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- Quarterly Report (10-Q)

Date : 11/14/2011 @ 3:39PM
Source : Edgar (US Regulatory)
Stock : Savoy Energy Corp. (PN) (SNVP)
Quote : 0.0006  0.0 (0.00%) @ 4:30PM

- Quarterly Report (10-Q)

 

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, 2011
   
¨ 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.)

 

2100 West Loop South, Ste. 900

Houston, Texas  77027

 (Address of principal executive offices)

 

(713) 243-8788

(Issuer’s telephone number)

 

11200 Westheimer, Suite 900

Houston, TX  77042

(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: 102,015,385 common shares as of August 9, 2011.

 

 

 

 

 

 

 

 
 

 

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION
     
Item 1: Financial Statements F-1
     
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 2
     
Item 3: Quantitative and Qualitative Disclosures About Market Risk 9
     
Item 4: Controls and Procedures 9
     
PART II – OTHER INFORMATION
     
Item 1: Legal Proceedings 10
     
Item 1A: Risk Factors 11
     
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 11
     
Item 3: Defaults Upon Senior Securities 12
     
Item 4: (Removed and Reserved) 12
     
Item 5: Other Information 12
     
Item 6: Exhibits 12

 

 

1

 

 

 

 
 

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.        Financial Statements

 

Consolidated Balance Sheets (Unaudited) as of June 30, 2011 and December 31, 2010; F-2
   
Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2011 and 2010; F-3
   
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2011 and 2010; F-4
   
Notes to Consolidated Financial Statements (Unaudited). F-5

 

 

F-1

 

 

 

 
 

 

 

 

SAVOY ENERGY CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

    June 30,     December 31,  
    2011     2010  
ASSETS            
CURRENT ASSETS            
Cash and cash equivalents   $ 668     $ 9,170  
Total current assets     668       9,170  
                 
OIL AND GAS PROPERTIES, FULL COST METHOD                
Properties subject to amortization     677,678       718,630  
Accumulated depletion, depreciation, amortization and impairment     (650,349 )     (653,576 )
Oil and gas properties, net     27,329       65,054  
                 
TOTAL ASSETS   $ 27,997     $ 74,224  
                 
LIABILITIES AND SHAREHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES                
Accounts payable and accrued liabilities   $ 209,906     $ 198,004  
Advances from unrelated parties     154,003       151,003  
Advances from related parties     10,900       -  
Accrued interest payable     43,899       36,774  
Notes payable (net of debt discount of $1,004 and $0, respectively)     453,258       518,000  
Total current liabilities     871,966       903,781  
                 
LONG-TERM LIABILITIES                
Asset retirement obligations     -       8,555  
                 
TOTAL LIABILITIES     871,966       912,336  
                 
STOCKHOLDERS’ DEFICIT                
Common stock, $.001 par value; 300,000,000 shares authorized, 88,543,163 and 63,646,000 shares issued and outstanding, respectively.     88,543       63,646  
Additional paid-in capital     1,919,402       1,797,657  
Accumulated deficit     (2,851,914 )     (2,699,415 )
Total stockholders’ deficit     (843,969 )     (838,112 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT   $ 27,997     $ 74,224  

 

See notes to consolidated financial statements

 

 

F-2

 

 

 

 
 

 

 

 

SAVOY ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
REVENUE                        
Oil and gas revenues   $  2,239     $  16,637     $  5,755     $  35,393  
                                 
Total revenues     2,239       16,637       5,755       35,393  
                                 
COSTS AND EXPENSES                                
Lease operating expenses     1,803       13,165       4,838       26,096  
                                 
General and administrative expense     96,023       231,072       192,545       881,314  
Depletion, depreciation, amortization and impairment expense     -       1,226       65       4,517  
                                 
Accretion expense     8       926       108       1,852  
                                 
Gain on sale of working interest     (40,000 )     (233,320 )     (136,827 )     (233,320 )
                                 
Total costs and expenses     57,834       13,069       60,729       680,459  
                                 
Net operating income (loss)     (55,595 )     3,568       (54,974 )     (645,066 )
                                 
