U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2009
AMERIGO ENERGY, INC.
---------------------------------------
(Exact name of small business issuer as
specified in its charter)
Delaware 20-3454263
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2580 Anthem Village Drive
Henderson, NV 89052
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(702) 399-9777
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
YES [ ] NO [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. YES [ ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
20,400,435 shares of common stock, $0.001 par value, as of May 20, 2009
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET.............................................3
CONSOLIDATED STATEMENT OF OPERATIONS...................................4
STATEMENT OF STOCKHOLDER'S EQUITY......................................5
CONSOLIDATED STATEMENT OF CASH FLOWS...................................6
NOTES TO FINANCIAL STATEMENTS..........................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........18
ITEM 4. CONTROLS AND PROCEDURES..........................................19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............20
ITEM 5. OTHER INFORMATION................................................20
ITEM 6. EXHIBITS.........................................................20
SIGNATURES.................................................................21
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEET
As of As of
March 31, 2009 December 31, 2008
(Audited)
-------------- -----------------
ASSETS
Current assets
Cash $ 6,485 $ 1,300
Accounts receivable 57,227 22,187
-------------- -----------------
Total current assets 63,712 23,487
Other current assets
Loans to related party 69,433 30,559
Notes receivable - related party 365,595 358,949
Accrued interest receivable - related party 23,671 18,287
-------------- -----------------
Total other current assets 458,698 407,795
Property, plant and equipment
Leasehold Improvements 73,161 76,460
Office equipment, net of depreciation 18,811 20,648
Vehicles, net of depreciation - 12,883
Property and Equipment, net 126,715 129,372
Proved reserves, net of depletion 6,097,711 6,032,016
Unproved reserves, net of depletion 5,694,794 5,512,163
Software, net 6,419 6,724
-------------- -----------------
Total property, plant and equipment 12,017,611 11,790,265
Other Assets
Investment in GreenStart 42,236 42,236
Note receivable 397,259 386,590
Deposits 950 950
-------------- -----------------
Total other assets $ 440,445 $ 429,776
-------------- -----------------
Total assets $ 12,980,467 $ 12,651,323
============== =================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 169,276 $ 164,186
Accounts payable - related party 69,691 46,216
Loans from related parties 42,155 38,361
Payroll liabilities 51,730 70,666
-------------- -----------------
Total current liabilities 332,852 319,429
-------------- -----------------
Total liabilities 332,852 319,429
Stockholders' (deficit)
Preferred stock (25,000,000 shares
auth & 0 shares outstanding at March 31, 2009
and December 31, 2008) - -
Common stock; $.001 par value;
100,000,000 shares authorized;
20,071,235 shares outstanding
at March 31, 2009 and December 31, 2008 30,942 30,613
Additional paid-in capital 26,329,794 25,968,778
Stock receivable (665,600) (665,600)
Common stock payable 195,776 12,000
Accumulated deficit (13,243,296) (13,013,897)
-------------- -----------------
Total stockholders' (deficit) 12,647,615 12,331,894
-------------- -----------------
Total liabilities and stockholders' (deficit) $ 12,980,467 $ 12,651,323
============== =================
See Accompanying Notes to Financial Statements
3
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Three months ended
March 31, 2009 March 31, 2008
-------------- --------------
Revenue
Oil revenues 40,535 -
Gas revenues 11,495 -
Rental income 3,390 -
-------------- --------------
Total Revenue 55,419 -
Operating expenses
Lease operating expenses 25,857 -
Consulting expense 22,500 529,313
Selling, general and administrative 31,641 9,203
Professional fees 129,288 -
Depreciation and amortization expense 8,099 -
Depletion expense 80,871 -
-------------- --------------
Total operating expenses 298,254 538,516
-------------- --------------
Loss from operations 242,835 (538,516)
Other income (expenses):
Loss on sale of automobile (1,883) -
Interest income 15,246 -
Other income 72 -
-------------- --------------
Total other income (expenses) 13,435 -
-------------- --------------
Loss before provision for income taxes (229,400) (538,516)
-------------- --------------
Provision for income taxes
Net loss $ (229,400) $ (538,516)
============== ==============
Basic and diluted (loss) per common share (0.01) (0.06)
============== ==============
Basic and diluted weighted average common shares
outstanding 20,400,435 9,721,867
============== ==============
See Accompanying Notes to Financial Statements
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, 2008 20,071,235 $ 30,613 $25,968,776 $ (665,600) $ 12,000 $(13,013,896) $ 12,331,893
========== ======== =========== ============= ============= ============ ============
Shares issued for purchase
of oil interests 329,200 329 328,871 329,200
Adjustment to value of the
assets purchased 32,147 32,147
Stock payable for warrants 183,776 183,776
Net loss - - - - - (229,400) (239,262)
---------- -------- ----------- ------------- ------------- ------------ ------------
Balance, March 31, 2009 20,400,435 $ 30,942 $26,329,794 $ (665,600) $ 195,776 $(13,243,296) $ 12,647,615
========== ======== =========== ============= ============= ============ ============
See Accompanying Notes to Financial Statements
5
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
3 months ended 3 months ended
March 31, 2009 March 31, 2008
-------------- --------------
