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: June 30, 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:
21,578,479 shares of common stock, $0.001 par value, as of August 14, 2009
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION............................................3
ITEM 1. FINANCIAL STATEMENTS.............................................3
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............................................13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........15
ITEM 4. CONTROLS AND PROCEDURES..........................................15
PART II - OTHER INFORMATION................................................16
ITEM 1. LEGAL PROCEEDINGS................................................16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............16
ITEM 5. OTHER INFORMATION................................................16
ITEM 6. EXHIBITS.........................................................16
SIGNATURES.................................................................17
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEET
As of As of
June 30, December 31,
2009 2008
-------------- --------------
ASSETS
Current assets
Cash $ 6,861 $ 1,300
Accounts receivable 45,255 22,187
-------------- --------------
Total current assets 52,115 23,487
Other current assets
Loans to related party 96,174 30,559
Notes receivable - related party 376,494 358,949
Accrued interest receivable - related party 29,155 18,287
-------------- --------------
Total other current assets 501,823 407,795
Property, plant and equipment
Leasehold improvements 69,863 76,460
Office equipment, net of depreciation 16,973 20,648
Vehicles, net of depreciation - 12,883
Property and Equipment, net 124,057 129,372
Proved reserves, net of depletion 6,387,538 6,032,016
Unproved reserves, net of depletion 6,494,216 5,512,163
Software, net 6,114 6,724
-------------- --------------
Total property, plant and equipment 13,098,760 11,790,265
Other Assets
Investment in GreenStart 42,236 42,236
Note receivable 406,606 386,590
Deposits 950 950
-------------- --------------
Total other assets $ 449,791 $ 429,776
-------------- --------------
Total assets $ 14,102,490 $ 12,651,323
============== ==============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 171,768 $ 164,186
Accounts payable - related party 78,386 46,216
Loans from related parties 40,168 38,361
Payroll liabilities 51,730 70,666
-------------- --------------
Total current liabilities 342,053 319,429
-------------- --------------
Total liabilities 342,053 319,429
Stockholders' (deficit)
Preferred stock (25,000,000 shares
authorized & 0 shares outstanding at
June 30, 2009) - -
Common stock; $.001 par value;
100,000,000 shares authorized;
21,578,479 shares outstanding
at June 30, 2009 32,120 30,613
Additional paid-in capital 27,506,660 25,968,778
Stock receivable (665,600) (665,600)
Common stock payable 357,616 12,000
Accumulated deficit (13,470,358) (13,013,897)
-------------- --------------
Total stockholders' (deficit) 13,760,437 12,331,894
-------------- --------------
Total liabilities and stockholders' (deficit) $ 14,102,490 $ 12,651,323
============== ==============
See Accompanying Notes to Financial Statements
3
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
----------- ------------ ------------ ------------
Revenue
Oil revenues $ 36,648 $ - $ 77,183 $ -
Gas revenues 13,168 - 24,663 -
Rental income 3,390 - 6,780 -
----------- ------------ ------------ ------------
Total Revenue 53,206 - 108,625 -
Operating expenses
Lease operating expenses $ 30,781 $ - $ 56,638 $ -
Consulting expense 22,500 61,849 45,000 591,161
Selling, general and administrative 19,738 6,027 51,378 15,232
Professional fees 125,186 - 254,473 -
Depreciation and amortization expense 8,099 - 16,197 -
Depletion expense 88,796 - 169,667 -
----------- ------------ ------------ ------------
Total operating expenses 295,099 67,876 593,353 606,393
----------- ------------ ------------ ------------
Loss from operations (241,893) (67,876) (484,728) (606,393)
Other income (expenses):
Loss on sale of automobile $ - $ - $ (1,883) $ -
Interest income 14,830 - 30,076 -
Other income (0) - 72 -
----------- ------------ ------------ ------------
Total other income (expenses) 14,830 - 28,265 -
----------- ------------ ------------ ------------
Loss before provision for income taxes (227,063) (67,876) (456,463) (606,393)
Provision for income taxes
Net loss $ (227,063) $ (67,876) $ (456,463) $ (606,393)
============ ============ ============ ============
