The Company operates in one primary segment, the oil and gas industry. The
Company's customers are located within the United States of America. Financial
instruments that subject the Company to credit risk consist principally of oil
and gas sales which are based on a short-term purchase contracts from Teppco
Oil (US) Company and various other gatherers in the area, with related accounts
receivable subject to credit risk.
F-9
During the year ended December 31, 2008, Teppco Oil (US) Company accounted for
approximately 13% of the Company's oil revenues. In the coming year and
forward, we anticipate the percentage of oil revenues from Teppco Oil Company
to be approximately 66%. The low percentage for the year ended December 31,
2008 is directly related to the acquisition of the oil interests that Teppco
Oil Company purchases from in December 2008 and not receiving normal levels of
purchases for the short period we held those interests. Management does not
believe the loss of Teppco Oil (US) Company would materially affect the ability
to sell the oil.
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances outstanding
after management has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial
statements and at December 31, 2007 and December 31, 2008; the Company's
financial statements do not include an allowance for doubtful accounts because
management believes that no allowance is required at those dates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the results of
operations or stockholders' equity.
NET LOSS PER COMMON SHARE
SFAS 128, Earnings per Share, requires presentation of "basic" and "diluted"
earnings per share on the face of the statements of operations for all entities
with complex capital structures. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted during the period. Dilutive securities having an anti-
dilutive effect on diluted earnings per share are excluded from the
calculation.
INCOME TAXES
The Company accounts for its income taxes in accordance with Statement of
Financial Accounting Standards No. 109, which requires recognition of deferred
tax assets and liabilities for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
Management feels the Company will have a net operating loss carryover to be
used for future years. Such losses may not be fully deductible due to the
significant amounts of non-cash service costs. The Company has established a
valuation allowance for the full tax benefit of the operating loss carryovers
due to the uncertainty regarding realization.
F-10
STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123R, Share-Based Payment ("SFAS
No. 123R"). SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock-
Based Compensation ("SFAS No. 123"), and supersedes Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB No. 25"), and
its related implementation guidance.
The Company has adopted SFAS No. 123R, which requires the measurement and
recognition of compensation expense for all stock-based payment awards made to
employees and directors. Under the fair value recognition provisions of SFAS
No. 123R, stock-based compensation cost is measured at the grant date based on
the value of the award and is recognized as expense over the vesting period.
Determining the fair value of stock-based awards at the grant date requires
considerable judgment, including estimating the expected future volatility of
our stock price, estimating the expected length of term of granted options and
selecting the appropriate risk-free rate. There is no established trading
market for our stock.
DIVIDENDS
The Company has not yet adopted any policy regarding payment of dividends.
GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the accompanying
financial statements, the Company has incurred recurring losses, has used
significant cash in support of its operating activities and, based upon current
operating levels, requires additional capital or significant reconfiguration of
its operations to sustain its operations for the foreseeable future. These
factors, among others, may indicate that the Company will be unable to continue
as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern. The Company's ability to
continue as a going concern is dependent upon its ability to generate
sufficient cash flow to meet obligations on a timely basis and ultimately to
attain profitability. The Company has obtained working capital through equity
offerings and management plans to obtain additional funding through equity or
debt financings in the future. There is no assurance that the Company will be
successful in its efforts to raise additional working capital or achieve
profitable operations. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
F-11
RECENT ACCOUNTING PRONOUNCEMENTS
In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective
Date of FASB Statement No. 157, which provides a one-year deferral of the
effective date of SFAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. The Company is currently evaluating
the impact of adopting SFAS 157 with respect to non-financial assets and non-
financial liabilities, essentially goodwill and identifiable intangible assets,
but does not believe the adoption will have a significant impact on the
Company's consolidated financial statements. The provisions of SFAS 157 will be
applied to non-financial assets and non-financial liabilities beginning March
1, 2009.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement No. 133, as
amended and interpreted, which requires enhanced disclosures about an entity's
derivative and hedging activities and thereby improves the transparency of
financial reporting. Disclosing the fair values of derivative instruments and
their gains and losses in a tabular format provides a more complete picture of
the location in an entity's financial statements of both the derivative
positions existing at period end and the effect of using derivatives during the
reporting period. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. SFAS No. 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. At December
31, 2008, the Company did not have any derivative instruments or hedging
activities. Management is aware of the requirements of SFAS 161 and will
disclose when appropriate.
