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- Quarterly Report (10-Q)

Date : 11/29/2011 @ 11:51AM
Source : Edgar (US Regulatory)
Stock : Savoy Energy Corp. (PN) (SNVP)
Quote : 0.0005  -0.0001 (-16.67%) @ 9:30AM

- 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 September 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: 001-34710
 
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)
 
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   x   No   ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
¨   Large accelerated filer Accelerated filer
¨   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: 109,383,796 common shares as of November 8, 2011, which number does not include 100,000,000 shares which the Company has agreed to issue to its Chief Executive Officer, Arthur Bertagnolli (as described in greater detail under “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” below) as the Company does not currently have sufficient authorized, but unissued shares to affect such issuance .
    
 
 

 
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
3
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
8
     
Item 4:
Controls and Procedures
8
     
PART II – OTHER INFORMATION
     
Item 1:
Legal Proceedings
10
     
Item 1A:
Risk Factors
10
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
10
     
Item 3:
Defaults Upon Senior Securities
11
     
Item 4:
(Removed and Reserved)
11
     
Item 5:
Other Information
11
     
Item 6:
Exhibits
12
 
 
 
 

 
PART I - FINANCIAL INFORMATION
 
Item 1.        Financial Statements


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

 
 
 
 
 
 
 
 
 
 
 
 
F-1

 

SAVOY ENERGY CORPORATION
 
CONSOLIDATED BALANCE SHEETS
 
             
   
September 30,
   
December 31,
 
   
2011
   
2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
 
CURRENT ASSETS
           
Cash and cash equivalents
  $ 636     $ 9,170  
   Total current assets
    636       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
  $ 27,965     $ 74,224  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 163,337     $ 198,004  
Advances from unrelated parties
    3,000       151,003  
Related party payable
    167,833       -  
Accrued interest payable
    47,943       36,774  
Notes payable (net of debt discount of $14,950 and $0, respectively)
    647,061       518,000  
Deferred revenue
    7,000       -  
Derivative liability
    7,900       -  
   Total current liabilities
    1,044,074       903,781  
                 
LONG-TERM LIABILITIES
               
Asset retirement obligations
    -       8,555  
TOTAL LIABILITIES
    1,044,074       912,336  
                 
STOCKHOLDERS’ DEFICIT
               
Common stock, $.001 par value; 300,000,000 shares authorized,
               
102,015,385 and 63,646,000 shares issued and outstanding, respectively.
    102,015       63,646  
Additional paid-in capital
    1,946,297       1,797,657  
Accumulated deficit
    (3,064,421 )     (2,699,415 )
    Total stockholders’ deficit
    (1,016,109 )     (838,112 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 27,965     $ 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 Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
REVENUE
                       
 Oil and gas revenues
  $ 3,948     $ 12,650     $ 9,703     $ 48,043  
  Total revenues
    3,948       12,650       9,703       48,043  
                                 
COSTS AND EXPENSES
                               
 Lease operating expenses
    364       10,420       5,202       36,516  
 General and administrative expenses
    198,476       116,291       391,020       997,605  
 Depletion, depreciation, amortization and impairment expense
    -       934       65       5,451  
 Accretion expense
    -       926       108       2,778  
 Gain on sale of working interest
    -       (76,944 )     (136,827 )     (310,264 )
    Total costs and expenses
    198,840       51,627       259,568       732,086  
    Net operating (loss)
    (194,892 )     (38,977 )     (249,865 )     (684,043 )
                                 
OTHER INCOME (EXPENSES)
                               
 Interest expense
    (4,848 )     (3,054 )     (50,477 )     (7,597 )
 Loss on settlement of debt
    (19,367 )     -       (71,263 )     (242,100 )
 Gain on fair value of derivative liability
    6,600       -       6,600       -  
    Total other (expenses)
    (17,615 )     (3,054 )     (115,140 )     (249,697 )
                                 
    Net loss
  $ (212,507 )   $ (42,031 )   $ (365,005 )   $ (933,740 )
                                 
                                 
Basic and diluted net loss per share
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.02 )
                                 
Weighted average common shares outstanding--basic and diluted
    99,953,588       59,696,000       122,161,573       52,198,198  
                                 
