As filed with the Securities and Exchange Commission on September 15, 2008
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERIGO ENERGY, INC.
-------------------------------------
(Exact name of Registrant as specified
in its charter)
DELAWARE 7990 20-3454263
---------------- ------------------------- --------------
(State or other (Primary Standard (I.R.S Employer
jurisdiction of Industrial Classification Identification
incorporation or Code Number) Number)
organization)
2580 Anthem Village Drive
Henderson, NV 89052
(702) 399-9777
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(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
S. Matthew Schultz, Chief Executive Officer
Amerigo Energy, Inc.
2580 Anthem Village Drive
Henderson, NV 89052
(702) 399-9777
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
Geoffrey T. Chalmers, Esq.
33 Broad Street, Suite 1100
Boston, MA 02109
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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. (Check one):
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer
(Do not check if a smaller company) [ ]
Smaller reporting company [X]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
TO BE REGISTERED REGISTERED (*) MAXIMUM OFFERING PRICE MAXIMUM AGGREGATE REGISTRATION FEE
PER UNIT OFFERING PRICE (**)
- -------------------------------- -------------- ---------------------- ------------------ ----------------
Common Stock 10,000,000 Not applicable $3,467,720 $136
(*) Based upon the maximum number of common shares that the Registrant may
be required to issue in the Reorganization transaction.
(**) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933 on the basis of the
market value of the shares of Amerigo Energy, Inc. common stock to be issued to
holders of Granite Energy, Inc. in the Reorganization transaction, computed, in
accordance with Rule 457(f)(2) and (3), as (a) the historic cost of the assets
transferred from Granite in exchange for 10,000,000 shares of Amerigo Energy,
Inc. common stock as of the date of the transfer, October 31, 2008
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
THE INFORMATION IN THIS PROSPECTUS/INFORMATION STATEMENT IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS/INFORMATION STATEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE OR OTHER
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
DATED OCTOBER 31, 2008
AMERIGO ENERGY, INC. GRANITE ENERGY, INC.
Amerigo Energy, Inc. ("Amerigo Energy"), and Granite Energy, Inc.
("Granite"), on October 31, 2008 entered into a Reorganization pursuant to
Reorganization Agreement dated as of October 31, 2008 (the "Reorganization
Agreement"). In the Reorganization, Granite transferred to Amerigo Energy
substantially all of its assets and operations, including its two subsidiaries,
Amerigo, Inc. and GreenStart, Inc. in exchange for 10,000,000 restricted shares
of Common Stock of Amerigo Energy, Inc. (the "Amerigo Energy Stock"), to be
distributed to stockholders of Granite.
The Reorganization was approved by the consent of a majority of the
holders of common stock of Granite. Completion of the Reorganization is subject
to certain conditions, including the approval of the United States Securities
and Exchange Commission to the distribution of the Amerigo Energy Stock to the
Granite stockholders.
Under the terms of the Reorganization Agreement, the shareholders of
Granite will be entitled to receive after the reorganization is completed, a
distribution of 10,000,000 shares of Amerigo Energy post-split shares of Common
Stock.
As of the Closing Date (subsequent to the proposed reverse stock split and
issuance of all shares of Common Stock at the Closing), Amerigo Energy will
have a total of 842,256 post-split shares of Common Stock issued and
outstanding and no shares of preferred stock issued and outstanding.
Amerigo Energy Common Stock is not traded on an established market.
Amerigo Energy shares are traded through broker/dealers and in private
transactions, and quotations are reported on the OTC Bulletin Board under the
symbol "AGOE". OTC Bulletin Board quotations reflect inter-dealer prices,
without mark-up, mark-down, or commission and may not necessarily represent
actual transactions.
An investment in the Common Stock of Amerigo Energy involves certain
risks. For a discussion of these risks, see "Risk Factors" on page 11 of this
prospectus/information statement.
Neither shareholders vote nor consent of shareholders was required of
Amerigo Energy shareholders for the adoption and implementation of the
Reorganization.
This prospectus/information statement is dated November 4, 2008 and, is
being first mailed to shareholders of Amerigo Energy on or about November 10,
2008.
Sincerely,
S. Matthew Schultz, Chief Executive Officer
Amerigo Energy, Inc.
The securities to be issued in connection with the Reorganization described in
this prospectus/information statement are not savings accounts, deposit
accounts or other obligations of any bank or savings association and are not
insured by the Federal Deposit Insurance Corporation, the Deposit Insurance
Fund or any other federal or state governmental agency. Neither the Securities
and Exchange Commission nor any state securities commission has approved or
disapproved of the Amerigo Stock to be issued in the Reorganization or
determined if this prospectus/information statement is truthful or complete.
Any representation to the contrary is a criminal offense.
This document does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities, or the solicitation of any information, in any
jurisdiction to or from any person to whom it is unlawful to make any such
offer
or solicitation in such jurisdiction.
Sources of Information
Amerigo Energy has supplied all information contained in this
Prospectus/information statement relating to Amerigo Energy. Granite has
supplied all information contained in this Prospectus/information statement
relating to Amerigo, Inc., GreenStart and Granite.
You should rely only on the information which is contained in this
prospectus/information statement or to which we have referred in this
prospectus/information statement. We have not authorized anyone to provide you
with information that is different. You should not assume that the information
contained in this prospectus/information statement is accurate as of any date
other than the date of this prospectus/information statement.
TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION................................6
SUMMARY.......................................................................8
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION................8
FORWARD-LOOKING STATEMENTS....................................................8
RISK FACTORS..................................................................8
MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS..........................12
THE REORGANIZATION...........................................................13
THE PARTIES................................................................13
CONDITIONS TO THE REORGANIZATION...........................................14
SELECTED FINANCIAL DATA OF AMERIGO ENERGY. (HISTORICAL)....................15
SELECTED FINANCIAL DATA OF GRANITE ENERGY (HISTORICAL).....................16
SELECTED PRO FORMA FINANCIAL INFORMATION...................................17
SOLICITATION AND REVOCATION OF PROXIES.....................................18
BACKGROUND OF THE REORGANIZATION...........................................18
AMERIGO ENERGY'S AND GRANITE'S REASONS FOR THE REORGANIZATION..............18
STOCK ISSUANCE AND SETTLEMENT OF LIABILITIES...............................18
DISSENTERS' RIGHTS.........................................................19
TAX CONSEQUENCES...........................................................19
ACCOUNTING TREATMENT.......................................................20
RESALE OF AMERIGO ENERGY STOCK.............................................20
THE REORGANIZATION AGREEMENT...............................................20
INFORMATION WITH RESPECT TO AMERIGO ENERGY, INC..............................21
INDEX TO AMERIGO ENERGY FINANCIAL INFORMATION..............................22
INFORMATION WITH RESPECT OF GRANITE ENERGY, INC..............................42
INDEX TO GRANITE ENERGY FINANCIAL INFORMATION..............................42
PRO FORMA FINANCIAL INFORMATION..............................................59
AMERIGO ENERGY DIRECTORS AND EXECUTIVE OFFICERS AFTER THE REORGANIZATION.....63
DIRECTOR AND OFFICER COMPENSATION............................................63
INDEMNIFICATION OF DIRECTORS AND OFFICERS....................................65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................65
BENEFICIAL OWNERSHIP OF AMERIGO ENERGY'S SHARES..............................65
DESCRIPTION OF AMERIGO ENERGY COMMON STOCK...................................66
PRE-EMPTIVE RIGHTS...........................................................66
EXPERTS......................................................................66
WHERE YOU CAN FIND MORE INFORMATION..........................................67
SIGNATURES...................................................................68
INDEX TO EXHIBITS............................................................69
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
Q. WHY AM I RECEIVING THIS PROSPECTUS/INFORMATION STATEMENT?
A: You are receiving this prospectus/information statement because as a
shareholder of Granite you are to receive Amerigo Energy Stock pursuant
to the terms of a Reorganization Agreement between Amerigo Energy and
Granite.
This prospectus/information statement contains important information
about Amerigo Energy and the Reorganization and you should read it
carefully.
Q. WHY DID AMERIGO ENERGY ENTER INTO THE REORGANIZATION?
A: Amerigo Energy believes that the Reorganization is in the best
interests of its shareholders and other constituencies, including the
Granite shareholders because, among other reasons, the Reorganization
will provide enhanced value and increased liquidity to shareholders of
both companies. Furthermore, as a result of the Reorganization, Amerigo
Energy has become an oil and gas company with an improved ability to
compete with other larger oil and gas companies and better serve its
customers' needs.
No approval of the shareholders of Amerigo Energy is required under the
provisions of Amerigo Energy's Amended Articles of Incorporation or By-
laws or applicable law in order to consummate the Reorganization.
Q. WHY DID GRANITE ENTER INTO THE REORGANIZATION?
A: Granite's board, management and a majority of its shareholders believe
that the Reorganization is in the best interests of the Granite
shareholders. An opportunity to be part of a publicly traded, SEC
reporting company will provide enhanced value and increased liquidity to
shareholders.
A Majority of the shareholders of Granite approved the Reorganization
under the provisions of the Articles of Incorporation and By-laws of
Granite and applicable law in order to consummate the Reorganization.
Q: WHAT WILL GRANITE SHAREHOLDERS RECEIVE IN THE REORGANIZATION?
A: Under the terms of the Reorganization Agreement, and subject to U.S.
Securities and Exchange approval of a registration statement covering the
shares, shareholders of Granite will receive 10,000,000 shares of post-
split Amerigo Energy Common Stock.
6
Q: WHEN IS THE REORGANIZATION EXPECTED TO BE COMPLETED?
A: We are working to complete the Reorganization as quickly as we can.
The asset transfer and issuance of the Amerigo Energy Stock took place on
October 31, 2008. We expect to distribute the Amerigo Energy Stock upon
approval of the registration statement by the SEC.
Q: WILL I BE ABLE TO RE-SELL MY NEW SHARES OF AMERIGO ENERGY STOCK?
The Common Stock of Amerigo Energy being distributed to Granite
stockholders in the Reorganization is subject to Rule 145(d) of the Rules
and Regulations of the U.S. Securities and Exchange Commission which
governs resale of this Common Stock in the public market.
The Rule provides that any Granite stockholder receiving the shares may
resell them after 90 days from the effective date of issuance (October
31, 2008) through a broker dealer in the public market in so-called
"brokers transactions" as defined in SEC Rule 144.
Any person who has not been an "affiliate" of Amerigo Energy for at least
3 months may resell the shares free of the Rule 144 requirements after 6
months from the date they were acquired from Amerigo Energy as long as
Amerigo Energy is current in its filings. After a holding period of one
year, the shares may be sold without meeting any of the requirements of
Rule 144. An "affiliate" is any person controlling, controlled by or
under common control with the issuer. This is interpreted to include
officers, directors and controlling stockholders of Amerigo Energy.
"Affiliates will continue to be subject to the Rule 144 requirements
described above.
Q: WHAT DO I NEED TO DO NOW?
A: You do not need to take any action now. Once the necessary approvals
have been obtained you will be notified as to the receipt of the Amerigo
Energy Stock.
Q: WHO CAN ANSWER MY QUESTIONS?
A: If you have questions about the Reorganization or desire additional
copies of this prospectus/information statement, please contact:
S. Matthew Schultz
Chief Executive Officer
Amerigo Energy, Inc.
2580 Anthem Village Drive
Henderson, NV 89052
(702) 399-9777
7
SUMMARY
This summary highlights selected information from this prospectus/ information
statement. It does not contain all of the information that may be important to
you. You should read carefully this entire document and its exhibits and all
other documents to which this prospectus/information statement refers. Page
references are included in this summary to direct you to a more complete
description of topics discussed in this prospectus/information statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REORGANIZATION
The Reorganization is intended to be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), and accordingly, for federal income tax
purposes (i) no gain or loss will be recognized by Amerigo Energy or Granite as
result of the reorganization. See further discussion under "Tax Consequences,"
page 19.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus/information statement which are
not statements of historical fact constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including,
without limitation, the statements specifically identified as forward-looking
statements within this prospectus/information statement. Examples of forward-
looking statements include: (a) projections of income or expense, earnings per
share, the payment or non-payment of dividends, capital structure and other
financial items; (b) statements of plans and objectives of Amerigo Energy, or
its respective directors and officers, including those relating to products or
services; (c) statements of future economic results; and (d) statements of
assumptions underlying the foregoing statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements to encourage companies to provide prospective
information as long as those statements are identified as forward-looking and
are accompanied by meaningful cautionary statements identifying the important
factors that could cause actual results to differ materially from those
discussed in the forward-looking statements. We desire to take advantage of the
"safe harbor" provisions of that Act.
Forward-looking statements are subject to numerous assumptions, risks and
uncertainties. Actual results could differ materially from those contained or
implied by such forward-looking statements because of various factors and
possible events, including those factors specifically identified as "Risk
Factors" in this prospectus/information statement beginning on page 8.
Forward-looking statements speak only as of the date on which they are made,
and, except as may be required by law; Amerigo Energy does not undertake any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made. All subsequent
written and oral forward-looking statements attributable to Amerigo Energy or
any person acting on behalf of Amerigo Energy are qualified in their entirety
by the cautionary statements set forth in this prospectus/information
statement.
RISK FACTORS
The Reorganization and the acquisition of Granite's assets and operations
involve significant risks. Please refer to the section captioned "Forward-
Looking Statements" on page 14 of this prospectus/information statement.
Risks Related to the Amerigo Energy's Business
Amerigo Energy is subject to a high degree of risk as Amerigo Energy is
considered to be in unsound financial condition. The following risks, if any
one or more occurs, could materially harm our business, financial condition or
future results of operations. If that occurs, the trading price of the Amerigo
Energy's Common Stock could further decline.
8
We Have a History
Since Amerigo Energy's inception we have not been profitable and have reported
net losses. For the years ended December 31, 2007 and December 31, 2006 we
incurred net losses of $8,952,894 and $298,346, respectively. Our accumulated
deficit as of December 31, 2007 was $13,366,985. No assurance can be given that
Amerigo Energy will be successful in reaching or maintaining profitable
operations, particularly given Amerigo Energy's lack of current business
operations. Accordingly, we will likely continue to experience liquidity and
cash flow problems.
Lack of Liquidity
Amerigo Energy's Common Stock is currently quoted for public trading on the
Over-the-Counter Bulletin Board under the ticker symbol "AGOE". The trading
price of the Amerigo Energy's common stock has been subject to wide
fluctuations. Trading prices of Amerigo common stock may fluctuate in response
to a number of factors, many of which will be beyond Amerigo Energy's control.
The stock market has generally experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the
operating performance of companies with limited or no business operations.
These broad market and industry factors may adversely affect the market price
of Amerigo Energy's Common Stock, regardless of our operating performance.
Further, until such time as Amerigo Energy is an operating company, it is
unlikely that a measurable trading market will exist for Amerigo Energy's
Common Stock.
Amerigo Energy's Common Stock is a "Penny Stock" and should be Considered "High
Risk" and Subject to Marketability Restrictions.
Since Amerigo Energy's Common Stock is a "penny stock", as defined in Rule
3a51-1 under the Securities Exchange Act, it will be more difficult for
investors to liquidate their investment. Until the trading price of the Common
Stock rises above $5.00 per share, if ever, trading in the Common Stock is
subject to the "penny stock" rules of the Securities Exchange Act specified in
rules 15g-1 through 15g-10. Those rules require broker-dealers, before
effecting transactions in any penny stock, to:
- Deliver to the customer, and obtain a written receipt for, a
disclosure document;
- Disclose certain price information about the stock;
- Disclose the amount of compensation received by the broker-dealer or
any associated person of the broker-dealer;
- Send monthly statements to customers with market and price
information about the penny stock; and
- In some circumstances, approve the purchaser's account under certain
standards and deliver written statements to the customer with information
specified in the rules.
9
Consequently, the "penny stock" rules may restrict the ability or willingness
of broker-dealers to sell the Common Stock and may affect the ability of
holders to sell their Common Stock in the secondary market and the price at
which such holders can sell any such securities. These additional procedures
could also limit our ability to raise additional capital in the future.
Funding Difficulties
Given Amerigo Energy's historical operating results, obtaining financing will
be extremely difficult. This is further compounded by the extremely limited
liquidity in Amerigo Energy's Common Stock and the lack of business operations.
Financing, if available, will likely be significantly dilutive to our common
stockholders and will not necessarily improve the liquidity of Amerigo Energy's
common stock without a vast improvement in our operating results. In the event
we are unsuccessful in procuring adequate financing, our financial condition
and results of operations will be further materially adversely affected.
"Going Concern" Qualification
As a result of Amerigo Energy's deficiency in working capital at December 31,
2007 and other factors, Amerigo Energy's auditors have stated in their report
that there is substantial doubt about Amerigo Energy's ability to
continue as a going concern. In addition, Amerigo Energy's cash position is
inadequate to pay the costs associated with its operations. No assurance can
be given that any debt or equity financing, if and when required, will be
available. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets and classification of
liabilities that might be necessary should Amerigo Energy be unable to continue
existence.
Risks Applicable to Amerigo Energy's Oil and Gas Business
Speculative Nature of Oil and Gas Development Activities ("Project"); Natural
and Other Hazards. Exploration, drilling and development of oil and gas
properties is not an exact science and involves a high degree of risk. There is
no assurance that oil or gas will be found within any prospects or that, if
found, sufficient oil or gas production will be obtained to enable Amerigo
Energy to recoup its investment in the Project. During any drilling or
completion of any prospect, Amerigo Energy could encounter hazards including
unusual or unexpected formations, high formation, pressures or other
conditions, blow-outs, fires, failure of equipment, and downhole collapses.
There can be no assurance that in the event of such problems Amerigo Energy
will have sufficient funds to solve such problems. Furthermore, the Project may
be subject to liability for pollution and other damages and will be subject to
statutes and regulations relating to environmental matters. Although Amerigo
Energy and/or the operator drilling the prospects will obtain and maintain the
insurance coverage, Amerigo Energy may suffer losses due to hazards against
which it cannot insure or against which it may elect not to insure.
10
Drilling and Production Risks. Exploration for oil and gas is speculative by
its very nature, and involves a high risk of loss. A large number of prospects
result in dry holes, and others do not produce oil or gas in sufficient
quantities to make them commercially profitable to complete or place in
production. Many risks are involved that experience, knowledge, scientific
information and careful evaluation cannot avoid. An investor must be prepared
to lose all of an investment as there can be no assurance that any prospect
will result in or continue to have oil or gas production or that production, if
obtained, will be profitable. Oil and gas prospects sometimes experience
production decline that is rapid and unexpected. Initial production from a
prospect (if any) does not accurately indicate any consistent level of
production to be derived from it.
Importance of Future Prices, Supply and Demand for Oil and Gas. The revenues
which might be generated from the activities of Amerigo Energy will be highly
dependent upon the future prices and demand for oil and gas. Factors which may
affect prices and demand include worldwide supply; the price of oil produced in
the United States or imported from foreign countries; consumer demand; price
and availability of alternative fuels; federal and state regulation; and
general, national and worldwide economic and political conditions.
In addition to the widely-recognized volatility of the oil market, the gas
market is also unsettled due to a number of factors. In the past, production
from gas prospects in many geographic areas of the United States has been
curtailed for considerable periods of time due to a lack of market demand, and
such curtailments may exist in the future. Further, there may be an excess
supply of gas in the area of the prospects. In that event, it is possible that
prospects will be shut in or that gas in those areas will be sold on terms less
favorable than might otherwise be obtained. The combination of these factors,
among others, makes it particularly difficult to estimate accurately future
prices of oil and gas, and any assumptions concerning future prices may prove
incorrect.
Competition. There are large numbers of companies and individuals engaged in
exploration for oil and gas and the development of oil and gas properties.
Accordingly, Amerigo Energy will encounter strong competition from independent
operators and major oil companies. Many of the companies so encountered have
financial resources and staffs considerably larger than those available to
Amerigo Energy. There are numerous companies and individuals engaged in the
organization and conduct of oil and gas programs and there is a high degree of
competition among such companies in the offering of their programs.