In April 2008, the FASB issued FSP 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and
Other Intangible Assets . FSP 142-3 is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating the impact FSP 142-3 will
have on the useful lives of our intangible assets but do not expect it to have
a material impact on our financial statements.
In May of 2008, the FASB issued Statement No. 162, "The Hierarchy of Generally
Accepted Accounting Principles." This statement identifies literature
established by the FASB as the source for accounting principles to be applied
by entities which prepare financial statements presented in conformity with
generally accepted accounting principles (GAAP) in the United States. This
statement is effective 60 days following approval by the SEC of the Public
Company Accounting Oversight Board amendments to AU Section 411, "The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting Principles."
This statement will require no changes in the Company's financial reporting
practices.
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts - an interpretation of FASB Statement No. 60. SFAS 163
requires that an insurance enterprise recognize a claim liability prior to an
event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. This Statement
also clarifies how Statement 60 applies to financial guarantee insurance
contracts, including the recognition and measurement to be used to account for
premium revenue and claim liabilities. Those clarifications will increase
comparability in financial reporting of financial guarantee insurance contracts
by insurance enterprises. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements. SFAS 163 will be effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
Company does not expect the adoption of SFAS 163 will have a material impact on
its financial condition or results of operation.
F-12
NOTE 2 - ACQUISITION AND DISPOSAL OF ASSETS
During the year ended December 31, 2008
On October 31, 2008, The Company entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008. In the Reorganization,
Granite Energy, Inc. transferred to the Company substantially all of
its assets and operations, including its subsidiary, Amerigo, Inc., and
its controlling interest in GreenStart, Inc. in exchange for 10,000,000
restricted shares of Common Stock of the Company. The following is an analysis
of the consideration given and assets receved in connection with the
reorganization:
Assets acquired:
Proved reserves $2,001,368
Unproved reserves 345,912
Software 6,927
Building 103,133
Leasehold improvements 78,659
Furniture & fixtures 21,873
Vehicle 13,301
Equipment 28,010
Receivables 48,056
Deposit 950
Notes receivable 775,816
----------
Total assets acquired 3,424,006
==========
Consideration given:
Common stock
(10,000,000 shares) 3,424,006
----------
Total consideration given $3,424,006
==========
On December 1, 2008, The Company issued 9,254,429 shares of our Company Common
Stock in exchange for the transfer of various oil interests that were
previously sold by Granite Energy, Inc. The following is an analysis of the
consideration given and assets received in the purchase of the oil interests:
F-13
Assets acquired:
Proved reserves $4,088,178
Unproved reserves 5,166,251
----------
Total assets acquired 9,254,429
==========
Consideration given:
Common stock
(9,254,429 shares at
$1.00 per share) 9,254,429
----------
Total consideration given $9,254,429
==========
NOTE 3 - NOTES PAYABLE
As of December 31, 2008, there are no outstanding notes payable.
NOTE 4 - STOCKHOLDERS' EQUITY
As of December 31, 2008, there were 20,071,235 shares of common stock
outstanding and no preferred shares outstanding.
During the year ended December 31, 2008, the Company issued common stock and
warrants as follows:
COMMON STOCK
On March 16, 2008, all outstanding convertible notes ("Notes"), in the
collective original principal amount of $1,095,945, plus accrued interest in
the collective amount of $65,600, were converted into 1,653,832 (pre-
reverse slit) shares of common stock. The balance of the notes were settled
by giving the 2,500,000 shares of Power Play Development Corporation to
the note holders.
On August 18, 2008, our Board of Directors authorized a reverse stock split of
the outstanding common stock on the basis of one share for every twenty shares
currently issued and outstanding, effective September 5, 2008 (the "Effective
Date"). Each twenty shares of common stock of the Company outstanding on the
Effective Date were converted automatically into a single share of common
stock. There will not be a change in the par value of the common stock of
Strategic Gaming. To avoid the existence of fractional shares of common stock,
if a stockholder would otherwise be entitled to receive a fractional share, the
number of shares to be received was rounded up to the next whole share.
