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, 2010
AMERIGO ENERGY, INC.
(Exact name of small business issuer as
specified in its charter)
Delaware 20-3454263
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(State State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
2580 Anthem Village Drive
Henderson, NV 89052
(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 August 4, 2010
TABLE OF CONTENTS
ITEM 1. FINANCIAL STATEMENTS.................................................1
CONSOLIDATED BALANCE SHEET.................................................2
CONSOLIDATED STATEMENT OF OPERATIONS.......................................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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........10
ITEM 4. CONTROLS AND PROCEDURES.............................................11
PART II - OTHER INFORMATION...................................................12
ITEM 1. LEGAL PROCEEDINGS...................................................13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.....................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................16
ITEM 5. OTHER INFORMATION...................................................17
ITEM 6. EXHIBITS............................................................18
SIGNATURES....................................................................19
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEET
As of As of
June 30, 2010 June 30, 2009
Current assets
Cash $55 $570
Accounts receivable 98,157 79,456
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Total current assets 98,212 80,026
Other current assets
Advances to related party 52,184 22,107
Notes receivable - related party 384,951 384,951
Accrued interest receivable - related party 52,110 40,569
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Total other current assets 489,245 447,627
Property, plant and equipment
Leasehold improvements 56,669 63,266
Office equipment, net of depreciation 9,622 13,298
Property and Equipment, net 19,626 73,742
Proved reserves, net of depletion 1,603,235 1,651,961
Software, net 4,894 5,504
------------ -----------
Total property, plant and equipment 1,694,047 1,807,770
Other Assets
Investment in GreenStart - 42,236
Investment in Granite Energy 98,053 98,053
Deposits 950 950
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Total other assets 99,003 141,238
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Total assets $2,380,507 $2,476,661
============ ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $224,758 $171,182
Accounts payable - related party 120,664 99,664
Advances from related parties 38,873 39,736
Payroll liabilities 276,730 96,730
Short term note payable 120,000 -
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Total current liabilities 781,025 407,312
Long-term liabilities
Notes payable - related parties 368,904 370,456
Accrued interest - related parties 23,780 10,107
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Total liabilities 1,173,709 787,874
Stockholders' (deficit)
Preferred stock (25,000,000 shares authorized
& 0 shares outstanding at June 30, 2010 and December 31, 2009) - -
Common stock; $.001 par value;
100,000,000 shares authorized;
22,780,058 shares outstanding
at June 30, 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 (26,379,621) (25,897,632)
------------ -----------
Total stockholders' (deficit) 1,206,798 1,688,787
Total liabilities and stockholders' (deficit) $2,380,507 $2,476,661
============ ===========
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Six Months Ended
6/30/10 6/30/09 6/30/10 6/30/09
Revenue
Oil revenues $50,387 $36,648 $87,722 $77,183
Gas revenues 22,450 13,168 45,460 24,663
Rental income - 3,390 3,390 6,780
------- ------- ------- --------
Total Revenue 72,837 53,206 136,572 108,625
Operating expenses
Lease operating expenses $50,362 $30,781 $84,245 $56,638
Consulting expense 10,500 22,500 21,000 45,000
Selling, general and administrative 8,086 19,738 16,226 51,378
Professional fees 128,396 125,186 246,168 254,473
Depreciation and amortization expense 7,647 8,099 15,746 16,197
Depletion expense 24,363 88,796 48,725 169,667
------- ------- ------- --------
Total operating expenses 229,354 295,099 432,110 593,353
------- ------- ------- --------
Loss from operations $(156,517) $(241,893) $(295,538) $(484,728)
Other income (expenses):
Loss on sale of automobile - - - (1,883)
Loss on Auction of Building (22,083) - (22,083) -
Interest expense (6,942) - (13,673) -
Loss on investment in GreenStart, Inc. - - (42,236) -
Interest income 5,771 14,830 11,541 30,076
Other income - - - 72
Other expense - - (120,000) -
------- ------- ------- --------
Total other income (expenses) (23,254) 14,830 (186,451) 28,265
Loss before provision for income taxes $(179,771) $(227,063) $(481,989) $(456,463)
Provision for income taxes - - - -
------- ------- ------- --------
Net loss $(179,771) $(227,063) $(481,989) $(456,463)
Basic and diluted (loss) per common share $(0.01) $(0.01) $(0.02) $(0.01)
Basic and diluted weighted average common shares
outstanding 28,218,697 20,400,435 28,218,697 20,400,435
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Six months ended
June 30, 2010 June 30, 2009
Cash flows from operating activities:
Net loss $(481,989) $(456,463)
Adjustments to reconcile net loss to
net cash used by operating activities:
Loss on sale of building $22,083
Impairment of oil investment in GreenStart $42,236 $-
Changes in operating assets and liabilities:
Increase in accounts receivable (18,701) (23,067)
Increase in note receivable and interest due from GreenStart (5,771) (28,414)
Increase in note receivable and interest - (20,016)
Depletion, depreciation and amortization 64,471 185,864
(Increase) / decrease in advances and bank receivables - 32,150
Increase / (decrease) in accounts payable 53,576 7,583
Increase / (decrease) in accounts payable - related party 21,000 32,170
Increase / (decrease) in short term note payable 120,000 -
Increase / (decrease) in accrued payroll 180,000 (18,936)
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Net cash used by operating activities $(3,094) $(289,129)
Cash flows from investing activities:
Sale of office building $27,169 $ -
Purchase of oil and gas interests - 12,881
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Net cash used by investing activities $27,169 $12,881
Cash flows from financing activities:
Loan to (from) related party $(24,589) (63,808)
Increase in stock payable - 345,616
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Net cash provided by financing activities $(24,589) $281,808
========== =========
Net increase in cash (515) 5,561
Cash, beginning of period $ 570 $ 1,300
Cash, end of period $ 55 $ 6,861
========== =========
AMERIGO ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
Description of Business and History - Amerigo Energy, Inc., a Delaware
corporation ("AGOE" or the "Company"), formerly named Strategic Gaming
Investments, Inc., was incorporated in 1973. Prior to August 2008, the Company
was involved in various businesses.