Basic and diluted (loss) per common share (0.01) (0.01) (0.02) (0.05)
============ ============ ============ ============
Basic and diluted weighted
average common shares outstanding 21,578,479 11,095,519 21,578,479 11,095,519
============ ============ ============ ============
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, 402,357 $ 8,047 $ 3,580,849 $ - $ - $ (4,414,090) (825,194)
December 31, ======= ======== ============ ========= ========= ============ ============
2006
Shares issued 40,000 800 2,479,200 (2,500) - - 2,477,500
for merger
with Neolink
Issuance of - - 377,558 - - - 377,558
convertible
debt
agreements
Shares issued 30,000 600 - - - - 600
for settlement
of merger
rescission
Issuance of - - 1,031,050 - - - 1,031,050
stock options
for services
Issuance of - - 4,361,888 - - - 4,361,888
stock options
of
compensation
Issuance of - - 602,524 - - - 602,524
convertible
debt
agreements
Write off of 2,500 - 2,500
stock
receivable
Issuance of - - 108,695 - - - 108,695
convertible
debt
agreements
Net loss - - - - - (8,952,893) (8,952,893)
------- -------- ------------ --------- --------- ------------ ------------
Balance, 472,357 9,447 12,541,764 - - (13,366,983) (815,772)
December 31, ======= ======== ============ ========= ========= ============ ============
2007
Settlement of - - 441,963 - - - 441,963
accrued
payroll
Conversion of 82,419 1,648 846,765 - - - 848,413
notes payable
Issuance of - - 476,418 - - - 476,418
stock options
for services
Write off of - - (1,028,949) - - - (1,028,949)
previously
consolidated
interco. loan
Write off of - - (1,088,776) - - 1,088,684 (92)
dissolved and
spun off
entities
Settlement of 182,030 182 454,893 - - - 455,075
debts as part
of the
reorganization
Shares issued 10,000,000 10,000 3,414,004 - - - 3,424,004
for assets as
part of
reorganization
Stock 80,000 80 665,520 (665,600) - - -
receivable
issued
Shares issued 9,254,429 9,255 9,245,174 - - - 9,254,429
for purchase
of oil
interests
Stock payable - - - - 12,000 - 12,000
for warrants
Net loss - - - - - (735,597) (735,597)
----------- -------- ------------ --------- --------- ------------ ------------
Balance, 20,071,235 $ 30,613 $ 25,968,776 $(665,600) $ 12,000 $(13,013,896) $ 12,331,893
December 31, ========== ======== ============ ========= ========= ============ ============
2008
Shares issued 329,200 329 328,871 329,200
for purchase
of oil
interests
Adjustment to 32,147 32,147
beginning
balance of
assets
purchased
Stock payable 183,776 183,776
for warrants
Net loss - - - - - (229,400) (229,400)
----------- -------- ------------ --------- --------- ------------ ------------
Balance, March 20,400,435 $ 30,942 $ 26,329,794 $(665,600) $ 195,776 $(13,243,296) $ 12,647,615
31, 2009 ========== ======== ============ ========= ========= ============ ============
Shares issued 1,178,044 1,178 1,176,866 1,178,044
for purchase
of oil
interests
Stock payable 161,840 161,840
for warrants
Net loss - - - - - (227,063) (227,063)
----------- -------- ------------ --------- --------- ------------ ------------
Balance, June 21,578,479 $ 32,120 $ 27,506,660 $(665,600) $ 357,616 $(13,470,359) $ 13,760,436
30, 2009 ========== ======== ============ ========= ========= ============ ============
See Accompanying Notes to Financial Statements
5
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited
6 months 6 months
ended ended
June 30, June 30,
2009 2008
--------- ---------
Cash flows from operating activities:
Net loss $(456,463) $(606,393)
Adjustments to reconcile net loss to
net cash used by operating activities:
Changes in operating assets and liabilities:
Increase in accounts receivable (23,067) (397)
Increase in note receivable and interest due from GreenStart (28,414) -
Increase in note receivable and interest (20,016) -
Stock options issued - 476,418
Depletion, depreciation and amortization 185,864 -
(Increase) / decrease in loans and bank receivables 32,150 -
Increase / (decrease) in accounts payable 7,583 250,160
Increase / (decrease) in accounts payable - related party 32,170 (179,533)
Increase / (decrease) in accrued payroll (18,936) (16,865)
Lawsuit settlement payable - 6,000
--------- ---------
Net cash used by operating activities (289,129) (70,609)
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:
Loan to (from) related party (63,808) 77,725
Increase in stock payable 345,616 -
--------- ---------
Net cash provided by financing activities 281,808 77,725
--------- ---------
Net increase in cash 5,561 7,116
Cash, beginning of period 1,300 (7,116)
--------- ---------
Cash, end of period 6,861 -
========= =========
