UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
Quarterly
Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For the
quarterly period ended June 30, 2010
¨
|
Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
|
For the
transition period _________ to _________
Commission
File Number: 333-151960
Savoy
Energy Corporation
(Exact
name of small business issuer as specified in its charter)
Nevada
|
26-0429687
|
(State
or other jurisdiction of incorporation or
organization)
|
(IRS
Employer Identification No.)
|
11200
Westheimer, Suite 900
Houston,
TX 77042
(Address
of principal executive offices)
713.243.8788
(Issuer’s
telephone number)
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days
x
Yes
¨
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
¨
No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
¨
Large accelerated filer Accelerated filer
|
¨
Accelerated filer
|
¨
Non-accelerated filer
|
x
Smaller reporting company
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes
x
No
State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 59,696,000 common shares as of July 30,
2010.
TABLE OF
CONTENTS
PART
I – FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1:
|
|
Financial
Statements
|
|
3
|
|
|
|
|
|
Item
2:
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
15
|
|
|
|
|
|
Item
3:
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
19
|
|
|
|
|
|
Item
4T:
|
|
Controls
and Procedures
|
|
19
|
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
|
|
|
Item
1:
|
|
Legal
Proceedings
|
|
21
|
|
|
|
|
|
Item
1A:
|
|
Risk
Factors
|
|
21
|
|
|
|
|
|
Item
2:
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
21
|
|
|
|
|
|
Item
3:
|
|
Defaults
Upon Senior Securities
|
|
22
|
|
|
|
|
|
Item
4:
|
|
(Removed
and Reserved)
|
|
22
|
|
|
|
|
|
Item
5:
|
|
Other
Information
|
|
22
|
|
|
|
|
|
Item
6:
|
|
Exhibits
|
|
23
|
PART
I - FINANCIAL INFORMATION
Item 1.
|
Financial
Statements
|
Our
consolidated financial statements included in this Form 10-Q are as
follows:
Consolidated
Balance Sheets (unaudited) as of June 30, 2010 and December 31,
2009;
|
|
4
|
|
|
|
Consolidated
Statements of Operations (unaudited) for the three and six months ended
June 30, 2010 and 2009;
|
|
5
|
|
|
|
Consolidated
Statements of Cash Flows (unaudited) for the six months ended June 30,
2010 and 2009;
|
|
6
|
|
|
|
Notes
to Consolidated Financial Statements (unaudited);
|
|
7
|
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the SEC instructions to Form 10-Q and should
be read in conjunction with the audited financial statements and notes to
thereto contained in the Company’s annual report filed with the SEC on Form 10K
for the year ended December 31, 2009. In the opinion of management,
all adjustments consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the
interim period ended June 30, 2010 are not necessarily indicative of the results
that can be expected for the full year. Notes to the financial statements which
would substantially duplicate the disclosure contained in the audited financial
statements for the most recent year 2009 as reported in Form 10-K have been
omitted.
SAVOY
ENERGY CORPORATION
CONSOLIDATED
BALANCE SHEETS
(unaudited)
|
|
June 30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
73,252
|
|
|
$
|
60,345
|
|
Accounts
receivable
|
|
|
1,058
|
|
|
|
2,372
|
|
Total
current assets
|
|
|
74,310
|
|
|
|
62,717
|
|
|
|
|
|
|
|
|
|
|
OIL
AND GAS PROPERTIES, FULL COST METHOD
|
|
|
|
|
|
|
|
|
Properties
subject to amortization
|
|
|
821,216
|
|
|
|
761,987
|
|
Accumulated
depletion, depreciation, amortization and impairment
|
|
|
(655,330
|
)
|
|
|
(650,813
|
)
|
Oil
and gas properties, net
|
|
|
165,886
|
|
|
|
111,174
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
240,196
|
|
|
$
|
173,891
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
163,157
|
|
|
$
|
354,088
|
|
Advances
from related party
|
|
|
151,003
|
|
|
|
151,003
|
|
Accrued
interest payable
|
|
|
62,539
|
|
|
|
57,996
|
|
Notes
payable
|
|
|
490,000
|
|
|
|
447,500
|
|
Total
current liabilities
|
|
|
866,699
|
|
|
|
1,010,587
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
Asset
retirement obligations
|
|
|
11,535
|
|
|
|
9,683
|
|
TOTAL
LIABILITIES
|
|
|
878,234
|
|
|
|
1,020,270
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value; 100,000,000 shares authorized, 59,696,000 and
31,296,000 shares issued and outstanding, respectively
|
|
|
59,696
|
|
|
|
31,296
|
|
Additional
paid-in-capital
|
|
|
1,775,967
|
|
|
|
704,317
|
|
Accumulated
deficit
|
|
|
(2,473,701
|
)
|
|
|
(1,581,992
|
)
|
Total
stockholders’ deficit
|
|
|
(638,038
|
)
|
|
|
(846,379
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
240,196
|
|
|
$
|
173,891
|
|
See notes
to consolidated financial statements.