OTHER INCOME (EXPENSE)                                
                                 
Interest expense     (4,888 )     (2,913 )     (45,629 )     (4,543 )
                                 
Loss on settlement of debt     (39,896 )     (35,000 )     (51,896 )     (242,100 )
                                 
Total other income (expenses)     (44,784 )     (37,913 )     (97,525 )     (246,643 )
                                 
Net loss   $  (100,379 )   $  (34,345 )   $  (152,499 )   $  (891,709 )
                                 
                                 
Basic and diluted net loss per share   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.02 )
                                 
Weighted average common shares outstanding—basic and diluted     77,429,981       57,435,011       71,908,664       48,387,160  

 

See notes to consolidated financial statements

 

 

F-3

 

 

 

 
 

 

 

 

SAVOY ENERGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Six Months Ended  
    June 30,  
    2011     2010  
Cash flows from operating activities:            
Net loss   $ (152,499 )   $ (891,709 )
                 
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depletion, depreciation, amortization and impairment     65       4,517  
Accretion expense     (1,957 )     1,852  
Stock based compensation     1,500       616,224  
Loss on settlement of debt     51,896       242,100  
Gain on sale of oil and gas properties     (94,762 )     (233,320 )
Amortization of debt discount     37,004       -  
Changes in assets and liabilities:                
Accounts receivable     -       1,314  
Accounts payable and accrued liabilities     2,909       (12,162 )
Advances from unrelated parties     3,000       -  
Advances from related parties     10,900       -  
Net cash provided by (used in) operating activities     (141,944 )     (271,184 )
                 
Cash flows from investing activities:                
Proceeds from sale of oil and gas properties     142,100       233,320  
Capital expenditures for development of oil and gas properties     (158 )     -  
Purchase of oil and gas properties     -       (59,229 )
Net cash used in investment activities     141,942       174,091  
                 
Cash flows from financing activities:                
Proceeds from issuance of debt     31,500       120,000  
Return of capital     (20,000 )     -  
Repayment of long-term debt     (20,000 )     (10,000 )
Net cash provided by (used in) financing activities     (8,500 )     110,000  
                 
Net increase in cash and cash equivalents     (8,502 )     12,907  
Cash and cash equivalents, at beginning of year     9,170       60,345  
Cash and cash equivalents, at end of year   $ 668     $ 73,252  
                 
Supplemental cash flow information:                
Cash paid for interest   $ -     $ -  
Cash paid for income tax   $ -     $ -  
Non cash investing and financing activities:                
Beneficial conversion feature   $ 38,258     $ -  
Return of capital   $ 20,000     $ 52,800  
Common stock issued for debt   $ 24,897     $ 67,500  
Common stock issued for accrued expenses   $ -     $ 177,226  

 

See notes to consolidated financial statements

 

 

F-4

 

 

 

 
 

 

 

 

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, 2010.  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 2010 as reported in Form 10-K have been omitted.

 

NOTE 2 - 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, 2011, 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.

 

 

F-5

 

 

 

 
 

 

 

 

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.

 

 

F-6

 

 

 

 
 

 

 

 

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 3 - 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, 2011, 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 4 – OIL AND GAS PROPERTIES

 

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 period ended June 30, 2011, the Company paid $20,000 to the shareholder under the agreement which was recorded as a return of capital to the shareholder.

 

In February 2011, the Company sold its 52.5% working and revenue interest and the support equipment on the Zavadil No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $65,000 and forgiveness of payables in the amount of approximately $25,000.  The proceeds associated with the support equipment and forgiveness of payable totaling approximately $79,000 were recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling approximately $11,000 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

 

F-7

 

 

 

 
 

 

 

 

In March 2011, the Company sold a 25,75% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of approximately $37,000.  The proceeds associated with the support equipment totaling approximately $14,000 were recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling approximately $23,000 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

In April 2011, the Company sold a 12.875% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $18,550.  The proceeds associated with the support equipment totaling $6,905 and were recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling $11,646 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

In May 2011, the Company sold its remaining 12.875% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $18,550.  The proceeds associated with the support equipment totaling $6,905 and were recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling $11,646 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

NOTE 5 – 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, 2011, the Company made no payment reductions.  As of June 30, 2011, the outstanding balance of advances from OIL was $282,500.