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 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. sold 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,
2008 and the quarter ended June 30, 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.
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 on the financial statements 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.
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
The Company uses the successful efforts method of accounting for its oil and
natural gas properties. Exploration costs such as exploratory geological and
geophysical costs and delay rentals are charged against earnings as
incurred The costs to acquire, drill and equip exploratory wells are
capitalized pending determinations of whether proved reserves can be attributed
to the Company's interests as a result of drilling the well. If management
determines that commercial quantities of oil and natural gas have not been
discovered, costs associated with exploratory wells are charged to exploration
expense. Costs to acquire mineral interests, to drill and equip development
wells, to drill and equip exploratory wells that find proved reserves, and
related costs to plug and abandon wells and costs of site restoration are
capitalized.
Depreciation, depletion and amortization ("DD&A") of oil and gas properties is
computed using the unit-of-production method based on recoverable reserves as
estimated by the Company's independent reservoir engineers. Capitalized
acquisition costs are depleted based on total estimated proved developed and
proved undeveloped reserve quantities. Capitalized costs to drill and equip
wells are depreciated and amortized based on total estimated proved developed
reserve quantities. Investments in unproved properties are not amortized until
proved reserves associated with the prospects can be determined or until
impairment occurs. Oil and natural gas properties are periodically assessed
for impairment. If the unamortized capitalized costs of proved properties are
in excess of estimated undiscounted future cash flows before income taxes, the
property is impaired. Estimated future cash flows are determined using
management's best estimates and may be calculated using prices consistent with
management expectations for the Company's future oil and natural gas
sales. Unproved oil and natural gas properties are also periodically assessed
for impairment, and a valuation allowance is provided if impairment is
indicated. Impairment costs are included in exploration expense. Costs of
expired or abandoned leases are charged against the valuation allowance. Costs
of properties that become productive are transferred to proved oil and natural
gas properties.
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.
8
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 June 30, 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.
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.
9
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.
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 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 April of 2009, the SEC issued Securities and Exchange Commission ("SEC")
Release No. 33-8995, "Modernization of Oil and Gas Reporting". SEC Release
No. 33-8995 revised disclosure requirements for oil and gas companies. In
addition to changing the definition and disclosure requirements for oil and gas
reserves, the new rules change the requirements for determining oil and gas
reserve quantities. These rules permit the use of new technologies to determine
proved reserves under certain criteria and allow companies to disclose their
probable and possible reserves. The new rules also require companies to report
the independence and qualifications of their reserves preparer or auditor and
file reports when a third party is relied upon to prepare reserves estimates or
conducts a reserves audit. The new rules also require that oil and gas reserves
be reported and the full cost ceiling limitation be calculated using a twelve-
month average price rather than period-end prices. The use of a twelve-month
average price could have an effect on our depletion rates for its natural gas
and crude oil properties. The pronouncement is effective January 1, 2010 and
will be effective for annual reports on Form 10-K for fiscal years ending after
December 31, 2009, pending the potential alignment of certain accounting
standards by the FASB with the new rule. The Company is currently evaluating
the impact of SEC Release No. 33-8995 on its consolidated financial statements
and related disclosures.