SAVOY
ENERGY CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
For the Three Months
Ended
|
|
|
For the Six Months
Ended
|
|
|
|
June
30,
|
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and gas revenues
|
|
$
|
16,637
|
|
|
$
|
8,747
|
|
|
$
|
35,393
|
|
|
$
|
24,211
|
|
Total
revenues
|
|
|
16,637
|
|
|
|
8,747
|
|
|
|
35,393
|
|
|
|
24,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
operating expenses
|
|
|
13,165
|
|
|
|
11,866
|
|
|
|
26,096
|
|
|
|
30,707
|
|
General
and administrative expense
|
|
|
231,072
|
|
|
|
837,905
|
|
|
|
881,314
|
|
|
|
871,311
|
|
Depletion,
depreciation, amortization and impairment expense
|
|
|
1,226
|
|
|
|
16,044
|
|
|
|
4,517
|
|
|
|
32,088
|
|
Accretion
expense
|
|
|
926
|
|
|
|
-
|
|
|
|
1,852
|
|
|
|
-
|
|
Gain
on sale of oil and gas properties
|
|
|
(233,320
|
)
|
|
|
-
|
|
|
|
(233,320
|
)
|
|
|
-
|
|
Total
costs and expenses
|
|
|
13,069
|
|
|
|
865,815
|
|
|
|
680,459
|
|
|
|
934,106
|
|
Operating
income (loss)
|
|
|
3,568
|
|
|
|
(857,068
|
)
|
|
|
(645,066
|
)
|
|
|
(909,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(2,913
|
)
|
|
|
(2,000
|
)
|
|
|
(4,543
|
)
|
|
|
(4,068
|
)
|
Loss
on settlement of debt
|
|
|
(35,000
|
)
|
|
|
-
|
|
|
|
(242,100
|
)
|
|
|
-
|
|
Total
other expenses
|
|
|
(37,913
|
)
|
|
|
(2,000
|
)
|
|
|
(246,643
|
)
|
|
|
(4,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(34,345
|
)
|
|
$
|
(859,068
|
)
|
|
$
|
(891,709
|
)
|
|
$
|
(913,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
57,435,011
|
|
|
|
28,000,000
|
|
|
|
48,387,160
|
|
|
|
28,000,000
|
|
See notes
to consolidated financial statements.
SAVOY
ENERGY CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
For
the
Six
|
|
|
For
the
Six
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(891,709
|
)
|
|
$
|
(913,963
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depletion,
depreciation, amortization and impairment
|
|
|
4,517
|
|
|
|
32,088
|
|
Accretion
expense
|
|
|
1,852
|
|
|
|
-
|
|
Stock
based compensation
|
|
|
616,224
|
|
|
|
747,000
|
|
Loss
on settlement of debt
|
|
|
242,100
|
|
|
|
-
|
|
Gain
on sale of oil and gas properties
|
|
|
(233,320
|
)
|
|
|
-
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
1,314
|
|
|
|
4,382
|
|
Accounts
payable and accrued liabilities
|
|
|
(12,162
|
)
|
|
|
8,124
|
|
Net
cash used in operating activities
|
|
|
(271,184
|
)
|
|
|
(123,369
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sale of oil and gas properties
|
|
|
233,320
|
|
|
|
-
|
|
Purchase
of oil and gas properties
|
|
|
(59,229
|
)
|
|
|
-
|
|
Net
cash provided by investment activities
|
|
|
174,091
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
|
120,000
|
|
|
|
156,113
|
|
Repayment
of debt
|
|
|
(10,000
|
)
|
|
|
(20,629
|
)
|
Net
cash provided by financing activities
|
|
|
110,000
|
|
|
|
135,484
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
12,907
|
|
|
|
13,115
|
|
Cash
and cash equivalents, at beginning of year
|
|
|
60,345
|
|
|
|
-
|
|
Cash
and cash equivalents, at end of year
|
|
$
|
73,252
|
|
|
$
|
13,115
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
Non
cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Return
of capital
|
|
$
|
52,800
|
|
|
$
|
-
|
|
Common
stock issued for debt
|
|
$
|
67,500
|
|
|
$
|
-
|
|
Common
stock issued for accrued expenses
|
|
$
|
177,226
|
|
|
$
|
-
|
|
See notes
to consolidated financial statements
SAVOY
ENERGY CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE
1 - BASIS OF PRESENTATION
The
accompanying unaudited interim consolidated financial statements of Savoy Energy
Corporation ("the Company") have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission, and should be read in conjunction with
the audited financial statements and notes thereto contained in Savoy’s annual
report filed with the SEC on Form 10-K for the year ended December 31,
2009. In the opinion of management, all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of financial
position and the results of operations for the interim periods presented have
been reflected herein. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which would substantially
duplicate the disclosures contained in the audited financial statements for the
most recent year 2009 as reported in Form 10-K have been omitted.
NOTE
2 – ORGANIZATION AND HISTORY
Savoy
Energy Corporation (the “Company” or “we”) was incorporated as “Arthur Kaplan
Cosmetics, Inc.” on June 25, 2007, in the State of Nevada. Our principal offices
are located at 11200 Westheimer, Suite 900, Houston, TX 77042 and our telephone
number is (713) 243-8788.
On March
31, 2009, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Plantation Exploration, Inc., a privately held Texas
corporation (“Plantation Exploration”), and Plantation Exploration Acquisition,
Inc. (“Acquisition Sub”), our newly formed wholly-owned Nevada subsidiary. In
connection with the closing of this merger transaction, Acquisition Sub merged
with and into Plantation Exploration (the “Merger”) on April 2, 2009, with the
filing of articles of merger with the Texas Secretary of State. As a
result of the Merger, Plantation Acquisition no longer exists and Plantation
Exploration became our wholly-owned subsidiary.
Subsequently,
on April 3, 2009, we merged with another wholly-owned subsidiary of our company,
known as Savoy Energy Corporation in a short-form merger transaction under
Nevada law and, in connection with this short form merger, changed our name to
Savoy Energy Corporation.
Effective
June 2, 2009, the Company’s board of directors approved a forward split of the
Company’s common stock on the basis of four shares for each share issued and
outstanding (4:1 split). The total number of authorized shares has not been
changed. The Company’s financial statements reflect the stock split on a
retro-active basis.