 

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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matures April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.  On April 14, 2011, the holder converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.  On May 20, 2011, the holder converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.  On June 2, 2011, the holder converted $4,954 face amount of the note into 3,642,700 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $11,545 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $6,228.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

 

F-8

 

 

 

 
 

 

 

 

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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matures April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.  On May 20, 2011, the holder converted $7,500 face amount of the note into 3,000,000 shares of the Company’s common stock.  On June 2, 2011, the holder converted $4,080 face amount of the note into 3,000,000 shares of the Company’s common stock.  On June 3, 2011, the holder converted $3,636 face amount of the note into 2,100,000 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $25,684 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $16,284.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matured April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant and the Company recorded a realized loss of $4,000 on settlement of debt.  The outstanding balance of the convertible promissory note at June 30, 2011 was $30,000.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

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 the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 39,375,000).  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 evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  Subsequent to year-end, the Company sold its working interest in the Zavadil well and 50% of its working interest in the Rozella Kiefer well.  This constituted a significant sale of assets and as such rendered the note in default.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.  On April 28, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $6,000 face amount of the note into 3,333,333 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $10,667 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $57,000.

 

 

F-9

 

 

 

 
 

 

 

 

On December 21, 2010, an unrelated third party advanced $32,500 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 10% per annum and matures September 23, 2011, at which date the $32,500 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 17,324,094).  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.  At December 31, 2010, assuming no adjustment to the conversion price, if the lender converted the entire principal balance of the convertible promissory note using the greater of the fixed or variable conversion price at December 31, 2010, after taking into consideration the aforementioned limitation on the amount of the convertible promissory note that can be converted, then they would have received approximately 2,723,540 shares of the Company’s common stock.  The Company evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  Subsequent to year-end, the Company sold its working interest in the Zavadil well and 50% of its working interest in the Rozella Kiefer well.  This constituted a significant sale of assets and as such rendered the note in default.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.

 

On March 7, 2011, an unrelated third party advanced $30,000 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 8% per annum and matures on December 9, 2011, at which time the $30,000 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 28,009,461).  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.  This constituted a significant sale of assets and as such rendered the note in default.  Subsequent to entering into the convertible promissory note agreement, the Company sold 50% of its working interest in the Rozella Kiefer well.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.  The Company evaluated the terms of the note and concluded that the note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $2,258 at inception based on the intrinsic value of the discount.  For the period ended June 30, 2011, $1,004 was charged to interest expense associated with the amortization of the debt discount.

 

 

F-10

 

 

 

 
 

 

 

 

On June 22, 2011, an unrelated third party advanced $11,000 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 8% per annum and matures on March 26, 2012, at which time the $11,000 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 50% 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 28,009,461).  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.  This constituted a significant sale of assets and as such rendered the note in default.  The Company evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  As of June 30, 2011, the related proceeds had not been received.

 

Also, on June 22, 2011, the Company agreed to amend its prior notes dated October 25, 2010 (in the original face amount of $63,000), December 21, 2010 (in the original face amount of $32,500), and March 7, 2011 (in the original face amount of $30,000) to amend the conversion price to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 50% 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 evaluated the modification and concluded that the modification was not an extinguishment of the original debt; as a result, no gain or loss was recognized upon modification and there was not a significant difference between the carrying value of the debt prior to modification and the fair value of the debt after modification.

 

On April 10, 2011, the two promissory notes dated March 22, 2011, each in the original face amount of $40,000, and the promissory note dated April 21, 2010 in the original face amount of $40,000 went into default as a result of the Company’s non-payment.

 

NOTE 6 – 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.  As of June 30, 2011, $10,900 was outstanding to related parties.