10
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS 165").
SFAS 165 provides authoritative accounting literature related to evaluating
subsequent events that was previously addressed only in the auditing
literature, and is largely similar to the current guidance in the auditing
literature with some exceptions that are not intended to result in significant
changes in practice. SFAS 165 defines subsequent events and also requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. SFAS 165 is effective on a prospective basis for
interim or annual financial periods ending after June 15, 2009. We plan to
adopt SFAS 165 in the first quarter of Fiscal 2010 and do not expect it to have
a material impact on our consolidated financial statements.
In June of 2009, the FASB issued SFAS No. 167, "Amendments to FASB
Interpretation No. 46(R)." SFAS No. 167 amends the requirements for
determination of the primary beneficiary of a variable interest entity,
requires an ongoing assessment of whether an entity is the primary beneficiary
and requires enhanced interim and annual disclosures that will provide users of
financial statements information regarding an enterprise's involvement in a
variable interest entity. SFAS No. 167 is effective for annual reporting
periods beginning after November 15, 2009. The adoption of SFAS No. 167 is not
expected to have a material impact on the Company's financial condition or
results of operations.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162, ("SFAS 168"), which is effective for
interim and annual periods ending after September 15, 2009. SFAS 168 does not
alter current U.S. GAAP, but rather integrates existing accounting standards
with other authoritative guidance. Under SFAS 168 there will be a single
source of authoritative U.S. GAAP for nongovernmental entities and will
supersede all other previously issued non-SEC accounting and reporting
guidance. The adoption of SFAS 168 will not have any impact on the Company's
consolidated financial statements.
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. sold 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
===========
11
On December 1, 2008, The Company started the process to issue 9,307,970 shares
of our Company Common Stock in exchange for the purchase 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:
DURING THE QUARTER ENDED JUNE 30, 2009:
During the six months ended June 30, 2009, the Company issued 1,453,703 shares
of our Company Common Stock in exchange for the purchase of various oil
interests that were previously sold by Granite Energy, Inc.
NOTE 4 - NOTES PAYABLE
As of June 30, 2009, there are no outstanding notes payable.
NOTE 5 - STOCKHOLDERS' EQUITY
As of June 30, 2009, there were 21,578,479 shares of common stock outstanding
and no preferred shares outstanding.
During the quarter ended June 30, 2009, the Company issued common stock and
warrants as follows:
COMMON STOCK
During the six months ended June 30, 2009, the Company issued 1,507,244 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 June 30, 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 June 30, 2009, the Company holds $376,494 in notes receivable from
GreenStart, Inc., in which the Company is the majority shareholder. $356,820 of
the note was sold 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
$29,155 at June 30, 2009. The amounts are considered short term due to the
demand status of the note.
As of June 30, 2009, the Company had $51,730 in accrued payroll payable to the
Company's current and former officers.
As of June 30, 2009, the Company has $38,361 in liabilities due to a firm
controlled by the Company's Chief Financial Officer. This liability 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 $76,216 as of June 30, 2009 which is
included as part of Accounts payable - related party in the accompanying
financial statements.
At June 30, 2009, the Company had paid expenses in advance of oil revenue from
SWJN Oil Company of $19,048. Our CFO has an ownership interest in this Texas
operator company. Additionally, $77,126 was paid as expenses for Granite
Energy, the Company's largest shareholder.
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 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.
