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, 2010
AMERIGO ENERGY, INC.
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(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
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(Address of principal executive offices) (Zip Code)
(702) 399-9777
--------------------------
(Issuer's telephone number)
Indicate by check mark 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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T
({section}232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
YES [ ] NO[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act)
YES [ ] NO [X]
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:
20,780,058 shares of common stock, $0.001 par value, as of May 14, 2010
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION............................................ 1
ITEM 1. FINANCIAL STATEMENTS............................................ 1
CONSOLIDATED BALANCE SHEET............................................ 1
CONSOLIDATED STATEMENT OF OPERATIONS.................................. 2
STATEMENT OF STOCKHOLDER'S EQUITY..................................... 3
CONSOLIDATED STATEMENT OF CASH FLOWS.................................. 4
NOTES TO FINANCIAL STATEMENTS......................................... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..... 13
ITEM 4. CONTROLS AND PROCEDURES....................................... 13
PART II - OTHER INFORMATION...............................................
ITEM 1. LEGAL PROCEEDINGS............................................... 14
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS....................... 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 14
ITEM 5. OTHER INFORMATION............................................... 14
ITEM 6. EXHIBITS........................................................ 14
SIGNATURES................................................................ 15
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEET
As of As of
March 31, 2010 December 31, 2009
-------------- -----------------
ASSETS
Current assets
Cash $ 1,308 $ 570
Accounts receivable 88,262 79,456
------------- -------------
Total current assets 89,570 80,026
Other current assets
Advances to related party 24,342 22,107
Notes receivable - related party 384,951 384,951
Accrued interest receivable - related party 46,339 40,569
------------- -------------
Total other current assets 455,633 447,627
Property, plant and equipment
Leasehold improvements 59,967 63,266
Office equipment, net of depreciation 11,460 13,298
Property and Equipment, net 71,084 73,742
Proved reserves, net of depletion 1,627,598 1,651,961
Software, net 5,199 5,504
Total property, plant and equipment 1,775,309 1,807,770
Other Assets
Investment in GreenStart - 42,236
Investment in Granite Energy 98,053 98,053
Deposits 950 950
------------- -------------
Total other assets 99,003 141,238
Total assets $ 2,419,514 $ 2,476,661
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 191,366 $ 171,182
Accounts payable - related party 110,164 99,664
Advances from related parties 38,942 39,736
Payroll liabilities 186,730 96,730
Short term note payable 120,000 -
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Total current liabilities 647,202 407,312
Notes payable - related parties 368,904 370,456
Accrued interest - related parties 16,838 10,107
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Total liabilities 1,032,944 787,874
Stockholders' (deficit)
Preferred stock (25,000,000 shares authorized
& 0 shares outstanding at March 31, 2010 and December 31, 2009) - -
Common stock; $.001 par value;
100,000,000 shares authorized;
22,780,058 shares outstanding
at March 31, 2010 and December 31, 2009 33,321 33,321
Additional paid-in capital 28,218,698 28,218,698
Stock receivable (665,600) (665,600)
Accumulated deficit (26,199,849) (25,897,632)
------------- -------------
Total stockholders' (deficit) 1,386,570 1,688,787
------------- -------------
Total liabilities and stockholders' (deficit) $ 2,419,514 $ 2,476,661
============= =============
1
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended
March 31, 2010 March 31, 2009
-------------- --------------
Revenue
Oil revenues 37,336 40,535
Gas revenues 23,010 11,495
Rental income 3,390 3,390
-------------- --------------
Total Revenue 63,736 55,419
Operating expenses
Lease operating expenses 33,883 25,857
Consulting expense 10,500 22,500
Selling, general and administrative 8,140 31,641
Professional fees 117,772 129,288
Depreciation and amortization expense 8,099 8,099
Depletion expense 24,363 80,871
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Total operating expenses 202,756 98,254
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Loss from operations (139,020) (242,835)
Other income (expenses):
Loss on sale of automobile - (1,883)
Interest expense (6,732) -
Loss on investment in GreenStart, Inc. (42,236) -
