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 September
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 November 1,
2010.
TABLE OF
CONTENTS
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PART
I – FINANCIAL INFORMATION
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Item
1:
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Financial
Statements
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3
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Item
2:
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item
3:
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Quantitative
and Qualitative Disclosures About Market Risk
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19
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Item
4T:
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Controls
and Procedures
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20
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PART
II – OTHER INFORMATION
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Item
1:
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Legal
Proceedings
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21
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Item
1A:
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Risk
Factors
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21
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Item
2:
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Unregistered
Sales of Equity Securities and Use of Proceeds
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21
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Item
3:
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Defaults
Upon Senior Securities
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21
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Item
4:
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(Removed
and Reserved)
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21
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Item
5:
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Other
Information
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22
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Item
6:
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Exhibits
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22
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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 September 30, 2010 and December 31,
2009;
|
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4
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|
|
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Consolidated
Statements of Operations (unaudited) for the three and nine months ended
September 30, 2010 and 2009;
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5
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Consolidated
Statements of Cash Flows (unaudited) for the nine months ended September
30, 2010 and 2009;
|
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6
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|
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|
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Notes
to Consolidated Financial Statements (unaudited).
|
|
7
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SAVOY
ENERGY CORPORATION
CONSOLIDATED
BALANCE SHEETS
(unaudited)
|
|
|
September 30,
|
|
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December
31,
|
|
|
|
|
2010
|
|
|
2009
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ASSETS
|
|
|
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CURRENT
ASSETS
|
|
|
|
|
|
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Cash
and cash equivalents
|
|
$
|
28,787
|
|
|
$
|
60,345
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
2,372
|
|
|
Total
current assets
|
|
|
28,787
|
|
|
|
62,717
|
|
|
|
|
|
|
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PROPERTY
AND EQUIPMENT
|
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|
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Oil
and gas properties, using the full cost method
|
|
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721,819
|
|
|
|
761,987
|
|
|
Accumulated
depletion, depreciation, amortization and impairment
|
|
|
(656,264
|
)
|
|
|
(650,813
|
)
|
|
Property
and equipment, net
|
|
|
65,555
|
|
|
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111,174
|
|
|
|
|
|
|
|
|
|
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TOTAL
ASSETS
|
|
$
|
94,342
|
|
|
$
|
173,891
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|
|
|
|
|
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
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CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
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Accounts
payable and accrued liabilities
|
|
$
|
171,308
|
|
|
$
|
354,088
|
|
|
Advances
from related party
|
|
|
151,003
|
|
|
|
151,003
|
|
|
Accrued
interest payable
|
|
|
52,139
|
|
|
|
57,996
|
|
|
Notes
payable
|
|
|
402,500
|
|
|
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447,500
|
|
|
Total
current liabilities
|
|
|
776,950
|
|
|
|
1,010,587
|
|
|
|
|
|
|
|
|
|
|
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LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
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Asset
retirement obligations
|
|
|
12,461
|
|
|
|
9,683
|
|
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TOTAL
LIABILITIES
|
|
|
789,411
|
|
|
|
1,020,270
|
|
|
|
|
|
|
|
|
|
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STOCKHOLDERS’
DEFICIT
|
|
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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
|
|
|
1,760,967
|
|
|
|
704,317
|
|
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Accumulated
deficit
|
|
|
(2,515,732
|
)
|
|
|
(1,581,992
|
)
|
|
Total
stockholders’ deficit
|
|
|
(695,069
|
)
|
|
|
(846,379
|
)
|
|
|
|
|
|
|
|
|
|
|
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
94,342
|
|
|
$
|
173,891
|
|
See notes
to consolidated financial statements.