12
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
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. South Texas Oil had
alleged the contract was not lived up to on the Company's end. After discussion
the Company agreed to modify the balance of $406,606 due to have it payable as
400,000 shares of South Texas Oil Company restricted common stock and have the
note reduced to $200,000. The Company has recorded a loss on settlement of
$14,606 in the 3rd quarter of 2009.
The Company was served with a lawsuit on August 3, 2009 from an individual
claiming he is owed money from Amerigo Energy. The Company has never entered
into any business with this individual and believes the case to be without
merit. The Company has retained counsel to vigorously defend this lawsuit.
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 filing.
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.
13
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 six months ended June 30, 2009, the Company generated $108,625 in
revenues from royalties on producing oil and gas properties and rental income
on a building we own. For the period ended June 30, 2008, 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 six months ended June 30,
2009 totaled $56,638 as compared to $0 for the quarter ended June 30, 2008. The
Company acquired its oil and gas interest subsequent to the quarter ended
December 31, 2008 therefore we did not have any lease operating expenses prior
to that acquisition.
Consulting- Consulting expenses were $45,000 for the six months ended June 30,
2009 as compared to $591,161 for the six months ended June 30, 2008. The
decrease of $546,161 was related to the shift in operations by the company in
late 2008 and the value of warrants issued to consultants that was expensed at
fair value in early 2008 in the amount of $476, 418.
General and Administrative - General and administrative expenses were $51,378
for the six months ended June 30, 2009, compared to $15,232 for the six months
ended June 30, 2008, representing an increase of $36,147. 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 six months ended June 30, 2009
were $254,473 as compared to $0 for the six months ended June 30, 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 $16,197 for the
six months ended June 30, 2009. The depletion expense for the six months ended
June 30, 2009 was $169,667 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
period ended June 30, 2008 because the Company had no depreciable assets until
2008.
OTHER INCOME AND EXPENSES
During the six months ended June 30, 2009, interest income was $30,076,
compared to $0 during six months ended June 30, 2008, representing an increase
of $30,076. The increase relates to the accrued interest on the $376,494 notes
receivable from a related party and the note receivable on the sale of a rig in
the amount of $406,606. See Note 6 for further information on the related party
note payable.
During the six months ended June 30, 2009, the Company sold a vehicle for
$11,000 that had a book value of $12,883 for a loss of $1,883.
14
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
We realized a net loss of $456,463 for the six months ended June 30, 2009,
compared to a net loss of $606,393 for the six months ended June 30, 2008, a
decrease of $149,930. The decrease in net loss is partially attributable to a
decrease of $546,161 in consulting expenses as compared to the six months ended
June 30, 2008 and the increase in revenues due to the acquisition of oil and
gas producing properties in 2008 and the current period.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2009, we had cash in the amount of $6,861, and a working capital
deficit of $289,937, 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 $13,760,437 at June 30, 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
$13,470,358 at June 30, 2009.
Our cash used for investing activities was $12,881 for the six months ended
June 30, 2009 and $0 for the six months ended June 30, 2008.
Our financing activities provided net cash of $281,808 during the six months
ended June 30, 2009, compared to net cash of $77,725 during the six months
ended June 30, 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
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS
We evaluated the effectiveness of our disclosure controls and procedures as of
June 30, 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.
15
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 June 30,
2009, that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
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. South Texas Oil had
alleged the contract was not lived up to on the Company's end. After discussion
the Company agreed to modify the balance of $406,606 due to have it payable as
400,000 shares of South Texas Oil Company restricted common stock and have the
note reduced to $200,000. The Company has recorded a loss on settlement of
$14,606 in the 3rd quarter of 2009. See Note 10, Subsequent Events.
The Company was served with a lawsuit on August 3, 2009 from an individual
claiming he is owed money from Amerigo Energy. The Company has never entered
into any business with this individual and believes the case to be without
merit. The Company has retained counsel to vigorously defend this lawsuit.
As of June 30, 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)
16
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: August 14, 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
17