Interest income 5,771 15,246
Other income - 72
Other expense (120,000) -
-------------- --------------
Total other income (expenses) (163,197) 13,435
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Loss before provision for income taxes (302,217) (229,400)
Provision for income taxes
Net loss $ (302,217) $ (229,400)
============== ==============
Basic and diluted (loss) per common share (0.01) (0.01)
-------------- --------------
Basic and diluted weighted average common shares
outstanding 22,780,058 20,400,435
============== ==============
2
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 (see Note 4) 1,567,244 1,567 1,565,677 1,567,244
---------- -------- ------------ ---------- --------- -------------- ------------
Adjustment to beginning balance
of assets purchased 32,147 32,147
Shares issued for purchase of
oil interests - Justice Heirs 133,344 133 266,555 66,688
Shares issued for warrants 1,008,235 1,008 385,543 (12,000) $ - 374,551
Net loss - - - - - (12,883,736) (12,883,736)
---------- -------- ------------ ---------- --------- -------------- ------------
Balance, December 31, 2009 22,780,058 $ 33,321 $ 28,218,697 $(665,600) $ - $ (25,897,632) $ 1,688,787
========== ======== ============ ========== ========= ============== ============
Net loss - - - - - (302,217) (302,217)
Balance, March 31, 2010 22,780,058 $ 33,321 $ 28,218,697 $ (665,600) $ - $ (26,199,849) $ 1,386,570
========== ======== ============ ========== ========= ============== ============
3
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
three months ended three months ended
March 31, 2010 March 31, 2009
------------------ ------------------
Cash flows from operating activities:
Net loss $ (302,217) $ (229,400)
Adjustments to reconcile net loss to
net cash used by operating activities:
Impairment of oil investment in GreenStart $ 42,236 $ -
Changes in operating assets and liabilities:
Increase in accounts receivable (8,806) (35,040)
Increase in note receivable and interest (5,771) (12,030)
due from GreenStart
Increase in note receivable and interest - (9,862)
Depletion, depreciation and amortization 32,461 88,970
(Increase) / decrease in advances and - 31,341
bank receivables
Increase / (decrease) in accounts payable 20,184 5,091
Increase / (decrease) in accounts payable 10,500 23,475
- related party
Increase / (decrease) in accrued payroll 90,000 (18,936)
-------------- ---------------
Net cash used by operating activities $ (121,412) $ (156,391)
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 $ 2,151 (35,081)
Increase in stock payable - 183,776
-------------- ---------------
Net cash provided by financing activities $ 2,151 $ 148,695
-------------- ---------------
Net increase in cash (119,262) 5,185
Cash, beginning of period 570 1,300
Cash, end of period $ (118,692) $ 6,485
============== ===============
4
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).
On August 20, 2008, the Company announced that they would be issuing a dividend
of its ownership interest in Strategic Gaming Investments, Inc., a Nevada
corporation, to its shareholders. The dividend took the form of a dividend
certificate representing restricted common stock, which was distributed to the
Company's beneficial stockholders of record as of the record date, which was
September 3, 2008. In addition to the spin-off of SGI, the Ultimate Poker
League, Inc. ("UPL), filed dissolution papers with the Secretary of State of
Nevada to dissolve the corporation. As a result, UPL and SGI are no longer
included in our financials on a consolidated basis and our investment in UPL
was removed from our books.
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
FASB Accounting Standard Codification Topic 220-10, "Comprehensive Income"
("ASC 220-10"), requires that total comprehensive income be reported in the
financial statements. ASC 220-10 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,
2009 and the quarter ended March 31, 2010.
5
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
Depreciation is computed primarily on the straight-line method for financial
statements purposes over the following estimated useful lives:
CATEGORY ESTIMATED 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.
On December 31, 2009, the Company recognized an impairment loss on the book
value of the building it owns in the amount of $45,000. The carrying value
subsequent to impairment is $56,100, net of accumulated depreciation. The
building will now be depreciated using the straight-line method using the new
carrying value.
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 a straight-line method based on estimated useful lives due to
the Company's inability to complete a reserve study and ascertain reserve
estimates. Capitalized acquisition costs are depleted based on total
estimated useful lives. Capitalized costs to drill and equip wells are
depreciated and amortized based on total useful lives. 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.