The
results of operations and cash flows for the three month period ended March 31,
2009 included within the six month period ended June 30, 2009 reflect only the
results of Arthur Kaplan Cosmetics, Inc., as the acquisition of Plantation
Exploration, Inc., occurred on April 2, 2009. The following
(unaudited) pro forma consolidated results of operations have been prepared as
if the acquisition of Plantation Exploration, Inc had occurred as of the first
day of the period presented:
|
|
Six
Months
Ended June
30, 2009
|
|
Total
revenues
|
|
$
|
39,675
|
|
Net
loss
|
|
|
(946,054
|
)
|
Net
loss per share—Basic
|
|
|
(0.03
|
)
|
Net
loss per share—Diluted
|
|
|
(0.03
|
)
|
The pro
forma information is presented for informational purposes only and is not
necessarily indicative of the results of operations that actually would have
been achieved had the acquisition been consummated as of that time, nor is it
intended to be a projection of future results.
Certain
amounts in prior periods have been reclassified to conform to current period
presentation.
NOTE
3 - SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The
Company’s consolidated financial statements are based on a number of significant
estimates, including oil and gas reserve quantities which are the basis for the
calculation of depreciation, depletion and impairment of oil and gas properties,
and timing and costs associated with its retirement obligations.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash in banks and financial instruments which mature
within three months of the date of purchase.
Fair
Value of Financial Instruments
As at
June 30, 2010, the fair value of cash, accounts receivable, accounts payable and
notes payable approximate carrying values because of the short-term maturity of
these instruments.
Oil
and Gas Properties
The
Company follows the full cost method of accounting for its oil and natural gas
properties, whereby all costs incurred in connection with the acquisition,
exploration for and development of petroleum and natural gas reserves are
capitalized. Such costs include lease acquisition, geological and geophysical
activities, rentals on non-producing leases, drilling, completing and equipping
of oil and gas wells and administrative costs directly attributable to those
activities and asset retirement costs. Disposition of oil and gas properties are
accounted for as a reduction of capitalized costs, with no gain or loss
recognized unless such adjustment would significantly alter the relationship
between capital costs and proved reserves of oil and gas, in which case the gain
or loss is recognized to income.
Depletion
and depreciation of proved oil and gas properties is calculated on the
units-of-production method based upon estimates of proved reserves. Such
calculations include the estimated future costs to developed proved reserves.
Oil and gas reserves are converted to a common unit of measure based on the
energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of
undeveloped properties are not included in the costs subject to depletion. These
costs are assessed periodically for impairment.
The fair
value of an asset retirement obligation is recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The present
value of the estimated asset retirement costs is capitalized as part of the
carrying amount of the long-lived asset. For The Company, asset retirement
obligations (“ARO”) relate to the plugging and abandonment of drilled oil and
gas properties. The amounts recognized are based upon numerous estimates
including future retirement costs; future recoverable reserve quantities and
reserve lives; and the credit-adjusted risk-free interest rate.
Ceiling
test
In
applying the full cost method, The Company performs an impairment test (ceiling
test) at each reporting date, whereby the carrying value of property and
equipment is compared to the value of its proved reserves discounted at a
10-percent interest rate of future net revenues, based on current economic and
operating conditions, plus the cost of properties not being amortized, plus the
lower of cost or fair market value of unproved properties included in costs
being amortized, less the income tax effects related to book and tax basis
differences of the properties.
Oil and
gas properties, not subject to amortization
The
amortization of the oil and gas properties not classified as proved begins when
the oil and gas properties become proved, or their values become impaired. The
Company assesses the realizability of its properties not characterized as proved
on at least an annual basis or when there is or has been an indication that an
impairment in value may have occurred. The impairment of properties not
classified as proved is assessed based on management’s intention with regard to
future exploration and development of individually significant properties, and
the Company’s ability to secure capital funding to finance such exploration and
development. If the result of an assessment indicates that a property is
impaired, the amount of the impairment is added to the capitalized costs in its
full cost pool and they are amortized over production from proved
reserves
As of
June 30, 2010, the carrying value of all oil and gas properties was subject to
amortization. The Company has no carrying value for properties not subject to
amortization.
Revenue
Recognition
Revenues
from the sale of oil and natural gas are recognized when the product is
delivered at a fixed or determinable price, title has transferred, and
collectability is reasonably assured and evidenced by a contract. For
oil sales, this occurs when the customer's truck takes delivery of oil from the
operators’ storage tanks.
The
Company follows the “sales method” of accounting for oil and natural gas
revenue, so it recognizes revenue on all natural gas or crude oil sold to
purchasers, regardless of whether the sales are proportionate to its ownership
in the property. A receivable or liability is recognized only to the
extent that the Company has an imbalance on a specific property greater than its
share of the expected remaining proved reserves.
Costs
associated with production are expensed in the period incurred.
Stock-Based
Compensation
Stock-based
compensation expense includes the estimated fair value of equity awards vested
during the reporting period. The expense for equity awards vested during the
reporting period is determined based upon the grant date fair value of the award
and is recognized as expense over the applicable vesting period of the stock
award using the straight-line method.
Deferred
Taxes
Deferred
taxes are provided on the liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and accrued tax liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Earnings
per Share of Common Stock
Basic net
income per share calculations are determined by dividing net income (loss) by
the weighted average number of common shares outstanding during the reporting
period. Diluted net income per share calculations are determined by
dividing net income (loss) by the weighted average number of common shares and
dilutive common share equivalents outstanding. During the reporting period when
they are anti-dilutive, common share equivalents, if any, are not considered in
the computation.
Recent
Accounting Pronouncements
The
Company does not expect recent accounting standards or interpretations issued or
recently adopted to have a material impact on the Company’s consolidated
financial position, operations or cash flows.