Markets for Sale of Production. The ability of Amerigo Energy to market oil and
gas found and produced, if any, will depend on numerous factors beyond the
control of Amerigo Energy, the effect of which cannot be accurately predicted
or anticipated. Some of these factors include, without limitation, lifting and
transportation costs, the availability of a ready market, the effect of federal
and state regulation of production, refining, transportation and sales, and
general national and worldwide economic conditions. There is no assurance that
Amerigo Energy will be able to market oil or gas produced by the prospects at
prices that will prove to be economic after costs.
Price Control and Possible Energy Legislation. There are currently no federal
price controls on oil or gas production so that sales of oil or gas by Amerigo
Energy can be made at uncontrolled market prices. However, there can be no
assurance that Congress will not enact controls at any time. No prediction can
be made as to what additional energy legislation may be proposed, if any, nor
which bills may be enacted nor when any such bills, if enacted, would become
effective.
Environmental Regulations. The exploration, development and production of oil
and gas is subject to various federal and state laws and regulations to protect
the environment. Various states and governmental agencies are considering, and
some have adopted, laws and regulations regarding environmental control which
could adversely affect the business of Amerigo Energy. Compliance with such
legislation and regulations, together with any penalties resulting from
noncompliance therewith, will increase the cost of oil and gas development and
production. Some of these costs may ultimately be borne by Amerigo Energy.
Government Regulation. The oil and gas business is subject to extensive
governmental regulation under which, among other things, rates of production
from wells may be fixed. Governmental regulation also may limit or otherwise
affect the market for production and the price which may be paid for that
production. Governmental regulations relating to environmental matters could
also affect Amerigo Energy's operations. The nature and extent of various
regulations, the nature of other political developments and their overall
effect upon Amerigo Energy are not predictable. The availability of a ready
market for oil and gas, if any, discovered by Amerigo Energy or from existing
production and the price obtained for the oil and gas will depend upon numerous
factors, including the extent of domestic production and foreign imports of gas
and/or oil, the proximity and capacity of pipelines, intrastate and interstate
market demand, the extent and effect of federal regulations on the sale of oil
and/or natural gas in interstate and intrastate commerce, and other government
regulation affecting the production and transportation of oil and/or gas. In
addition, certain daily allowable production constraints may change from time
to time, the effect of which cannot be predicted by management. There is no
assurance that Amerigo Energy will be able to market any oil or gas found or
acquired by it at favorable prices, if at all.
Uninsured Risks and Other Potential Liabilities. Amerigo Energy's operations
will be subject to all of the operating risks normally connected with drilling
for and producing oil and gas, such as blow-outs, pollution, premises
liability, workplace injury and other risks and events which could result in
the Program incurring substantial losses or liabilities. Amerigo Energy
anticipates securing insurance as it deems prudent, affordable, necessary and
appropriate. Certain risks of Amerigo Energy, the Project, the Operator and
Non-Operating interest holders are uninsurable and others may be either
uninsured or only partially insured or limited because of high premium costs,
the unavailability of such insurance and/or for other reasons. In the event
Amerigo Energy and/or the Project incurs uninsured losses or liabilities, all
parties may be at risk and the Project's funds available for exploration and
development, as well as funds available for Amerigo Energy's other and ongoing
operations, may be reduced or lost completely.
Decline Curve. Production from all oil and gas wells declines over time. The
actual rate of decline is subject to numerous factors and cannot, in normal
circumstances, be calculated in advance. Production also fluctuates for many
reasons. Prospective investors should understand that production from any well
may fluctuate and will ultimately decline, rendering the well non-commercial.
11
Dependence upon Amerigo and the Operators. The operations and financial success
of Amerigo Energy depends significantly on its management and of the drilling
guarantor. In the event that management of any of these companies becomes
unable or unwilling to continue to direct the operations of Amerigo Energy,
Amerigo Energy could be adversely affected.
Unpredictability of Oil and Gas Investment. Numerous factors, including
fluctuations in oil and gas prices and operating costs and the productive life
of the wells make it difficult to predict returns with any accuracy.
Marketing and Pricing. The market for oil and gas produced from the wells is
difficult to predict, as well as the costs incurred in connection with such
production. Particularly in the case of natural gas, a market may not
immediately be available for the gas from a well because of its distance from a
pipeline. The gas may therefore remain unsold for an indefinite period of
time. Nevertheless, Amerigo Energy will exercise its best efforts to obtain a
market for any natural gas produced from the well as soon as possible if
production is achieved.
Costs of Treating Natural Gas. Companies that own natural gas production often
require that natural gas have certain characteristics before they will purchase
it. Gas from an Amerigo Energy well may have to be treated so that the
purchasers will take delivery. This treatment might include increasing the
pressure, dehydrating it, removing CO2 or other impurities and other items of a
similar nature. These treatments may require that additional facilities be
built or services be performed. Because these costs concern the operation of a
gas well they are treated as lease operating expenses and are generally
recouped out of production. The costs of any additional facilities are often
paid initially by the first purchasers or gatherers of production, who then
reimburse themselves by recouping these capital costs through a minimal
reduction of the price paid for the gas. If any gas produced by a well
requires special treatment as described above, Amerigo Energy will attempt to
minimize the costs associated with treatment and maximize the Project's profits
from the sale of the gas.
Delays in Receipt of Cash. Amerigo Energy is involved in the exploration for
and development of oil and gas reserves. The unavailability of, or delay in
obtaining, necessary materials for drilling and completion activities, or in
securing title opinions dated to the first production, may delay, for
significant periods after the discovery and production of hydrocarbons, the
distribution of any cash to Amerigo Energy. Because each prospect will be
drilled and completed in succession and not concurrently, revenue, if any, from
each prospect will also be distributed in succession with the completion of the
prospect.
MARKET PRICES AND DIVIDENDS AND OTHER DISTRIBUTIONS
STOCK PRICES
AMERIGO ENERGY, INC.
Amerigo Energy shares of Common Stock are not traded on an established market.
Amerigo Energy Stock is traded through broker/dealers and in private
transactions, and quotations are reported on the OTC Bulletin Board under the
symbol "AGOE". OTC Bulletin Board quotations reflect interdealer prices,
without mark-up, mark-down or commission and may not represent actual
transactions. The table below sets forth the range of high and low prices paid
for transactions in Amerigo Energy shares of Common Stock as reported on the
OTC Bulletin Board for the periods indicated. No dividends have been declared
or paid on Amerigo Energy Common Stock and none are likely to be declared or
paid in the near future.
The following table sets forth the quarterly high and low bid prices for our
Common Stock during our last two fiscal years, adjusted for the recent stock
split. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and do not necessarily represent actual buy and sell
transactions.
COMMON STOCK
High Low
------ ------
FISCAL YEAR ENDED DECEMBER 31, 2006:
Fiscal Quarter Ended March 31, 2006 190.00 130.00
Fiscal Quarter Ended June 30, 2006 130.00 100.00
Fiscal Quarter Ended September 30, 2006 130.00 100.00
Fiscal Quarter Ended December 31, 2006 125.00 75.00
FISCAL YEAR ENDED DECEMBER 31, 2007:
Fiscal Quarter Ended March 31, 2007 75.00 47.00
Fiscal Quarter Ended June 30, 2007 63.00 51.00
Fiscal Quarter Ended September 30, 2007 63.00 34.00
Fiscal Quarter Ended December 31, 2007 34.00 30.00
FISCAL YEAR ENDED DECEMBER 31, 2008:
Fiscal Quarter Ended March 31, 2008 30.00 12.00
Fiscal Quarter Ended June 30, 2008 15.00 12.00
Fiscal Quarter Ended September 30, 2008 18.00 4.00
GRANITE ENERGY, INC.
Granite Energy, Inc. shares of Common Stock are not traded on an established
market. Granite Energy Stock is traded through broker/dealers and in private
transactions, and quotations are reported on Pink Sheets under the symbol
"GNGI.PK". Pink Sheets quotations reflect interdealer prices, without mark-up,
mark-down or commission and may not represent actual transactions. The table
below sets forth the range of high and low prices paid for transactions in
Granite Energy shares of Common Stock as reported on the Pink Sheets for the
periods indicated. No dividends have been declared or paid on Granite Energy
Common Stock and none are likely to be declared or paid in the near future.
The following table sets forth the quarterly high and low bid prices for our
Common Stock during our last two fiscal years, adjusted for any stock splits.
The quotations reflect inter-dealer prices, without retail mark-up, markdown or
commission, and do not necessarily represent actual buy and sell transactions.
COMMON STOCK
High Low
------ ------
FISCAL YEAR ENDED DECEMBER 31, 2006:
Fiscal Quarter Ended March 31, 2006 8.70 4.83
Fiscal Quarter Ended June 30, 2006 6.04 4.35
Fiscal Quarter Ended September 30, 2006 4.83 3.09
Fiscal Quarter Ended December 31, 2006 4.21 2.18
FISCAL YEAR ENDED DECEMBER 31, 2007:
Fiscal Quarter Ended March 31, 2007 4.64 1.45
Fiscal Quarter Ended June 30, 2007 2.71 1.69
Fiscal Quarter Ended September 30, 2007 1.93 1.11
Fiscal Quarter Ended December 31, 2007 2.89 1.16
FISCAL YEAR ENDED DECEMBER 31, 2008:
Fiscal Quarter Ended March 31, 2008 2.48 0.30
Fiscal Quarter Ended June 30, 2008 1.01 0.36
Fiscal Quarter Ended September 30, 2008 0.90 0.38
DIVIDENDS AND OTHER DISTRIBUTIONS
Amerigo Energy has never paid cash dividends on our common stock or
preferred stock. We currently intend to retain earnings, if any, for use
in our business and do not anticipate paying any cash dividends in the
foreseeable future.
Granite Energy has never paid any dividends on its common stock.
HOLDERS
On September 30, 2008, there were approximately 63 holders of Amerigo Energy,
Inc. Common Stock and holders of Granite Energy Common Stock.
12
THE REORGANIZATION
The Reorganization Agreement provided for a corporate reorganization of Amerigo
Energy in which Amerigo Energy on October 31, 2008 acquired substantially all
of the assets and operations of Granite in exchange for 10,000,000 newly issued
shares of Amerigo Energy Stock. The Reorganization Agreement is filed with the
Securities and Exchange Commission as an exhibit to the registration statement
of which this prospectus/information statement is a part.
THE PARTIES
AMERIGO ENERGY, INC.
2580 Anthem Village Drive
Henderson, NV 89052
(702) 399-9777
Amerigo Energy, formerly known as Strategic Gaming Investments, Inc., was
incorporated under the laws of the State of Delaware in 1973. Amerigo Energy
has one wholly-owned subsidiary, Amerigo, Inc., a Nevada corporation
("Amerigo") and a majority owned investment in GreenStart, Inc., a Nevada
corporation ("GreenStart"). Effective September 3, 2008 Amerigo Energy
declared a dividend to its shareholders of all the outstanding shares of common
stock of another subsidiary, Strategic Gaming Investments, Inc., a Nevada
corporation and another subsidiary, The Ultimate Poker League, Inc., also a
Nevada corporation was liquidated and dissolved.
Prior to the acquisition of the assets of Granite, Amerigo Energy operated in
the gaming, entertainment and hospitality sectors. Amerigo Energy Common Stock
shares are traded on the OTC Bulleting Board through the National Association
of Securities Dealer Automated Quotation Bulleting Board System, under the
symbol "AGOE".
Amerigo, incorporated in Nevada on January 11, 2008, holds certain assets
formerly of Granite, including computers, software, telephone system, small
office equipment, machinery, and furniture.
13
GreenStart was incorporated in Nevada on June 12, 2007. GreenStart has
significant patents, licenses and technologies that are sustainable in
producing large volumes of clean, renewable, non-global warming energy from the
conversion of any carbon-based feedstock either solid or liquid, such as
municipal solid waste (MSW), coal, sewage, used tires, forestry waste,
agriculture waste, animal carcasses and biomass to a flexible combination of
electricity, steam, fuels, chemicals and hydrogen. This approach carries with
it some distinct social and economic advantages. GreenStart's units offer value
by generating substantial revenue streams, eliminating the need for future
landfills, while creating energy and renewable fuels from waste products with
little or no value. This primary energy is converted with greater efficiency
and with less waste than current methods.
GreenStart's Downdraft Gasification technology overcomes many problems related
to other gasifiers, producing a clean Synthesis gas (made up primarily of
Hydrogen and Carbon Monoxide). The Syn-gas is efficiently converted by a
Catalytic Slurry Cyclone Reactor licensed by the University of Utah into liquid
fuels (Dimethyl Ether, Ethanol, Gasoline, Jet Fuel or Diesel Fuel) or can be
burned directly in a gas turbine to create electricity. The Dimethyl Ether
(DME) like Syn-gas is a building block used in the chemical industry and can be
converted to several different products, depending on the catalyst used.
Results are 100% green power, water and air emissions that are environmentally
safe.
GRANITE ENERGY, INC.
2580 Anthem Village Drive
Henderson, NV 89052
Phone: (801) 532-6800
Granite Energy, formerly known as Wcollect Inc., was, prior to the
Reorganization, an independent energy company headquartered in Salt Lake City,
Utah, focused on oil and gas development, exploration and production. Granite
Energy was incorporated under the laws of Nevada on December 1, 2005. In the
Reorganization, Granite on October 31, 2008, transferred substantially all its
assets and operations to Amerigo Energy in return for Amerigo Energy Stock.
Upon the approval of the registration statement by the SEC Granite will no
longer own the Amerigo Energy Stock. Granite will distribute the Amerigo
Energy Stock to Granite shareholders.
CONDITIONS TO THE REORGANIZATION
The completion of the Reorganization depends upon the satisfaction of a number
of conditions, including the approval of the United States Securities and
Exchange Commission to the distribution of the Amerigo Energy Stock to Granite
shareholders.
14
SELECTED FINANCIAL DATA OF AMERIGO ENERGY. (HISTORICAL)
The following table sets forth selected consolidated historical data of Amerigo
Energy (Strategic Gaming Investments, Inc.) for the periods and at the dates
indicated. This data has been derived in part from and should be read together
with the audited consolidated financial statements and notes thereto included
elsewhere in this prospectus/information statement. Financial data at September
30, 2008 and 2007, is derived from unaudited financial data included elsewhere
in this prospectus/information statement. Amerigo Energy believes that the
interim financial data reflects all adjustments (consisting solely of normal
recurring accruals) necessary for a fair presentation of results of operations
for those periods and financial position at those dates. The results of
operations for the nine months ended September 30, 2008 are not necessarily
indicative of the operating results to be anticipated for the fiscal year
ending December 31, 2008.
FOR THE 9 MONTHS ENDED SEP 30
2008 2007
INCOME STATEMENT DATA
Total operating expenses 652,455 5,942,398
Total other expenses - 2,675,125
Net Loss (652,284) (8,617,523)
PER SHARE DATA
Basic and diluted per share loss (1.16) (0.95)
Weighted avg. shares outstanding 560,498 9,091,581
SEP 30, 2008 DEC 31, 2007
BALANCE SHEET DATA (PERIOD END)
Total assets - 503,793
Accounts payable 451,458 208,623
Bank overdraft - 7,116
Accrued interest - 65,030
Accounts payable -RP - 179,533
Advances from related parties 167,541 97,401
Lawsuit settlement payable 3,000 -
Accrued payroll for related party 108,304 577,235
Convertible notes paybale - 184,629
Shareholder's deficit (730,304) (815,774)
15
SELECTED FINANCIAL DATA OF GRANITE ENERGY (HISTORICAL)
The following table sets forth selected consolidated historical data of Granite
for the periods and at the dates indicated. This data has been derived in part
from and should be read together with the audited consolidated financial
statements and notes thereto included elsewhere in this prospectus/information
statement. Financial data at September 30, 2008 and 2007, and for the nine
months ended September 30, 2008 and 2007, is derived from unaudited financial
data included elsewhere in this prospectus/information statement.
Granite believes that the interim financial data reflects all adjustments
(consisting solely of normal recurring accruals) necessary for a fair
presentation of results of operations for those periods and financial position
at those dates. The results of operations for the nine-month period ended
September 30, 2008 are not necessarily indicative of the operating results to
be anticipated for the fiscal year ending December 31, 2008.
FOR THE 9 MONTHS ENDED SEP 30
2008 2007
INCOME STATEMENT DATA
Revenues 1,480,380 3,014,773
Cost of sales 1,560,294 1,323,440
Gross Profit (79,914) 1,691,333
Total operating expenses 1,867,019 9,387,928
Total other expenses (income) (217,038) (47,285)
Net Loss (2,163,971) (7,743,880)
PER SHARE DATA
Basic and diluted per share loss (0.04) (0.14)
Weighted avg. shares outstanding 54,684,972 57,326,113
SEP 30, 2008 DEC 31, 2007
BALANCE SHEET DATA (PERIOD END)
Total assets 8,120,868 15,698,354
Accounts payable 32,539 85,754
Payroll liabilities 109,732 -
Other liabilities - 49,131
Long term liabilities 7,525,356 12,946,258
Shareholder's equity 453,240 2,617,211
16
SELECTED PRO FORMA FINANCIAL INFORMATION
The table below sets forth selected pro forma combined consolidated financial
information for Amerigo Energy and Granite for the fiscal year ended December
31, 2007 and the nine months ended September 30, 2008. Amerigo Energy's
information is derived from and should be read in conjunction with the
historical financial statements of Amerigo Energy that appear elsewhere in this
prospectus/information statement, and with the pro forma condensed combined
consolidated financial statements of Amerigo Energy, which give effect to the
reorganization and which appear in this prospectus/information statement under
the caption "Pro Forma Financial Information, page 59. The pro forma condensed
combined consolidated financial information has been prepared on the basis of
the purchase method of accounting, assuming that 10,000,000 shares of Amerigo
Energy Common Stock will be issued in the Reorganization and that no Amerigo
Energy shareholders have dissenters' rights. For a discussion of the purchase
method of accounting, see "Accounting Treatment" on page 20 of this
prospectus/information statement.
ENDED SEP 30
2008
INCOME STATEMENT DATA
Revenues 1,480,380
Cost of sales 1,560,294
Gross Profit (79,914)
Total operating expenses 2,519,303
Total other expenses (income) 217,038
Net Loss (2,816,255)
SEP 30, 2008 DEC 31, 2007
BALANCE SHEET DATA (PERIOD END)
Total assets 8,120,868 16,202,147
Accounts payable 483,997 294,377
Payroll liabilities 109,732 577,235
Other liabilities - 49,131
Long term liabilities 7,525,356 13,130,887
Shareholder's equity (277,063) 1,801,437
17
SOLICITATION AND REVOCATION OF PROXIES
Solicitation and revocation of proxies are not applicable to this transaction.
Amerigo Energy shareholders are not entitled to vote on this Asset Purchase
transaction. In accordance with Nevada Revised Statutes a majority of
shareholders of Granite have consented to the Reorganization.
BACKGROUND OF THE REORGANIZATION
The Amerigo Energy management has periodically discussed with Granite
executives and reviewed with its management team and industry consultants, the
business of oil and gas, strategic directions, and financial performance. The
management of both companies has at times also discussed various potential
strategic options, including strategies to increase Amerigo Energy's market
area and products offerings, with the intent of ultimately creating more value
for its shareholders.
A challenge for the Amerigo Energy and Granite management has been the growth,
and the general state of the oil and gas industry regionally and nationally.
The parties have also recognized the environment of heightened regulatory
scrutiny of the oil and gas industry, the increasing costs of exploration and
drilling, and the impact of economic issues on existing oil prices well as the
availability of alternative fuel in the market.
The parties have identified impediments to future growth and profitability
including expensive technological changes, the proliferation of competition in
the oil and gas industry, and the increase in cost of doing business due to
heightened regulatory demands.
As part of that engagement, and following input by Granite executives with
regard to the strategic alternatives faced by Amerigo Energy, relevant
financial projections, and the advantages and disadvantages to Granite of
remaining independent, Amerigo Energy decided to seek further input as to
whether there may be parties interested in a strategic combination with Amerigo
Energy.