Cash flows from operating activities:
Net loss $ (229,400) $ (538,516)
Adjustments to reconcile net loss to
net cash used by operating activities:
Changes in operating assets and liabilities:
Increase in accounts receivable (35,040) (397)
Increase in note receivable and interest
due from GreenStart (12,030) -
Increase in note receivable and interest (9,862)
Stock options issued - 476,418
Depletion, depreciation and amortization 88,970 -
(Increase) / decrease in loans and bank
receivables 31,341 -
Increase / (decrease) in accounts payable 5,091 193,565
Increase / (decrease) in accounts payable -
related party 23,475 (179,533)
Increase / (decrease) in accrued payroll (18,936) (16,865)
Lawsuit settlement payable - 18,000
-------------- --------------
Net cash used by operating activities (156,391) (47,328)
Cash flows from investing activities:
Purchase of oil and gas interests 12,881 -
-------------- --------------
Net cash used by investing activities 12,881 -
Cash flows from financing activities:
Increase in bank overdraft 4,366
Loan to (from) related party (35,081) 50,078
Increase in stock payable 183,776 -
-------------- --------------
Net cash provided by financing activities 148,695 54,444
-------------- --------------
Net increase in cash 5,185 7,116
Cash, beginning of period 1,300 (7,116)
-------------- --------------
Cash, end of period 6,485 -
-------------- --------------
Supplementary cash flow information:
Cash payments for income taxes $ - $ -
============== ==============
Cash payments for interest $ - $ -
============== ==============
See Accompanying Notes to Financial Statements
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.
7
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,
2008 and the quarter ended March 31, 2009.
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.
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.
8
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.
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.
9
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.
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 at December 31, 2008 and March 31, 2009; 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.
10
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.
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.
11
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.
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.
12
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.
NOTE 3 - 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 received 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
===========
13
On December 1, 2008, The Company started the process to issue 9,307,970 shares
of our Company Common Stock in exchange for the transfer of various oil
interests that were previously sold by Granite Energy, Inc.
DURING THE QUARTER ENDED MARCH 31, 2009:
During the first quarter ended March 31, 2009, The Company issued 275,659
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:
NOTE 4 - NOTES PAYABLE
As of March 31, 2009, there are no outstanding notes payable.
NOTE 5 - STOCKHOLDERS' EQUITY
As of March 31, 2009, there were 20,400,435 shares of common stock outstanding
and no preferred shares outstanding.
During the quarter ended March 31, 2009, the Company issued common stock and
warrants as follows:
COMMON STOCK
During the quarter ended March 31, 2009, the Company issued 329,200 shares of
our Company Common Stock at $1.00 per share in exchange for the purchase of
various oil interests.
WARRANTS
No warrants were issued during the quarter ended March 31, 2009.
An adjustment was made to Additional Paid in Capital during the three months
ended March 31, 2009 for the interest on the note receivable that was
transferred to the Company as part of the reorganization on October 31, 2008.
During our lawsuit investigation with South Texas Oil Company, it was
discovered that interest on the note that was transferred to the Company had
not been accrued and the balance was adjusted accordingly.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of March 31, 2009, the Company holds $365,595 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
$23,671 at March 31, 2009. The amounts are considered short term due to the
demand status of the note.
As of March 31, 2009, the Company had $51,730 in accrued payroll payable to the
Company's current and former officers.
As of March 31, 2009, 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 March 31, 2009 which
is included as part of Accounts payable - related party in the accompanying
financial statements.
At March 31, 2009, the Company had paid expenses in advance of oil revenue from
SWJN Oil Company of $ 9,458. Our CFO has an ownership interest in this Texas
operator company. Additionally, $59,976 was paid as expenses for Granite
Energy, the Company's majority shareholder.
14
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 if all
payments from warrant holders are received no later than December 31, 2009.
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 exercised 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
The Company records its income taxes in accordance with Statement of Financial
Accounting Standard No. 109, "Accounting for Income Taxes". The Company
incurred net operating losses during all periods presented resulting in a
deferred tax asset, which was fully allowed for in a valuation allowance. As a
result, the net benefit and expense resulted in no income taxes.
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.
NOTE 10 - SUBSEQUENT EVENTS
On April 27, 2009, The Company issued shares of our Company Common Stock at
$1.00 per share in exchange for the acquisition of additional certain oil
and gas 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-Q,
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.
15
ITEM 2. 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.