Dividends
Dividends
declared on our common stock are reflected as adjustments to retained earnings
to the extent a surplus of retained earnings will exist after giving effect to
the dividends. To the extent retained earnings are insufficient to fund the
distributions; such payments constitute a return of contributed capital rather
than earnings and are accounted for as a reduction to paid-in
capital.
NOTE
4 - GOING CONCERN
The
Company’s consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. As of June 30, 2010, the Company has a working capital deficit, has
generated limited revenues and has an accumulated deficit. These factors raise
substantial doubt regarding the Company’s ability to continue as a going
concern.
In order
to continue as a going concern and achieve a profitable level of operations, the
Company will need, among other things, additional capital resources and to
develop a consistent source of revenues. The continuation of the Company as a
going concern is dependent upon the continued financial support from its
shareholders, the ability to raise equity or debt financing, and the attainment
of profitable operations from the Company's operations.
The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern
NOTE
5 – OIL AND GAS PROPERTIES
On March
31, 2010, the Company secured a 2.75% working and revenue interest in the Glass
59 #2 commitment well in Sterling County, Texas that is operated by Bright &
Company. During the six months ended June 30, 2010, the Company made payments
totaling $24,891 of drilling and completion costs.
In June
2010, the Company acquired the Davis-Cornell oil and gas lease for
$28,800. The lease acreage is located in Gonzales County,
Texas, and is comprised of 144 acres. The Company acquired a 75%
undivided working interest in the lease, and the sellers retained a 25%
undivided working interest.
During
June 2010, the Company entered into an option agreement with a shareholder and
working interest participant in certain oil and gas properties located in
Gonzales County, Texas to allow the shareholder to put their interest in the
properties to the Company. Pursuant to the option agreement, Savoy
agreed to issue 2,640,000 shares of common stock to the shareholder, together
with future monthly payments of $5,000 per month to the shareholder until the
holding period lapses and the restrictive legend can be removed from the face of
the share certificate. Upon the restriction removal, the
monthly payment will cease and the shareholder has the option to assign their
interest in the oil and gas properties to Savoy. The 2,640,000
shares of common stock granted to the shareholder were valued at $52,800, based
on fair market value using quoted market prices on the date of grant and was
recorded as a return of capital to the shareholder.
In May
2010, the Company sold certain overriding royalty interests to Lucas Energy,
Inc. for $92,568. The overriding royalty interests are associated
with the Company’s producing wells in the Austin Chalk formation. The Company
retained its existing working interests in the Austin Chalk producing formation.
The proceeds of $92,568 were recorded as a gain on sale of oil and gas
properties.
In June
2010, the Company sold a 92.5% undivided interest in its Eagle Ford formation
“deep rights” located in Gonzales County, Texas to Lucas Energy, Inc. for
$140,752. The “deep rights” sold are unevaluated oil and gas
properties associated with the Company’s producing wells in the Austin Chalk
formation. The Company retained its existing working interests in the Austin
Chalk producing formation. The proceeds of $140,752 were recorded as a gain on
sale of oil and gas properties.
NOTE
6 – NOTES PAYABLE
On
September 24, 2008 Plantation Exploration, Inc. entered into a financing
agreement with Oil Investment Leases, Inc. (OIL) for cash advances totaling
$290,000. On January 27, 2009 and May 4, 2009, the Company amended the September
24, 2008 agreement with OIL for advance cash payments under the demand loan and
to assign the debt from Plantation Exploration to Savoy. The amended agreements
provided for total borrowings of $335,000 and $360,000, respectively, due on
demand. The interest is payable in-kind at 5,000 shares of common stock of the
Company for each month the debt remains unpaid. During the six months ended June
30, 2010, the Company has made payment reductions totaling $77,500. As of June
30, 2010, the outstanding balance of advances from OIL was
$282,500.
On
December 17, 2009, the Company borrowed $37,500 from a non-related third party
bearing interest at 6% per annum. The loan is unsecured and the principal and
accrued and unpaid interest is payable at maturity on June 30, 2010. The Company
used the proceeds for working capital. The outstanding balance of $37,500 has
been classified as current debt at June 30, 2010. On July 1, 2010 the
outstanding balance on this loan plus accrued interest was repaid in
full.
On
December 29, 2009, the Company borrowed $50,000 from two non-related third
parties bearing interest at 5% per annum. The loans are unsecured and the
principal and accrued and unpaid interest is payable at maturity on June 30,
2010. The Company used the proceeds for working capital. The outstanding
aggregate balance of $50,000 has been classified as current debt at June 30,
2010. One of the notes with an outstanding principal balance of
$25,000 plus accrued interest was repaid on July 1, 2010; the other note with an
outstanding principal balance of $25,000 plus accrued interest was repaid in
full on July 6, 2010.
On March
19, 2010, the Company borrowed $40,000 from non-related third parties bearing
interest at 5% per annum. The loans are unsecured and the principal and accrued
and unpaid interest is payable at maturity on September 30, 2010. The Company is
using the proceeds for working capital. The outstanding balance
of $40,000 has been classified as current debt at June 30, 2010.
On March
22, 2010, the Company borrowed $40,000 from non-related third parties bearing
interest at 5% per annum. The loans are unsecured and the principal and accrued
and unpaid interest is payable at maturity on September 30, 2010. The Company is
using the proceeds for working capital. The outstanding balance
of $40,000 has been classified as current debt at June 30,
2010.
On April
21, 2010, the Company borrowed $40,000 from non-related third parties bearing
interest at 5% per annum. The loans are unsecured and the principal and accrued
and unpaid interest is payable at maturity on December 31, 2010. The Company is
using the proceeds for working capital. The outstanding balance
of $40,000 has been classified as current debt at June 30, 2010.