AMERIGO ENERGY'S AND GRANITE'S REASONS FOR THE REORGANIZATION
The Amerigo Energy and Granite Board of Directors determined that the
Reorganization Agreement is fair to, and in the best interest of, Amerigo
Energy, Granite and their shareholders. In reaching their decisions to approve
the Reorganization Agreement, Board of Directors of Amerigo Energy and Granite
consulted with management, as well as its financial and legal advisors, and
considered a number of factors, including the following (i) increased ability
to raise capital, (ii) greater liquidity for shareholders, (iii) greater
transparency as a registered company, and (iv) opportunity to make future
acquisitions.
STOCK ISSUANCE AND SETTLEMENT OF LIABILITIES
Payment of Indebtedness
As contemplated by the terms of the Reorganization Agreement, on October 31,
2008, the following transactions took place:
18
(i)General Accounts Payable of Amerigo Energy shall be converted into 182,030
shares of Common Stock in exchange for full releases.
(ii)UPL shall be liquidated concurrent with the Closing. As a creditor of
Amerigo Energy, UPL, shall execute a full release in favor of Amerigo Energy
and Granite.
(iii)The Amerigo Energy account payable in favor of Gregory L. Hrncir, outside
counsel to Amerigo Energy, shall remain with Amerigo Energy post-Closing.
(iv)The Amerigo Energy account payable in favor of Franklin Griffith &
Associates shall be converted into 48,045 shares of Common Stock of Amerigo
Energy in exchange for a full release prior to the Closing.
(v)The Amerigo Energy account payable in favor of Kenneth D. Olsen shall be
converted into 5,200 shares of Common Stock of Amerigo Energy in exchange
for full release prior to the Closing.
(vi)The Amerigo Energy account payable in favor of Maren Life Reinsurance Ltd.
shall be converted 4,000 shares of Common Stock of Amerigo Energy in
exchange for a full release prior to Closing.
(vii)The Amerigo Energy account payable in favor of Reeves Evans McBride &
Zhang LLP, the independent auditors of Amerigo Energy, shall remain with
Amerigo Energy post-Closing.
(viii) The Amerigo Energy account payable in favor of Anthem Village
Executive Suites shall remain with Amerigo Energy post-Closing and shall be
payable in the form of 12,423 shares of Common Stock of Amerigo Energy in
exchange for a full release post-Closing.
(ix)The Granite account payable in favor of American Stock Transfer and Trust
Company shall be assumed by Amerigo Energy post-Closing and shall be paid in
the form of cash.
(x)The Amerigo Energy account payable in favor of De Joya Griffith & Company
shall remain with Amerigo Energy post-Closing and shall be paid in the form
of 12,587 shares of Common Stock of Amerigo Energy in exchange for a full
release.
(xi)The outstanding Amerigo Energy accrued salaries and related party loans
shall be addressed as follows:
(a)Jason F. Griffith - outstanding salary and loans to Amerigo Energy to be
converted into 36,170 shares of Amerigo Energy Common Stock as set forth
in Exhibit C in exchange for a full release prior to the Closing.
(b)Franklin Griffith & Associates - which represents outstanding salary and
related party loans to/from Lawrence S. Schroeder shall be converted into
45,094 shares of Common Stock of Amerigo Energy in exchange for a full
release prior to the Closing
(c)The Amerigo Energy outstanding loan payable in favor of S. Matthew
Schultz shall be converted into 18,511 shares of Common Stock of Amerigo
Energy in exchange for a full release prior to Closing.
(xii)All intercompany loans between Amerigo Energy and its subsidiaries will be
forgiven.
DISSENTERS' RIGHTS
Granite shareholders do not have dissenters' rights under Nevada Revised
Statutes, Section 92A.380.
TAX CONSEQUENCES
Amerigo Energy has received an analysis from De Joya Griffith & Company, LLC,
dated August 13, 2008 ("DeJoya") in which Griffith & Company determined that an
acquisition, as this one, in which substantially all of the assets and
operations of Granite have been exchanged for shares of Amerigo Energy Stock
qualifies for non-recognition of income treatment under the Internal Revenue
Code (the "Code"), specifically Section 368(a)(1). "Substantially all" means
that at a minimum 90 percent of the fair market value of net assets of Granite
and 70 percent of the fair market value of the gross assets held by Granite
prior to the exchange.
TAX CONSEQUENCES TO AMERIGO ENERGY AND GRANITE
No gain or loss will be recognized by Amerigo Energy or Granite as a result of
the Reorganization. The tax basis of the assets of Granite in the hands of
Amerigo Energy will be the same as the tax basis of such assets in the hands of
Granite prior to the consummation of the Reorganization. The holding period of
the assets of Granite to be received by Amerigo Energy will include the period
during which such assets were held by Granite.
19
HOLDING PERIOD.
The holding period of the Amerigo Stock received by a Granite shareholder will
commence at the time such shares are received.
REORGANIZATION TREATMENT
The Reorganization is a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code, and Amerigo Energy and Granite each
will be a "party to the reorganization" within the meaning of Section 368(b) of
the Internal Revenue Code.
ACCOUNTING TREATMENT
The Reorganization will be accounted for as a purchase in accordance with U.S.
generally accepted accounting principles. Under the purchase method of
accounting, the assets of Granite will be recorded at estimated fair market
value at the time the Reorganization is consummated. The excess of the
estimated fair market value of Amerigo Energy Stock issued and the direct costs
of the acquisition over the assets will be recorded as goodwill. The
adjustments necessary to record assets at fair value will be amortized to
income and expensed over the estimated remaining lives of the related assets.
Remaining goodwill will be subject to an annual test for impairment and the
amount impaired, if any, will be charged to expense at the time of impairment.
The pro forma results of applying the purchase method of accounting are shown
in the unaudited pro forma financial information appearing elsewhere in this
prospectus/information statement. See "Pro Forma Financial Information" on page
59 of this prospectus/information statement.
RESALE OF AMERIGO ENERGY STOCK
Amerigo Energy has registered the Amerigo Energy Stock issued in the
Reorganization with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. Upon the effectiveness of the registration statement,
the resale or other transfer of the Amerigo Stock issued in the Reorganization
will be free from restriction, except for restrictions imposed by SEC Rule 145
on re-sales or transfers by any Granite shareholder.
RESALE OF AMERIGO ENERGY SECURITIES
The Common Stock of Amerigo Energy being distributed to Granite stockholders in
the Reorganization is subject to Rule 145(d) of the Rules and Regulations of
the U.S. Securities and Exchange Commission which governs resales of this
Common Stock in the public market.
The Rule provides that any Granite stockholder receiving the shares may resell
them after 90 days from the effective date of issuance (October 31, 2008)
through a broker dealer in the public market in so-called "brokers
transactions" as defined in SEC Rule 144.
Any person who has not been an "affiliate" of Amerigo Energy for at least 3
months may resell the shares free of the Rule 144 requirements after 6 months
from the date they were acquired from Amerigo Energy as long as Amerigo Energy
is current in its filings. After a holding period of one year, the shares may
be sold without meeting any of the requirements of Rule 144. An "affiliate" is
any person controlling, controlled by or under common control with the issuer.
This is interpreted to include officers, directors and controlling stockholders
of Amerigo Energy. "Affiliates will continue to be subject to the Rule 144
requirements described above.
THE REORGANIZATION AGREEMENT
The following is a description of the material terms of the Reorganization
Agreement. A complete copy of the Reorganization Agreement is attached as
exhibit 2.1 to the registration statement of which this prospectus is a part of
(see www.sec.gov).
Pursuant to the terms and subject to the conditions of the Reorganization
Agreement, on October 31, 2008 Granite transferred substantially all its assets
and operations to Amerigo Energy in exchange for 10,000,000 shares of Amerigo
Energy Common Stock (the "Amerigo Energy Stock"). Re-sale of the Amerigo Energy
Stock is restricted, subject to SEC effectiveness of the registration statement
and to the provisions of SEC Rule 145.
As promptly as practicable after the effective date of the registration
statement Amerigo Energy's transfer agent will mail to each holder of Amerigo
Energy Stock certificates for the Amerigo Energy Stock.
20
INFORMATION WITH RESPECT TO AMERIGO ENERGY, INC.
DESCRIPTION OF AMERIGO ENERGY'S BUSINESS
General
The Amerigo Energy's business plan includes developing oil and gas reserves
while increasing the production rate base and cash flow. It plans to continue
acquiring oil and gas leases for drilling and to take advantage of other
opportunities and strategic alliances.
As an independent energy company headquartered in Salt Lake City, Amerigo
Energy, through its wholly owned subsidiary, Amerigo, is focused on obtaining
oil and gas reserves through acquisition of proved developed producing wells,
developing economical and viable exploitation and exploration drilling
prospects, optimizing the production from Amerigo Energy's current base oil and
gas properties, and optimizing the processing of marketable oil and gas sold at
the optimum oil and gas prices for Amerigo Energy's area of operations. Through
analysis and research, Amerigo Energy seeks to reduce risk by following
investment criteria which identify low to medium risk drilling opportunities
within existing oil and gas fields, while selecting optimal drilling sites with
the optimal potential of developing the maximum amount of oil and gas reserves.
Amerigo Energy believes that this increases the probability of developing
economic oil and gas reserves and cash flows that will benefit both Amerigo
Energy and shareholders.
21
DESCRIPTION OF GREENSTART'S BUSINESS
General
GreenStart was incorporated in Nevada on June 12, 2007. GreenStart has
significant patents, licenses and technologies that are sustainable in
producing large volumes of clean, renewable, non-global warming energy from the
conversion of any carbon-based feedstock either solid or liquid, such as
municipal solid waste (MSW), coal, sewage, used tires, forestry waste,
agriculture waste, animal carcasses and biomass to a flexible combination of
electricity, steam, fuels, chemicals and hydrogen. This approach carries with
it some distinct social and economic advantages. GreenStart's units offer value
by generating substantial revenue streams, eliminating the need for future
landfills, while creating energy and renewable fuels from waste products with
little or no value. This primary energy is converted with greater efficiency
and with less waste than current methods.
GreenStart's Downdraft Gasification technology overcomes many problems related
to other gasifiers, producing a clean Synthesis gas (made up primarily of
Hydrogen and Carbon Monoxide). The Syn-gas is efficiently converted by a
Catalytic Slurry Cyclone Reactor licensed by the University of Utah into liquid
fuels (Dimethyl Ether, Ethanol, Gasoline, Jet Fuel or Diesel Fuel) or can be
burned directly in a gas turbine to create electricity. The Dimethyl Ether
(DME) like Syn-gas is a building block used in the chemical industry and can be
converted to several different products, depending on the catalyst used.
Results are 100% green power, water and air emissions that are environmentally
safe.
DESCRIPTION OF AMERIGO, INC'S BUSINESS
Amerigo, Inc., incorporated in Nevada on January 11, 2008, holds certain assets
formerly of Granite, including computers, software, telephone system, small
office equipment, machinery, and furniture. Amerigo was a subsidiary of Granite
to the transaction between Amerigo Energy and Granite.
Amerigo Energy shares of Common Stock are not traded on an established market.
Amerigo Energy Stock is traded through broker/dealers and in private
transactions, and quotations are reported on the OTC Bulletin Board under the
symbol "AGOE". OTC Bulletin Board quotations reflect interdealer prices,
without mark-up, mark-down or commission and may not represent actual
transactions. The table below sets forth the range of high and low prices paid
for transactions in Amerigo Energy shares of Common Stock as reported on the
OTC Bulletin Board for the periods indicated. No dividends have been declared
or paid on Amerigo Energy Common Stock and none are likely to be declared or
paid in the near future.
The following table sets forth the quarterly high and low bid prices for our
Common Stock during our last two fiscal years, adjusted for the recent stock
split. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and do not necessarily represent actual buy and sell
transactions.
FY2008 FY2007 FY2006
(as of 9/30/08)
High Low High Low High Low
----- ----- ----- ----- ------ ------
1st Quarter 30.00 12.00 75.00 47.00 190.00 130.00
2nd Quarter 15.00 12.00 63.00 51.00 130.00 100.00
3rd Quarter 18.00 4.00 63.00 34.00 130.00 100.00
4th Quarter 34.00 30.00 125.00 75.00
21
INDEX TO AMERIGO ENERGY FINANCIAL INFORMATION
(1) Financial Statements at and as of September 30, 2008 (Unaudited):
a. Consolidated Balance Sheets as of September 30, 2008 and December
31, 2007
b. Consolidated Statements of Income for the nine months ended
September 30,
2008 and 2007
c. Consolidated Statements of Cash Flows for the nine months ended
September 30, 2008 and 2007
d. Notes to Consolidated Financial Statements
(2) Financial Statements at and as of December 31, 2007 and 2006 (Audited):
a. Report of Independent Registered Public Accounting Firm
b. Consolidated Balance Sheets as of December 31, 2007 and 2006
c. Consolidated Statements of Income for the two years ended December
31, 2007, and 2006
d. Consolidated Statements of Cash Flows for the two years ended
December 31, 2007, and
e. Consolidated Statements of Shareholders' Equity for the two years
ended December 31, 2007, and 2006
f. Summary of Significant Accounting Policies
g. Notes to Consolidated Financial Statements
(1) Financial Statements at and as of September 30, 2008 (Unaudited):
22
AMERIGO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
2008 2007
------------ -----------
ASSETS
Current assets
Cash $ - $ -
------------ -----------
Total current assets - -
Other current assets
Accounts receivable - 3,693
Advances to related party - 500,100
Total other current assets - 503,793
------------ -----------
Total assets $ - $ 503,793
============ ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable $ 451,458 208,623
Bank overdraft - 7,116
Accrued interest - 65,030
Accounts payable - related parties - 179,533
Advances from related parties 167,541 97,401
Lawsuit settlement payable 3,000
Accrued payroll for related party 108,304 577,235
------------ -----------
Total current liabilities 730,303 1,134,939
Convertible notes payable to related party, less current
maturity of $0, net of unamortized discount of $901,316 - 184,629
Stockholders' (deficit)
Preferred Stock (25,000,000 shares
authorized and zero issued and outstanding) - -
Common stock; $.001 par value; 100,000,000 authorized;
560,498 and 9,447,137 shares issued and outstanding
as of September 30, 2008 and December 31, 2007,
respectively 11,096 9,447
Additional paid-in capital 12,189,184 12,541,764
Receivable of shares issued -
Accumulated (deficit) (12,930,583) (13,366,985)
------------ -----------
Total stockholders' (deficit) (730,304) (815,774)
------------ -----------
Total liabilities and stockholders' (deficit) $ - $ 503,794
============ ===========
See Accompanying Notes to Financial Statements
23
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited Unaudited
UNADITED CONSOLIDATED UNAUDITED CONSOLIDATED
9 months ended 9 months ended 3 months ended 3 months ended
September 30, September 30, September 30, September 30,
2008 2007 2008 2007
-------------- -------------- -------------- --------------
Revenue $ - $ - $ - $ -
Operating expenses
Compensation expense - 4,361,888.00 - -
Consulting expense 641,455 1,031,050.00 50,293 -
General and administrative 10,828 549,460.19 (4,402) 195,560.19
-------------- -------------- -------------- --------------
Total operating expenses 652,284 5,942,398.19 45,891 195,560.19
-------------- -------------- -------------- --------------
Loss from operations (652,284) (5,942,398.19) (45,891) (195,560.19)
Other income (expenses):
Amortization of discount on
convertible notes payable - (17,178.00) - (6,799.00)
Loss from rescinded Merger - (2,576,786.00) - (20,975.00)
Interest expense on warrant
with convertible notes payable - (32,733.00) - -
Interest expense - (48,427.67) - (37,574.67)
-------------- -------------- -------------- --------------
Total other income (expenses) - (2,675,124.67) - (65,348.67)
-------------- -------------- -------------- --------------
(Loss) before provision for income taxes &
other comprehensive income / (loss) (652,284) (8,617,522.86) (45,891) (260,908.86)
Provision for income taxes - -
(Loss) before othe
comprehensive income / (loss) (652,284) (8,617,522.86) (45,891) (260,908.86)
Other comprehensive income / (loss) - -
Net (loss) $ (652,284) (8,617,522.86) $ (45,891) (260,908.86)
-------------- -------------- -------------- --------------
Basic and diluted (loss) per common share $ (1.16) $ (0.95) $ (0.08) $ (0.03)
============== ============== ============== ==============
Basic and diluted weighted average
common shares outstanding 560,498 9,091,581 560,498 9,447,137
============== ============== ============== ==============
See Accompanying Notes to Financial Statements
24
AMERIGO ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited Unaudited
9 months ended 9 months ended
September 30, September 30,
2008 2007
-------------- --------------
Cash flows from operating activities:
Net loss $ (652,284) $ (8,617,523)
Adjustments to reconcile net loss to
net cash used by operating activities:
Changes in operating assets and liabilities:
Accounts receivable $ 3,693 $ -
Stocks and options issued for services / to settle debt (2,169) 5,392,938
Increase / (decrease) in stock subscription - 2,500
Interest expense on warrant with convertible notes payable - 86,176
Amortization of discount on convertible notes payable - 10,379
Forgiveness of related party payable 61,881 -
Cost associated with rescinded merger - 600
Loss associated with rescinded merger - 2,467,808
Stock options issued 476,418 -
Depreciation and amortization - 2,597
(Increase) / decrease in prepaid expenses - 999
(Increase) / decrease in loans and bank receivables - 8,228
Increase / (decrease) in accounts payable 242,835 131,191
Increase / (decrease) in accounts payable - related party (179,533) 44,804
Increase / (decrease) in accrued interest - 17,531
Increase / (decrease) in accrued payroll (16,865) 93,760
Lawsuit settlement payable 3,000 -
-------------- --------------
Net cash used by operating activities $ (63,024) $ (358,012)
Cash flows from investing activities: $ -
Net cash used by investing activities $ - $ -
-------------- --------------
Cash flows from financing activities:
Increase in bank overdraft $ - $ 1,840
Advance to (from) related party 70,140 (538,818)
Proceeds from stock receivable - 12,500
Proceeds from issuance of convertible notes payable - 857,275
-------------- --------------
Net cash provided by financing activities $ 70,140 $ 332,797
-------------- --------------
Net increase in cash $ 7,116 $ (25,215)
Cash, beginning of period $ (7,116) $ 25,215
-------------- --------------
Cash, end of period $ 0 $ 0
============== ==============
Supplementary cash flow information:
Interest paid $ 10
Receivable of shares issued $ 15,000
Fair value of warrants issued with convertible notes payable $ 282,989
Discount on convertible notes payable $ 91,761
============== ==============
See Accompanying Notes to Financial Statements
25
AMERIGO ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - NATURE OF BUSINESS AND FINANCIAL STATEMENT PRESENTATION
Description of Business and History - Strategic Gaming Investments, Inc., a
Delaware corporation ("SGME" or the "Company"), formerly named Left Right
Marketing Technology, Inc., was incorporated in 1973. Prior to June 2003, the
Company was involved in various businesses, none of which were successful. On
June 30, 2003, the Company executed a binding letter of intent which resulted
in a merger with Left Right Marketing & Technology, Inc., a Nevada corporation
("LRMT"), in September 2003.
On November 4, 2005, the Company entered into an agreement and plan of
reorganization, or the Merger Agreement, with Strategic Gaming Investments,
Inc., a Nevada corporation, or SGI. The transaction between the Company and SGI
has been accounted for as a recapitalization. Since SGI was the only operating
company in the exchange and the stockholders of SGI received a substantial
majority of the voting securities of the combined companies, the transaction
exchange has been accounted for as a "reverse acquisition" and, effectively, as
a recapitalization, in which SGI has been treated as the accounting acquirer
(and the legal acquiree), and the Company has been treated as the accounting
acquiree (and the legal acquirer).
In August of 2008, our Board of Directors voted to get approval from the
shareholders of the Company for a name change from Strategic Gaming
Investments, Inc. to Amerigo Energy, Inc. The company received the approval
from a majority of its stockholders and filed the amendment to its Articles of
Incorporation with the State of Delaware. The name change became effective by
the State of Delaware on August 26, 2008. The Company also requested a new
stock symbol as a result of the name change. Our new trading symbol is "AGOE".