See notes to consolidated financial statements
 

 
F-3

 
SAVOY ENERGY CORPORATION
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For the Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net loss
  $ (365,005 )   $ (933,740 )
Adjustments to reconcile net loss to net
               
  cash used in operating activities:
               
Depletion, depreciation, amortization and impairment expense
    65       5,451  
Accretion expense
    108       2,778  
Stock-based compensation
    1,500       611,950  
Loss on settlement of debt
    71,263       242,100  
Gain on sale of working interest
    (136,827 )     (310,264 )
Amortization of debt discount
    39,308       -  
Gain on fair value of derivative liability
    (6,600 )     -  
Changes in assets and liabilities:
               
   Accounts receivable
    -       2,372  
   Accounts payable and accrued liabilities
    383       190  
   Advances from unrelated parties
    (148,003 )     -  
   Related party payable
    167,833       -  
   Deferred revenue
    7,000       -  
Net cash used in operating activities
    (368,975 )     (379,163 )
Cash flows from investing activities:
               
Proceeds from sale of oil and gas properties
    142,100       409,048  
Capital expenditures for development of oil and gas properties
    (158 )     (40,043 )
Purchase of oil and gas properties
    -       (28,900 )
Net cash provided by investment activities
    141,942       340,105  
Cash flows from financing activities:
               
Proceeds from issuance of debt
    258,499       120,000  
Return of capital
    (20,000 )     (15,000 )
Repayment of long-term debt
    (20,000 )     (97,500 )
Net cash provided by financing activities
    218,499       7,500  
Net decrease in cash and cash equivalents
    (8,534 )     (31,558 )
Cash and cash equivalents, at beginning of year
    9,170       60,345  
Cash and cash equivalents, at end of year
  $ 636     $ 28,787  
                 
Supplemental cash flow information:
               
Non cash investing and financing activities:
               
Beneficial conversion feature
  $ 39,758     $ -  
Return of capital
  $ 20,000     $ 52,800  
Common stock issued for debt
  $ 38,269     $ 67,500  
Common stock issued for accrued expenses
  $ -     $ 177,226  
Related party payable converted to debt
  $ 96,499     $ -  
Debt issued as consideration for services
  $ 105,000     $ -  
See notes to consolidated financial statements
 

 
F-4

 
SAVOY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 – ORGANIZATION OF BUSINESS AND BASIS OF PRESENTATION

Savoy Energy Corporation (the “Company” or “we”) was incorporated as “Arthur Kaplan Cosmetics, Inc.” on June 25, 2007, in the State of Nevada.

On March 31, 2009, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Plantation Exploration, Inc., a privately held Texas corporation (“Plantation Exploration”), and Plantation Exploration Acquisition, Inc. (“Acquisition Sub”), a newly formed wholly-owned Nevada subsidiary.  In connection with the closing of this merger transaction, Acquisition Sub merged with and into Plantation Exploration (the “Merger”) on April 2, 2009, with the filing of articles of merger with the Texas Secretary of State.  As a result of the Merger, Plantation Acquisition no longer exists and Plantation Exploration became our wholly-owned subsidiary.

On April 3, 2009, we merged with another wholly-owned subsidiary of our Company, known as Savoy Energy Corporation in a short-form merger transaction under Nevada law and, in connection with this short form merger, changed our name to Savoy Energy Corporation.

Effective June 2, 2009, the Company’s board of directors approved a forward split of the Company’s common stock on the basis of four shares for each share issued and outstanding (4:1 split).  The total number of authorized shares was not changed.  The Company’s financial statements reflect the stock split on a retroactive basis.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

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.

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 depletion, depreciation, amortization 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.

 
F-5

 
Fair Value of Financial Instruments

As at September 30, 2011, the fair value of cash and cash equivalents, accounts payable, accrued liabilities, advances, deferred revenue, and notes payable approximate carrying values because of the short-term maturity of these instruments.

Oil and Gas Properties

The Company follows the full cost method of accounting for its oil and natural gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized.  Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs.  Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to income.

Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves.  Such calculations include the estimated future costs to developed proved reserves.  Oil and gas reserves are converted to a common unit of measure based on the energy content of 6,000 cubic feet of gas to one barrel of oil.  Costs of undeveloped properties are not included in the costs subject to depletion.  These costs are assessed periodically for impairment.