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 June 30, 2010.
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:
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.
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 was sold during the six months ended June 30, 2010.
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.
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 June 30, 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.
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 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 recognition 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.
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.
In February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU
2010-09), Subsequent Events (TOPic 855), amending guidance on subsequent events
to alleviate potential conflicts between FASB guidance and SEC requirements.
Under this amended guidance, SEC filers are no longer required to disclose the
date through which subsequent events have been evaluated in originally issued
and revised financial statements. This guidance was effective immediately and
we adopted these new requirements for the period ended March 31, 2010. The
adoption of this guidance did not have a material impact on our financial
statements.
In April 2010, the FASB (Financial Accounting Standards Board) issued
Accounting Standards Update 2010-14 (ASU 2010-14), Accounting for Extractive
Activities - Oil and Gas. This amendment makes amendments to paragraph 932- 10-
S99-1 due to SEC release No. 33-8995, Modernization of Oil and Gas Reporting.
The Company does not expect the provisions of ASU 2010-14 to have a material
effect on the financial position, results of operations or cash flows of the
Company.
In April 2010, the FASB issued ASU No. 2010-17, "Revenue Recognition -
Milestone Method (Topic 605): Milestone Method of Revenue Recognition"
(codified within ASC 605 - Revenue Recognition). ASU 2010-17 provides guidance
on defining a milestone and determining when it may be appropriate to apply the
milestone method of revenue recognition for research or development
transactions. ASU 2010-17 is effective for interim and annual periods beginning
after June 15, 2010. The adoption of ASU 2010-17 is not expected to have any
material impact on our financial position, results of operations or cash flows.
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.
DURING THE SIX MONTHS ENDED JUNE 30, 2010:
During the 6 months ended June 30, 2010, the office building the Company had in
Texas was sold due to a tax lien from the prior owner that was incorrectly
recorded. Due to complications in paperwork and transfer of ownership, the
Company was not the party being named in the lawsuit. Subsequently, the Company
has been notified that the building had a lien placed on it and was sold at an
auction. The Company's building was auctioned for $27,168 this amount went
towards the back taxes of the pervious owner. The Company has notified the
previous owner that a receivable for $27,168 was recorded on the Company's
books. The terms of this receivable have not been negotiated yet. The Company
also had to record a loss in the amount of $22,083 on the building.
Additionally, the Company intends on hiring an attorney to attempt to be
refunded the money from the county for unlawful sale of our property.
NOTE 4 - NOTES PAYABLE
As of June 30, 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
June 30, 2010, the balance outstanding was $368,904 and interest had been
accrued in the amount of $23,780.
NOTE 5 - STOCKHOLDERS' EQUITY
As of June 30, 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 SIX MONTHS ENDED JUNE 30, 2010, THE COMPANY DID NOT ISSUE ANY COMMON
STOCK OR WARRANTS.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of June 30, 2010, the Company holds $384,951 in notes receivable from
GreenStart, Inc., in which the Company is a 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 $52,110 at June
30, 2010. The amounts are considered short term due to the demand status of the
note.
As of June 30, 2010, the Company had $276,730 in accrued payroll payable to the
Company's current and former officers.
As of June 30, 2010, the Company has $66,310 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 and
its personnel have 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 $120,664 as of June 30, 2010 which is included as
part of Accounts payable - related party in the accompanying financial
statements.
As of June 30, 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 June 30, 2010, the balance outstanding was $368,904 and
interest had been accrued in the amount of $23,780. 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. A
material relationship also exists between Peachtree Consultants, LCC and the
Company in that it is managed by a firm owned by the CFO, 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
The company has evaluated subsequent events through August 5, 2010, the date
which the financial statements were available to be issued. The company has
determined that, other than disclosed below, there were no other event that
warranted disclosure or recognition in the financial statements.