The financial statements have been prepared in accordance with Securities and
Exchange Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements. These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-KSB/A for the year ended December 31, 2007 as filed with the
Securities and Exchange Commission on August 21, 2008.
26
The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full year. In the
opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature.
The Company adopted Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income", (SFAS No. 130). SFAS No. 130 requires the
reporting of comprehensive income in addition to net income from operations.
Comprehensive income is a more inclusive financial reporting methodology that
includes the disclosure of the information that historically has not been
recognized in the calculation of net income. For the period ended September 30,
2008, this amount did not vary from net loss from operations.
Going Concern - The Company has an accumulated deficit of $12,930,583 as of
September 30, 2008, and currently has no source of revenue or business
operations, raising substantial doubt about the Company's ability to continue
as a going concern. The Company may seek additional sources of capital through
the issuance of debt or equity financing, but there can be no assurance the
Company will be successful in accomplishing its objectives. The ability of the
Company to continue as a going concern is dependent on additional sources of
capital and the success of the Company's future business operations, which are
presently not established. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Principles of Consolidation - The consolidated financial statements include the
combined accounts of Strategic Gaming Investments, Inc., a Delaware
corporation; Strategic Gaming Investments, Inc., a Nevada Corporation; and The
Ultimate Poker League, Inc., a Nevada corporation for financial statements as
of September 30, 2007 and December 31, 2007. All material intercompany
transactions and accounts have been eliminated in consolidation.
NOTE 2 - STOCKHOLDERS' EQUITY
As of September 30, 2008, there were 560,226 shares of common stock
outstanding.
On March 16, 2008, all outstanding convertible notes ("Notes"), in the
collective original principal amount of $1,095,945, plus accrued interest in
the collective amount of $65,600, were converted into 1,653,832 shares of
common stock at a conversion price of $0.40 per share. The balance of the notes
were settled by giving the 2,500,000 shares of Power Play Development
Corporation to the note holders.
Additionally, during the three months ended March 31, 2008, the Company issued
warrants to purchase 800,000 shares of common stock, exercisable for a period
of ten (10) years at $0.35 per share, to third party consultants. Such warrants
were valued at $476,418 using the Black-Scholes valuation methodology, and all
of such amount has been expensed on the financial statements of the Company.
On August 18, 2008, our Board of Directors authorized a reverse stock split of
the outstanding common stock on the basis of one share for every twenty shares
currently issued and outstanding, effective September 5, 2008 (the "Effective
Date"). Each twenty shares of common stock of the Company outstanding on the
Effective Date were converted automatically into a single share of common
stock. There will not be a change in the par value of the common stock of
Strategic Gaming. To avoid the existence of fractional shares of common stock,
if a stockholder would otherwise be entitled to receive a fractional share, the
number of shares to be received was rounded up to the next whole share.
27
NOTE 3 - NOTES PAYABLE
As of September 30, 2008, there are no outstanding convertible notes.
NOTE 4 - RELATED PARTY TRANSACTIONS
As of September 30, 2008, Larry Schroeder, the Company's President, Chief
Executive Officer and a Director, has loaned the Company the sum of $79,707.
This loan is non-interest bearing and has no due date assigned to it.
As of September 30, 2008, the Company had $108,304 in accrued payroll payable
to the Company's current and former officers.
NOTE 5 - LITIGATION
On March 7, 2006, Mark Newburg and Arnoldo Galassi jointly filed a complaint in
District Court, Clark County, Nevada, against Left Right Marketing Technology,
Inc. (the former name of Strategic Gaming Investments, Inc.) alleging, among
other things, breach of contract relating to promissory notes and employment
contracts purportedly outstanding in favor of Messrs. Newburg and Galassi. The
Company filed a responsive pleading and denied each of the allegations made by
Messrs. Newburg and Galassi.
In March 2008, the Company settled the lawsuit with Mark Newburg and Arnold
Galassi. The Company agreed to pay $20,000 in legal fees to the plaintiffs and
issued the sum of 250,000 shares of restricted common stock. A shareholder of
the Company has agreed to relinquish all legal right and title to 250,000
shares of common stock to the Company. As a result, the issuance of the 250,000
shares of common stock to Messrs. Newburg and Galassi, pursuant to the terms of
the settlement, will not result in dilution to the current shareholders of the
Company. In addition, the settlement will result in the Company's balance sheet
reflecting a reduction of $461,963 in current liabilities.
As of September 30, 2008 the Company owes $3,000 of the $20,000 owed as a part
of the settlement.
NOTE 6 - SUBSEQUENT EVENTS
On October 31, 2008 the Company entered into a Reorganization pursuant to a
Reorganization Agreement dated as of October 31, 2008. The Reorganization,
Granite Energy, Inc. transferred to Amerigo Energy substantially all of its
assets and operations, including its subsidiary, Amerigo, Inc. and its
controlling interest in GreenStart, Inc. in exchange for 10,000,000 restricted
shares of Common Stock of the Company. The Company filed a form 8-K on November
11, 2008 to disclose the transaction. For more information, please refer to
that filing.
28
(1) Financial Statements at and as of December 31, 2007 and 2006
(Audited):
Larry O'Donnell, CPA, P.C.
Telephone (303) 745-4545
2228 South Fraser Street
Fax (303) 369-9384
Unit I
Email larryodonnellcpa@msn.com
Aurora, Colorado 80014
www.larryodonnellcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Strategic Gaming Investments, Inc.
formerly named Left Right Marketing Technology, Inc. Henderson, Nevada
I have audited the accompanying consolidated balance sheet of Strategic Gaming
Investments, Inc. formerly named Left Right Marketing Technology, Inc. as of
December 31, 2007, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor was I engaged to perform, an audit of its internal
control over financial reporting. My audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Strategic Gaming
Investments, Inc. formerly named Left Right Marketing Technology, Inc. as of
December 31, 2007, and the consolidated results of its operations and cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit of $13,366,985 at December 31, 2007.
Additionally, for the year ended December 31, 2007, the Company a net loss of
$8,952,893. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regards to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Larry O'Donnell, CPA, P.C.
March 26, 2008
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Audit Committee of
Strategic Gaming Investments, Inc.
2580 Anthem Village Dr.
Henderson, NV 89052
We have audited the accompanying balance sheet of Strategic Gaming Investments,
Inc. as of December 31, 2006, and the related statements of operations, changes
in stockholders' deficit and cash flows for the years ended December 31, 2006.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
balance sheets are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheet. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2006, and the results of its operations and its cash flows for the years ended
December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
The accompanying financial statements have been prepared on the basis of a
going concern, which anticipates the payment of liabilities through the
realization of assets and operations in the normal course of business. The
Company is not a going concern, as it has no assets or ongoing operations. No
adjustments have been made to reduce the existing liabilities based on the
Company's inability to pay the obligations.
/s/Beadle, McBride, Evans & Reeves, LLP
- ---------------------------------------
Las Vegas, Nevada
April 17, 2007
30
AMERIGO ENERGY, INC.
(FORMERLY, STRATEGIC GAMING INVESTMENTS, INC.)
CONSOLIDATED BALANCE SHEET
Audited Audited
As of As of
December 31, December 31,
2007 2006
------------ ------------
ASSETS
Current assets
Cash $ - $ 25,215
------------ ------------
Total current assets - 25,215
Other current assets
Bank receivable 3,693 -
Prepaid expense - 999
Loan receivable - 8,228
Advances to related party 500,100 -
------------ ------------
Total other current assets 503,793 9,227
Intangible Assets,
net of accumulated amortization - 2,596
Total assets $ 503,793 $ 37,038
============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable $ 208,623 $ 93,276
Accrued interest 65,030 -
Bank overdraft 7,116 -
Accounts payable - related parties 179,533 30,000
Advances from related parties 97,401 131,158
Accrued officers' compensation - 25,834
Short term note payable - 120,000
Accrued payroll for related party 577,235 461,963
------------ ------------
Total current liabilities 1,134,938 862,231
Convertible notes payable to related party,
less current maturity of $0,
net of unamortized discount of $901,316 184,629 -
Stockholders' (deficit)
Preferred Stock (25,000,000 shares
authorized and zero issued and outstanding) - -
Common stock; $.001 par value; 100,000,000
authorized; 9,447,137 and 8,047,137 shares
issued and outstanding as of December 31,
2007 and December 31, 2006, respectively 9,447 8,048
Additional paid-in capital 12,541,764 3,580,849
Receivable of shares issued - -
Accumulated (deficit) (13,366,985) (4,414,090)
------------ ------------
Total stockholders' (deficit) (815,774) (825,193)
------------ ------------
Total liabilities and stockholders' (deficit) $ 503,793 $ 37,038
============ ============
See Accompanying Notes to Financial Statements
31
AMERIGO ENERGY, INC.
(FORMERLY, STRATEGIC GAMING INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
Audit Audit
Year Ended Year Ended
December 31, December 31,
2007 2006
------------ ------------
Revenue $ - $ -
Operating expenses
Compensation expense 4,361,888 -
Consulting expense 1,175,129 -
General and administrative 605,181 287,666
------------ ------------
Total operating expenses 6,142,198 287,666
------------ ------------
Loss from operations (6,142,198) (287,666)
Other income (expenses):
Amortization of discount on convertible
notes payable (78,012) -
Loss from rescinded Merger (2,576,786) -
Interest expense on warrant with convertible
notes payable (59,973) -
Interest expense (95,927) (10,680)
------------ ------------
Total other income (expenses) (2,810,697) (10,680)
------------ ------------
(Loss) before provision for income taxes &
other comprehensive income / (loss) (8,952,895) (298,346)
Provision for income taxes 1 -
(Loss) before other comprehensive income / (loss) (8,952,894) (298,346)
Other comprehensive income / (loss) 1 -
Net (loss) $ (8,952,893) $ (298,346)
------------ ------------
Basic and diluted (loss) per common share $ (0.98) $ (0.05)
============ ============
Basic and diluted weighted average
common shares outstanding 9,180,470 5,698,526
============ ============
See Accompanying Notes to Financial Statements
32
AMERIGO ENERGY, INC.
(FORMERLY, STRATEGIC GAMING INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
12 months ended 12 months ended
December 31, December 31,
2007 2006
--------------- ---------------
Cash flows from operating activities:
Net loss $ (8,952,895) $ (298,346)
Adjustments to reconcile net loss to
net cash used by operating activities:
Changes in operating assets and liabilities:
Stocks and options issued for services / to settle debt 5,392,938 20,000
Increase / (decrease) in stock subscription 2,500 -
Interest expense on warrant with convertible notes payable 113,416 -
Amortization of discount on convertible notes payable 71,213 -
Cost associated with rescinded merger 600 -
Loss associated with rescinded merger 2,467,808 -
Depreciation and amortization 2,597 2,826
(Increase) / decrease in prepaid expenses 999 (999)
(Increase) / decrease in loans and bank receivables 4,535 (8,228)
Increase / (decrease) in accounts payable 115,346 18,996
Increase / (decrease) in accounts payable - related party 149,532 -
Increase / (decrease) in accrued interest 65,030 -
Increase / (decrease) in accrued payroll 89,438 25,834
Increase / (decrease) in contingency payable - (25,000)
--------------- ---------------
Net cash used by operating activities (476,943) (264,917)
Cash flows from investing activities:
Liabilities assumed from acquisition (82,502)
Purchase of property and equipment - (5,422)
--------------- ---------------
Net cash used by investing activities - (87,924)
Cash flows from financing activities:
Increase in bank overdraft 7,116 -
Advance to (from) related party (533,858) 58,056
Proceeds from stock receivable 12,500 200,000
Proceeds from issuance of convertible notes payable 965,970 120,000
--------------- ---------------
Net cash provided by financing activities 451,729 378,056
--------------- ---------------
Net increase in cash (25,215) 25,215
Cash, beginning of period 25,215 -
--------------- ---------------
Cash, end of period 0 25,215
=============== ===============
Supplementary cash flow information:
Interest paid $ 10 $ 1,652
Payroll tax write-off $ - $ 278,549
Debt settled with stock $ - $ 250,000
Receivable of shares issued $ 15,000 $ 35,000
Fair value of warrants issued with convertible notes payable $ 289,989 $ -
Discount on convertible notes payable $ 91,761 $ -
=============== ===============
33
AMERIGO ENERGY, INC.
(FORMERLY, STRATEGIC GAMING INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Additional Stock Total
Paid-in Subscriptions Accumulated Stockholders'
Shares Amount Capital Receivable Deficit Deficit
--------- ------ ----------- ------------- ------------ ------------
Balance, December 31, 2005 98,804 $ 99 $ 3,118,797 $ - $ (4,311,791) $ (1,192,895)
========= ====== =========== ============= ============ ============
Shares issued for merger with SGI 7,650,000 7,650 (7,650) - - -
Shares issued for interest expense 10,000 10 9,990 - 10,000
Record accumulated deficit for SGI - - - - (82,502) (82,502)
Debt settled with stock 83,333 83 249,917 - - 250,000
Shares issued for cash 165,000 165 164,835 - - 165,000
Stock subscription 35,000 35 34,965 (35,000) -
Shares issud for services 5,000 5 9,995 - - 10,000
Money received on stock subscription - - - 35,000 - 35,000
"Adjustment to retained earnings to reflect the
removal of payroll tax liabilities per IRS" 278,549 278,549
Net loss for the year ended December 31, 2006 (298,346) (298,346)
--------- ------ ----------- ------------- ------------ ------------
Balance, December 31, 2006 8,047,137 $8,047 $ 3,580,849 $ - $ (4,414,090) $ (825,194)
========= ====== =========== ============= ============ ============
Shares issued for merger with Neolink 800,000 800 2,479,200 (2,500) - 2,477,500
Issuance of convertible debt agreements - - 377,558 - - 377,558
Shares issued for settlement of merger rescission 600,000 600 - - - 600
Issuance of stock options for services - - 1,031,050 - - 1,031,050
Issuance of stock options of compensation - - 4,361,888 - - 4,361,888
Issuance of convertible debt agreements - - 602,524 - - 602,524
Write off of stock receivable 2,500 2,500
Issuance of convertible debt agreements - - 108,695 - - 108,695
Net loss - - - - (8,952,893) (335,373)
--------- ------ ----------- ------------- ------------ ------------
Balance, December 31, 2007 9,447,137 $9,447 $12,541,764 $ - $(13,366,985) $ (815,774)
========= ====== =========== ============= ============ ============
See Accompanying Notes to Financial Statements
33
AMERIGO ENERGY, INC.
(FORMERLY STRATEGIC GAMING INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT POLICIES
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 is 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).
Going Concern - The Company incurred net losses of approximately $13,366,985
through December 31, 2007, and currently has no source of revenue, raising
substantial doubt about the Company's ability to continue as a going concern.
The Company will seek additional sources of capital through the issuance of
debt or equity financing, but there can be no assurance the Company will be
successful in accomplishing its objectives. The ability of the Company to
continue as a going concern is dependent on additional sources of capital and
the success of the Company's plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Principles of Consolidation - The consolidated financial statements include the
combined accounts of Strategic Gaming Investments, Inc., a Delaware
Corporation; Strategic Gaming Investments, a Nevada Corporation; and, the
Ultimate Poker League, a Nevada Corporation. All material intercompany
transactions and accounts have been eliminated in consolidation.
Year end - The Company's fiscal year end is December 31.
Use of estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
34
Income taxes - The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and tax credit carry
forwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in operations in
the period that includes the enactment date.
Management feels the Company will have a net operating loss carryover to be
used for future years. Such losses may not be fully deductible due to the
significant amounts of non-cash service costs. The Company has established a
valuation allowance for the full tax benefit of the operating loss carryovers
due to the uncertainty regarding realization.
Net loss per common share - The Company computes net loss per share in
accordance with SFAS No. 128, Earnings per Share (SFAS 128) and SEC Staff
Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB
98, basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of shares of
common stock outstanding during the period. The calculation of diluted net loss
per share gives effect to common stock equivalents; however, potential common
shares are excluded if their effect is antidilutive. For the period January 1,
2007, through December 31, 2007, no options and warrants were excluded from the
computation of diluted earnings per share because their effect would be
antidilutive.
Comprehensive income (loss) - There has been no comprehensive income or loss
items as of December 31, 2007.
Concentration of risk - A significant amount of the Company's assets and
resources are dependent on the financial support of certain of its
shareholders. Should such shareholders determine to no longer finance the
operations of the Company, the Company may not be able to continue its
activities.
Revenue recognition - The Company has not generated revenues to date from its
operations. Once revenues are generated, management will establish a revenue
recognition policy.
Advertising costs - The Company recognizes advertising expenses in accordance
with Statement of Position 93-7 "Reporting on Advertising Costs." Accordingly,
the Company expenses the costs of producing advertisements at the time
production occurs, and expenses the costs of communicating advertisements in
the period in which the advertising space or airtime is used. The Company has
recorded advertising costs of $3,280 for the period from January 1, 2007,
through December 31, 2007.
35
NEW ACCOUNTING PRONOUNCEMENTS
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments," which amends SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 155 permits fair value measurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation and establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or hybrid financial instruments containing embedded derivatives.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets," which amends SFAS No. 140. SFAS No. 156 may be adopted as
early as January 1, 2006, for calendar year-end entities, provided that no
interim financial statements have been issued. Those not choosing to early
adopt are required to apply the provisions as of the beginning of the first
fiscal year that begins after September 15, 2006 (e.g., January 1, 2007, for
calendar year-end entities). The intention of the new statement is to simplify
accounting for separately recognized servicing assets and liabilities, such as
those common with mortgage securitization activities, as well as, to simplify
efforts to obtain hedge-like accounting. SFAS No. 156 permits a service using
derivative financial instruments to report both the derivative financial
instrument and related servicing asset or liability by using a consistent
measurement attribute or fair value.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157), which provides guidance on how to measure assets and liabilities
that use fair value. SFAS 157 will apply whenever another US GAAP standard
requires (or permits) assets or liabilities to be measured at fair value but
does not expand the use of fair value to any new circumstances. This standard
also will require additional disclosures in both annual and quarterly reports.
SFAS 157 will be effective for fiscal years beginning after November 15, 2007
(January 1, 2008 for the Company).
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement 109 ("FIN
48"), which prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Under FIN 48, the benefit of a tax
position may be recognized only if it is more likely than not that the tax
position will be sustained, based on the technical merits of the position, by a
taxing authority having full knowledge of all relevant information. We do not
expect FIN 48 to have a material impact on our financial statements.
36
In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement No.
115 ("SFAS 159") which permits entities to choose to measure eligible items at
fair value at specified election dates. Unrealized gains and losses on items
for which the fair value option has been elected will be reported in earnings
at each subsequent reporting date.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 which applies to
all entities that prepare consolidated financial statements, except not-for-
profit organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. The statement is effective for annual periods
beginning after December 15, 2008.
The above pronouncements are not currently expected to have a material effect
on our financial statements.
NOTE 2 - BUSINESS COMBINATION
On April 18, 2006, the Company consummated the acquisition of Strategic Gaming
Investments, Inc., a Nevada corporation ("SGI Nevada"), and its wholly-owned
subsidiary, The Ultimate Poker League, Inc., a Nevada corporation. Strategic
Gaming Investments, Inc., a Nevada corporation, plans to operate in the gaming,
entertainment and hospitality sectors. In conjunction with the acquisition, the
Company amended its articles of incorporation and changed its name to Strategic
Gaming Investments, Inc. In addition, the Company changed its trading symbol
from "LRMT" to "SGME". As a result of the acquisition, there was a change in
control of the entity, SGI Nevada. For accounting purposes, SGI Nevada shall be
a wholly owned subsidiary of the Company. The transaction is accounted for
using the purchase method of accounting. The total purchase price and carrying
value of net assets acquired by the Company was $(82,502). The results of
operations of SGI Nevada, subsequent to the acquisition date are included in
the Company's consolidated statement of losses. In accordance with SFAS No.
141, the Company is the acquiring entity.
Pursuant to the Agreement and Plan of Reorganization ("Agreement"), the Company
exchanged 7,650,000 shares common stock for 100% of the issued and outstanding
common stock of SGI Nevada. In conjunction with the share exchange, each
stockholder of SGI Nevada, received a pro rata portion of the 7,650,000 shares
of common stock of the Company issued in the exchange.