SAVOY
ENERGY CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the Three Months
Ended
|
|
|
For the Nine Months
Ended
|
|
|
|
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September
30,
|
|
|
September
30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
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|
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|
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REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
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Oil
and gas revenues
|
|
$
|
12,650
|
|
|
$
|
5,862
|
|
|
$
|
48,043
|
|
|
$
|
25,005
|
|
|
Total
revenues
|
|
|
12,650
|
|
|
|
5,862
|
|
|
|
48,043
|
|
|
|
25,005
|
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|
|
|
|
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|
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COSTS
AND EXPENSES
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
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Lease
operating expenses
|
|
|
10,420
|
|
|
|
8,890
|
|
|
|
36,516
|
|
|
|
51,463
|
|
|
General
and administrative expense
|
|
|
116,291
|
|
|
|
173,426
|
|
|
|
997,605
|
|
|
|
605,531
|
|
|
Depletion,
depreciation, amortization and impairment expense
|
|
|
934
|
|
|
|
452
|
|
|
|
5,451
|
|
|
|
2,317
|
|
|
Accretion
expense
|
|
|
926
|
|
|
|
-
|
|
|
|
2,778
|
|
|
|
-
|
|
|
Gain
on sale of assets
|
|
|
(76,944
|
)
|
|
|
-
|
|
|
|
(310,264
|
)
|
|
|
-
|
|
|
Total
costs and expenses
|
|
|
51,627
|
|
|
|
182,768
|
|
|
|
732,086
|
|
|
|
659,311
|
|
|
Operating
loss
|
|
|
(38,977
|
)
|
|
|
(176,906
|
)
|
|
|
(684,043
|
)
|
|
|
(634,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
OTHER
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(3,054
|
)
|
|
|
(6,031
|
)
|
|
|
(7,597
|
)
|
|
|
(34,331
|
)
|
|
Loss
on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
(242,100
|
)
|
|
|
-
|
|
|
Total
other expenses
|
|
|
(3,054
|
)
|
|
|
(6,031
|
)
|
|
|
(249,697
|
)
|
|
|
(34,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(42,031
|
)
|
|
$
|
(182,937
|
)
|
|
$
|
(933,740
|
)
|
|
$
|
(668,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding - basic and diluted
|
|
|
59,696,000
|
|
|
|
28,996,000
|
|
|
|
52,198,198
|
|
|
|
39,352,835
|
|
See notes
to consolidated financial statements.
SAVOY
ENERGY CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
For
the
Nine
|
|
|
For
the
Nine
|
|
|
|
|
Months
Ended
|
|
|
Months
Ended
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(933,740
|
)
|
|
$
|
(668,637
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depletion,
depreciation, amortization and impairment
|
|
|
5,451
|
|
|
|
2,317
|
|
|
Accretion
expense
|
|
|
2,778
|
|
|
|
-
|
|
|
Stock
based compensation
|
|
|
611,950
|
|
|
|
368,570
|
|
|
Loss
on settlement of debt
|
|
|
242,100
|
|
|
|
-
|
|
|
Gain
on sale of assets
|
|
|
(310,264
|
)
|
|
|
-
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,372
|
|
|
|
16,672
|
|
|
Accounts
payable and accrued liabilities
|
|
|
190
|
|
|
|
100,529
|
|
|
Advances
from related party
|
|
|
-
|
|
|
|
14,655
|
|
|
Net
cash used in operating activities
|
|
|
(379,163
|
)
|
|
|
(165,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of oil and gas properties
|
|
|
409,048
|
|
|
|
-
|
|
|
Capital
expenditures for development of oil and gas properties
|
|
|
(40,043
|
)
|
|
|
-
|
|
|
Purchase
of oil and gas properties
|
|
|
(28,900
|
)
|
|
|
-
|
|
|
Net
cash provided by investment activities
|
|
|
340,105
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of debt
|
|
|
120,000
|
|
|
|
191,003
|
|
|
Return
of capital
|
|
|
(15,000
|
)
|
|
|
-
|
|
|
Repayment
of debt
|
|
|
(97,500
|
)
|
|
|
(20,629
|
)
|
|
Net
cash provided by financing activities
|
|
|
7,500
|
|
|
|
170,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
(31,558
|
)
|
|
|
4,480
|
|
|
Cash
and cash equivalents, at beginning of year
|
|
|
60,345
|
|
|
|
-
|
|
|
Cash
and cash equivalents, at end of year
|
|
$
|
28,787
|
|
|
$
|
4,480
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
178,500
|
|
|
$
|
-
|
|
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”), a 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.