 

 

F-11

 

 

 

 
 

 

 

 

NOTE 7 – STOCK OPTIONS AND WARRANTS

 

Summary information regarding stock option activity is as follows:

 

   

Number of

Shares

   

Weighted

Average

Exercise Price

 
Outstanding at 12/31/10     8,000,000     $ 1.00  
Granted     -       -  
Exercised     -       -  
Cancelled/Expired     -       -  
Outstanding at 06/30/11     8,000,000     $ 1.00  

 

Options outstanding and their relative exercise price at June 30, 2011 are as follows:

 

Exercise Price     Number of Shares  

Remaining

Life

 

Aggregate Intrinsic

Value (In-the-Money)

Options

 
1.00       8,000,000   2.5 years   $ -  
          8,000,000       $ -  
                       

 

NOTE 8 - COMMON STOCK

 

On January 12, 2011, the holder of a promissory note in the original face amount of $40,000 elected to convert $10,000 of the face amount to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.

 

On January 12, 2011, the holder of two promissory notes, each in the original face amount of $40,000, elected to convert an aggregate of $20,000 to 2,000,000 shares of common stock valued at $28,000, based on fair market value using quoted market prices on the date of grant.

 

On February 2, 2011, the Company issued 100,000 common shares valued at $1,500, based on fair market value using quoted market prices on the date of grant for consulting services rendered.

 

On April 14, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.

 

On April 28, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $6,000 face amount of the note into 3,333,333 shares of the Company’s common stock.

 

On May 20, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $7,500 face amount of the note into 3,000,000 shares of the Company’s common stock.

 

On May 20, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.

 

On June 2, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $4,080 face amount of the note into 3,000,000 shares of the Company’s common stock.

 

On June 2, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $4,954 face amount of the note into 3,642,700 shares of the Company’s common stock.

 

On June 3, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $3,636 face amount of the note into 2,100,000 shares of the Company’s common stock.

 

The Company recorded a realized loss of $51,896 on settlement of debt for the six months ended June 30, 2011.

 

 

F-12

 

 

 

 
 

 

 

 

NOTE 9 – 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 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).  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.

 

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, 2011, 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 10 – 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 July 1, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $7,000 face amount of the note into 3,500,000 shares of the Company’s common stock.

 

On July 22, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,000 face amount of the note into 2,222,222 shares of the Company’s common stock.

 

On July 27, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,500 face amount of the note into 3,750,000 shares of the Company’s common stock.

 

On July 27, 2011, the promissory note originally dated October 25, 2010 in the original face amount of $63,000 went into default as a result of the Company’s non-payment.

 

On August 3, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,000 face amount of the note into 4,000,000 shares of the Company’s common stock.

 

 

F-13

 

 

 

 
 

 

 

 

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 were incorporated as “Arthur Kaplan Cosmetics, Inc.” on June 25, 2007, in the State of Nevada.  We subsequently changed our name to Savoy Energy Corporation.

 

On June 30, 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.

 

Our Business

 

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: (a) a 49.25% undivided interest in certain lease acreage comprising 144 acres which was previously producing located in Gonzales County, Texas, (b) a 5.0% overriding royalty interest in W.L. Barnett ET AL #1 & #2 and (c) a 2.75% working interest in the Glass 59 #2 well.  We will continue our workover efforts on these wells, and seek to duplicate our successful efforts with other wells.

 

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.

 

 

2

 

 

 

 
 

 

 

 

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.

 

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.

 

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 previously-producing reserves, 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 (which as of the date of this report have not been issued), 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 six months ended June 30, 2011, the Company paid $20,000 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.