The value of the stock that was issued to the stockholders of SGI Nevada, is
the historical cost of the Company's net tangible assets. The value of the
Company's net tangible assets as of the date of the acquisition did not differ
materially from the fair value of the common stock issued.
SGI Nevada had a net loss of $47,995 from January 1, 2006 through April 18,
2006. Accordingly, the following unaudited pro-forma summary statement of
operations gives effect, on a consolidated basis, for the full twelve month
period ended December 31, 2006:
37
Twelve months ended December 31, 2006 (Unaudited)
Pro-forma Pro-forma
As reported adjustments (loss)
----------- ----------- ---------
Costs and expenses $ (229,231) $ (47,995) $(277,226)
Other income (expense) (119) (119)
----------- ----------- ---------
Net (loss) before
discontinued operations (229,350) (47,995) (277,345)
Loss from discontinued
operations - - -
----------- ----------- ---------
Net loss $ (229,350) $ (47,995) $(277,345)
On January 11, 2007, SGME and Neolink Wireless Content, Inc., a Nevada
corporation ("Neolink"), closed a merger transaction ("Merger") whereby Neolink
became a wholly-owned subsidiary of SGME. The Merger is evidenced by a Merger
and Share Exchange Agreement ("Merger Agreement").
Pursuant to the terms of the Agreement, SGME issued the stockholders of
Neolink, on a pro-rated basis, a total of One Million (1,000,000) shares of
common stock, $0.001 par value, in consideration for 100% of the issued and
outstanding capital stock of Neolink. Of those 1,000,000 issued the 500,000
shares of common stock to Donald Beck and 100,000 shares of common stock to
John Padon. Mr. Beck is an officer of The Ultimate Poker League, Inc. and Mr.
Padon is a director of The Ultimate Poker League, Inc. Both individuals are
shareholders of the Company through its acquisition of The Ultimate Poker
League on April 18, 2006. After the Merger, Mr. Beck and Mr. Padon each have
600,000 and 125,000 shares of common stock, respectively. In addition, SGME has
provided approximately $90,000 of additional financing to Neolink. The Funding
was utilized necessary in connection with Neolink's business, operations and
affairs.
On April 16, 2007, SGME and Beck entered into a Settlement Agreement and Mutual
Release of Claims ("Settlement Agreement") relating to the Merger. The parties
mutually decided it was in their respective best interests to terminate the
Merger and did so on the following terms: (i) Beck to pay SGME the sum of
Fifteen Thousand ($15,000) Dollars for 100% of the issued and outstanding
capital stock of Neolink; (ii) Beck and another Neolink stockholder will
relinquish a total of Two Hundred Thousand (200,000) shares of SGME common
stock issued to them in the Merger; (iii) the employment agreement of Beck will
be terminated and the Shares will not be issued; (iv) SGME will assume the real
property lease of Neolink as well as the contract for T-1 Internet services;
and (v) SGME and Beck have forever released and discharged the other, as well
as their spouses, heirs, beneficiaries, shareholders, members, directors,
officers, managers, employees, contractors, partners, joint venturers,
attorneys, agents, representatives, successors and assigns, as applicable, from
any and all contracts and other obligations relating to the Merger.
As a result of the termination of the merger, SGME issued 800,000 shares of its
common stocks at market price of $3.10 per share and received $15,000 in
exchange. SGME recorded a loss of $2,576,786 from rescinded merger during the
nine months ended September 30, 2007.
On July 24, 2007, Strategic Gaming Investments, Inc., a Delaware corporation
("SGME"), and Power Play Development Corporation, a Nevada corporation ("Power
Play"), entered into an Agreement and Plan of Merger ("Agreement") whereby
Power Play would merge with and into SGME.
Power Play is a Massachusetts based marketing and promotions company. Through
its poker creations division (www.pokercreations.com), the company offers
legally compliant private-branded online poker applications to national brands,
portals and corporations seeking to leverage and extend their brands via the
growth and interest in poker. Power Play offers its own poker portal direct to
the public through its National League of Poker division (www.nlop.com).
38
Pursuant to the terms of the Agreement, at the closing of the merger
("Closing") SGME would have issued that certain number of shares of common
stock, and options to purchase shares of common stock (on identical terms as
the issued and outstanding options as Power Play immediately prior to the
Closing), necessary for Power Play stockholders and option holders,
collectively, to hold seventy percent (70%) of the issued and outstanding
common stock of SGME, calculated on a fully-diluted basis, immediately
following the Closing. The Closing is anticipated to occur in the second half
of 2007.
Under the Agreement, SGME also agreed to loan Power Play $500,000, consisting
of (i) $300,000 upon execution and delivery of the Agreement; (ii) $100,000 on
or before August 15, 2007; and (iii) $100,000 on or before September 1, 2007.
The loan is in the form of a convertible promissory note with interest at the
rate of five percent (5%) per annum, which will be cancelled immediately
following the Closing. See Note 8, Subsequent Events.
On June 25, 2007, the Company received $100,000 as an advance to be used
towards a potential merger candidate. On July 24, 2007, Strategic Gaming
Investments, Inc., a Delaware corporation ("SGME"), and Power Play Development
Corporation, a Nevada corporation ("Power Play"), entered into an Agreement and
Plan of Merger ("Agreement") whereby Power Play will merge with and into SGME.
On July 30, 2007, the $100,000 advance along with an additional $200,000 was
deposited as per the agreement related to the merger.
On July 30, 2007, S. Matthew Schultz resigned as Chief Operating Officer and
Chairman of SGME. Mr. Schultz's resignation did not involve any disagreement
with the Company, its officers or directors. Lawrence S. Schroeder, our
existing Chief Executive Officer, President and a Director, will assume the
Chairman position.
On October 16, 2007, Jason F. Griffith resigned as Chief Financial Officer and
Director of Strategic Gaming Investments, Inc. Mr. Griffith's resignation did
not involve any disagreement with the Company, its officers or directors.
Lawrence S. Schroeder, our existing Chief Executive Officer, President and
Chairman, will assume the Chief Financial Officer position.
On October 11, 2007, the Agreement and Plan of Merger ("Merger Agreement")
dated July 24, 2007 between Strategic Gaming Investments, Inc. ("Company") and
Power Play Development Corporation ("PPDC") was terminated.
As a result of the termination of the Merger Agreement, the Five Hundred
Thousand ($500,000) Dollars in loans made by the Company to PPDC, evidenced by
a convertible promissory note ("Note"), has been converted into Two Million
Five Hundred (2,500,000) shares of common stock of PPDC.
On October 22, 2007, an Agreement ("Agreement") was entered into by and between
the Company, PPDC and several third parties. Pursuant to the terms of the
Agreement, the Company is entitled to receive Two Million Five Hundred Thousand
(2,500,000) shares of common stock of PPDC if PPDC receives $4,000,000 in
financing on or before December 22, 2007 from third parties. There can be no
assurance that such financing will occur.
In addition, in the event that the Company is (i) negotiating a third party
transaction that requires a non-exclusive license of technology owned by PPDC,
or (ii) has concluded a transaction that requires a non-exclusive license to
the PPDC's technology, then, in either event, PPDC shall use its best efforts
to provide a non-exclusive license to the Company relating to its technology on
reasonably favorable terms and conditions; provided, however, that the
foregoing obligations of PPDC shall expire on October 22, 2010.
39
NOTE 3 - STOCKHOLDERS' EQUITY
As of December 31, 2007, there were 9,447,137 shares of common stock
outstanding.
On April 18, 2006, articles of amendment reflecting the merger between
Strategic Gaming Investments, Inc., a Nevada corporation, and the Company were
filed. Pursuant to the Agreement and Plan of Reorganization, the Company's
shareholders exchanged 7,650,000 shares common stock in the Company for 76,500
shares common stock in Strategic Gaming Investments, Inc., a Nevada
corporation. Specifically, each SGI Nevada shareholder received a pro rata
portion of the Company's shares based on the number of SGI Nevada shares
exchanged.
On May 1, 2006, the Company issued 10,000 shares of common stock at a price of
$1 per share to settle $10,000 in accrued interest on a note payable.
On May 1, 2006, the Company issued 83,333 shares of common stock at a price of
$3 per share to settle $250,000 in notes payable.
On June 1, 2006, the Company received cash for 165,000 shares of common stock
at a price of $1 per share.
On June 1, 2006, the Company issued a stock receivable subscription for 35,000
shares of common stock at a price of $1 per share.
On August 1, 2006, the Company issued 5,000 shares of common stock for services
at a value of $2 per share.
On January 11, 2007, in conjunction with the Merger discussed in Note 2, the
Company issued 1,000,000 shares of common stock, with 200,000 in transit to be
cancelled per the terms of the Rescission.
During the six months ended June 30, 2007, the company retired 75,000 shares of
stock that had previously been issued for services.
The company additionally issued options to employees and consultants during the
period. The company valued the issuances using Black Scholes model with 10 year
terms and $0.50 exercise prices. There were 355,000 options issued to various
related party consultants, which were valued at $1,031,050. There were
1,500,000 options issued to employees and officers valued at $4,361,888. The
entire amount has been expensed on the financial statements.
300,000 of the options issued to an employee were forgiven and then reissued as
100,000 to that same employee and 200,000 to a different employee. Thus, there
was no net change to the total options issued.
NOTE 4 - NOTES PAYABLE
On January 10, 2007, SGME entered into a note and warrant purchase agreement
("Financing Agreement") with several third parties (collectively, the
"Purchasers"), each of whom are accredited investors as such term is defined
under the Act.
The Financing Agreement consists of the following terms: (i) an initial
investment of $120,000 and subsequent investment(s) of up to $980,000, for a
total investment of up to $1,100,000; (ii) the investments shall be evidenced
by convertible promissory notes ("Notes") on the following terms: (a) a term of
three (3) years, (b) bearing simple interest at the rate of eight percent (8%)
per annum, (c) convertible at $0.40 per share, and (d) secured by a first
priority security interest in all of the assets of SGME; and (iii) the
Purchasers shall be issued warrants to purchase 10,000 shares of common stock
for every $10,000 of Notes purchased ("Warrants"), exercisable at $0.40 per
share for a period of ten (10) years.
The financing was made in reliance upon the exemptions from securities
registration provided by Section 4(2) of the Act and Rule 506 promulgated
thereunder.
At December 31, 2007, the Company had approximately $1,085,945 of convertible
notes payable to individuals and entities who are also shareholders, principal
and interest at 8%, payable three years from the date of issuance, secured by
2,214,863 shares of common stock and 1,585,945 warrants. Principal is
convertible into common stock at a conversion price of $0.40 per share of
common stock. At the due date the Company has the option to repay the debt or
issue common stock. In connection with this transaction, the Company recorded a
discount of $880,695, for the fair value of the warrants and beneficial
conversion; as of September 30, 2007, the debt is stated net of the unamortized
discount of $901,316 at $184,629.
Beneficial Conversion Feature of Debt
In accordance with Emerging Issues Task Force No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios, and No. 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments, the Company recognizes the value of conversion
rights attached to convertible debt. These rights give the debt holder the
ability to convert his debt into common stock at a price per share that is less
than the trading price to the public on the day the loan is made to the
Company. The beneficial value is calculated based on the market price of the
stock at the commitment date in excess of the conversion rate of the debt and
related accruing interest and is recorded as a discount to the related debt and
an addition to additional paid in capital. The discount is amortized as
interest expense over the remaining outstanding period of related debt.
Warrants issued in connection with notes payable In connection with the
issuance of the promissory notes payable, the warrants grant the holders the
right to purchase in aggregate 1,585,945 shares of common stock at an exercise
price of $0.40 per share from the Company. The Company, in accordance with APB
Opinion No. 14, recorded these debts and related warrants as separate
securities. The warrants have a term of approximately ten years and became
exercisable upon issue. The Company allocated the investment proceeds to the
debt and warrants based on their relative fair values. The relative fair value
of the warrants was determined to be $748,876, which was charged to additional
paid-in capital with a corresponding discount on the notes payable, a reduction
of the carrying amount of the debt. The discount is being amortized to interest
expense over the term of the debt. The fair value of the warrants was based on
the Black-Scholes model. The Black-Scholes calculation incorporated the
following assumptions: 0% dividend yield, 74% - 89% average volatility, 4.65%
average risk-free interest rate, a ten-year life and an underlying common stock
value of $2.40 - $3.75 per share. For the year ended December 31, 2007, debt
discount of approximately $136,428 was amortized to interest expense.
As of December 31, 2007, none of the convertible notes has been converted into
common stock.
Weighted average
Number exercise
of shares price
--------- ----------------
Balance, December 31, 2006 - -
Warrants granted and assumed 1,585,945 0.40
Warrants expired - -
Warrants canceled - -
Warrants exercised - -
--------- ----------------
Balance, December 31, 2007 1,585,945 0.40
As of December 31, 2007, all warrants outstanding are exercisable.
40
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED PAYROLL
As of December 31, 2005, current liabilities include $461,963 in accrued
payroll and $278,550 in payroll taxes due and payable to the Internal Revenue
Service for social security, medicare, unemployment and withholding taxes for
prior periods and $25,000 of contingency payable booked as a result of the
rescission agreement. Based on discussions with counsel and the Internal
Revenue Service, management believes that certain of these liabilities, are the
responsibility of Crazygrazer.com, LLC as a result of the rescission agreement
between it and the Company in March 2005.
On January 11, 2007, the Company received confirmation from the Internal
Revenue Service that they have determined the Company is not responsible for
the outstanding payroll taxes. Accordingly, the Company has removed the
liability from the Company's financial statements as of December 31, 2006.
Additionally, some two years subsequent to the rescission agreement, no issues
have been identified which would require the utilization of the remaining
contingency payable.
Since both liabilities were originally booked in connection with the rescission
agreement, the amounts have been adjusted to additional paid-in- capital as a
modification of the rescission agreement rather than a realization of expenses
or forgiveness of debt income during the period
As of December 31, 2007, the $461,963 in accrued payroll has not been
definitively resolved. Accordingly, the Company has not removed the
liabilities. At the time that an ultimate resolution is determined, to the
extent that the Company is not responsible, such liabilities will be credited
to additional paid in capital. Please see Note 9 - Subsequent Events.
NOTE 6 - RELATED PARTY TRANSACTIONS
As of December 31, 2007, Larry Schroeder, the Company's President, Chief
Executive Officer and a Director, has loaned the Company the sum of $72,862.
This loan is non-interest bearing and has no due date assigned to it.
As of December 31, 2007, Anthony Marsiglia, the President of The Ultimate Poker
League, Inc., a wholly owned subsidiary of the Company, has loaned the Company
the sum of $7,830. This loan is non- interest bearing and has no due date
assigned to it.
NOTE 7 - LITIGATION
On March 7, 2006, Mark Newburg and Arnoldo Galassi jointly filed a complaint in
District Court, Clark County, Nevada, against Left Right Marketing Technology,
Inc. (the former name of Strategic Gaming Investments, Inc.) alleging, among
other things, breach of contract relating to promissory notes and employment
contracts purportedly outstanding in favor of Messrs. Newburg and Galassi. The
Company has filed a responsive pleading and has denied each of the allegations
made by Messrs. Newburg and Galassi. Management for the Company believes that
the claims relating to the alleged promissory notes and employment contracts
are without merit and the ultimate resolution will not have a material effect
on the Company. See Note 9 - Subsequent events. This lawsuit was settled in
March 2008 for $20,000 cash and 250,000 shares of common stock.
NOTE 8 - DEFERRED INCOME TAX
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 2007
are as follows:
Deferred tax assets:
Net operating loss carryforwards $ 1,112,393
Stock issued for services 3,500
1,115,893
-------------
Deferred tax liabilities
Depreciation and amortization (989)
(989)
Net deferred tax asset 1,114,904
Less valuation allowance (1,114,904)
-------------
$ -
=============
At December 31, 2007, the Company had federal net operating loss ("NOL") carry
forwards of approximately $1,115,893. Federal NOLs could, if unused, begin to
expire in 2021.
The valuation allowance for deferred tax assets as of December 31, 2007 was
$1,114,904.
NOTE 9 - SUBSEQUENT EVENTS
In March 2008, the company settled the lawsuit with Mark Newburg and Arnold
Galassi. The company agreed to pay $20,000 in legal fees to the plaintiff and
give 250,000 shares of restricted stock. A shareholder of the company has
agreed to turn in 250,000 shares of stock to the company to assist in this, so
there will be no dilution to the other shareholders. This settlement will
remove $461,963 of liabilities from the balance sheet.
In March 2008, the company issued convertible promissory notes in the original
principal amount of $10,000. The notes bear simple interest at the rate of 8%
per annum, have a term of three (3) years, and are convertible at any time into
shares of common stock at the rate of $0.40 per share. The Company issued
Warrants to purchase 10,000 shares of common stock, exercisable at $0.40 per
share for a period of ten (10) years. In addition, the Company issued warrants
to purchase 800,000 shares, exercisable at $0.35 per share for a period of ten
(10) years.
On March 16, 2008, holders of convertible promissory notes in the collective
original principal amount of $1,095,945, and accrued interest of $65,600,
converted into 2,903,861 shares of common stock at the conversion rate of $0.40
per share.
These consolidated financial statements should be read together with the notes
thereto included elsewhere in this prospectus/information statement.
41
INFORMATION WITH RESPECT OF GRANITE ENERGY, INC.
Granite Energy, Inc., formerly known as Wcollect Inc., was, prior to the
Reorganization, an independent energy company headquartered in Salt Lake City,
Utah, focused on oil and gas development, exploration and production. Granite
Energy, Inc. was incorporated under the laws of Nevada on December 1, 2005. In
the Reorganization, Granite on October 31, 2008, transferred substantially all
its assets and operations to Amerigo Energy in return for the Amerigo Stock.
Amerigo, Inc., incorporated in Nevada on January 11, 2008, holds certain
assets formerly of Granite, including computers, software, telephone system,
small office equipment, machinery, and furniture. Amerigo was a subsidiary of
Granite prior to the consummation of the transaction between Amerigo Energy and
Granite.
GreenStart was incorporated in Nevada on June 12, 2007. GreenStart has
significant patents, licenses and technologies that are sustainable in
producing large volumes of clean, renewable, non-global warming energy from the
conversion of any carbon-based feedstock either solid or liquid, such as
municipal solid waste (MSW), coal, sewage, used tires, forestry waste,
agriculture waste, animal carcasses and biomass to a flexible combination of
electricity, steam, fuels, chemicals and hydrogen. This approach carries with
it some distinct social and economic advantages. GreenStart's units offer value
by generating substantial revenue streams, eliminating the need for future
landfills, while creating energy and renewable fuels from waste products with
little or no value. This primary energy is converted with greater efficiency
and with less waste than current methods.
GreenStart's Downdraft Gasification technology overcomes many problems
related to other gasifiers, producing a clean Synthesis gas (made up primarily
of Hydrogen and Carbon Monoxide). The Syn-gas is efficiently converted by a
Catalytic Slurry Cyclone Reactor licensed by the University of Utah into liquid
fuels (Dimethyl Ether, Ethanol, Gasoline, Jet Fuel or Diesel Fuel) or can be
burned directly in a gas turbine to create electricity. The Dimethyl Ether
(DME) like Syn-gas is a building block used in the chemical industry and can be
converted to several different products, depending on the catalyst used.
Results are 100% green power, water and air emissions that are environmentally
safe.
GreenStart was a subsidiary of Granite prior to the consummation of the
Amerigo Energy and Granite transaction.
INDEX TO GRANITE ENERGY FINANCIAL INFORMATION
(1) Financial Statements at and as of September 30, 2008 (Unaudited):
a. Consolidated Balance Sheets as of September 30, 2008 and December
31, 2007
b. Consolidated Statements of Income for the nine months ended
September 30,
2008 and 2007
c. Notes to Consolidated Financial Statements
(1) Financial Statements at and as of December 31, 2007 and 2006 (Audited):
a. Report of Independent Registered Public Accounting Firm
b. Consolidated Balance Sheets as of December 31, 2007 and 2006
c. Consolidated Statements of Income for the two years ended December
31, 2007, and 2006
d. Consolidated Statements of Cash Flows for the two years ended
December 31, 2007, and 2006
e. Notes to Consolidated Financial Statements
GRANITE ENERGY, INC.