On October 31, 2008, The Company entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008. In the Reorganization,
Granite Energy, Inc. transferred to the Company substantially all of
its assets and operations, including its subsidiary, Amerigo, Inc., and
its controlling interest in GreenStart, Inc. in exchange for 10,000,000
restricted shares of Common Stock of the Company. Additionally, the Company
issued 182,030 shares of our Common Stock for the settlement of certain
accounts payable as part of the reorganization agreement.
On November 14, 2008, the Company issued 80,000 shares of Common Stock on
behalf of a related party as part of a settlement of a lawsuit. The shares were
issued at fair market value on the date of issuance at $8.32 per share for a
total of $665,600. The amount has been recorded as a receivable from the
related party and is expected to be repaid in common stock.
On December 1, 2008, The Company issued 9,254,429 shares of our Company Common
Stock at $1.00 per share in exchange for the transfer of various oil interests
that were previously sold by Granite Energy, Inc.
F-14
WARRANTS
Additionally, during the three months ended March 31, 2008, the Company issued
warrants to purchase 800,000 shares of common stock, exercisable for a period
of ten (10) years at $0.35 per share, to third party consultants. Such warrants
were valued at $476,418 using the Black-Scholes valuation methodology, and all
of such amount has been expensed on the financial statements of the Company.
As of December 31, 2008, a total of 2,335,945 shares of common stock were
subscribed to prior warrant holders. As of December 31, 2008, we have received
$12,000 in payments for the warrants and a stock payable has been recorded
accordingly. See Note 7, Commitments and Contingencies, for information
related to the remaining warrants that may be exercised.
NOTE 5 - LITIGATION
As of December 31, 2008, the Company is not a party to any pending material
legal proceeding. To the knowledge of management, no federal, state or local
governmental agency is presently contemplating any proceeding against the
Company. To the knowledge of management, no director, executive officer or
affiliate of the Company, any owner of record or beneficially of more than five
percent of the Company's Common Stock is a party adverse to the Company or has
a material interest adverse to the Company in any proceeding.
Subsequent to year end, the Company became the plaintiff in a petition filed
against South Texas Oil Company for defaulting on the terms of a purchase
agreement entered into in September of 2007 by being late of several payments
and entirely not paying certain payments due. As of the date of this filing, no
restitution has occurred.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of December 31, 2008, the Company holds $358,949 in notes receivable from
GreenStart, Inc., in which the Company is the majority shareholder. $356,820 of
the note was transferred to the Company from Granite Energy as part of the
reorganization on October 31, 2008. This asset is due on demand and accrues
interest at 6% annually. The accrued interest receivable on this loan totaled
$18,287 at December 31, 2008. The amounts are considered short term due to the
demand status of the note.
As of December 31, 2008, the Company had $70,666 in accrued payroll payable to
the Company's current and former officers.
As of December 31, 2008, the Company has $38,361 in liabilities due to a firm
controlled by the Company's Chief Financial Officer. This loan is non-interest
bearing and has no due date assigned to it.
Effective October 1, 2008, the Company entered into a consulting agreement with
a firm controlled by the Company's Chief Financial Officer for a fee of $7,500
per month. The consulting firm has been engaged to assist in organizing and
completing the process of filings with the Securities and Exchange Commission
and other tasks. The Company owed the firm $46,216 as of December 31, 2008
which is included as part of Accounts payable - related party in the
accompanying financial statements.
F-15
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company issued warrants for the purchase of our Company's Common Stock at
$0.35, $0.40 and $1.00 per share. A total of 2,335,945 shares of common stock
were subscribed to through the warrants. The shares will be issued upon final
payments from warrant holders, no later than December 31, 2009. As of December
31, 2008, we have received $12,000 in payments for the warrants and have
recorded a stock payable for that amount accordingly.
As per the warrant exercise documentation, the shares of common stock will be
issued upon the Company receiving the final payment for the shares. In the
event of default, all payments will be forfeited to the Company and no shares
will be issued. If all warrants are exercise and none are defaulted on, the
Company will be obligated to issue 2,335,945 shares of our Common Stock on or
before December 31, 2009 at a price of either $0.35, $0.40, or $1.00, as set
forth in the warrant documentation.