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 was not changed.
The Company’s financial statements reflect the stock split on a retroactive
basis.
The
results of operations and cash flows for the three month period ended March 31,
2009 included within the nine month period ended September 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:
|
|
|
Nine
Months
Ended
September
30, 2009
|
|
|
Total
revenues
|
|
$
|
40,469
|
|
|
Net
loss
|
|
|
(700,728
|
)
|
|
Net
loss per share—Basic
|
|
|
(0.02
|
)
|
|
Net
loss per share—Diluted
|
|
|
(0.02
|
)
|
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
September 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
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 September 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 sufficient to meet operating expenses.
The continuation of the Company as a going concern is dependent upon 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 interest in the Glass 59 #2 well
in Sterling County, Texas that is operated by Bright & Company. During the
nine months ended September 30, 2010, the Company made payments totaling $24,891
for drilling and completion costs.
In June
2010, the Company acquired the Davis-Cornell oil and gas lease for
$28,900. 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 unproven reserves, and the sellers retained a
25% undivided working interest.
During
the nine months ended September 30, 2010, the Company incurred additional
development costs on its Ali-O, Rozella Kifer and Zavadil oil and gas properties
totaling $15,152.
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. During the three months
ended September 30, 2010, the Company paid $15,000 to the shareholder under the
agreement which 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.
During the three months ended June 30, 2010, the proceeds of $92,568 were
recognized as a gain on sale of assets. During the three months ended September
30, 2010, management re-assessed its initial accounting for the gain of $92,558
recognized in the three months ended June 30, 2010 and determined that a gain of
$68,902 was the gain on sale of assets. Management evaluated the impact of
recording the adjustment to the gain during the three months ended September 30,
2010 as opposed to the three months ended June 30, 2010 and concluded that it
did not have a material impact on the financial statements.
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. During the three months ended June 30, 2010, the
proceeds of $140,752 were recognized as a gain on sale of assets. During the
three months ended September 30, 2010, management re-assessed its initial
accounting for the gain of $140,752 recognized in the three months ended June
30, 2010 and determined that a gain of $104,104 was the gain on sale of assets.
Management evaluated the impact of recording the adjustment to the gain during
the three months ended September 30, 2010 as opposed to the three months ended
June 30, 2010 and concluded that it did not have a material impact on the
financial statements.
In July
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
$123,228. The “deep rights” sold are unevaluated oil and gas
properties. The Company retained its existing working interests in the Austin
Chalk producing formation. During the three months ended September 30, 2010, the
Company recognized a gain of $94,381 on sale of assets.
In
September 2010, the Company sold its 51.5% working and revenue interest and the
support equipment on the Ali-O No. 1 well in Gonzales County, Texas to Lucas
Energy, Inc. for cash proceeds of $52,500 and forgiveness of payables in the
amount of $10,327. The proceeds associated with the support equipment and
forgiveness of payable totaling $42,877 was recorded as a gain on sale of
assets. The proceeds associated with working and revenue interest totaling
$19,950 were accounted for as a reduction of capitalized costs, with no gain or
loss recognized.
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 nine months ended
September 30, 2010, the Company has made payment reductions totaling $77,500.
During the nine months ended September 30, 2010, the Company issued 7,350,000
shares of common stock with a fair value of $309,600 based on the quoted market
value on the grant date. As of September 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 was payable at maturity on June 30, 2010. The
Company used the proceeds for working capital. 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 was payable at maturity on June 30,
2010. The Company used the proceeds for working capital. 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 November 30, 2010. The Company
used the proceeds for working capital. The outstanding balance of $40,000 has
been classified as current debt at September 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 November 30, 2010. The Company
used the proceeds for working capital. The outstanding balance of $40,000
has been classified as current debt at September 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
used the proceeds for working capital. The outstanding balance of $40,000
has been classified as current debt at September 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 nine months ended
September 30, 2010, the Company received no cash advances. As of September 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 09/30/10
|
|
|
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
|
|
3.25
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 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 consulting 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, for the nine months ended September 30, 2010, 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 $120,000 in cash and 600,000 shares in common stock with
an initial payment of $15,000 and issue 100,000 shares of common stock to be
paid upon execution of the agreement. As of September 30, 2010, the
Company has paid a total of $45,000 cash and issued 300,000 shares of the
Company’s common stock valued at $6,600, based on the fair market value using
quoted market prices on the date of grant. During the three months ended
September 30, 2010, the Company terminated the agreement.