BALANCE SHEET
September 30,
2008
------------
ASSETS
CURRENT ASSETS
Cash $ 25,077
Receivables 216,255
------------
Total Current Assets 241,332
Office equipment, net of depreciation $ 130,685
Vehicles, net of depreciation 13,511
Property and Equipment, net 103,600
Proved reserves, net of depletion 490,857
Unproved reserves, net of depletion 6,252,735
Software, net 7,028
------------
6,998,416
OTHER ASSETS
Investment in Greenstart $ 47,995
Investment in South Texas Oil -
Notes receivable 832,176
Deposits 950
------------
Total Other Assets 881,121
Total Assets $ 8,120,868
============
CURRENT LIABILITES
Accounts Payable and accrued liabilities $ 32,539
Payroll Liabilities 109,732
Other liabilities -
------------
Total Current Liabilities 142,272
Long Term Liabilities 7,525,356
------------
Total Long Term Liabilities 7,525,356
------------
Total Liabilities 7,667,628
STOCKHOLDERS' EQUITY
Common stock, par value $.001, 100,000,000
shares authorized, 53,040,889 issued
and outstanding 54,674
Additional paid in capital 27,616,215
Subscribed stock 19,500
Accumulated deficit (27,237,149)
------------
Total Stockholders' Equity 453,240
------------
Total Liabilities and Stockholders' Equity $ 8,120,868
============
42
GRANITE ENERGY, INC.
STATEMENT OF OPERATIONS
3 months 9 months 3 months 9 months
ended ended ended ended
September 30, September 30, September 30, September 30,
2008 2008 2007 2007
------------ ------------ ------------ ------------
REVENUES
Oil revenues $ 31,040 $ 258,609 $ 333,524 $ 511,718
Gas revenues - 19,144 19,091 55,323
Sale of oil packages 263,210 1,202,627 (46,419) 2,447,731
Gain on sale of investment - - - -
------------ ------------ ------------ ------------
Total Revenue 294,250 1,480,380 306,196 3,014,773
COST OF SALES
Cost of oil packages 147,680 1,560,294 (17,385) 1,323,440
------------ ------------ ------------ ------------
Total Cost of Goods Sold 147,680 1,560,294 (17,385) 1,323,440
GROSS PROFIT 146,570 (79,914) 323,581 1,691,333
49.81% 105.68%
OPERATING EXPENSES
Stock issued for services $ - $ - $ - $ 5,608,908
Professional fees 142,761 411,606 144,938 793,637
Depreciation and amortization expense 8,478 25,434 -
-
Payroll 95,412 95,412 -
-
Rent 20,690 20,690 -
-
Lease operating expenses 20,815 221,368 150,181 578,360
Officer settlement expense - - - 410,000
Selling, general and administrative 98,304 1,092,508 388,357 1,997,023
------------ ------------ ------------ ------------
Total Operating Expenses 386,460 1,867,019 683,476 9,387,928
Net income (loss) from operations $ (239,891) $ (1,946,933) $ (359,895) $ (7,696,595)
Other income (expenses):
Write off of debt $ - $ - $ - $ -
Write off of assets / Loss on Sale of assets - (219,671) (103,094) (98,594)
Interest income 213 1,620 1,365 9,193
Other income - 1,028 50,039 50,039
Other expenses - (15) (379) (2,063)
Interest expense - - - (5,860)
------------ ------------ ------------ ------------
Total other expenses 213 (217,038) (52,068) (47,285)
Net income (loss) before income taxes (239,677) (2,163,971) (411,963) (7,743,880)
Income taxes - - - -
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (239,677) $ (2,163,971) $ (411,963) $ (7,743,880)
============ ============ ============ ============
Net income (loss) per share $ (0.00) $ (0.04) $ (0.01) $ (0.14)
============ ============ ============ ============
Weighted average common shares outstanding 54,684,972 54,684,972 57,326,113 54,773,923
43
GRANITE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
GRANITE ENERGY, INC. (the "Company", formerly Wcollect.com, Inc.) was
incorporated in the state of Nevada on December 1, 2005. The Company and its
wholly-owned subsidiaries operate in the oil and gas exploration and production
industry, with primary assets and operations in Nevada, Utah, Oklahoma and
Texas. The Company purchased selected equipment and assets from Barnett Shale
Holdings and began operations as a separate company during 2006.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
which affect the reported amounts of assets and liabilities as of the date of
the financial statements and revenues and expenses for the period reported.
Actual results may differ from these estimates. The estimates include
amortization and depreciation of capitalized costs of oil wells and related
equipment. Management emphasizes that amortization and depreciation estimates
are inherently imprecise. Actual results could materially differ from these
estimates.
DIVIDEND POLICY
The Company has not yet adopted any policy regarding payment of dividends.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No 130, "Reporting Comprehensive
Income" ("SFAS 130")), requires that total comprehensive income be reported in
the financial statements. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. It requires
(a) classification of the components of other comprehensive income by their
nature in a financial statement and (b) the display of the accumulated balance
of the other comprehensive income separate from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company's financial statements do not include any of the
components of other comprehensive income during the year ended December 31,
2007 and the quarter ending September 30, 2008.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company includes fair value information in the notes to financial
statements when the fair value of its financial instruments is different from
the book value. When the book value approximates fair value, no additional
disclosure is made.
44
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investment securities with maturities of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
During the year ended December 31, 2007, the Company Purchased $27,257 worth of
equipment, $21,820 worth of Automobiles and $7,680 worth of software.
During the quarter ended September 30, 2008, the company did not purchase any
new equipment, automobiles or software.
The current and long term portions were of the asset retirement obligation was
estimated based on historical experience.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and
gas properties, after considering estimated residual salvage values, are
depreciated and depleted by the unit-of-production method. Support equipment
and other property and equipment are depreciated over their estimated useful
lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property, the cost is
charged to accumulated depreciation, depletion, and amortization with a
resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the
amount received is treated as a reduction of the cost of the interest retained.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
PROPERTY AND EQUIPMENT, CONTINUED
Depreciation is computed primarily on the straight-line method for financial
statements purposes over the following estimated useful lives:
ESTIMATED
CATEGORY LIFE
---------------------- ---------
Office building 20 years
Vehicles 7 years
Equipment 7 years
Leasehold Improvements 7 years
Furniture and Fixtures 5 years
All assets are booked at historical cost. Management reviews on an annual basis
the book value, along with the prospective dismantlement, restoration, and
abandonment costs and estimate residual value for the assets, in comparison to
the carrying values on the financial statements.
OIL AND GAS PRODUCING ACTIVITIES
Suspended well cost - Statement of Financial Accounting Standards Statement No.
19 "Financial Accounting and Reporting by Oil and Gas Producing Companies"
(SFAS 19) as amended by Staff Position 19-1 "Accounting for Suspended Well
Costs" allows suspended well costs to remain capitalized beyond one year from
drilling if certain specific criteria are met and additional disclosures
provided.
Exploratory costs, excluding the cost of exploratory wells and acquired
exploration rights, are charged to expense as incurred. Drilling costs for
exploratory wells are capitalized pending the determination of the existence of
proved reserves. If reserves are not found, the drilling costs are charged to
operating expense. Oil and gas lease acquisition costs are capitalized when
incurred.
45
Unproved properties with individually significant acquisition costs are
assessed quarterly on a property-by-property basis, and any impairment in value
is recognized. Unproved properties with acquisition costs that are not
individually significant are aggregated, and the portion of such costs
estimated to be nonproductive, based on historical experience, is amortized
over the average holding period. If the unproved properties are determined to
be productive, the appropriate related costs are transferred to proved oil and
gas properties.
Development costs incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized.
EARNINGS PER SHARE
The Company's basic earnings per share (EPS) amounts have been computed based
on the average number of shares of common stock outstanding for the period.
Diluted EPS amounts include the effects of outstanding stock options,
restricted stock and performance-based stock awards under the treasury stock
method if including such potential shares of common stock is dilutive. However,
the effect of including such common stock equivalents was anti-dilutive for the
year ended December 31, 2007 and quarter ended September 30, 2008.
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. At
times the Company may sell more or less than our entitled share of gas
production. When this happens, the Company uses the entitlement method of
accounting for gas sales, based on our net revenue interest in production.
Accordingly, revenue is deferred for gas deliveries in excess of our net
revenue interest, while revenue is accrued for the undelivered volumes.
Production imbalances and related values at December 31, 2007 and September 30,
2008 were insignificant.
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 segment, the oil and gas industry. The Company's
customers are located within the United States of America. Financial
instruments that subject the Company to credit risk consist principally of oil
and gas sales which are based on a short-term purchase contracts from Teppco
Oil (US) Company and various other gatherers in the area, with related accounts
receivable subject to credit risk.
During the year ended December 31, 2007 and quarter ended September 30, 2008
Teppco Oil (US) Company accounted for 66% and 64%, respectively, of the
Company's oil revenues. Management does not believe the loss of Teppco Oil (US)
Company would materially affect the ability to sell the oil.
INCOME TAXES
The Company records deferred income tax assets and liabilities to recognize
timing differences between recognition of income for financial statement and
income tax reporting purposes. Deferred income tax assets are calculated using
enacted tax rates applicable to
46
taxable income in the years when we anticipate these timing differences will
reverse. The effect of changes in tax rates is recognized in the period of
enactment.
Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes - An
Interpretation of FASB Statement No. 109. FIN No. 48 clarifies financial
statement recognition and disclosure requirements for uncertain tax positions
taken or expected to be taken in a tax return. Financial statement recognition
of the tax position is dependent on an assessment of a 50% or greater
likelihood that the tax position will be sustained upon examination, based on
the technical merits of the position. Any interest and penalties related to
uncertain tax positions are recorded as interest expense and general and
administrative expense, respectively. The adoption of FIN No. 48 did not have
any effect on our reported financial position or results of operations
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances outstanding
after management has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial
statements and at December 31, 2007 and September 30, 2008; the Company's
financial statements do not include an allowance for doubtful accounts because
management believes that no allowance is required at those dates.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004),
Share-Based Payment, which requires that compensation related to all stock-
based awards, including stock options, be recognized in the financial
statements based on their estimated grant-date fair value. The Company
previously recorded stock compensation pursuant to the intrinsic value method
under APB Opinion No. 25, whereby compensation was recorded related to
performance share and unrestricted share awards and no compensation was
recognized for most stock option awards. The Company is using the modified
prospective application method of adopting SFAS No. 123R, whereby the estimated
fair value of unvested stock awards granted prior to January 1, 2006 was
recognized as compensation expense in periods subsequent to December 31, 2005,
based on the same valuation method used in the Company's prior pro forma
disclosures. The Company estimates expected forfeitures, as required by SFAS
No. 123R, and recognizes compensation expense only for those awards expected to
vest. Compensation expense is amortized over the estimated service period,
which is the shorter of the award's time vesting period or the derived service
period as implied by any accelerated vesting provisions when the common stock
price reaches specified levels. All compensation must be recognized by the time
the award vests. The cumulative effect of initially adopting SFAS No. 123R was
immaterial.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the results of
operations or stockholders' equity.
47
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements, was issued. SFAS No. 157 provides guidance for using
fair value to measure assets and liabilities. It applies whenever other
standards require or permit assets or liabilities to be measured at fair value
but it does not expand the use of fair value in any new circumstances. In
November 2007, the effective date was deferred for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis. The provisions of SFAS No. 157 that were not deferred are
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of SFAS No. 157, effective January 1, 2008, did
not have a significant effect on the Company's financial position or results of
operations.
In February 2007, SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115, was
issued. SFAS No. 159 permits an entity to choose to measure many financial
instruments and certain other items at fair value. The fair value option
established by SFAS No. 159 permits all entities to choose to measure eligible
items at fair value at specified election dates. Unrealized gains and losses on
items for which the fair value option has been elected are to be recognized in
earnings at each subsequent reporting date. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
The adoption of SFAS No. 159, effective January 1, 2008, did not have a
significant effect on the Company's financial position or results of
operations.
In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in
Financial Statements - an amendment of ARB No. 51," to improve the relevance,
comparability, and transparency of the financial information a reporting entity
provides in its financial statements. SFAS 160 amends ARB 51 to establish
accounting and reporting standards for noncontrolling interests in subsidiaries
and to make certain consolidation procedures consistent with the requirements
of SFAS 141R. It defines a noncontrolling interest in a subsidiary as an
ownership interest in the entity that should be reported as equity in the
financial statements. SFAS 160 changes the way the income statement is
presented by requiring net income to include amounts attributable to the
parent and the noncontrolling interest. SFAS 160 establishes a single method of
accounting for changes in a parent's ownership interest in a subsidiary which
does not result in deconsolidation. SFAS 160 also requires expanded disclosures
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners of a subsidiary. SFAS 160 is
effective for financial statements issued for fiscal years beginning on or
after December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. SFAS 160 shall be applied prospectively, with the
exception of the presentation and disclosure requirements which shall be
applied retrospectively for all periods presented. The Company does not believe
that the adoption of SFAS 160 would have a material effect on its financial
position, results of operations or cash flows.
In December 2007, SFAS No. 141R, Business Combinations, was issued. Under SFAS
No. 141R, a company is required to recognize the assets acquired, liabilities
assumed, contractual contingencies, and any contingent consideration measured
at their fair value at the acquisition date. It further requires that research
and development assets acquired in a business combination that have no
alternative future use to be measured at their acquisition-date fair value and
then immediately charged to expense, and that acquisition-related costs are to
be recognized separately from the acquisition and expensed as incurred. Among
other changes, this statement also requires that "negative goodwill" be
recognized in earnings as a gain attributable to the acquisition, and any
deferred tax benefits resultant in a business combination are recognized in
income from continuing operations in the period of the combination. SFAS
No. 141R is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning
after December 15, 2008. The effect of adopting SFAS No. 141R is not expected
to have a significant effect the Company's financial position or results of
operations.
48
NOTE 3 - ACQUISITION AND DISPOSAL OF ASSETS
During the year ending December 31, 2007
On March 26, 2007 the Company purchased an office in Texas for $112,000 this
purchase was made with cash.
On April 23, 2007 the company purchased 2 new leases from Kelly Mahler
Operating for a total purchase price of $655,000. This was paid in Cash at the
time of Purchase.
On September 17, 2007, the Company sold its drilling rig to South Texas Oil
Company for $1,300,000. The purchase price consisted of $300,000 in cash,
32,258 shares of South Texas Oil Company restricted stock valued at $300,000,
and a $700,000 note bearing interest of 7% per year and payable over two years.
During the quarter ended September 30, 2008
On June 30, 2008 the company determined one of the leases we had been to
complete was determined to not be complete and removed it from our note
payables with our driller. The removal resulted in a $5,311,555 decrease in
note payables. The amount of the note payable to H Petro R at quarter ended
June 30, 2008 was $7,634,704.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
The company acquired no new long term debt in year ended December 31, 2007 or
in quarter ended September 30, 2008.
NOTE 5 - RELATED PARTY NOTES PAYABLE AND TRANSACTIONS
The Company has notes payable to H-Petro-R who is also a shareholder of the
company. As of year ended December 31, 2007 and quarter ended September 30,
2008 the amounts owed to them were $12,946,258 and $7,525,356.
NOTE 6 - STOCKHOLDERS' EQUITY
During the periods ending December 31, 2007 and September 30, 2008, the Company
issued common stock, warrants and options as follows:
COMMON STOCK
DURING THE YEAR ENDED DECEMBER 31, 2007:
The Company issued 1,303,701 shares of common stock through a Private Placement
Offering to accredited investors at $1.00 per share.
The company issued 3,478,720 shares to consultants for services valued at
$6,005,182 during the year.
The Company's total issued and outstanding shares were reduced by 19,228,017
shares related to shares canceled that were issued to officers of the company
in 2006 and returned upon their departure from the company in 2007.
The Company issued 21,816 shares for the acquisition of N-TEK, LLC, and valued
at $47,995
DURING THE QUARTER ENDED SEPTEMBER 30, 2008:
The company issued 13,500 shares from their common stock payable account. This
transaction was first reported in 2006 but shares had never been issued.
STOCK WARRANTS
The company does not have any warrants outstanding as of December 31, 2007 and
September 30, 2008.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
On December 31, 2007, the Company entered into a month to month operating lease
for its 2 corporate offices in Salt Lake City, Utah, and a 12 month operating
lease for its offices in Henderson, Nevada. The lease agreement provides for
monthly lease payments of $1,848 per month, $1,200 per month and $998 per
month. Future annual minimum lease payments due under this operating lease are
as follows:
MINIMUM
YEAR ENDING DECEMBER 31, LEASE PAYMENTS
- ----------------------- --------------
2008 $ 48,552
2009 0
Rent expense under operating leases was $46,184 and $38,107 during the years
ended December 31, 2007 and quarter ended September 30, 2008, respectively.
49
LEGAL PROCEEDINGS
During 2007, and as of September 30, 2008, other than in the ordinary course of
business, the Company is unaware of any pending or material litigation that it
feels exposes the company to any pending liabilities.
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 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
There have been no significant subsequent events occurred after September 30,
2008.
50
Larry O'Donnell, CPA, P.C.
Telephone (303) 745-4545
2228 South Fraser Street
Fax (303) 369-9384
Unit I
Email larryodonnellcpa@msn.com
Aurora, Colorado 80014
www.larryodonnellcpa.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Granite Energy, Inc.
I have audited the accompanying consolidated balance sheet of Granite Energy,
Inc. as of December 31, 2007, and the related consolidated statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor was I engaged to perform, an audit of its internal
control over financial reporting. My audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. I believe that my
audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Granite Energy,
Inc as of December 31, 2007, and the consolidated results of its operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been presented on the
basis that it is a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit of $23,073,178 at December 31, 2007.
Additionally, for the year ended December 31, 2007, the Company a net loss of
$9,281,529. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regards to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
LARRY O'DONNELL, CPA, P.C.
March 26, 2008
51
GRANITE ENERGY, INC.