NOTE 8 - DEFERRED INCOME TAX
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 2008
are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,247,819
Stock issued for services 3,500
------------
1,251,319
Deferred tax liabilities
Depreciation and amortization (3,025)
------------
(3,025)
Net deferred tax asset 1,248,294
Less valuation allowance (1,248,294)
------------
$ -
============
At December 31, 2008, the Company had federal net operating loss ("NOL") carry
forwards of approximately $1,362,319. Federal NOLs could, if unused, begin to
expire in 2021.
The valuation allowance for deferred tax assets as of December 31, 2008 was
$1,248,294.
NOTE 9 - ENVIRONMENTAL MATTERS
Various federal and state authorities have authority to regulate the
exploration and developments of oil and gas and mineral properties with respect
to environmental matters. Such laws and regulations, presently in effect or as
hereafter promulgated, may significantly affect the cost of its current oil
production and any exploration and development activities undertaken by the
Company and could result in loss or liability to the Company in the event that
any such operations are subsequently deemed inadequate for purposes of any such
law or regulation.
F-16
NOTE 10 - SUBSEQUENT EVENTS
Subsequent to year end, the Company became the plaintiff in a petition filed
against South Texas Oil Company for defaulting on the terms of a purchase
agreement entered into in September of 2007 by being late of several payments
and entirely not paying certain payments due. As of the date of this filing, no
restitution has occurred.
On January 1, 2009, The Company issued 487,815 shares of our Company Common
Stock at $1.00 per share in exchange for the acquisition of additional certain
oil interests that were previously sold by Granite Energy, Inc.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission this Form 10-K
registration statement, including exhibits, under the Securities Act. You may
read and copy all or any portion of the registration statement or any reports,
statements or other information in the files at SEC's Public Reference Room
located at 100 F Street, NE., Washington, DC 20549, on official business days
during the hours of 10 a.m. to 3 p.m.
You can request copies of these documents upon payment of a duplicating fee by
writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference room. Our filings,
including the registration statement, will also be available to you on the
website maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports which will be filed
electronically with the SEC containing consolidated financial statements
audited by our independent auditors, and to make available to our stockholders
quarterly reports for the first three quarters of each year containing
unaudited interim consolidated financial statements.
We maintain a website at www.amerigoenergy.com. Our website and the information
contained on that site, or connected to that site, is not part of or
incorporated by reference into this prospectus.
F-17
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have not changed accountants since its 2007 and there are no disagreements
with the findings of its accountants.
ITEM 8A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 ("Exchange Act") is recorded, processed, summarized and
reported within the specified time periods. Our Chief Executive Officer and our
Principal Accounting and Financial Officer (collectively, the "Certifying
Officers") are responsible for maintaining our disclosure controls and
procedures. The controls and procedures established by us are designed to
provide reasonable assurance that information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms.
As required by Rule 13a-15 under the Exchange Act, our management, including,
our Chief Executive Officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of December 31, 2008.
Based on that evaluation, management concluded that as of December 31, 2008,
and as of the date that the evaluation of the effectiveness of our disclosure
controls and procedures was completed, our disclosure controls and procedures
were not effective to satisfy the objectives for which they are intended.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document
and test our internal control over financial reporting and include in this
Annual Report on Form 10-K a report on management's assessment of the
effectiveness of our internal control over financial reporting, and to
delineate any material weakness in our internal control. A material weakness is
a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a
material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
22
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rule 13a-
15(f) of the Exchange Act. Under the supervision and with the participation of
our management, including our Chief Executive Officer, we conducted an
evaluation of the effectiveness of our internal control over financial
reporting based upon the framework in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on that evaluation, our management concluded that our internal
control over financial reporting is not effective, as of December 31, 2008. In
that regard, we identified the following material weaknesses in our internal
control over financial reporting as of December 31, 2008.
1. Lack of Effective Corporate Governance Policies and Procedures.
Independent Directors. We failed to require that a majority of our directors be
independent or to define the requirements for independence.
Committees of the Board. We failed to create and appoint member to essential
board committees to oversee the managerial, operational and financial aspect of
the Company's business.