NOTE
7 – RELATED PARTY TRANSACTIONS
From time
to time, the Company receives cash advances from related parties, including
stockholders and their affiliates, to cover operating expenses. The advances do
not bear interest and are due upon demand. During the six months ended June 30,
2010, the Company received no additional cash advances. As of June 30, 2010, the
outstanding balance of advances from related party was $151,003.
NOTE
8 – STOCK OPTIONS AND WARRANTS
Summary
information regarding stock option activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Outstanding
at 12/31/09
|
|
|
8,000,000
|
|
|
$
|
1.00
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding
at 06/30/10
|
|
|
8,000,000
|
|
|
$
|
1.00
|
|
Options
outstanding and their relative exercise price at June 30, 2010 are as
follows:
Exercise Price
|
|
|
Number
of
shares
|
|
|
Remaining
life
|
|
|
Aggregate
Intrinsic
Value
(In-the-
money)
Options
|
|
1.00
|
|
|
|
8,000,000
|
|
|
3.5
years
|
|
|
$
|
-
|
|
|
|
|
|
8,000,000
|
|
|
|
|
|
$
|
-
|
|
NOTE 9 -
COMMON STOCK
On
January 26, 2010, the Company issued 1,000,000 common shares valued at $56,000,
based on the fair market value using quoted market prices on the date of grant
to Excelsus Capital Partners, LLC for services rendered. The value of the shares
were recognized in the Company’s consolidated results of operations for the
three months ended March 31, 2010.
On
February 1, 2010, the Company issued 800,000 common shares valued at $44,800,
based on fair market value using quoted market prices on the date of grant to
Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil
Investment Leases, Inc. (OIL)
in the amount of $12,500
and recorded a realized loss of $32,300 on settlement of debt.
On
February 1, 2010, the Company issued 800,000 common shares valued at $44,800,
based on fair market value using quoted market prices on the date of grant to
Barclay Lyons, LLC for payment on the Company’s note payable with Oil Investment
Leases, Inc. (OIL)
in
the amount of $12,500 and recorded a realized loss of $32,300 on settlement of
debt.
On
February 1, 2010, the Company issued 1,250,000 common shares valued at $70,000,
based on fair market value using quoted market prices on the date of grant to
Tombstone Capital, LLC for payment on the Company’s note payable with Oil
Investment Leases, Inc. (OIL)
in the amount of $12,500
and recorded a realized loss of $57,500 on settlement of debt.
On March
4, 2010, the Company issued 10,000,000 common shares valued at $330,000, based
on fair market value using quoted market prices on the date of grant to Arthur
Bertagnolli in satisfaction of accrued but unpaid employment compensation due to
Arthur Bertagnolli of $43,500 and recorded a compensation expense of $286,500 in
exchange for services rendered.
On March
4, 2010, the Company issued 2,000,000 common shares valued at $66,000, based on
fair market value using quoted market prices on the date of grant to for
investment banking services rendered.
On March
4, 2010, the Company issued 3,000,000 common shares valued at $99,000, based on
fair market value using quoted market prices on the date of grant for investment
banking services rendered.
On March
4, 2010, the Company issued 500,000 common shares valued at $16,500, based on
fair market value using quoted market prices on the date of grant for legal
services rendered.
On March
18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on
fair market value using quoted market prices on the date of grant to Rio
Sterling Holdings, LLC for payment on the Company’s note payable with Oil
Investment Leases, Inc. (OIL)
in the amount of $10,000
and recorded a realized loss of $42,500 on settlement of debt.
On March
18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on
fair market value using quoted market prices on the date of grant to Barclay
Lyons, LLC for payment on the Company’s note payable with Oil Investment Leases,
Inc. (OIL)
in the
amount of $10,000 and recorded a realized loss of $42,500 on settlement of
debt.
On April
15, 2010, the Company issued 1,500,000 common shares valued at $45,000, based on
fair market value using quoted market prices on the date of grant to Rio
Sterling Holdings, LLC for payment on the Company’s note payable with Oil
Investment Leases, Inc. (OIL)
in the amount of $10,000
and recorded a realized loss of $35,000 on settlement of debt.
On April
26 and May 26, 2010, the Company issued 2,350,000 common shares valued at
$58,500, based on fair market value using quoted market prices on the date of
grant for consultanting services rendered.
On May
26, 2010, the Company issued 1,700,000 common shares valued at $153,400, based
on fair market value using quoted market prices on the date of grant to
Directors in satisfaction of accrued but unpaid director fees of $133,726 and
recorded an expense of $19,674 in exchange for services rendered.
On May
26, 2010, the Company issued 500,000 common shares valued at $11,500, based on
fair market value using quoted market prices on the date of grant for legal
services rendered.
NOTE
10 – COMMITMENTS, CONTINGENCIES AND LITIGATION
During
January 2010, the Company entered into a consulting agreement with an unrelated
third party and paid the consultant a commitment fee of $5,000 and issued the
consultant 1,000,000 fully vested shares of common stock (see Note 9). The
Company amended the consulting agreement in March 2010 that extended the term
for twelve months from the date of the amendment and issued the consultant
5,000,000 fully vested shares of common stock (2,000,000 shares on March 4, 2010
valued at $66,000 and 3,000,000 shares on March 4, 2010 valued at $99,000 – See
Note 9). As amended, the consulting agreement includes the following
commitments:
i.
|
The consultant will receive
$5,000 per month for twelve
months;
|
ii.
|
The consultant will receive a
referral fee of 10% cash and 10% equity of the aggregate amount of each
successful equity financing;
|
iii.
|
The consultant will receive a
referral fee of 5% cash and 5% equity of the aggregate amount of each
successful debt financing.
|
During
March 2010, the Company executed an investor relations agreement whereby the
Company agreed to pay an initial payment of $15,000 and 100,000 shares of the
Company’s common stock. The Company paid the $15,000 and has accrued the value
of the 100,000 common shares of $3,200, based on the fair market value using
quoted market prices on the date of grant. The Company has committed to pay the
consultant $15,000 per month for six months, automatically renewed for another
six months and thereafter renewable by mutual agreement. The commons shares were
not issued as of June 30, 2010.