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 September 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. This action is in its very early
stages and as of this date the Company has not been served with the Summons and
Complaint and has therefore not filed any Answer to the Complaint. 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.
NOTE
11 – SUBSEQUENT EVENTS
In
accordance with ASC 855, the Company evaluated subsequent events through the
date these financial statements were available to be issued. With the exception
of those matters discussed below, there were no material subsequent events that
required recognition or additional disclosure in these financial
statements.
On
October 25, 2010, an unrelated third party advanced $63,000 to the Company under
the terms of a convertible promissory note. The convertible
promissory note bears interest at 10% per annum and matures July 27, 2011, at
which date the $63,000 and any accrued interest is payable. The
convertible promissory note has a conversion price equal to 60% of the quoted
market price for the Company’s common stock using the average of the lowest
three (3) trading prices for the Company’s common stock during the ten (10)
trading days prior to the conversion date. The Company is required at all times
to have authorized and reserved three times the number of shares that are
actually issuable upon full conversion of the convertible promissory note. So
long as the Company is not in default, the lender cannot exercise its conversion
right for 180 days following the issuance date of the convertible promissory
note. The Company has the right to prepay the convertible promissory note under
certain specified terms and conditions. The terms and conditions to prepay the
convertible promissory note are as follows: (i) the Company has not
received a notice of conversion from the lender; (ii) from the date of issuance
of the convertible promissory note up to one hundred twenty (120) days following
the issuance date, the Company has the right, after giving the lender three days
prior written notice, to prepay the outstanding principal and accrued interest,
in full, in cash equal to 140% of the sum of the outstanding principal plus
accrued and unpaid interest; (iii) from one hundred twenty one (121)
days following the issuance date up to one hundred eighty (180) days following
the issuance date, the Company has the right, after giving the lender three days
prior written notice, to prepay the outstanding principal and accrued interest,
in full, in cash equal to 150% of the sum of the outstanding principal amount
plus accrued and unpaid interest; (iv) after one hundred eighty (180) days
following issuance date, the Company does not have right of prepayment. The
Company’s management is currently assessing the terms of the convertible
promissory to determine if its terms include any embedded derivatives that will
need to be accounted for separately.
On October 21, 2010, the Board of
Directors of the Company unanimously adopted the following resolutions:
(1) to seek shareholder approval to an amendment to the Company's
Articles of Incorporation to increase the Company's authorized capital to
310,000,000 shares comprising 300,000,000 shares of Common Stock par value $.001
per share and 10,000,000 shares of Preferred Stock par value $0.001 per share;
and (2) to seek shareholder approval to amend the
Company's Articles of Incorporation to effect a reverse stock split of the
Company's Common Stock. None of the aforementioned resolutions have become
effective as of the date of this report
.
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 undeveloped and 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 or are producing oil from the following unproven and
proven developed and undeveloped wells: our working interests in, 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.
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 intend
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.
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.
Developments
in Expansion of Wells
On March
31, 2010, the Company secured a 2.75% working interest in the Glass 59 #2 well
in Sterling County, Texas that is operated by Bright & Company. During the
nine months ended September 30, 2010, the Company made payments totaling $24,891
for drilling and completion costs.
In June
2010, the Company acquired the Davis-Cornell oil and gas lease for
$28,900. 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 unproven reserves, and the sellers retained a
25% undivided working interest.
During
the nine months ended September 30, 2010, the Company incurred additional
development costs on its Ali-O, Rozella Kifer and Zavadil oil and gas properties
totaling $15,152.