 

 

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In February 2011, the Company sold its 52.5% working and revenue interest and the support equipment on the Zavadil No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $65,000 and forgiveness of payables in the amount of $25,080.  The proceeds associated with the support equipment and forgiveness of payable totaling $79,219 was recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling $10,861 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

In March 2011, the Company sold a 25.75% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $37,100.  The proceeds associated with the support equipment totaling $13,809 was recorded as a gain on sale of assets.  The proceeds associated with working and revenue interest totaling $23,291 were accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

In April 2011, the Company sold a 12.875% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $18,550.  The proceeds associated with the support equipment totaling $6,905 and will be recorded as a gain on sale of assets. The proceeds associated with working and revenue interest totaling $11,646 will be accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

In May 2011, the Company sold its remaining 12.875% working and revenue interest and the support equipment on the Rozella Kifer No. 1 well in Gonzales County, Texas to Lucas Energy, Inc. for cash proceeds of $18,550.  The proceeds associated with the support equipment totaling $6,905 and will be recorded as a gain on sale of assets. The proceeds associated with working and revenue interest totaling $11,646 will be accounted for as a reduction of capitalized costs, with no gain or loss recognized.

 

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, 2011, the Company made no payment reductions.  As of June 30, 2011, the outstanding balance of advances from OIL was $282,500.

 

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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matures April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.  On April 14, 2011, the holder converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.  On May 20, 2011, the holder converted $9,409 face amount of the note into 3,360,565 shares of the Company’s common stock.  On June 2, 2011, the holder converted $4,954 face amount of the note into 3,642,700 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $11,545 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $6,228.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

 

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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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matures April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.  On May 20, 2011, the holder converted $7,500 face amount of the note into 3,000,000 shares of the Company’s common stock.  On June 2, 2011, the holder converted $4,080 face amount of the note into 3,000,000 shares of the Company’s common stock.  On June 3, 2011, the holder converted $3,636 face amount of the note into 2,100,000 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $25,684 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $16,284.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

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.  On January 12, 2011, the Company amended this note to create a conversion feature and increased the face amount to $41,500.  The convertible promissory note bears interest at 5% per annum and matured April 10, 2011, at which date the $41,500 and any accrued interest is payable or convertible at a price of $0.01 per share.  On January 12, 2011, the holder elected to convert $10,000 to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant and the Company recorded a realized loss of $4,000 on settlement of debt.  The outstanding balance of the convertible promissory note at June 30, 2011 was $30,000.  The Company evaluated the terms of the amendment to the note and concluded that the amended note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the amended note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $12,000 based on the intrinsic value of the discount.  The discount was fully amortized as of June 30, 2011 due to the short-term nature of the note.  For the period ended June 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 

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 the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 39,375,000).  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 evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  Subsequent to year-end, the Company sold its working interest in the Zavadil well and 50% of its working interest in the Rozella Kiefer well.  This constituted a significant sale of assets and as such rendered the note in default.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.  On April 28, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $6,000 face amount of the note into 3,333,333 shares of the Company’s common stock.  For the six months ended June 30, 2011, the Company recorded a realized loss of $10,667 on settlement of debt.  The outstanding principal balance of the convertible promissory note at June 30, 2011 was $57,000.

 

 

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On December 21, 2010, an unrelated third party advanced $32,500 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 10% per annum and matures September 23, 2011, at which date the $32,500 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 17,324,094).  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.  At December 31, 2010, assuming no adjustment to the conversion price, if the lender converted the entire principal balance of the convertible promissory note using the greater of the fixed or variable conversion price at December 31, 2010, after taking into consideration the aforementioned limitation on the amount of the convertible promissory note that can be converted, then they would have received approximately 2,723,540 shares of the Company’s common stock.  The Company evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  Subsequent to year-end, the Company sold its working interest in the Zavadil well and 50% of its working interest in the Rozella Kiefer well.  This constituted a significant sale of assets and as such rendered the note in default.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.

 

 

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On March 7, 2011, an unrelated third party advanced $30,000 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 8% per annum and matures on December 9, 2011, at which time the $30,000 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 28,009,461).  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.  This constituted a significant sale of assets and as such rendered the note in default.  Subsequent to entering into the convertible promissory note agreement, the Company sold 50% of its working interest in the Rozella Kiefer well.  As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.  The Company evaluated the terms of the note and concluded that the note did not result in a derivative; however, the Company concluded that there was a beneficial conversion feature since the note was convertible into shares of common stock at a discount to the market value of the common stock.  The discount related to the beneficial conversion feature was valued at $2,258 at inception based on the intrinsic value of the discount.  For the period ended June 30, 2011, $1,004 was charged to interest expense associated with the amortization of the debt discount.