The
Company’s Employment Agreement with Arthur Bertagnolli provides for certain
compensation and benefits based on the Company’s achievement of specified
milestones. As of June 30, 2010, none of those milestones have been
achieved. Under certain circumstances, Mr. Bertagnolli is also
entitled to an additional payment upon sale of the Company.
Panos Industries, LLC v.
Savoy Energy Corporation, et. al., District Court, Clark County, Nevada Case #
A-10-612340-C.
On March
19, 2010, this action was filed in the above-entitled Court seeking damages “…in
excess of $50,000” based upon monies which the Plaintiff claims were advanced by
Plaintiff on behalf of the Company. As of this date, the Company has
filed an Answer to the complaint and has filed a Cross-Complaint against the
Plaintiff. The Plaintiff has filed a Motion to Dismiss the Cross-Complaint,
which is pending. While the outcome of this matter cannot be
predicted, the Company specifically denies that it is indebted to Plaintiff and
believes that any claims purportedly asserted in the lawsuit are without
merit. The Company further believes that it has meritorious claims
against Plaintiff which arose in connection with the merger of the Company’s
predecessor (Arthur Kaplan Cosmetics, Inc.) with Plantation Exploration, Inc.
and in connection with the aftermath of the merger. The Company
intends to vigorously defend any claims asserted by the Plaintiff and to
aggressively prosecute its claims against the Plaintiff. Even if the
Company is ultimately successful in defending this action, it will incur legal
fees and other expenses in connection with such defense, the amount of which
cannot be predicted at this time. Such expenses could have a material
impact on the Company’s future operating results and have an adverse impact on
the Company’s funds available for its operations.
Item
2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates,
projections, statements relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those statements are based,
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
similar expressions. We intend such forward-looking statements to be
covered by the safe-harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995, and are including this
statement for purposes of complying with those safe-harbor
provisions. Forward-looking statements are based on current
expectations and assumptions that are subject to risks and uncertainties which
may cause actual results to differ materially from the forward-looking
statements. Our ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have a
material adverse affect on our operations and future prospects on a consolidated
basis include, but are not limited to: changes in economic conditions,
legislative/regulatory changes, availability of capital, interest rates,
competition, and generally accepted accounting principles. These risks and
uncertainties should also be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise. Further
information concerning our business, including additional factors that could
materially affect our financial results, is included herein and in our other
filings with the SEC.
Overview
We are in
the business of re-entering, re-completing, extracting oil, and selling oil from
previously drilled wells in the United States. Our plan of operations is to
economically extract a significant amount of the “left-behind” oil from
previously drilled sites.
We
currently hold leases on and are producing oil from the following wells: our
working interests in Ali-O No.1, Rozella Kifer No. 1, Zavadil No.1 and our 5.0%
overriding royalty interest in W.L. Barnett ET AL #1 & #2. We also own a
2.75% working interest in the Glass 59 #2 well and a 75% working interest in the
Davis-Cornell oil and gas lease. We will continue our workover
efforts on these wells, and seek to duplicate our successful efforts with other
wells. We have retained a petroleum consulting firm specializing in geological
analyses of oil wells, to work with us to locate and screen a number of
abandoned oil wells prospects for viability. Our evaluations include
an assessment of production potential of each well using geological evaluations
including the use of seismic data as available. In addition to the
wells that we are currently have in operation, we have also already identified
34 other wells as targets for acquisition: six that are producing and 28 that
have been abandoned but have seismic or other data indicating that they are
favorable candidates for recompletion or workover.
Once we
have determined which wells have the greatest production potential and are most
likely to respond to our workover efforts, we will then pursue acquiring
interests in those wells. We will then engage in workover operations as with our
previous wells, primarily through horizontal drilling and acidization. We hope
to extract and sell crude oil through a third party purchaser.
Our
strategy is to concentrate on existing low maintenance production, exploit low
risk sidetrack drilling opportunities as and when identified, and use the
accumulated information and results to advance operations.
Large oil
companies with high overhead costs require high production rates for wells to be
economically viable. Our small size and lower overhead allows profitably
extraction of oil at low production rates. Our goal is to turn wells rendered
uneconomical and abandoned by large companies into profitable ones.
We
continue to find ways to reduce expenses and increase efficiency. Recently,
decisions were made to convert all applicable wells to operate on electricity.
The Company believes that electricity is cheaper as an energy source and also
electric motors have lower maintenance expenses than gas-operated engines. To
further this end, plans were made to install the “Jack Shaft Reducer” on our
Rozella Kifer Well. The Jack Shaft Reducer is expected to both increase
efficiency and decrease maintenance costs which will in turn extend the life of
the well’s production, although this cannot be quantified at this
time.
On March
27, 2010 the Zavadil #1 well was placed online and closely monitored under full
electric power. This is the second producing well that the Company has operating
under full electric power. The Company will now begin the
process to convert its Ali-O #1 oil well to operate under full electric
power.
Developments
in Expansion of Wells
In March
2010, the Company secured a 2.75% working and revenue interest in the Glass 59
#2 commitment well in Sterling County, Texas that is operated by Bright &
Company. During the six months ended June 30, 2010, the Company has made
payments totaling $24,891 of drilling and completion costs.