We did not establish an Audit Committee to (i) appoint the independent
registered public accounting firm for the Company and monitor the performance
of such firm, (ii) review and approve the scope and results of the annual
audits, (iii) evaluate, with the independent registered public accounting firm,
the Company's annual audit of the financial statements and audit of internal
control over financial reporting, (iv) monitor the performance of the Company's
internal audit function, (v) review, with management, the annual and quarterly
financial statements, (vi) review, with management, the status of internal
control over financial reporting, (vii) review and maintain procedures for the
anonymous submission of complaints concerning accounting and auditing
irregularities, (viii) review problem areas having a potential financial impact
on the Company, which may be brought to its attention by management, the
independent registered public accounting firm or the Board, and (ix) to
preapprove all non-audit related services provided by the independent
registered public accounting firm and the independent registered public
accounting firm's fees for services rendered to the Company.
We did not establish a Compensation Committee to (i) review and make
determinations with respect to matters having to do with the compensation of
executive officers and Directors of the Company and (ii) administer certain
plans relating to the compensation of officers and Directors.
We did not establish a Nominating and Corporate Governance Committee to
(i)identify persons for future nomination for election to the Board of
Directors, (ii) approve and adopt corporate governance guidelines, including
qualifications of potential directors (iii) oversee an annual self-evaluation
conducted by the Board in order to determine whether the Board and its
Committees are functioning effectively, (iv) oversee individual Director self-
assessments in connection with the evaluation of such Director for purposes of
making a recommendation to the Board as to the persons who should be nominated
for election or re- election.
23
2. Lack of Effective Control in Certain Accounting Areas. There were not
effective financial reporting controls in certain areas that could lead to
inaccurate financial reporting, including: (i) financial personnel have the
ability to change account structures without approval (ii) general ledger
journal entries are not always approved or reviewed prior to entry, and (iii)
accounting staff employees with payable responsibilities also have access to
vendor maintenance controls.
3. Lack of Sufficient Segregation of Authority and Duties. We have not
maintained sufficient segregation of duties or responsibilities, as evidenced
by executive officers (i) having the ability to purchase and receive goods,
(ii) assuming payables activities without verification or maintenance of vendor
controls by others, (iii) holding multiple executive positions simultaneously,
and (iv) having the ability to negotiate contracts with third parties in which
they have an interest, without conflict of interest or oversight control by the
Board of Directors. In addition, the Company lacked a Board of Directors with a
majority of independent directors.
REMEDIATION OF MATERIAL WEAKNESSES
1. Implementation of Effective Corporate Governance Policies and Procedures.
Independent Directors. Our management is currently considering the desire to
appoint independent directors, as defined in Rule 4200(a)(15) of the
Marketplace Rules of the NASDAQ Stock Market. Since our Company is currently
limited in its resources and business transactions, management believes that
the implementation of additional directors may not be reasonably feasible.
Committees of the Board. The Board has not established an Audit Committee, a
Compensation Committee, a Nominating and Corporate Governance Committee, or an
Executive Committee. Management currently believes that the creation of these
committees is not reasonably feasible.
2. At this time, management has evaluated the need for additional accounting
personnel to implement segregation of duties but found that this solution would
be expensive and inefficient since the Company has so few transactions that two
accounting personnel would be excessive.
3. Segregation of Authority and Duties. Management has evaluated the
requirement for increased segregation of authority and duties and has made the
conclusion that implementing such changes would not be reasonably feasible,
given the status of the Company at this time.
Management is committed to continuing efforts aimed at improving the design
adequacy and operational effectiveness of its system of internal controls. The
remediation efforts noted above will be subject to our continuing internal
control assessment, testing and evaluation process.
ATTESTATION
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management's report in this
annual report.
ITEM 8B. OTHER INFORMATION
We have no information that we would have been required to disclose in a report
on Form 8-K during the fourth quarter of the year covered by this Form 10-K.
24
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
(a) Identification of Directors and Executive Officers.
Name Age Term Served*
- ------------------ --- ------------------
S. Matthew Schultz 40 Elected since 2008
CEO/Director
Jason F. Griffith 32 Elected since 2008
CFO/Director
*All directors hold office until the next annual meeting of the stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
The following is a brief description of the business background of the
directors and executive officers of the Company:
S. MATTHEW SCHULTZ - CEO/DIRECTOR
Since the Company completed the reorganization in October 2008, Mr. Schultz has
served as its Chief Executive Officer and on its Board of Directors. Mr.