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. Costs of properties
that become productive are transferred to proved oil and natural gas
properties.
Capitalized costs of producing oil and gas properties, after considering
estimated residual salvage values, are depreciated and depleted by the
straight-line 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.
6
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.
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, 2009 and March 31, 2010; the Company's financial
statements do not include an allowance for doubtful accounts because management
believes that no allowance is required at those dates.
NET LOSS PER COMMON SHARE
FASB Accounting Standards Codification Topic 260-10, "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 FASB Codification
Topic 740-10 ("ASC 740-10"), 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
The Company has adopted FASB Accounting Standards Codification Topic 718-10,
"Compensation- Stock Compensation" ("ASC 718-10") 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 ASC 718-10, 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.
7
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 June 2009, the FASB issued FASB ASC 105-10, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles,
which establishes the FASB Accounting Standards Codification{trademark} (the
Codification) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting
principles (GAAP), aside from those issued by the SEC. The Codification became
effective for interim and annual periods ending after September 15, 2009. The
Company adopted the Codification when referring to GAAP for the fiscal period
ending September 30, 2009. The adoption of the Codification did not have an
impact on the Company's financial position or results of operations.
In January 2010, the FASB issued Accounting Standards Update 2010-02,
"Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership
of a Subsidiary". This amendment to Topic 810 clarifies, but does not change,
the scope of current US GAAP. It clarifies the decrease in ownership
provisions of Subtopic 810-10 and removes the potential conflict between
guidance in that Subtopic and asset derecognition and gain or loss recognition
guidance that may exist in other US GAAP. An entity will be required to follow
the amended guidance beginning in the period that it first adopts FAS 160 (now
included in Subtopic 810-10). For those entities that have already adopted FAS
160, the amendments are effective at the beginning of the first interim or
annual reporting period ending on or after December 15, 2009. The amendments
should be applied retrospectively to the first period that an entity adopted
FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, "Equity
(Topic 505): Accounting for Distributions to Shareholders with Components of
Stock and Cash (A Consensus of the FASB Emerging Issues Task Force)". This
amendment to Topic 505 clarifies the stock portion of a distribution to
shareholders that allows them to elect to receive cash or stock with a limit on
the amount of cash that will be distributed is not a stock dividend for
purposes of applying Topics 505 and 260. Effective for interim and annual
periods ending on or after December 15, 2009, and would be applied on a
retrospective basis. The Company does not expect the provisions of ASU 2010-01
to have a material effect on the financial position, results of operations or
cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities-Oil
and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This
amendment to Topic 932 has improved the reserve estimation and disclosure
requirements by (1) updating the reserve estimation requirements for changes in
practice and technology that have occurred over the last several decades and
(2) expanding the disclosure requirements for equity method investments. This
is effective for annual reporting periods ending on or after December 31, 2009.
However, an entity that becomes subject to the disclosures because of the
change to the definition oil- and gas- producing activities may elect to
provide those disclosures in annual periods beginning after December 31, 2009.
Early adoption is not permitted. The Company does not expect the provisions of
ASU 2010-03 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various
Topics-Technical Corrections to SEC Paragraphs.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-05 (ASU 2010-05), Compensation - Stock
Compensation (Topic 718). This standard codifies EITF Topic D-110 Escrowed
Share Arrangements and the Presumption of Compensation.
8
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.