In June
2010 the Company acquired the Davis-Cornell oil and gas lease for
$28,800. The lease acreage is located in Gonzales County,
Texas, and is comprised of 144 acres. The Company acquired a 75%
undivided working interest in the lease, and the sellers retained a 25%
undivided working interest.
During
June 2010, the Company entered into an option agreement with a shareholder and
working interest participant in certain oil and gas properties located in
Gonzales County, Texas to allow the shareholder to put their interest
in the properties to the Company. Pursuant to the option agreement,
Savoy agreed to issue 2,640,000 shares of common stock to the shareholder,
together with future monthly payments of $5,000 per month to the shareholder
until the holding period lapses and the 144 restrictive legend can be removed
from the face of the share certificate. Upon the restriction
removal, the monthly payment will cease and the shareholder has the option to
assign their interest in the oil and gas properties to
Savoy. The 2,640,000 shares of common stock granted to the
shareholder was valued at $52,800, based on fair market value using quoted
market prices on the date of grant and was recorded as a return of capital to
the shareholder.
In May
2010, the Company sold certain overriding royalty interests to Lucas Energy,
Inc. for $92,568. The overriding royalty interests are associated
with the Company’s producing wells in the Austin Chalk formation. The Company
retained its existing working interests in the Austin Chalk producing formation.
The proceeds of $92,568 were recorded as a gain on sale of oil and gas
properties.
In June
2010, the Company sold a 92.5% undivided interest in its Eagle Ford formation
“deep rights” located in Gonzales County, Texas to Lucas Energy, Inc. for
$140,752. The “deep rights” sold are unevaluated oil and gas
properties associated with the Company’s producing wells in the Austin Chalk
formation. The Company retained its existing working interests in the Austin
Chalk producing formation. The proceeds of $140,752 were recorded as a gain on
sale of oil and gas properties.
Results
of Operations for the Three Months Ended June 30, 2010 and 2009
Revenues
.
Our total revenue reported for the three months ended June 30, 2010 was $16,637
compared to $8,747 in the comparable period for the prior year. The increase was
primarily due to increased pricing and production.
Lease Operating
Expenses.
The lease operating expenses for the three months
ended June 30, 2010 were $13,165, compared to $11,866 in the comparable period
of the prior year.
Depreciation,
Depletion, Amortization and Impairment.
Depreciation,
depletion, amortization and impairment for the three months ended June 30, 2010
was $1,226 compared to $16,044 in the comparable period the prior year. The
decrease was due to impairment recognized in the prior comparable
period.
General and
Administrative Expense.
General and administrative expense for
the three months ended June 30, 2010 decreased to $231,072 from $837,905 for the
comparable quarter in 2009, a decrease of $606,833. The decrease in general and
administrative expense was largely attributable to the recognition of stock
compensation expense in the prior year’s comparable quarter.
Gain on Sale of
Oil and Gas Properties.
During the three months ended June 30,
2010, the sale by the Company of certain oil and gas properties netted the
Company an aggregate of $233,320 (see Developments in Expansion of Wells,
above).
Other Income
(Expenses)
. We recorded interest expense of $2,913 for the three months
ended June 30, 2010 compared to $2,000 in the comparable quarter the prior
year. In addition, the Company recorded a loss on the settlement of
certain debt of $35,000.
Results
of Operations for the Six Months Ended June 30, 2010 and 2009
Revenues
.
Our total revenue reported for the six months ended June 30, 2010 was $35,393
compared to $24,211 in the comparable period for the prior year. The increase
was primarily due to increased pricing and production.
Lease Operating
Expenses.
The lease operating expenses for the six months
ended June 30, 2010 were $26,096, compared to $30,707 in the comparable period
of the prior year.
Depreciation,
Depletion, Amortization and Impairment.
Depreciation,
depletion, amortization and impairment for the six months ended June 30, 2010
was $4,517, compared to $32,088 in the comparable period the prior year. The
decrease was due to impairment recognized in the prior comparable
period.
General and
Administrative Expense.
General and administrative expense for
the six months ended June 30, 2010 was substantially unchanged at $881,313
compared to $871,311 for the comparable period in 2009.
Gain on Sale of
Oil and Gas Properties.
During the six months ended June 30,
2010, the sale by the Company of certain oil and gas properties netted the
Company an aggregate of $233,320 (see Developments in Expansion of Wells,
above).
Other Income
(Expenses)
. We recorded interest expense of $4,543 for the six months
ended June 30, 2010 compared to $4,068 in the comparable period the prior year.
In addition, the Company recorded a loss on the settlement of certain debt of
$242,100.
Liquidity
and Capital Resources
As of
June 30, 2010, we had total current assets of $74,310. Our total current
liabilities as of June 30, 2010 were $866,699. Thus, we had a working
capital deficit of $792,389 as of June 30, 2010.
Operating
activities used $271,184 in cash for the six months ended June 30, 2010. Our net
loss of $891,709 was the primary component of our negative operating cash flow,
offset by non-cash expenses—common stock-based compensation and loss on the
settlement of a debt. Cash flows provided by investing activities were $174,091
during the six months ended June 30, 2010 compared to $0 in the comparable six
months of the prior year related to the acquisition of oil and gas interests.
Cash flows provided by financing activities during the quarter ended June 30,
2010 was $110,000 consisting of proceeds from notes payable of $120,000, less
repayments of $10,000.