Schultz is also a founder of Granite Energy, has served on Granite 's Board of
Directors since the Company's December 2005 transformation into an oil and gas
company and has served as its chief executive officer from August 2006 until
December 2008. From April of 2003 to the present, Mr. Schultz has been
president of Wexford Capital Ventures, Inc., a Utah-based strategic financial
consulting firm. Wexford Capital provides boutique investment banking services
for micro-cap and small- cap companies and has been instrumental in assisting
several companies in initial public offerings and strategic planning. Mr.
Schultz has been instrumental in developing investor awareness and
participation for numerous publicly traded companies, and assisted in private
placement offerings in both the United States and abroad. From 1999 to 2003,
Mr. Schultz was the chairman of Pali Financial Group, Inc., an investment
banking firm specializing in small cap securities. He also served as the vice-
president of the Utah Consumer Lending Association during 1998-1999. Mr.
Schultz studied finance and management at the University of Wyoming and Weber
University.
JASON F. GRIFFITH - CFO/DIRECTOR
Since the Company completed the reorganization in October 2008, Mr. Griffith
has served as its Chief Financial Officer as well as a member of the Board of
Directors. Mr. Griffith's experience includes having served as a chief
financial officer for Granite Energy since December 2005 until December 2008
and for five other publicly traded companies. Mr. Griffith has additional
experience in public accounting, which includes being a partner of a CPA firm
in Henderson, Nevada since June 2002, as well as being the accounting manager
for another accounting firm in Henderson, Nevada from August 2001 through June
2002. Mr. Griffith was previously associated with Arthur Andersen in Memphis,
Tennessee from December 1998 until his move to Nevada in 2001. Prior to joining
Arthur Andersen, Mr. Griffith was pursuing and completed his undergraduate and
masters degree in accounting from Rhodes College in Memphis, Tennessee. He is a
licensed certified public accountant in Nevada, Tennessee, and Georgia. Mr.
Griffith is a member of the American Institute of Certified Public Accountants,
the Association of Certified Fraud Examiners and the Institute of Management
Accountants, along with being a member of the Nevada and Tennessee State
Societies of CPAs.
25
BOARD OF DIRECTORS; ELECTION OF OFFICERS
All directors hold their office until the next annual meeting of shareholders
or until their successors are duly elected and qualified. Any vacancy occurring
in the board of directors may be filled by the shareholders, the board of
directors, or if the directors remaining in the office constitute less than a
quorum of the board of directors, they may fill the vacancy by the affirmative
vote of a majority of the directors remaining in office. A director elected to
fill a vacancy is elected for the unexpired term of his predecessor in office.
Any directorship filled by reason of an increase in the number of directors
shall expire at the next shareholders' meeting in which directors are elected,
unless the vacancy is filled by the shareholders, in which case the terms shall
expiree on the later of (i) the next meeting of the shareholders or (ii) the
term designated for the director at the time of creation of the position being
filled.
BOARD COMMITTEES
In light of our small size and the fact that we have only two directors, our
board has not yet designated a nominating committee, an audit committee, a
compensation committee, or committees performing similar functions. The board
intends to designate one or more such committees when practicable.
Our board of directors intends to appoint such persons and form such committees
as are required to meet the corporate governance requirements imposed by
Sarbanes-Oxley and any applicable national securities exchanges. Therefore, we
intend that a majority of our directors will eventually be independent
directors and at least one director will qualify as an "audit committee
financial expert" within the meaning of Item 407(d)(5) of Regulation S-K, as
promulgated by the SEC. Additionally, our board of directors is expected to
appoint an audit committee, nominating committee and compensation committee and
to adopt charters relative to each such committee. Until further determination
by the board of directors, the full board of directors will undertake the
duties of the audit committee, compensation committee and nominating committee.
We do not currently have an "audit committee financial expert" since we
currently do not have an audit committee in place.
CODE OF ETHICS
The Company has adopted a Code of Ethics for its principal executive and
financial officers. In the meantime, the Company's management promotes honest
and ethical conduct, full and fair disclosures in its reports with the SEC, and
compliance with the applicable governmental laws and regulations.