This amendment to Topic 820 has improved disclosures about fair value
measurements on the basis of input received from the users of financial
statements. This is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. Early adoption is permitted. The Company does not expect the
provisions of ASU 2010-06 to have a material effect on the financial position,
results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-07 (ASU 2010-07), Not-for-Profit Entities
(Topic 958): Not-for-Profit Entities: Mergers and Acquisitions. This amendment
to Topic 958 has occurred as a result of the issuance of FAS 164. The Company
does not expect the provisions of ASU 2010-07 to have a material effect on the
financial position, results of operations or cash flows of the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to
Various Topics. This amendment eliminated inconsistencies and outdated
provisions and provided the needed clarifications to various topics within
Topic 815. The amendments are effective for the first reporting period
(including interim periods) beginning after issuance (February 2, 2010), except
for certain amendments. The amendments to the guidance on accounting for
income taxes in reorganization (Subtopic 852-740) should be applied to
reorganizations for which the date of the reorganization is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. For those reorganizations reflected in interim financial statements
issued before the amendments in this Update are effective, retrospective
application is required. The clarifications of the guidance on the embedded
derivates and hedging (Subtopic 815-15) are effective for fiscal years
beginning after December 15, 2009, and should be applied to existing contracts
(hybrid instruments) containing embedded derivative features at the date of
adoption. The Company does not expect the provisions of ASU 2010-08 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
NOTE 3 - ACQUISITION AND DISPOSAL OF ASSETS
DURING THE YEAR ENDED DECEMBER 31, 2009
During the year ended December 31, 2009, the Company issued 1,567,244 shares of
our Company Common Stock in exchange for the purchase of various oil interests.
On August 14, 2009, the Company completed the purchase of certain lease oil,
gas, and mineral interests in the Justice Heirs A, B, and C leases operated by
SWJN Oil Company. The Justice leases are located in Archer County, Texas. The
Company acquired thirty three and 43/100 percent (33.43%) net revenue interests
(NRI) and forty one and 67/100 percent (41.67%) working interests (WI) in the
Justice Heirs leases from various entities or individuals:
The total purchase price for the leases was six hundred sixty six thousand,
seven hundred and twenty dollars ($666,720). The purchase agreements call for
the following methods of payment for the purchase of the leases: The issuance
of one hundred thirty four thousand, three hundred and forty four (133,344)
shares of Amerigo Energy, Inc. restricted common stock at $2.00 per share,
representing forty (40%) of the purchase price. An additional immediate cash
payment will be made in the amount of twenty six thousand, six hundred and
sixty seven dollars ($26,667). The remaining amount of three hundred seventy
three thousand, three hundred and sixty five dollars ($373,365) will be paid
monthly for a period of five years with interest of seven percent (7%) accruing
on the outstanding balance. The monthly payment amount is not to exceed seventy
five percent (75%) of the minimum net revenue interest (NRI) from the prior
month's production.
The purchase price of the leases were based of current market conditions as
well as the historical purchase prices made by the Company for acreage.
A material relationship exists between Bullfrog Management, LLC and the Company
in that Bullfrog Management, LLC is managed by the wife of S. Matthew Schultz,
the CEO of Amerigo Energy. A material relationship also exists between
Peachtree Consultants, LCC and the Company in that it is managed by a firm
owned by the CFO of Amerigo Energy, Jason F. Griffith. Jacque Lybbert is the
wife of Bruce Lybbert, a former Director of the Company.
The leases purchased consist of the above mentioned net revenue and working
interests in approximately 600 acres. The three leases have produced an average
of 263 barrels of oil each month for the last 12 months. The purchased
interests had gross revenues of approximately $62,600 in the past twelve
months, an average of $5,217 per month for all three leases.
In December 2009, the Company's agreement as part of the JJ Young oil and gas
lease interest expired and the Company recognized an impairment loss in the
amount of $60,000 on the asset and removed it from the books.
9
DURING THE QUARTER ENDED MARCH 31, 2010:
The Company did not acquire or dispose of any fixed assets during the quarter
ended March 31, 2010
During the quarter ended March 31, 2010, the Company received notice that a
building of ours was a part of a lawsuit for past due property taxes, in the
amount of $48,767. Due to complications in paperwork and transfer of ownership,
the Company was not the party being named in the lawsuit. Subsequent to the
balance sheet date, the Company has been notified that the building has had a
lien placed on it and will be sold at an auction. As a result, the Company will
be required to record a receivable from the seller of the building in the
amount of the original sale. The terms have yet to be determined with the
seller of the building.
NOTE 4 - NOTES PAYABLE
As of March 31, 2010, as discussed in Note 3, the Company has issued three
notes payable for a total of $373,365 as part of the purchase of certain lease
oil, gas, and mineral interests in the Justice Heirs A, B, and C leases
operated by SWJN Oil Company. The obligations will be paid monthly for a
period of five years with interest of seven percent (7%) accruing on the
outstanding balance. The monthly payment amount is not to exceed seventy five
percent (75%) of the minimum net revenue interest (NRI) from the prior month's
production. As of March 31, 2010, the balance outstanding was $368,904 and
interest had been accrued in the amount of $16,838.