BALANCE SHEET
AS OF DECEMBER 31, 2007 AND DECEMBER 31, 2006
December 31, December 31,
2007 2006
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 340,561 $ 1,411,121
Receivables 162,168 8,099
------------ ------------
Total Current Assets 502,729 1,419,220
Office equipment, net of depreciation $ 142,640 $ 77,587
Vehicles, net of depreciation 15,396 1,312,794
Property and Equipment, net 107,800 -
------------ ------------
Proved reserves, net of depletion 2,217,198 2,762,105
Unproved reserves, net of depletion 11,474,012 8,151,377
Software, net - -
------------ ------------
13,957,046 12,303,863
OTHER ASSETS
Investment in Greenstart $ 47,995 $ -
Investment in South Texas Oil 300,000 -
Notes receivable 889,634 150,000
Deposits 950 950
------------ ------------
Total Other Assets 1,238,579 150,950
Total Assets $ 15,698,354 $ 13,874,033
============ ============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Accounts Payable and accrued liabilities $ 85,754 $ 9,154
Payroll Liabilities - -
Other liabilities 49,131 36,238
------------ ------------
Total Current Liabilities 134,885 45,392
Long Term Liabilities 12,946,258 9,415,700
------------ ------------
Total Long Term Liabilities 12,946,258 9,415,700
------------ ------------
Total Liabilities 13,081,143 9,461,092
STOCKHOLDERS' EQUITY
Common stock, par value $.001, 100,000,000
shares authorized, 53,040,889 issued and
outstanding 54,661 68,954
Additional paid in capital 27,589,229 20,089,135
Subscribed stock 46,500 46,500
Accumulated deficit (25,073,178) (15,791,649)
------------ ------------
Total Stockholders' Equity 2,617,211 4,412,940
------------ ------------
Total Liabilities and Stockholders' Equity $ 15,698,354 $ 13,874,032
52
GRANITE ENERGY, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006
12 months 12 months
ended ended
December 31, December 31,
2007 2006
----------- ------------
REVENUES
Oil revenues $ 684,072 $ 3,692
Gas revenues 68,215 4,927
Sale of oil packages 2,841,171 13,786,948
Gain on sale of investment 245,000 -
----------- ------------
Total Revenue 3,838,458 13,795,567
COST OF SALES
Cost of oil packages 2,237,534 8,465,409
----------- ------------
Total Cost of Goods Sold 2,237,534 8,465,409
GROSS PROFIT 1,600,924 5,330,158
41.71% 38.64%
OPERATING EXPENSES
Stock issued for services $ 6,005,182 $ 3,460,096
Professional fees 939,791 3,032,727
Depreciation and amortization expense 20,426 1,768
Payroll - -
Rent - -
Lease operating expenses 908,303 563,510
Officer settlement expense 410,000 -
Selling, general and administrative 2,564,227 1,966,815
----------- ------------
Total Operating Expenses 10,847,929 9,024,915
Net income (loss) from operations $(9,247,005) $(3,694,757)
Other income (expenses):
Write off of debt $ - $ -
Write off of assets / Loss on Sale of assets (98,594) (12,172,822)
Interest income 10,899 61,131
Other income 61,236 53,558
Other expenses (2,205) -
Interest expense (5,860) (740)
----------- ------------
Total other expenses (34,524) (12,058,873)
Net income (loss) before income taxes (9,281,529) (15,753,630)
Income taxes - -
----------- ------------
NET INCOME (LOSS) $(9,281,529) $(15,753,630)
=========== ============
Net income (loss) per share $ (0.16) $ (0.25)
=========== ============
Weighted average common shares outstanding 58,236,986 63,221,953
53
GRANITE ENERGY, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND DECEMBER 31, 2006
Year ended Year ended
December 31, December 31,
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (9,281,529) $(15,753,630)
Adjustment to reconcile net loss to net cash used
by operating activities
Stock issued for services 6,005,182 3,460,096
Increase (decrease) in:
Depreciation 20,426 1,768
Capital contributions by shareholders - 1,425,750
(Increase) / Decrease in receivables (154,069) (8,099)
(Increase) / Decrease in inventories - -
(Increase) / Decrease in prepaid expenses and deposits - (950)
Increase / (Decrease) in other liabilities 12,893 36,238
Increase / (Decrease) in accounts payable 76,600 9,154
------------ ------------
Net cash provided by (used in) operating activities (3,320,498) (10,829,672)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets 2,887,868 2,682,843
Investments in Greenstart and South Texas Oil (300,000) -
Advance on license - -
------------ ------------
Net cash provided by investing activities 2,587,868 2,682,843
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in shareholder loans - -
Increase in notes receivable (739,634) (150,000)
Increase (decrease) in long term liabilities (900,000) 4,893,400
Proceeds from issuance of common stock 1,301,703 4,814,550
Shareholder advances - -
------------ ------------
Net cash provided by financing activities (337,931) 9,557,950
Net increase (decrease) in cash and cash equivalents (1,070,560) 1,411,120
Cash and cash equivalents at beginning of period 1,411,121 0
Cash and cash equivalents at end of period $ 340,561 $ 1,411,121
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest - -
Cash paid during the period for taxes - -
54
GRANITE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
GRANITE ENERGY, INC. (the "Company", formerly Wcollect.com, Inc.) was
incorporated in the state of Nevada on December 1, 2005. The Company and its
wholly-owned subsidiaries operate in the oil and gas exploration and production
industry, with primary assets and operations in Nevada, Utah, Oklahoma and
Texas. The Company purchased selected equipment and assets from Barnett Shale
Holdings and began operations as a separate company during 2006.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make estimates and assumptions
which affect the reported amounts of assets and liabilities as of the date of
the financial statements and revenues and expenses for the period reported.
Actual results may differ from these estimates. The estimates include
amortization and depreciation of capitalized costs of oil wells and related
equipment. Management emphasizes that amortization and depreciation estimates
are inherently imprecise. Actual results could materially differ from these
estimates.
DIVIDEND POLICY
The Company has not yet adopted any policy regarding payment of dividends.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No 130, "Reporting Comprehensive
Income" ("SFAS 130")), requires that total comprehensive income be reported in
the financial statements. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. It requires
(a) classification of the components of other comprehensive income by their
nature in a financial statement and (b) the display of the accumulated balance
of the other comprehensive income separate from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company's financial statements do not include any of the
components of other comprehensive income during the years ended December 31,
2007 or 2006.
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.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investment securities with maturities of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
During the year ended December 31, 2006, the company purchased $42,884 worth of
Equipment.
During the year ended December 31, 2007, the Company Purchased $27,257 worth of
equipment, $21,820 worth of Automobiles and $7,680 worth of software.
55
The current and long term portions were of the asset retirement obligation was
estimated based on historical experience.
Unproved oil and gas properties that are individually significant are
periodically assessed for impairment of value and a loss is recognized at the
time of impairment by providing an impairment allowance. Other unproved
properties are amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and
gas properties, after considering estimated residual salvage values, are
depreciated and depleted by the unit-of-production method. Support equipment
and other property and equipment are depreciated over their estimated useful
lives.
On the sale or retirement of a complete unit of a proved property, the cost and
related accumulated depreciation, depletion, and amortization are eliminated
from the property accounts, and the resultant gain or loss is recognized. On
the retirement or sale of a partial unit of proved property, the cost is
charged to accumulated depreciation, depletion, and amortization with a
resulting gain or loss recognized in income.
On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into consideration
the amount of any recorded impairment if the property has been assessed
individually. If a partial interest in an unproved property is sold, the
amount received is treated as a reduction of the cost of the interest retained.
Depreciation is computed primarily on the straight-line method for financial
statements purposes over the following estimated useful lives:
ESTIMATED
CATEGORY LIFE
---------------------- ---------
Office building 20 years
Vehicles 7 years
Equipment 7 years
Leasehold Improvements 7 years
Furniture and Fixtures 5 years
All assets are booked at historical cost. Management reviews on an annual basis
the book value, along with the prospective dismantlement, restoration, and
abandonment costs and estimate residual value for the assets, in comparison to
the carrying values on the financial statements.
OIL AND GAS PRODUCING ACTIVITIES
Suspended well cost - Statement of Financial Accounting Standards Statement No.
19 "Financial Accounting and Reporting by Oil and Gas Producing Companies"
(SFAS 19) as amended by Staff Position 19-1 "Accounting for Suspended Well
Costs" allows suspended well costs to remain capitalized beyond one year from
drilling if certain specific criteria are met and additional disclosures
provided.
Exploratory costs, excluding the cost of exploratory wells and acquired
exploration rights, are charged to expense as incurred. Drilling costs for
exploratory wells are capitalized pending the determination of the existence of
proved reserves. If reserves are not found, the drilling costs are charged to
operating expense. Oil and gas lease acquisition costs are capitalized when
incurred.
Unproved properties with individually significant acquisition costs are
assessed quarterly on a property-by-property basis, and any impairment in value
is recognized. Unproved properties with acquisition costs that are not
individually significant are aggregated, and the portion of such costs
estimated to be nonproductive, based on historical experience, is amortized
over the average holding period. If the unproved properties are determined to
be productive, the appropriate related costs are transferred to proved oil and
gas properties.
Development costs incurred to drill and equip development wells, including
unsuccessful development wells, are capitalized.
EARNINGS PER SHARE
The Company's basic earnings per share (EPS) amounts have been computed based
on the average number of shares of common stock outstanding for the period.
Diluted EPS amounts include the effects of outstanding stock options,
restricted stock and performance-based stock awards under the treasury stock
method if including such potential shares of common stock is dilutive. However,
the effect of including such common stock equivalents was anti-dilutive for the
years ended December 31, 2007 and 2006.
56
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. At
times the Company may sell more or less than our entitled share of gas
production. When this happens, the Company uses the entitlement method of
accounting for gas sales, based on our net revenue interest in production.
Accordingly, revenue is deferred for gas deliveries in excess of our net
revenue interest, while revenue is accrued for the undelivered volumes.
Production imbalances and related values at December 31, 2007 and 2006 were
insignificant.
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 segment, the oil and gas industry. The Company's
customers are located within the United States of America. Financial
instruments that subject the Company to credit risk consist principally of oil
and gas sales which are based on a short-term purchase contracts from Teppco
Oil (US) Company and various other gatherers in the area, with related accounts
receivable subject to credit risk.
During the year ended December 31, 2007 and 2006 Teppco Oil (US) Company
accounted for 66% and 0%, respectively, of the Company's oil revenues.
Management does not believe the loss of Teppco Oil (US) Company would
materially affect the ability to sell the oil.
INCOME TAXES
The Company records deferred income tax assets and liabilities to recognize
timing differences between recognition of income for financial statement and
income tax reporting purposes. Deferred income tax assets are calculated using
enacted tax rates applicable to taxable income in the years when we anticipate
these timing differences will reverse. The effect of changes in tax rates is
recognized in the period of enactment.
Effective January 1, 2007, the Company adopted the provisions of FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes - An
Interpretation of FASB Statement No. 109. FIN No. 48 clarifies financial
statement recognition and disclosure requirements for uncertain tax positions
taken or expected to be taken in a tax return. Financial statement recognition
of the tax position is dependent on an assessment of a 50% or greater
likelihood that the tax position will be sustained upon examination, based on
the technical merits of the position. Any interest and penalties related to
uncertain tax positions are recorded as interest expense and general and
administrative expense, respectively. The adoption of FIN No. 48 did not have
any effect on our reported financial position or results of operations
57
ACCOUNTS RECEIVABLE
Accounts receivable are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances outstanding
after management has used reasonable collection efforts are written off through
a charge to the valuation allowance and a credit to trade accounts receivable.
Changes in the valuation allowance have not been material to the financial
statements and at December 31, 2007 and 2006, the Company's financial
statements do not include an allowance for doubtful accounts because management
believes that no allowance is required at those dates.
STOCK-BASED COMPENSATION
Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004),
Share-Based Payment, which requires that compensation related to all stock-
based awards, including stock options, be recognized in the financial
statements based on their estimated grant-date fair value. The Company
previously recorded stock compensation pursuant to the intrinsic value method
under APB Opinion No. 25, whereby compensation was recorded related to
performance share and unrestricted share awards and no compensation was
recognized for most stock option awards. The Company is using the modified
prospective application method of adopting SFAS No. 123R, whereby the estimated
fair value of unvested stock awards granted prior to January 1, 2006 was
recognized as compensation expense in periods subsequent to December 31, 2005,
based on the same valuation method used in the Company's prior pro forma
disclosures. The Company estimates expected forfeitures, as required by SFAS
No. 123R, and recognizes compensation expense only for those awards expected to
vest. Compensation expense is amortized over the estimated service period,
which is the shorter of the award's time vesting period or the derived service
period as implied by any accelerated vesting provisions when the common stock
price reaches specified levels. All compensation must be recognized by the time
the award vests. The cumulative effect of initially adopting SFAS No. 123R was
immaterial.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation. These reclassifications had no effect on the results of
operations or stockholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value Measurements, was issued. SFAS No. 157 provides guidance for using
fair value to measure assets and liabilities. It applies whenever other
standards require or permit assets or liabilities to be measured at fair value
but it does not expand the use of fair value in any new circumstances. In
November 2007, the effective date was deferred for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value on a
recurring basis. The provisions of SFAS No. 157 that were not deferred are
effective for financial statements issued for fiscal years beginning after
November 15, 2007. The adoption of SFAS No. 157, effective January 1, 2008, did
not have a significant effect on the Company's financial position or results of
operations.
In February 2007, SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of FASB Statement No. 115, was
issued. SFAS No. 159 permits an entity to choose to measure many financial
instruments and certain other items at fair value. The fair value option
established by SFAS No. 159 permits all entities to choose to measure eligible
items at fair value at specified election dates. Unrealized gains and losses on
items for which the fair value option has been elected are to be recognized in
earnings at each subsequent reporting date. SFAS No. 159 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
The adoption of SFAS No. 159, effective January 1, 2008, did not have a
significant effect on the Company's financial position or results of
operations.
In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in
Financial Statements - an amendment of ARB No. 51," to improve the relevance,
comparability, and transparency of the financial information a reporting entity
provides in its financial statements. SFAS 160 amends ARB 51 to establish
accounting and reporting standards for noncontrolling interests in subsidiaries
and to make certain consolidation procedures consistent with the requirements
of SFAS 141R. It defines a noncontrolling interest in a subsidiary as an
ownership interest in the entity that should be reported as equity in the
financial statements. SFAS 160 changes the way the income statement is
presented by requiring net income to include amounts attributable to the
parent and the noncontrolling interest. SFAS 160 establishes a single method of
accounting for changes in a parent's ownership interest in a subsidiary which
does not result in deconsolidation. SFAS 160 also requires expanded disclosures
that clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners of a subsidiary. SFAS 160 is
effective for financial statements issued for fiscal years beginning on or
after December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. SFAS 160 shall be applied prospectively, with the
exception of the presentation and disclosure requirements which shall be
applied retrospectively for all periods presented. The Company does not believe
that the adoption of SFAS 160 would have a material effect on its financial
position, results of operations or cash flows.
In December 2007, SFAS No. 141R, Business Combinations, was issued. Under SFAS
No. 141R, a company is required to recognize the assets acquired, liabilities
assumed, contractual contingencies, and any contingent consideration measured
at their fair value at the acquisition date. It further requires that research
and development assets acquired in a business combination that have no
alternative future use to be measured at their acquisition-date fair value and
then immediately charged to expense, and that acquisition-related costs are to
be recognized separately from the acquisition and expensed as incurred. Among
other changes, this statement also requires that "negative goodwill" be
recognized in earnings as a gain attributable to the acquisition, and any
deferred tax benefits resultant in a business combination are recognized in
income from continuing operations in the period of the combination. SFAS
No. 141R is effective for business combinations for which the acquisition date
is on or after the beginning of the first annual reporting period beginning
after December 15, 2008. The effect of adopting SFAS No. 141R is not expected
to have a significant effect the Company's financial position or results of
operations.
NOTE 3 - ACQUISITION AND DISPOSAL OF ASSETS
During the year ending December 31, 2006
On May 15, 2006, the Company entered into an equipment purchase agreement to
acquire a drilling rig and related equipment for a total purchase price of
$1,227,994. The purchase price was paid to in 2,046,656 shares of common stock.
The company entered into a drilling contract with H-Petro-R of Oklahoma city,
whereby the company acquired interest in unproven reserves in Texas and
Oklahoma. The balance owed on this agreement as of December 31, 2006 was
$9,415,700.
At December 31, 2006, the company determined that many of the proven and
unproven reserves acquired for with stock in 2005 from Barnett Shale
Corporation were not going to be profitable ventures for the company. The
company wrote off these assets at the end of the year, which accounted for an
approximate $12 million write off. The reason for the value being so high on
the books was the initial recorded value of the stock given to record these
assets.
During the year ending December 31, 2007
On March 26, 2007 the Company purchased an office in Texas for $112,000 this
purchase was made with cash.
On April 23, 2007 the company purchased 2 new leases from Kelly Mahler
Operating for a total purchase price of 655,000. This was paid in Cash at the
time of Purchase.
On September 17, 2007, the Company sold its drilling rig to South Texas Oil
Company for $1,300,000. The purchase price consisted of $300,000 in cash,
32,258 shares of South Texas Oil Company restricted stock valued at $300,000,
and a $700,000 note bearing interest of 7% per year and payable over two years.
NOTE 4 - NOTES PAYABLE AND LONG-TERM DEBT
On February 6, 2006, the Company entered an agreement with H-Petro-R, Inc., for
the drilling of wells. As of December 31, 2006 and 2007, the amounts owed on
this contract were $9,415,700 and $12,946,258
NOTE 5 - RELATED PARTY NOTES PAYABLE AND TRANSACTIONS
The Company has notes payable to H-Petro-R who is also a shareholder of the
company. As of year ended December 31, 2006 and 2007 the amounts owed to them
were $9,415,700 and $12,946,258.
NOTE 6 - STOCKHOLDERS' EQUITY
During the years ended December 31, 2007 and 2006, the Company issued common
stock, warrants and options as follows:
COMMON STOCK
DURING THE YEAR ENDED DECEMBER 31, 2006:
The Company issued 5,811,919 shares of common stock. The company received
$4,772,551 in cash for these issuances.
During the Year Ended December 31, 2006, a shareholder paid $1,425,750 of the
company's debts and this was treated as an additional paid in capital.
The Company's total issued and outstanding shares were reduced by 13,500 shares
related to shares canceled that were issued to an investor and then bought back
by the company.
The Company issued 14,439,393 shares of common stock, valued at $9,193,081, to
royalty owners of leases in order to obtain the assignment of all rights, title
and interest in the production payment in lease. Shares were issued to royalty
owners at an option price of $0.60 per share.
The company issued 1,060,741 shares to consultants for services valued at
$3,460,096 during the year.
The company issued 2,046,656 shares of restricted common stock, valued at
$1,225,947 in connection with the purchase of the drilling rig.
DURING THE YEAR ENDED DECEMBER 31, 2007:
The Company issued 1,303,701 shares of common stock through a Private Placement
Offering to accredited investors at $1.00 per share.
The company issued 3,478,720 shares to consultants for services valued at
$6,005,182 during the year.
The Company's total issued and outstanding shares were reduced by 19,228,017
shares related to shares canceled that were issued to officers of the company
in 2006 and returned upon their departure from the company in 2007.
The Company issued 21,816 shares for the acquisition of N-TEK, LLC, and valued
at $47,995
STOCK WARRANTS
The company does not have any warrants outstanding as of December 31, 2006 and
2007.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
On December 31, 2007, the Company entered into a month to month operating lease
for its 2 corporate offices in Salt Lake City, Utah, and a 12 month operating
lease for its offices in Henderson, Nevada. The lease agreement provides for
monthly lease payments of $1,848 per month, $1,200 per month and $998 per
month. Future annual minimum lease payments due under this operating lease are
as follows:
MINIMUM
YEAR ENDING DECEMBER 31, LEASE PAYMENTS
- ----------------------- --------------
2008 $ 7,984
2009 0
Rent expense under operating leases was $46,184 and $36,152 during the years
ended December 31, 2007 and 2006, respectively.
LEGAL PROCEEDINGS
The company does not have any litigation outside the normal course of business.
As of December 31, 2006, the company did not have any legal proceedings.
During 2007, and as of May 31, 2008, other than in the ordinary course of
business, the Company is unaware of any pending or material litigation.
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 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
There have been no significant subsequent events occurred after December 31,
2007.
58
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated balance sheet
as of September 30, 2008, and the unaudited pro forma condensed combined
consolidated statement of income for the nine months ended September 30, 2008,
and for the year ended December 31, 2007, have been prepared to reflect the
Reorganization of Amerigo Energy as if the Reorganization had occurred on
September 30, 2008, with respect to the balance sheet, and as of January 1,
2007 and January 1, 2008, with respect to each of the statements of income, in
each case giving effect to the pro forma adjustments described in the
accompanying notes. The pro forma adjustments are based on estimates made for
the purpose of preparing these pro forma financial statements. The actual
adjustments to the accounts of Amerigo Energy will be made based on the
underlying historical financial data at the time the transaction is
consummated. Amerigo Energy's management believes that the estimates used in
these pro form financial statements are reasonable under the circumstances.
The unaudited pro forma condensed combined consolidated financial information
has been prepared based on the purchase method of accounting assuming
10,000,000 share of Amerigo Energy Stock will be issued and that no Amerigo
Energy shareholder has rights of dissenters with respect to the Reorganization.
The unaudited pro forma condensed combined consolidated balance sheet as of
September 30, 2008 is not necessarily indicative of the combined financial
position had the Reorganization been effective at that date. The unaudited pro
forma condensed combined consolidated statements of income are not necessarily
indicative of the results of operations that would have occurred had the
Reorganization been effective at the beginning of the periods indicated, or of
the future results of operations of Amerigo Energy. These pro forma financial
statements should be read in conjunction with the historical financial
statements and the related notes incorporated elsewhere in this
prospectus/information statement.
59
Amerigo Energy, Inc.