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.
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 3 months ending June 30, 2010, the Company generated $72,837 in
revenues from royalties on producing oil and gas properties. For the 3 months
ending June 30, 2009, 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 $49,816.
For the 6 months ending June 30, 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 $133,182. For the 6 months ending June 30, 2009,
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 $101,845.
OPERATING EXPENSES
Lease Operating - Lease operating expense for the 3 months ended June 30, 2010
totaled $50,362 as compared to $30,781 for the 3 months ended June 30, 2009.
The increase is directly related to the slight increase in producing interests
during the period.
Consulting- Consulting expenses were $10,500 for the 3 months ended June 30,
2010 as compared to $22,500 for the 3 months ended June 30, 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 $8,086
for the 3 months ended June 30, 2010, compared to $19,738 for the 3 months
ended June 30, 2009, representing an decrease of $11,652. 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 3 months ended June 30, 2010 were
$116,898 as compared to $125,186 for the 3 months ended June 30, 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
expense was $7,647 for the 3 months ended June 30, 2010. Depreciation and
amortization was $8,099 during the 3 months ended June 30, 2009. This
difference is related to the loss of the building during the quarter. The
depletion expense for the 3 months ended June 30, 2010 was $24,363 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 $88,796 in depletion
expenses for the 3 months ended June 30, 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.
Lease Operating - Lease operating expense for the 6 months ended June 30, 2010
totaled $84,245 as compared to $56,638 for the 6 months ended June 30, 2009.
The increase is directly related to the slight increase in producing interests
during the period.
Consulting- Consulting expenses were $21,000 for the 6 months ended June 30,
2010 as compared to $45,000 for the 6 months ended June 30, 2009. The decrease
of $24,000 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 $16,266
for the 6 months ended June 30, 2010, compared to $51,378 for the 6 months
ended June 30, 2009, representing an decrease of $35,112. 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 6 months ended June 30, 2010 were
$246,168 as compared to $254,473 for the 6 months ended June 30, 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
expense was $15,746 for the 6 months ended June 30, 2010. Depreciation and
amortization was $16,197 during the 6 months ended June 30, 2009. This
difference is related to the loss of the building during the quarter. The
depletion expense for the 6 months ended June 30, 2010 was $48,725 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 $169,667 in depletion
expenses for the 6 months ended June 30, 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.
OTHER INCOME AND EXPENSES
During the 3 months ended June 30, 2010, interest income was $5,771, compared
to $14,830 during the 3 months ended June 30, 2009, representing a decrease of
$9,059. The decrease 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 3 months ended June 30, 2010, the Company lost its building due to
the back taxes of its previous owner and had to record a loss in the amount of
$22,083.
During the 6 months ended June 30, 2010, interest income was $11,541, compared
to $30,076 during the 6 months ended June 30, 2009, representing a decrease of
$18535. The decrease 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 6 months ended June 30, 2010, the Company lost its building due to
the back taxes of its previous owner and had to record a loss in the amount of
$22,083.
NET LOSS ATTRIBUTABLE TO COMMON STOCK
The Company realized a net loss of $179,771 for the 3 months ending June 30,
2010. This is compared to a net loss of $227,063 for the 6 months ended June
30, 2009, a decrease of $47,292. 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 June 30, 2009 and the
increase in revenues due to the acquisition of oil and gas producing properties
in 2009 and the current period.
The Company realized a net loss of $481,989 for the 6 months ending June 30,
2010. This is compared to a net loss of $456,463 for the 6 months ended June
30, 2009, an increase of $25,526. The increase in net loss is partially
attributable to the judgment against the company for $120,000. See item 1 legal
proceedings for more information.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2010, we had cash in the amount of $55 and a working capital
deficit of $291,780, as compared to cash in the amount of $570 and a net
working capital of $40,315 as of December 31, 2009. In addition, our
stockholders' equity was $1,206,798 at June 30, 2010, compared to stockholders'
equity of $1,688,787 at December 31, 2009.
Our accumulated deficit increased from $25,897,632 at December 31, 2009 to
$26,379,621 at June 30, 2010.
Our operations used net cash of $3,094 during the six months ended June 30,
2010, compared to $289,129 during the quarter ended June 30, 2009, a decrease
of $286,034.
Our cash from investing activities was $27,169 for the six month period ended
June 30, 2010 and $12,881 for the quarter ended June 30, 2009.
Our financing activities provided net cash out of $24,589 during the quarter
ended June 30, 2010, compared to net cash of $281,808 during the quarter ended
June 30, 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
June 30, 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.
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 June 30,
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. Upon final payment and settlement of the note,
the individual will return all shares of stock along with his interest in
various programs. The Company has not made the payments per the agreement and
the individual has threatened legal action if the payments do not commence
immediately.
As of June 30, 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)
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 13, 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 Officerand Principal Accounting Officer