 

On June 22, 2011, an unrelated third party advanced $11,000 to the Company under the terms of a convertible promissory note.  The convertible promissory note bears interest at 8% per annum and matures on March 26, 2012, at which time the $11,000 and any accrued interest is payable.  The convertible promissory note has a conversion price equal to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 50% 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 amount of the convertible promissory note that can be converted at any time is limited to the number of authorized less the amount of issued and outstanding shares immediately prior to the conversion (limited to 28,009,461).  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.  This constituted a significant sale of assets and as such rendered the note in default.  The Company evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did not result in a derivative and that there was not a beneficial conversion feature.  As of June 30, 2011, the related proceeds had not been received.

 

Also, on June 22, 2011, the Company agreed to amend its prior notes dated October 25, 2010 (in the original face amount of $63,000), December 21, 2010 (in the original face amount of $32,500), and March 7, 2011 (in the original face amount of $30,000) to amend the conversion price to the greater of either (i) a fixed conversion price of $0.00009 or (ii) 50% 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 evaluated the modification and concluded that the modification was not an extinguishment of the original debt; as a result, no gain or loss was recognized upon modification and there was not a significant difference between the carrying value of the debt prior to modification and the fair value of the debt after modification.

 

On April 10, 2011, the two promissory notes dated March 22, 2011, each in the original face amount of $40,000, and the promissory note dated April 21, 2010 in the original face amount of $40,000 went into default as a result of the Company’s non-payment.

 

 

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Increase in Authorized Capital

 

On December 14, 2010 the Company filed an Amendment to its Articles of Incorporation increasing its 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 $.001 per share.

 

Results of Operations for the Three Months Ended June 30, 2011 and 2010

 

Revenues .   Our total revenue reported for the three months ended June 30, 2011 was $2,239 compared to $16,637 in the comparable period for the prior year.  The decrease was due to the sale of various of the Company’s interests.

 

Lease Operating Expenses.   The lease operating expenses for the three months ended June 30, 2011 were $1,803, compared to $13,165 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, 2011 was $0 compared to $1,226 in the comparable period the prior year.

 

General and Administrative Expenses.   General and administrative expenses for the three months ended June 30, 2011 were $96,023 compared to $231,072 for the same quarter in 2010.

 

Gain on Sale of Assets.   During the three months ended June 30, 2011, the sale by the Company of certain oil and gas properties netted the Company an aggregate of $40,000.

 

Other Income (Expenses) .   We recorded interest expense of $4,888 for the three months ended June 30, 2011 compared to $2,913 in the comparable quarter the prior year.  This increase was largely attributable to the cost of increased debt.

 

Results of Operations for the Six Months Ended June 30, 2011 and 2010

 

Revenues .   Our total revenue reported for the six months ended June 30, 2011 was $5,755 compared to $35,393 in the comparable period for the prior year.  The decrease was due to the sale of various of the Company’s interests.

 

Lease Operating Expenses.  The lease operating expenses for the six months ended June 30, 2011 were $4,838, compared to $26,096 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, 2011 was $65 compared to $4,517 in the comparable period the prior year.

 

General and Administrative Expenses.   General and administrative expenses for the six months ended June 30, 2011 were $192,545 compared to $881,314 for the same period in 2010.

 

Gain on Sale of Assets.   During the six months ended June 30, 2011, the sale by the Company of certain oil and gas properties netted the Company an aggregate of $136,827.

 

Other Income (Expenses) .   We recorded interest expense of $45,629 for the six months ended June 30, 2011 compared to $4,543 in the comparable period the prior year.  This increase was largely attributable to the cost of increased debt.