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. During the three months
ended September 30, 2010, the Company paid $15,000 to the shareholder under the
agreement which 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.
During the three months ended June 30, 2010, the proceeds of $92,568 were
recognized as a gain on sale of assets. During the three months ended September
30, 2010, management re-assessed its initial accounting for the gain of $92,558
recognized in the three months ended June 30, 2010 and determined that a gain of
$68,902 was the gain on sale of assets. Management evaluated the impact of
recording the adjustment to the gain during the three months ended September 30,
2010 as opposed to the three months ended June 30, 2010 and concluded that it
did not have a material impact on the financial statements.
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. During the three months ended June 30, 2010, the
proceeds of $140,752 were recognized as a gain on sale of assets. During the
three months ended September 30, 2010, management re-assessed its initial
accounting for the gain of $140,752 recognized in the three months ended June
30, 2010 and determined that a gain of $104,104 was the gain on sale of assets.
Management evaluated the impact of recording the adjustment to the gain during
the three months ended September 30, 2010 as opposed to the three months ended
June 30, 2010 and concluded that it did not have a material impact on the
financial statements.
In July
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
$123,228. The “deep rights” sold are unevaluated oil and gas
properties. The Company retained its existing working interests in the Austin
Chalk producing formation. During the three months ended September 30, 2010, the
Company recognized a gain of $94,381 on sale of assets.
In
September 2010, the Company sold its 51.5% working and revenue interest and the
support equipment on the Ali-O No. 1 well in Gonzales County, Texas to Lucas
Energy, Inc. for cash proceeds of $52,500 and forgiveness of payables in the
amount of $10,327. The proceeds associated with the support equipment and
forgiveness of payable totaling $42,877 was recorded as a gain on sale of
assets. The proceeds associated with working and revenue interest totaling
$19,950 were accounted for as a reduction of capitalized costs, with no gain or
loss recognized.
Results
of Operations for the Three Months Ended September 30, 2010 and
2009
Revenues
.
Our total revenue reported for the three months ended September 30, 2010 was
$12,650 compared to $5,862 in the comparable period for the prior year. The
increase was primarily due to increased pricing and production from our wells
and the addition of new wells.
Lease Operating
Expenses.
The lease operating expenses for the three months
ended September 30, 2010 were $10,420, compared to $8,890 in the comparable
period of the prior year.
Depreciation,
Depletion, Amortization and Impairment.
Depreciation,
depletion, amortization and impairment for the three months ended September 30,
2010 was $934 compared to $452 in the comparable period the prior
year.
General and
Administrative Expense.
General and administrative expense for
the three months ended September 30, 2010 decreased to $116,291 from $173,426
for the comparable quarter in 2009, a decrease of $57,135. 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
Assets.
During the three months ended September 30, 2010, the
sale by the Company of certain oil and gas properties netted the Company an
aggregate of $76,944 (see Developments in Expansion of Wells,
above).
Other Income
(Expenses)
. We recorded interest expense of $3,054 for the three months
ended September 30, 2010 compared to $6,031 in the comparable quarter the prior
year.
Results
of Operations for the Nine Months Ended September 30, 2010 and 2009
Revenues
.
Our total revenue reported for the nine months ended September 30, 2010 was
$48,043 compared to $25,005 in the comparable period for the prior year. The
increase was primarily due to increased pricing and production from our wells
and the addition of new wells.
Lease Operating
Expenses.
The lease operating expenses for the nine months
ended September 30, 2010 were $36,516, compared to $51,463 in the comparable
period of the prior year.
Depreciation,
Depletion, Amortization and Impairment.
Depreciation,
depletion, amortization and impairment for the nine months ended September 30,
2010 was $5,451, compared to $2,317 in the comparable period the prior
year.
General and
Administrative Expense.
General and administrative expense for
the nine months ended September 30, 2010 was $997,605 compared to $605,531 for
the comparable period in 2009. The increase in general and
administrative expense was largely attributable to the recognition of stock
compensation expense in the current year period.
Gain on Sale of
Oil and Gas Properties.