A complete discussion of these risks and uncertainties are contained in our
Annual Financial Statements included in the Form 10-K for the fiscal year ended
December 31, 2008, as filed with the Securities and Exchange Commission on May
15, 2009.
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-Q.
OVERVIEW
RESULTS OF OPERATIONS
REVENUES
For the year ended March 31, 2009, the Company generated $55,419 in revenues
from royalties on producing oil and gas properties and rental income on a
building we own. For the period ended March 31, 2008, the Company did not
recognize any revenues because we did not have any significant business
operations during that time.
16
OPERATING EXPENSES
Lease Operating - Lease operating expense for the quarter ended March 31, 2009
totaled $25,857 as compared to $0 for the quarter ended March 31, 2008. 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 $22,500 for the quarter ended March 31,
2009 as compared to $0 for the quarter ended March 31, 2008. The increase of
$22,500 was related to the services performed by a company controlled by our
chief financial officer.
General and Administrative - General and administrative expenses were $31,641
for the quarter ended March 31, 2009, compared to $9,203 for the quarter ended
March 31, 2008, representing an increase of $22,438. The increase 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 quarter ended March 31, 2009 were
$129,288 as compared to $0 for the period ended March 31, 2008. The increase
was related to the increase in operations and the use of consultants in
addition to filing fees and stock transfer agent fees 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 $8,099 for the
quarter ended March 31, 2009. The depletion expense for the quarter ended March
31, 2009 was $80,871 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
March 31, 2008 because the Company had no depreciable assets until 2008.
OTHER INCOME AND EXPENSES
During the three months ended March 31, 2009, interest income was $15,246,
compared to $0 during three months ended March 31, 2008, representing an
increase of $15,246. The increase relates to the accrued interest on the
$365,595 notes receivable from a related party and the note receivable on the
sale of a rig in the amount of $397,259. See Note 6 for further information on
the related party note payable.
During the three months ended March 31, 2009, the Company sold a vehicle for
$11,000 that had a book value of $12,883 for a loss of $1,883.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
We realized a net loss of $229,400 for the quarter ended March 31, 2009,
compared to a net loss of $538,516 for the quarter ended March 31, 2008, a
decrease of $309,116. The decrease in net loss is partially attributable to a
decrease of $506,813 in consulting expenses as compared to the three months
ended March 31, 2008 and the increase in revenues due to the acquisition of oil
and gas producing properties in 2008 and the current period.
17
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2009, we had cash in the amount of $6,485, and a working capital
deficit of $269,140, as compared to cash in the amount of $1,300 and a working
capital deficit of $295,942 as of December 31, 2008. In addition, our
stockholders' deficit was $12,647,615 at March 31, 2009, compared to
stockholders' deficit of $12,331,894 at December 31, 2008.
Our accumulated deficit increased from $13,013,897 at December 31, 2008 to
$13,243,296 at March 31, 2009.
Our operations used net cash of $156,391 during the quarter ended March 31,
2009, compared to $47,328 during the quarter ended March 31, 2008, a increase
of $109,063.
Our cash used for investing activities was $12,881 for the quarter ended March
31, 2009 and $0 for the quarter ended March 31, 2008.
Our financing activities provided net cash of $148,695 during the quarter ended
March 31, 2009, compared to net cash of $54,444 during the quarter ended March
31, 2008.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
18
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS
We evaluated the effectiveness of our disclosure controls and procedures as of
March 31, 2009, the end of the period covered by this Quarterly Report on Form
10-Q. This evaluation was undertaken by our chief executive officer, S. Matthew
Schultz, and our Chief Financial Officer, Jason F. Griffith. Mr. Schultz serves
as our principal executive officer and Mr. Griffith serves as our principal
accounting and financial officer.
We reviewed and evaluated the effectiveness of the design and operation of our
disclosure controls and procedures, as of the end of the fiscal quarter covered
by this report, as required by Securities Exchange Act Rule 13a-15, and
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed in our reports filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, is accumulated and communicated to management on a timely
basis, including our principal executive officer and principal financial and
accounting officer.
CONCLUSIONS
Based on this evaluation, our principal executive officer and principal
financial and accounting officer concluded that our disclosure controls and
procedures are effective to ensure that the information we are required to
disclose in reports that we file pursuant to the Exchange Act are recorded,
processed, summarized, and reported in such reports within the time periods
specified in the Securities and Exchange Commission's rules and forms.
CHANGES IN INTERNAL CONTROLS
There were no changes in our internal controls over financial reporting that
occurred during the last fiscal quarter, i.e., the three months ended March 31,
2009, that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During the first quarter of 2009, 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.
As of March 31, 2009, other than the lawsuit disclosed in the previous
paragraph, 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS
(a) Exhibits.
31.1 Certification of our Principal Executive Officer and Principal Financial
and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1 Certification of our Chief Executive Officer and Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 20, 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 Executive Officer and Principal Accounting Officer
21