 

Liquidity and Capital Resources

 

As of June 30, 2011, we had total current assets of $668.  Our total current liabilities as of June 30, 2011 were $871,967.  Thus, we had a working capital deficit of $871,299 as of June 30, 2011.

 

 

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Operating activities used $141,944 in cash for the six months ended June 30, 2011 compared to $271,184 in the comparable six months of the prior year.  Cash flows provided by investing activities were $141,942 during the six months ended June 30, 2011 compared to $174,091 in the comparable six months of the prior year.  Cash flows provided by (used in) financing activities during the quarter ended June 30, 2011 were ($8,500) compared to $110,000 in the comparable period the prior year comprising primarily proceeds from the issuance of debt.

 

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 June 30, 2011, 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 4.     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, 2011.  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, 2011, 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, 2011.  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.

 

 

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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 second quarter of fiscal 2011 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:

 

 

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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

 

On January 12, 2011, the holder of a promissory note in the original face amount of $40,000 elected to convert $10,000 of the face amount to 1,000,000 shares of common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant and the Company recorded a realized loss of $4,000 on settlement of debt.

 

On January 12, 2011, the holder of two promissory notes, each in the original face amount of $40,000, elected to convert an aggregate of $20,000 to 2,000,000 shares of common stock valued at $28,000, based on fair market value using quoted market prices on the date of grant and the Company recorded a realized loss of $8,000 on settlement of debt.

 

On February 2, 2011, the Company issued 100,000 common shares valued at $1,500, based on fair market value using quoted market prices on the date of grant for consulting services rendered.

 

On April 14, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $9,409 face amount of the note into 3,360,565 shares of the company’s common stock.

 

On April 28, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $6,000 face amount of the note into 3,333,333 shares of the company’s common stock.

 

On May 20, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $7,500 face amount of the note into 3,000,000 shares of the company’s common stock.

 

On May 20, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $9,409 face amount of the note into 3,360,565 shares of the company’s common stock.

 

On June 2, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $4080 face amount of the note into 3,000,000 shares of the company’s common stock.

 

On June 2, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $4,954 face amount of the note into 3,642,700 shares of the company’s common stock.

 

On June 3, 2011, the holder of a promissory note dated March 22, 2010 in the original face amount of $40,000 converted $3,636 face amount of the note into 2,100,000 shares of the company’s common stock.

 

On July 1, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $7,000 face amount of the note into 3,500,000 shares of the company’s common stock.

 

On July 22, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,000 face amount of the note into 2,222,222 shares of the company’s common stock.

 

 

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On July 27, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,500 face amount of the note into 3,750,000 shares of the company’s common stock.

 

On August 3, 2011, the holder of a promissory note originally dated October 25, 2010 in the original face amount of $63,000 converted $4,000 face amount of the note into 4,000,000 shares of the company’s common stock.

 

None of the aforementioned transactions resulted in any cash proceeds to the Company.

 

Item 3.     Defaults upon Senior Securities

 

Subsequent to December 31, 2010, the Company sold its working interest in the Zavadil well and 50% of its working interest in the Rozella Kiefer well. This constituted a significant sale of assets and as such rendered its notes dated October 25, 2010 (in the original face amount of $63,000), December 21, 2010 (in the original face amount of $32,500) and March 7, 2011 (in the original face amount of $30,000) in default. As a result of the default, no demand for repayment has been made; however, the lender can exercise its conversion rights.

 

On April 10, 2011, the two promissory notes dated March 22, 2011, each in the original face amount of $40,000 and the promissory note dated April 21, 2010 in the original face amount of $40,000 went into default as a result of the Company’s non-payment.

 

On July 27, 2011, the promissory note originally dated October 25, 2010 in the original face amount of $63,000 went into default as a result of the Company’s non-payment.

 

Item 4.     (Removed and Reserved)

  

 

Item 5.     Other Information

  

None

   

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: August 19, 2011
   
  By: /s/ Arthur Bertagnolli  
    Arthur Bertagnolli
  Title: Chief Executive Officer and Chief Financial Officer

 

 

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