26
ITEM 10. EXECUTIVE COMPENSATION
DIRECTOR AND OFFICER CASH COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the periods indicated to its directors and
executive officers:
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Amerigo Energy
The following sets forth the cash components of Amerigo Energy's executive
officers during the last two fiscal years. The remuneration described in the
table does not include the cost to Amerigo Energy of benefits furnished to the
named executive officers, including premium for health insurance and other
benefits provide to such individuals that are extended in connection with the
conduct of Amerigo Energy's business.
CASH COMPENSATION TABLE
All
Name and Stock Option Other
Principal Position Year Salary ($) Bonus ($) Awards Awards Compensation Total
- ------------------ ---- ---------- --------- ------ ------ ------------ -----
S. Matthew Schultz 2008 - - - - - -
Chief Executive 2007 - - - - - -
Officer
Jason F. Griffith 2008 - - - - - -
Chief Financial 2007 - - - - - -
Officer
Bruce Lybbert 2008 - - - - - -
Former CEO/Director 2007 - - - - - -
Larry S. Schroeder 2008 - - - - - -
Former CEO/Director 2007 97,500 - - - - 97,500
Each director of Amerigo Energy also serves as a director of Amerigo, Inc.
Directors do not receive separate compensation for service as directors of
Amerigo Energy or Amerigo, Inc.
DIRECTOR COMPENSATION
Fees Earned Non-Equity Nanqualified
or Paid Stock Option Incentive Plan Deferred All Other
Name in Cash ($) Awards Awards Compensation Compensation Compensation Total
- ---------- ----------- ------ ------ -------------- ------------ ------------ -----
S. Matthew
Schultz - - - - - - -
Jason F.
Griffith - - - - - - -
Bruce
Lybbert - - - - - - -
Former
CEO/Director
Larry S.
Schroeder - - - - - - -
Former
CEO/Director
27
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS
Other than as described above or in connection with the Reorganization, there
are no compensatory plans or arrangements, including payments to be received
from Amerigo Energy, with respect to any party named above which could result
in payments to any such person because of his resignation, retirement, or other
termination of such person's employment with Amerigo Energy or its
subsidiaries, or any change in control of Amerigo Energy, or a change in the
person's responsibilities following a change in control of Amerigo Energy.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article VI of Amerigo Energy's by-laws, Amerigo Energy may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of Amerigo Energy, by reason of the fact that he is or was a director,
officer, employee or agent of Amerigo Energy, or is or was serving at the
request of Amerigo Energy as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of Amerigo
Energy, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
Amerigo Energy may also indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of Amerigo Energy to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
Amerigo Energy, or is or was serving at the request of Amerigo Energy as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees, actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of Amerigo Energy. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to Amerigo Energy or for amounts paid in settlement to Amerigo
Energy, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court
deems proper.
Under Delaware law, a director of a Delaware corporation will not be found to
have violated his or her fiduciary duties to the corporation or its
shareholders unless there is proof by clear and convincing evidence that the
director has not acted in good faith, in a manner he or she reasonably believes
to be in or not opposed to the best interests of the corporation, or with the
care that an ordinarily prudent person in a like position would use under
similar circumstances.
28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The beneficial ownership of each person as described in the table below was
calculated based on 20,071,235 of Amerigo Energy Common Stock outstanding as of
December 31, 2008, according to the record ownership listings as of that date
and the verifications Amerigo Energy solicited and received from each director,
executive officer and five percent holder.
Security Ownership of Certain Beneficial Owners as of December 31, 2008
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Ownership Class
- ------- ----------------------- ----------------------- ---------
Common Granite Energy, Inc. majority shareholder 49.82%
2580 Anthem Village Dr. 10,000,000
Henderson, NV 89052
Common Kenneth D. Olson 1,323,556 6.59%
8641 Ruette Monte Carlo
La Jolla, Ca 92037
Security Ownership of Management
Title of Name and Address Amount and Nature Percent of
Class of Beneficial Owner of Beneficial Ownership Class
- ------- ----------------------- ----------------------- ---------
Common S. Matthew Schultz Chief Executive Officer 0.17%
161 N. Main Street 33,511 *
Bountiful, UT 84010
Common Jason F. Griffith Chief Financial Officer 0.88%
2580 Anthem Village Dr. 176,796 *(1)
Henderson, NV 89052
Common Lawrence S. Schroeder Former CEO/Director 0.28%
2580 Anthem Village Dr. 55,818 (2)
Henderson, NV 89052
Common Bruce Lybbert Former CEO/Director 0.00%
161 N. Main Street 0
Bountiful, UT 84010
(1) all of these shares are indirectly owned by a trust controlled
by Mr. Griffith.