Granite Energy, Inc.
Pro Forma Condensed Combined Consolidated Balance Sheet
At September 30, 2008
Nine Months ended September 30, 2008 (Unaudited)
AGOE GNGI Assets Combined
Unaudited Unaudited remaining Unaudited
As of As of with year ended
September 30, September 30, GNGI Adjustments September 30,
2008 2008 2008
----------- ------------ --------- ----------- ------------
ASSETS
Current assets
Cash $ - $ 25,077 $ 25,077
Receivables - 216,255 216,255
----------- ------------ --------- ----------- ------------
Total current assets - 241,332 - 241,332
Other current assets
Bank receivable - -
Advances to related party - - -
Property, plant and equipment
Office equipment, net of depreciation - 130,685 130,685
Vehicles, net of depreciation - 13,511 13,511
Property and Equipment, net - 103,600 103,600
Proved reserves, net of depletion - 490,857 490,857
Unproved reserves, net of depletion - 6,252,735 6,252,735
Software, net - 7,028 7,028
Other Assets
Investment in GreenStart - 47,995 47,995
Investment in South Texas Oil - - -
Notes receivable - 832,176 832,176
Deposits - 950 950
----------- ------------ --------- ----------- ------------
Total assets $ - $ 8,120,868 $ - $ 8,120,868
=========== ============ ========= =========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
Current liabilities
Accounts payable and accrued liabilities $ 451,458 $ 32,539 $ 483,997
Accrued payroll for related party 108,304 - 108,304
Advances from related parties 167,541 - 167,541
Lawsuit settlement payable 3,000 - 3,000
Payroll liabilities - 109,732 109,732
Other liabilities - - -
----------- ------------ --------- ----------- ------------
Total current liabilities 730,303 142,272 - $ 872,575
Convertible notes payable to related party -
Long-term liabilities 7,525,356 7,525,356
----------- ------------ --------- ----------- ------------
Total liabilities 730,303 7,667,628 - $ 8,397,931
60
Stockholders' (deficit)
Preferred stock (25,000,000 shares
auth & 0 shares outstanding) - - -
Common stock; $.001 par value;
100,000,000 shares authorized;
9,447,137 shares outstanding
at December 31, 2007 - 54,674 (54,674)a -
Additional paid-in capital - 27,616,215 (27,616,215)a -
Common stock; $.001 par value; 11,096 10,000 b 21,096
Additional paid-in capital 12,189,184 682,917 b 12,872,101
-
Subscribed stock 19,500 (19,500)a -
Accumulated deficit in development stage (12,930,583) (27,237,149) 26,997,472 a (13,170,260)
----------- ------------ --------- ----------- ------------
Total stockholders' (deficit) (730,303) 453,240 (0) (277,063)
----------- ------------ --------- ----------- ------------
Total liabilities and stockholders' (deficit) $ - $ 8,120,868 $ (0) $ 8,120,868
=========== ============ ========= =========== ============
(a).equity does not transfer
(b).stock issued on Amerigo Energy's books for net
assets of granite
61
Amerigo Energy, Inc.
Granite Energy, Inc.
Pro Forma Condensed Combined Consolidated Income Statement
September 30, 2008
Nine Months Ended September 30, 2008
(Unaudited)
AGOE GNGI Combined
Unaudited Unaudited Unaudited
nine months ended nine months ended nine months ended
September 30, 2008 September 30, 2008 Adjustments September 30, 2008
------------------ ------------------ ----------- ------------------
Revenue $ - $ -
Oil revenues - 258,609 258,609
Gas revenues - 19,144 19,144
Sale on oil packages - 1,202,627 1,202,627
Gain on sale of investment - - -
------------------ ------------------ ----------- ------------------
Total Revenue $ - $ 1,480,380 $ - $ 1,480,380
Cost of Sales
Cost of oil packages $ - $ 1,560,294 $ 1,560,294
------------------ ------------------ ----------- ------------------
Total cost of goods sold $ - $ 1,560,294 $ - $ 1,560,294
Gross Profit $ - $ (79,914) $ - $ (79,914)
Operating expenses
Compensation expense $ - $ - $ -
Consulting expense 641,455 - 641,455
Selling, general and
administrative 10,828 1,208,610 1,219,439
Stock issued for services - - -
Professional fees - 411,606 411,606
Depreciation and
amortization expense - 25,434 25,434
Lease operating expense - 221,368 221,368
------------------ ------------------ ----------- ------------------
Total operating expenses 652,284 1,867,019 - 2,519,303
------------------ ------------------ ----------- ------------------
Loss from operations $ (652,284) $ (1,946,933) $ - $ (2,599,217)
Other income (expenses):
Amortization of discount on
convertible notes payable $ - $ -
Loss from rescinded merger - - -
Interest expense on warrant with - -
convertible notes payable - - -
Interest expense - - -
Write off of assets/Loss on
sale of assets - (219,671) (219,671)
Interest income - 1,620 1,620
Other income - 1,028 1,028
Other expense - (15) (15)
- -
------------------ ------------------ ----------- ------------------
Total other income (expenses) - (217,038) - (217,038)
Loss before provision for
income taxes (652,284) (2,163,971) - (2,816,255)
Provision for income taxes - - -
Net loss $ (652,284) $ (2,163,971) $ - $ (2,816,255)
================== =================== =========== ===================
62
AMERIGO ENERGY DIRECTORS AND EXECUTIVE OFFICERS AFTER THE REORGANIZATION
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth information concerning each of the current directors
and executive officers of Amerigo Energy, including information about the
person's principal occupation or employment during the past five years. Each of
the directors and officers named below succeeded to their corresponding office
at the time of the consummation of the Reorganization.
BRUCE LYBBERT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN (64)
Mr. Lybbert is actively involved in oil and gas operations, strategic planning,
financial management and investor relations. A seasoned veteran of the
brokerage industry and Wall Street, Mr. Lybbert co-founded Tel America Long
Distance in 1982, growing it into a successful communications giant which
became the largest regional long distance carrier in the western United States.
Mr. Lybbert believes that America's domestic oil industry, long stagnant due to
inexpensive foreign oil, now represents a similar opportunity. Mr. Lybbert
joined Granite in 2006. Mr. Lybbert holds a B.A. in finance and marketing from
Weber State University and pursued post-graduate studies in finance at New York
University. Mr. Lybbert served as chairman of the Board of Directors of Granite
since August 2006.
On December 31, 2008, Bruce Lybbert resigned as Chief Executive Officer and
Chairman of the Company. Mr. Lybbert's resignation was not a result from any
disagreement with the Registrant or management.
On December 31, 2008 concurrent with Mr. Lybbert's resignation, Mr. Schultz was
appointed Chief Executive Officer and Director of the Company and Jason F.
Griffith was appointed Chief Financial Officer and Director of the Company.
S. MATTHEW SCHULTZ, CHIEF EXECUTIVE OFFICER AND DIRECTOR (39)
Mr. Schultz, a founder of Granite, has served on its Board of Directors since
the Granite's December 2005 transformation into an oil and gas company and
served as its chief executive officer since August 2006. From April of 2003 to
the present, Mr. Schultz has also been president of Wexford Capital Ventures,
Inc., a Utah-based strategic financial consulting firm. Wexford Capital
provides boutique investment banking services for micro-cap and small-cap
companies and has been instrumental in assisting several companies in initial
public offerings and strategic planning. Mr. Schultz has been instrumental
in developing investor awareness and participation for numerous publicly traded
companies, and assisted in private placement offerings in both the United
States and abroad. From 1999 to 2003, Mr. Schultz was the chairman of Pali
Financial Group, Inc., an investment banking firm specializing in small cap
securities. He also served as the vice-president of the Utah Consumer Lending
Association during 1998-1999. Mr. Schultz studied finance and management at
the University of Wyoming and Weber State University.
63
JASON GRIFFITH, CPA, CHIEF FINANCIAL OFFICER AND DIRECTOR (32)
Since Granite's transformation in December 2005 into an oil and gas company,
Mr. Griffith has served as its chief financial officer and a member of the
Board of Directors. Mr. Griffith's experience includes having served as a chief
financial officer for four publicly traded companies. Mr. Griffith has
additional experience in public accounting, which includes being the a partner
of a CPA firm in Henderson, Nevada since June 2002, and as accounting manager
for another accounting firm in Henderson, Nevada from August 2001 through June
2002. Mr. Griffith was previously associated with Arthur Andersen in Memphis,
Tennessee from December 1998 until his move to Nevada in 2001. Prior to joining
Arthur Andersen, Mr. Griffith was pursuing an undergraduate and master's degree
in accounting from Rhodes College in Memphis, Tennessee. He is a licensed
certified public accountant in Nevada, Tennessee, and Georgia. Mr. Griffith is
a member of the American Institute of Certified Public Accountants, the
Association of Certified Fraud Examiners and the Institute of Management
Accountants, along with being a member of the Nevada and Tennessee State
Societies of CPAs.
DIRECTOR AND OFFICER COMPENSATION
Each director of Amerigo Energy also serves as a director of Amerigo, Inc.
Directors do not receive separate compensation for service as directors of
Amerigo Energy.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Amerigo Energy
The following sets forth the cash components of Amerigo Energy's executive
officers during the last two fiscal years, including compensation received from
Granite. The remuneration described in the table does not include the cost to
Amerigo Energy (Granite) of benefits furnished to the named executive officers,
including premium for health insurance and other benefits provide to such
individuals that are extended in connection with the conduct of Amerigo
Energy's business.
63
SECURITIES
NAME OF EXECUTIVE OFFICER POSTIION OF INDIVIDUAL ANNUAL SALARY BONUS AND OTHER UNDERLYING STOCK
AND/OR DIRECTOR COMPENSATION OPTIONS
- -------------------------- -------------------------- -------------- --------------- ----------------
Lawrence S. Schroeder Former CEO (Amerigo Energy) $16,7500 (2007) $ 0 -
$0 (2006)
- -------------------------- -------------------------- -------------- --------------- ----------------
Bruce Lybbert CEO (Amerigo Energy) $ 0 31,250
Chairman of the Board $155,000 (2007) $ 0
(Granite) $63,000 (2006)
- -------------------------- -------------------------- -------------- --------------- ----------------
Jason F. Griffith CFO, Secretary and Director $86,667 (2007) $ 0 31,250
(Granite) $35,000 (2006) $ 0
Former CFO (Amerigo Energy)
- -------------------------- -------------------------- -------------- --------------- ----------------
S. Matthew Schultz CEO, President $45,000 (2006) $ 0 28,100
$180,000 (2007)
- -------------------------- -------------------------- -------------- --------------- ----------------
Spencer Kimball Former COO $127,500 (2007) $ 0 -
$45,000 (2006)
- -------------------------- -------------------------- -------------- --------------- ----------------
Colin Takara Former Director $112,500 (2007) $ 0 31,250
$45,000 (2006)
- -------------------------- -------------------------- -------------- --------------- ----------------
Kit Morrison Former Director $127,500 (2007) $ 0 -
$45,000 (2006)
- -------------------------- -------------------------- -------------- --------------- ----------------
Stock Options
- -------------
800,000 stock options were granted by the Amerigo Energy during 2008.
Option Exercises
- ----------------
There were no exercises of any stock options during 2008.
Pension Benefits
- ----------------
Amerigo Energy does not maintain a qualified or non-qualified pension plan.
Non-Qualified Deferred Compensation
- -----------------------------------
Amerigo Energy does not maintain a non-qualified deferred compensation plan.
Potential
Payments Upon Termination or Change in Control
- ----------------------------------------------
See page 18 of this document for information related to the payment/conversion
of debts outstanding in connection with the reorganization.
EMPLOYMENT CONTRACTS AND OTHER ARRANGEMENTS
Other than as described above in connection with the Reorganization, there are
no compensatory plans or arrangements, including payments to be received from
Amerigo Energy, with respect to any party named above which could result in
payments to any such person because of his resignation, retirement, or other
termination of such person's employment with Amerigo Energy or its
subsidiaries, or any change in control of Amerigo Energy, or a change in the
person's responsibilities following a change in control of Amerigo Energy.
64
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article VI of Amerigo Energy's by-laws, Amerigo Energy may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of Amerigo Energy, by reason of the fact that he is or was a director,
officer, employee or agent of Amerigo Energy, or is or was serving at the
request of Amerigo Energy as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of Amerigo
Energy, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he
had reasonable cause to believe that his conduct was unlawful.
Amerigo Energy may also indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of Amerigo Energy to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
Amerigo Energy, or is or was serving at the request of Amerigo Energy as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees, actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of Amerigo Energy. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to Amerigo Energy or for amounts paid in settlement to Amerigo
Energy, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court
deems proper.
Under Delaware law, a director of a Delaware corporation will not be found to
have violated his or her fiduciary duties to the corporation or its
shareholders unless there is proof by clear and convincing evidence that the
director has not acted in good faith, in a manner he or she reasonably believes
to be in or not opposed to the best interests of the corporation, or with the
care that an ordinarily prudent person in a like position would use under
similar circumstances.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
none
BENEFICIAL OWNERSHIP OF AMERIGO ENERGY'S SHARES
The beneficial ownership of each person as described in the table below was
calculated based on 481,357 of Amerigo Energy Common Stock outstanding as of
September 30, 2008, according to the record ownership listings as of that date
and the verifications Amerigo Energy solicited and received from each director,
executive officer and five percent holder.
The following table sets forth information about each person, group or entity
known by Amerigo Energy to own beneficially more than five percent of the
outstanding Amerigo Energy Stock as of September 30, 2008 on a pro forma basis:
65
NAME OF BENEFICIAL OWNER NUMBER OF PERCENT BENEFICIALLY
SHARES OWNED
Lawrence S. Schroeder-
former CEO/President 55,318 9.86%
All former Directors &
Officers as a group 55,318 9.86%
Jason Griffith (1) 37,500 6.68%
Maren Life Reinsurance Ltd. 37,863 6.75%
Kenneth D. Olson 64,881 11.56%
(1) Jason Griffith is the Chief Financial Officer for the Company and holds
the above 37,500 shares indirectly.
DESCRIPTION OF AMERIGO ENERGY COMMON STOCK
GENERAL
Amerigo Energy's authorized capital stock consists of 25,000,000 shares of
preferred stock with a par value of $0.001 and 100,000,000 shares of common
stock, with a par value of $0.001 per share. As of the Closing Date (subsequent
to the proposed reverse stock split and issuance of all shares of Common Stock
at the Closing), Amerigo Energy will have a total of 842,256 post-split shares
of Common Stock issued and outstanding and no shares of preferred stock issued
and outstanding. Each outstanding Amerigo Energy Common Stock is duly
authorized, validly issued, fully paid and nonassessable. The holders of
Amerigo Energy Common Stock have one vote per share on each matter on which
shareholders are entitled to vote and, in accordance with Delaware law,
cumulative voting rights if properly requested in connection with the election
of directors. The members of the Board of Directors of Amerigo Energy serve for
one year terms and are elected each year at the annual meeting of shareholders,
or until their successors have been elected. Upon liquidation or dissolution of
Amerigo Energy, the holders of Amerigo Energy Common Stock are entitled to
share ratably in such assets as remain after creditors have been paid.
Pursuant to the provisions of Amerigo Energy's Articles of Incorporation and
the Amended Articles of Incorporation, holders of Amerigo Energy Stock do not
have any pre-emptive rights to purchase shares when issued by Amerigo Energy.
Amerigo Energy's Board of Directors determines whether to declare dividends and
the amount of any dividends declared on Amerigo Energy Common Stock. Such
determinations by the Board of Directors take into account Amerigo Energy's
financial condition, results of operations and other relevant factors, and the
payment of dividends by Amerigo Energy is subject to certain limitations.
Information concerning the restrictions on the payment of dividends by Amerigo
Energy is included in Item 5 of the audited consolidated financial statements
for the year ended December 31, 2007.
No assurances can be given that dividends on Amerigo Energy Common Stock will
be declared, or if declared, what the amount of any such dividends will be in
future periods.
PRE-EMPTIVE RIGHTS
Under the Articles of Incorporation and the Amended Articles of Incorporation
of Amerigo Energy, shareholders of Amerigo Energy do not have any pre-emptive
rights to purchase shares when issued by Amerigo Energy.
Similarly, Amerigo Energy's Articles of Incorporation provide that no holder of
Amerigo Stock will have any pre-emptive or preferential right to purchase or
subscribe to any part of any new or additional issue of stock of any class
whatsoever of securities of Amerigo Energy, or of securities convertible into
stock of any class whatsoever of securities of Amerigo Energy, whether now or
hereafter authorized or issued for cash or other consideration or by way of a
dividend.
EXPERTS
The consolidated balance sheet of Strategic Gaming Investments, Inc. as of
December 31, 2007, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended have been included
in this proxy statement/prospectus in reliance on the report of Larry
O'Donnell, P.C., an independent registered public accounting consultant, as
stated in his report, appearing elsewhere in this proxy statement/prospectus
upon the authority of the said consultant as an expert in accounting and
auditing.
66
The financial statements of Strategic Gaming Investments, Inc. as of December
31, 2006 appearing in this proxy statement/prospectus have been audited by
Beadle, McBride, Evans & Reeves, LLP, an independent registered public
accounting firm, as stated in their report appearing elsewhere in this joint
proxy statement/prospectus and are included in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
The financial statements of Granite Energy, Inc. as of December 31, 2006 and as
of December 31, 2007 and for the years then ended included in this proxy
statement/prospectus have been audited by Larry O'Donnell, P.C., an independent
registered public accounting consultant, to the extent set forth in his report
appearing elsewhere in this proxy statement/prospectus and are included herein
in reliance upon the authority of Larry O'Donnell, P.C. as an expert in
accounting and auditing
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission this Form S-4
(Commission File Number 333-) registration statement, including exhibits, under
the Securities Act. You may read and copy all or any portion of the
registration statement or any reports, statements or other information in the
files at SEC's Public Reference Room located at 100 F Street, NE., Washington,
DC 20549, on official business days during the hours of 10 a.m. to 3 p.m.
You can request copies of these documents upon payment of a duplicating fee by
writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference room. Our filings,
including the registration statement, will also be available to you on the
website maintained by the Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports which will be filed
electronically with the SEC containing consolidated financial statements
audited by our independent auditors, and to make available to our stockholders
quarterly reports for the first three quarters of each year containing
unaudited interim consolidated financial statements.
We maintain a website at www.amerigoenergy.com. Our website and the information
contained on that site, or connected to that site, is not part of or
incorporated by reference into this prospectus.
67
SIGNATURES
Pursuant to the requirement to the Securities Act, the registrant, Amerigo
Energy, Inc., has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorizes, in the City of Henderson,
State of Nevada on February ____, 2009.
The undersigned registrant hereby undertakes as follows: That prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant to
paragraph (h)(1) immediately preceding, or (ii) that purports to meet the
requirements of section 10(a)(3) Act and is used in connection with an offering
of securities subject to Rule 415 will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus/information
statement to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this registration statement
through the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
Amerigo Energy, Inc., Registrant
By: /s/ S. Matthew Schultz
----------------------
By: S. Matthew Schultz,
Chief Executive Officer
and Director
By: /s/ Jason F. Griffith
---------------------
By: Jason F. Griffith,
Chief Financial Officer,
Principal Accounting Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Amerigo Energy, Inc., Registrant
By: /s/ S. Matthew Schultz March 2, 2009
----------------------
By: S. Matthew Schultz,
Chief Executive Officer
and Director
By: /s/ Jason F. Griffith March 2, 2009
---------------------
By: Jason F. Griffith,
Chief Financial Officer,
Principal Accounting Officer
and Director
68
INDEX TO EXHIBITS
EXHIBIT 2. REORGANIZATION AGREEMENT
2.1 Reorganization Agreement between Amerigo Energy. Inc. and Granite Energy,
Inc. dated October 31, 2008
EXHIBIT 8. OPINION REGARDING TAX MATTERS
8.1 Tax Opinion from DeJoya Griffith & Company, LLC
EXHIBIT 23. CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Larry O'Donnell, CPA, P.C.
23.2 Consent of Beadle, McBride, Evans & Reeves, LLP
69