During the nine months ended September
30, 2010, the sale by the Company of certain oil and gas properties netted the
Company an aggregate of $310,264 (see Developments in Expansion of Wells,
above).
Other Income
(Expenses)
. We recorded interest expense of $7,597 for the nine months
ended September 30, 2010 compared to $34,331 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
September 30, 2010, we had total current assets of $28,787. Our total current
liabilities as of September 30, 2010 were $776,950. Thus, we had a
working capital deficit of $748,163 as of September 30, 2010.
Operating
activities used $379,163 in cash for the nine months ended September 30, 2010.
Our net loss of $933,740 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
$340,105 during the nine months ended September 30, 2010 compared to $0 in the
comparable nine months of the prior year related to proceeds from the sale of
assets slightly offset by the acquisition of oil and gas interests. Cash flows
provided by financing activities during the quarter ended September 30, 2010 was
$7,500 consisting of proceeds from notes payable of $120,000, less repayments of
$97,500 and a return of capital of $15,000.
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 sufficient to meet our operating
expenses. Our continuation as a going concern is dependent upon our
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
September 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 September 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 September 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 September 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.
Changes
in Internal Control Over Financial Reporting
There
were no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal controls over financial
reporting that occurred during the third quarter of fiscal 2010 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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.
Item
1A: Risk Factors
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
None.
Item
3. Defaults upon Senior Securities
None
Item
4. (Removed and Reserved)
None
Item
5. Other Information
On
October 25, 2010, an unrelated third party advanced $63,000 to the Company under
the terms of a convertible promissory note. The convertible
promissory note bears interest at 10% per annum and matures July 27, 2011, at
which date the $63,000 and any accrued interest is payable. The
convertible promissory note has a conversion price equal to 60% of the quoted
market price for the Company’s common stock using the average of the lowest
three (3) trading prices for the Company’s common stock during the ten (10)
trading days prior to the conversion date. The Company is required at all times
to have authorized and reserved three times the number of shares that are
actually issuable upon full conversion of the convertible promissory note. So
long as the Company is not in default, the lender cannot exercise its conversion
right for 180 days following the issuance date of the convertible promissory
note. The Company has the right to prepay the convertible promissory note under
certain specified terms and conditions. The terms and conditions to prepay the
convertible promissory note are as follows: (i) the Company has not
received a notice of conversion from the lender; (ii) from the date of issuance
of the convertible promissory note up to one hundred twenty (120) days following
the issuance date, the Company has the right, after giving the lender three days
prior written notice, to prepay the outstanding principal and accrued interest,
in full, in cash equal to 140% of the sum of the outstanding principal plus
accrued and unpaid interest; (iii) from one hundred twenty one (121)
days following the issuance date up to one hundred eighty (180) days following
the issuance date, the Company has the right, after giving the lender three days
prior written notice, to prepay the outstanding principal and accrued interest,
in full, in cash equal to 150% of the sum of the outstanding principal amount
plus accrued and unpaid interest; (iv) after one hundred eighty (180) days
following issuance date, the Company does not have right of prepayment. The
Company’s management is currently assessing the terms of the convertible
promissory to determine if its terms include any embedded derivatives that will
need to be accounted for separately.
On October 21, 2010, the Board of
Directors of the Company unanimously adopted the following resolutions:
(1) to seek shareholder approval to an amendment to the Company's
Articles of Incorporation to increase the Company's authorized capital to
310,000,000 shares comprising 300,000,000 shares of Common Stock par value $.001
per share and 10,000,000 shares of Preferred Stock par value $0.001 per share;
and (2) to seek shareholder approval to amend the
Company's Articles of Incorporation to effect a reverse stock split of the
Company's Common Stock. None of the aforementioned resolutions have become
effective as of the date of this report
.
Item
6. Exhibits
|
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:
|
November
15, 2010
|
|
|
|
|
|
By:
|
/s/ Arthur Bertagnolli
|
|
|
|
|
Arthur
Bertagnolli
|
|
|
Title:
|
Chief
Executive Officer and Chief Financial
Officer
|
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