(2) all of these shares are indirectly owned by a Company controlled
by Mr. Schroeder.
* Total Current Officers and Directors common shares held is 210,307
(1.05%)
Management has no knowledge of the existence of any arrangements or pledges of
the Company's securities which may result in a change in control of the
Company.
29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 2008, the Company holds $358,949 in notes receivable from
GreenStart, Inc., in which the Company is the majority shareholder. $356,820 of
the note was transferred to the Company from Granite Energy as part of the
reorganization on October 31, 2008. This asset is due on demand and accrues
interest at 6% annually. The accrued interest receivable on this loan totaled
$18,287 at December 31, 2008. The amounts are considered short term due to the
demand status of the note.
As of December 31, 2008, the Company had $70,666 in accrued payroll payable to
the Company's current and former officers.
As of December 31, 2008, the Company has $38,361 in liabilities due to a firm
controlled by the Company's Chief Financial Officer. This loan is non-interest
bearing and has no due date assigned to it.
Effective October 1, 2008, the Company entered into a consulting agreement with
a firm controlled by the Company's Chief Financial Officer for a fee of $7,500
per month. The consulting firm has been engaged to assist in organizing and
completing the process of filings with the Securities and Exchange Commission
and other tasks. The Company owed the firm $46,216 as of December 31, 2008
which is included as part of Accounts payable - related party in the
accompanying financial statements.
Other Material Transactions. With the exception of the above mentioned
transactions, there have been no material transactions, series of similar
transactions or currently proposed transactions to which the Company or any
officer, director, their immediate families or other beneficial owner is a
party or has a material interest in which the amount exceeds $50,000.
REVIEW AND APPROVAL OF RELATED PARTY TRANSACTIONS
The board of directors reviews and approves transactions with directors,
officers, and holders of more than 5% of our voting securities and their
affiliates, or each, a related party. Prior to board consideration of a
transaction with a related party, the material facts as to the related party's
relationship or interest in the transaction are disclosed to the board, and the
transaction is not considered approved by the board unless a majority of the
directors who are not interested in the transaction approve the transaction.
Further, when stockholders are entitled to vote on a transaction with a related
party, the material facts of the related party's relationship or interest in
the transaction are disclosed to the stockholders, who must approve the
transaction in good faith.
ITEM 13. PRINCIPAL ACCOUNTING FEES AND SERVICES
AUDIT AND NON-AUDIT FEES
Fiscal Year Ended
December 31,
2008 2007
------ ----
Audit fees $9,800 $ -
Audit related fees - -
Tax fees - -
All other fees - -
30
PRE APPROVAL OF SERVICES BY THE INDEPENDENT AUDITOR
The Board of Directors has established policies and procedures for the approval
and pre approval of audit services and permitted non-audit services. The Board
has the responsibility to engage and terminate the Company's independent
registered public accountants, to pre-approve their performance of audit
services and permitted non-audit services and to review with the Company's
independent registered public accountants their fees and plans for all auditing
services. All services provided by and fees paid to Larry O'Donnell were pre-
approved by the Board of Directors.
PART IV
ITEM 14. EXHIBITS
31.1 CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)/15(D)-
14(A)
31.2 CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)/15(D)-
14(A)
32.1 CERTIFICATION OF OUR CEO AND CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2009
By: /s/ S. Matthew Schultz By: /s/ Jason F. Griffith
---------------------- ----------------------
S. Matthew Schultz Jason F. Griffith
Chief Executive Officer, Chief Financial Officer
and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 15, 2009
By: /s/ S. Matthew Schultz By: /s/ Jason F. Griffith
---------------------- ----------------------
S. Matthew Schultz Jason F. Griffith
Chief Executive Officer, Chief Financial Officer
and Principal Accounting Officer
31