NOTE 5 - STOCKHOLDERS' EQUITY
As of March 31, 2010, there were 22,780,058 shares of common stock outstanding
and no preferred shares outstanding.
DURING THE YEAR ENDED DECEMBER 31, 2009, THE COMPANY ISSUED COMMON STOCK AND
WARRANTS AS FOLLOWS:
COMMON STOCK
During the year ended December 31, 2009, the Company issued 1,567,244 shares of
our Company Common Stock at $1.00 per share in exchange for the purchase of
various oil interests.
In addition, on August 14, 2009, the Company entered into a purchase agreement
for the purchase of certain lease oil, gas, and mineral interests in the
Justice Heirs A, B, and C leases. As part of this agreement, the Company issued
133,344 shares of restricted common stock to related parties in addition to
other forms of payment for their interests in the said leases. See Note 3 for
full information regarding the purchase.
On December 31, 2009 the Company issued 1,008,235 shares of our Common Stock
for warrants purchased. See Warrants below.
WARRANTS
The Company issued warrants for the purchase of our Company's Common Stock at
$0.35, $0.40 and $1.00 per share on December 31, 2008. A total of 2,335,945
shares of common stock were subscribed to through the warrants. The shares
would have been 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 were
issued on December 31, 2009, for the prorated amount of payments received,
since the payments were not made in their entirety.
The remaining shares payable were removed from the records, and the transaction
has been finalized.
DURING THE QUARTER ENDED MARCH 31, 2010, THE COMPANY DID NOT ISSUE ANY COMMON
STOCK OR WARRANTS.
10
NOTE 6 - RELATED PARTY TRANSACTIONS
As of March 31, 2010, the Company holds $384,951 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
$46,339 at March 31, 2010. The amounts are considered short term due to the
demand status of the note.
As of March 31, 2010, the Company had $186,730 in accrued payroll payable to
the Company's current and former officers.
As of March 31, 2010, the Company has $41,502 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.
The Company has a consulting agreement with a firm controlled by the Company's
Chief Financial Officer for a fee of $3,500 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 $110,164 as of March 31, 2010 which is included as part of Accounts
payable - related party in the accompanying financial statements.
As of March 31, 2010, as discussed in Note 3 and Note 4, the Company has issued
three notes payable for a total of $373,365 as part of the purchase of certain
lease oil, gas, and mineral interests in the Justice Heirs A, B, and C leases
operated by SWJN Oil Company. The obligations will be paid monthly for a
period of five years with interest of seven percent (7%) accruing on the
outstanding balance. The monthly payment amount is not to exceed seventy five
percent (75%) of the minimum net revenue interest (NRI) from the prior month's
production. As of March 31, 2010, the balance outstanding was $368,904 and
interest had been accrued in the amount of $16,838. A material relationship
exists between Bullfrog Management, LLC and the Company in that Bullfrog
Management, LLC is managed by the wife of S. Matthew Schultz, the CEO of
Amerigo Energy. A material relationship also exists between Peachtree
Consultants, LCC and the Company in that it is managed by a firm owned by the
CFO of Amerigo Energy, Jason F. Griffith. Jacque Lybbert is the wife of Bruce
Lybbert, a former Director of the Company.
NOTE 7 - DEFERRED INCOME TAX
The Company accounts for its income taxes in accordance with FASB Codification
Topic 740-10 ("ASC 740-10"). 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 8 - 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, or its Operators, 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 9 - SUBSEQUENT EVENTS
None
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.
11
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, 2009, as filed with the Securities and Exchange Commission on
March 31, 2010.
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, 2010, the Company generated $3,390 in revenues
from the rental income in addition to royalties on producing oil and gas
properties in the amount of $60,346. For the year ended March 31, 2010, the
Company generated $3,390 in revenues from the rental income in addition to
royalties on producing oil and gas properties in the amount of $52,029.