Based
upon our current financial condition, we do not have sufficient cash to operate
our business at the current level for the next twelve months. We have negative
working capital and rely on proceeds from equity and loans to fund our
operations. We intend to fund operations through increased sales and
debt and/or equity financing arrangements, which may be insufficient to fund
expenditures or other cash requirements. We plan to seek additional financing in
a private equity offering to secure funding for operations. There can be no
assurance that we will be successful in raising additional funding. If we are
not able to secure additional funding, the implementation of our business plan
will be impaired. There can be no assurance that such additional financing will
be available to us on acceptable terms or at all.
Going Concern
Our
financial statements are prepared using generally accepted accounting principles
applicable to a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. As of
the date of this report, we have generated losses from operations, have an
accumulated deficit and a working capital deficiency. These factors raise
substantial doubt regarding our ability to continue as a going
concern.
In order
to continue as a going concern and achieve a profitable level of operations, we
will need, among other things, additional capital resources and to develop a
consistent source of revenues. Our continuation as a going concern is
dependent upon the continued financial support from our shareholders, the
ability to raise equity or debt financing, and the attainment of profitable
operations from our planned business.
Our
ability to continue as a going concern is dependent upon our ability to
successfully accomplish the plan described in the preceding paragraph and
eventually attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if we are
unable to continue as a going concern.
Off
Balance Sheet Arrangements
As of
June 30, 2010, there were no off balance sheet arrangements.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
A smaller
reporting company is not required to provide the information required by this
Item.
Item
4T.
|
Controls
and Procedures
|
We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of June 30, 2010. The Company's
internal control over financial reporting is a process and procedures designed
under the supervision of the Company's Principal Executive Officer and Principal
Financial Officer to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of the Company's financial statements
for external purposes in accordance with U.S. generally accepted accounting
principles.
Based
upon that evaluation, our Chief Executive Officer who is also our Principal
Financial Officer concluded that, as of June 30, 2010, our disclosure controls
and procedures over financing reporting were not effective. This
conclusion was based on the existence of the material weaknesses in our internal
control over financial reporting previously disclosed and discussed below. There
have been no changes in our internal controls over financial reporting during
the quarter ended June 30, 2010. To address the need for more
effective internal controls, management has plans to improve the existing
controls and implement new controls as our financial position and capital
availability improves. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed in our reports filed or submitted under the Exchange
Act are recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed under the Exchange Act is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required
disclosure.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial
statements will not be prevented or detected on a timely basis.
We
identified and continue to have the following material weakness in our internal
controls over financial reporting:
There is
a lack of segregation of duties and technical accounting expertise. Our
financial reporting and all accounting functions are performed by an external
consultant with no oversight by a professional with accounting
expertise. Our management does not possess accounting expertise and
hence our controls over the selection and application of accounting policies in
accordance with generally accepted accounting principles were inadequate and
constitute a material weakness in the design of internal control over financial
reporting. This weakness is due to the Company’s lack of working
capital to hire additional staff.
Limitations
on the Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
internal control. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate.
PART
II – OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
The
Company is a party to the following litigation:
Panos Industries, LLC v.
Savoy Energy Corporation, et. al., District Court, Clark County, Nevada Case #
A-10-612340-C.
On March
19, 2010, this action was filed in the above-entitled Court seeking damages “…in
excess of $50,000” based upon monies which the Plaintiff claims were advanced by
Plaintiff on behalf of the Company. As of this date, the Company has
filed an Answer to the complaint and has filed a Cross-Complaint against the
Plaintiff. The Plaintiff has filed a Motion to Dismiss the Cross-Complaint,
which is pending. While the outcome of this matter cannot be
predicted, the Company specifically denies that it is indebted to Plaintiff and
believes that any claims purportedly asserted in the lawsuit are without
merit. The Company further believes that it has meritorious claims
against Plaintiff which arose in connection with the merger of the Company’s
predecessor (Arthur Kaplan Cosmetics, Inc.) with Plantation Exploration, Inc.
and in connection with the aftermath of the merger. The Company
intends to vigorously defend any claims asserted by the Plaintiff and to
aggressively prosecute its claims against the Plaintiff. Even if the
Company is ultimately successful in defending this action, it will incur legal
fees and other expenses in connection with such defense, the amount of which
cannot be predicted at this time. Such expenses could have a material
impact on the Company’s future operating results and have an adverse impact on
the Company’s funds available for its operations.
A smaller
reporting company is not required to provide the information required by this
Item.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
On April
15, 2010, the Company issued 1,500,000 common shares valued at $45,000, based on
the fair market value using quoted market prices on the date of grant to Rio
Sterling Holdings, LLC for payment on the Company’s note payable with Oil
Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a realized
loss of $35,000 on settlement of debt.
On May
26, 2010, the Company issued 1,700,000 common shares valued at $153,400, based
on fair market value using quoted market prices on the date of grant to
Directors in satisfaction of accrued but unpaid director fees of $133,726 and
recorded an expense of $19,674 in exchange for services rendered.
On April
26 and May 26, 2010, the Company issued 2,350,000 common shares valued at
$58,500, based on fair market value using quoted market prices on the date of
grant to consultants for services rendered.
On May
26, 2010, the Company issued 500,000 common shares valued at $11,500, based on
fair market value using quoted market prices on the date of grant to Robert L.
B. Diener for services rendered.
The above
issuances were performed in reliance on the exemption from registration afforded
by Section 4(2) of the Securities Act.
Item
3.
|
Defaults
upon Senior Securities
|
None
Item
4.
|
(Removed
and Reserved)
|
None
Item
5.
|
Other
Information
|
None
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
SIGNATURES
In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
SAVOY
ENERGY CORPORATION
|
|
|
Date:
|
August
3, 2010
|
|
|
|
By:
|
/s/ Arthur Bertagnolli
|
|
|
|
Arthur
Bertagnolli
|
|
Title:
|
Chief
Executive Officer and Chief Financial
Officer
|