OPERATING EXPENSES
Lease Operating - Lease operating expense for the quarter ended March 31, 2010
totaled $33,833 as compared to $25,857 for the quarter ended March 31, 2009.
The increase is directly related to the slight increase in producing interests
during the period.
Consulting- Consulting expenses were $10,500 for the quarter ended March 31,
2010 as compared to $22,500 for the quarter ended March 31, 2009. The decrease
of $12,000 was related to the decrease in monthly fees for services performed
by a company controlled by our chief financial officer.
General and Administrative - General and administrative expenses were $8,140
for the quarter ended March 31, 2010, compared to $31,641 for the quarter ended
March 31, 2008, representing an decrease of $23,501. The decrease in general
and administrative expense reflects the decrease in rent, travel, and other
expenditures during the period.
Professional Fees - Professional fees for the quarter ended March 31, 2010 were
$117,772 as compared to $129,288 for the period ended March 31, 2009. The
decrease was related to the decrease in the use of consultants in addition to
filing fees and associated filings that took place during the previous year.
Depreciation, Amortization, and Depletion - Depreciation and amortization
expenses were $8,099 for the quarters ended March 31, 2010 and 2009. The
depletion expense for the quarter ended March 31, 2010 was $35,363 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 oil and gas properties. There was $80,871 in depletion
expenses for the quarter ended March 31, 2009. The decrease is directly related
to the impairment of the value of the assets during the last fiscal year, which
adjusted the book value off of which depletion is calculated.
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OTHER INCOME AND EXPENSES
During the three months ended March 31, 2010, interest income was 5,771,
compared to $15,246 during three months ended March 31, 2009, representing an
increase of $9,475. The increase relates to the accrued interest on the
$384,951 note receivable from a related party. 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.
During the three months ended March 31, 2010, the Company impaired its
investment in GreenStart, Inc. in the amount of $42,236 to $0 and recognized a
loss for that amount.
NET LOSS ATTRIBUTABLE TO COMMON STOCK
We realized a net loss of $182,217 for the quarter ended March 31, 2010,
compared to a net loss of $229,400 for the quarter ended March 31, 2009, a
decrease of $45,183. The decrease in net loss is partially attributable to a
decrease of consulting expenses, professional fees, and depletion expense as
compared to the three months ended March 31, 2009 and the increase in revenues
due to the acquisition of oil and gas producing properties in 2009 and the
current period.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2009, we had cash in the amount of $1,308 and a working capital
deficit of $437,632, as compared to cash in the amount of $570 and a working
capital deficit of $327,286 as of December 31, 2009. In addition, our
stockholders' deficit was $2,419,514 at March 31, 2010, compared to
stockholders' deficit of $2,476,661 at December 31, 2009.
Our accumulated deficit increased from $25,897,632 at December 31, 2009 to
$26,079,849 at March 31, 2010.
Our operations used net cash of $43,648 during the quarter ended March 31,
2010, compared to $156,391 during the quarter ended March 31, 2009, a decrease
of $112,743.
Our cash used for investing activities was $0 for the quarter ended March 31,
2010 and $12,881 for the quarter ended March 31, 2009.
Our financing activities provided net cash of $2,151 during the quarter ended
March 31, 2010, compared to net cash of $148,695 during the quarter ended March
31, 2009.
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
March 31, 2010, 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.
13
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,
2010, 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
Amerigo has signed an agreement with the individual to acquire his interest in
certain oil and gas leases for $120,000, payable at $10,000 per month starting
April 1, 2010, with subsequent payments due on the 1st of each month. The term
of the note is One (1) year. The Company is offered a prepayment discount if
the Company pays $100,000 on or before Tuesday, June 1, 2010. Upon final
payment and settlement of the note, the individual will return all shares of
stock (with properly executed stock power) that he individual holds of Granite
Energy and / or Amerigo Energy, along with his entire interest in the Kunkel
lease, which is 3.20% working interest (2.54% net revenue interest), as well as
his ownership in what is know as the 4 Well Program (0.325% working interest,
0.2438% net revenue interest). As of the date of this filing, no payments have
been made on this note payable.
As of March 31, 2010, other than the lawsuit disclosed in the previous
paragraphs, 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)
14
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 14, 2010
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
15