The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made.  The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset.  For the Company, asset retirement obligations (“ARO”) relate to the plugging and abandonment of drilled oil and gas properties.  The amounts recognized are based upon numerous estimates including future retirement costs; future recoverable reserve quantities and reserve lives; and the credit-adjusted risk-free interest rate.

Ceiling test

In applying the full cost method, the Company performs an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the value of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties.

Oil and gas properties, not subject to amortization

The amortization of the oil and gas properties not classified as proved begins when the oil and gas properties become proved, or their values become impaired.  The Company assesses the realizability of its properties not characterized as proved on at least an annual basis or when there is or has been an indication that an impairment in value may have occurred.  The impairment of properties not classified as proved is assessed based on management’s intention with regard to future exploration and development of individually significant properties, and the Company’s ability to secure capital funding to finance such exploration and development.  If the result of an assessment indicates that a property is impaired, the amount of the impairment is added to the capitalized costs in its full cost pool and they are amortized over production from proved reserves.

Revenue Recognition

Revenues from the sale of oil and natural gas are recognized when the product is delivered at a fixed or determinable price, title has transferred, and collectability is reasonably assured and evidenced by a contract.  For oil sales, this occurs when the customer's truck takes delivery of oil from the operators’ storage tanks.

 
F-6

 
The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to its ownership in the property.  A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than its share of the expected remaining proved reserves.  

Costs associated with production are expensed in the period incurred.

Stock-Based Compensation

Stock-based compensation expense includes the estimated fair value of equity awards vested during the reporting period.  The expense for equity awards vested during the reporting period is determined based upon the grant date fair value of the award and is recognized as expense over the applicable vesting period of the stock award using the straight-line method.

Deferred Taxes

Deferred taxes are provided on the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and accrued tax liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Earnings per Share of Common Stock

Basic net income per share calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period.  Diluted net income per share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding.  During the reporting period when they are anti-dilutive, common share equivalents, if any, are not considered in the computation.

Recent Accounting Pronouncements

The Company does not expect recent accounting standards or interpretations issued or recently adopted to have a material impact on the Company’s consolidated financial position, operations, or cash flows.  From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or the other standard setting bodies that may have an impact on the Company’s accounting and reporting.  The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

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.

 
F-7

 
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 September 30, 2011, the Company’s current liabilities exceed its current assets by $1,043,438 and its total liabilities exceed its total assets by $1,016,109. Additionally, 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 nine-month period ended September 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 52.500% 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 was recorded as a gain on sale of working interest.  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.

In March 2011, the Company sold a 25.750% 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 working interest.  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 $20,000.  The full amount was recorded as a gain on sale of working interest.

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 $20,000.  The full amount was recorded as a gain on sale of working interest.

 
F-8

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

On March 22, 2010, the Company borrowed $40,000 from a non-related third party bearing interest at 5% per annum.  The loan is unsecured and the principal and accrued and unpaid interest was 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 matured on 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.
 
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 September 30, 2011 due to the short-term nature of the note.  For the period ended September 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

On January 12, 2011, the holder converted $10,000 face amount of the note into 1,000,000 shares of the Company’s 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 valued at $6,600, based on fair market value using quoted market prices on the date of grant.

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 valued at $11,400, based on fair market value using quoted market prices on the date of grant.

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 valued at $18,900, based on fair market value using quoted market prices on the date of grant.

For the nine months ended September 30, 2011, the Company recorded a net realized loss of $25,684 on settlement of debt.

The outstanding principal balance of the convertible promissory note at September 30, 2011 was $16,284.

On March 22, 2010, the Company borrowed $40,000 from a non-related third party bearing interest at 5% per annum.  The loan is unsecured and the principal and accrued and unpaid interest was 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.  The convertible promissory note bears interest at 5% per annum and matured on April 10, 2011, at which date the $40,000 and any accrued interest was payable or convertible at a price of $0.01 per share.

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 September 30, 2011 due to the short-term nature of the note.  For the period ended September 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

 
F-9

 
On January 12, 2011, the holder converted $10,000 face amount of the note into 1,000,000 shares of the Company’s 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 valued at $10,082, based on fair market value using quoted market prices on the date of grant.

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 valued at $7,393, based on fair market value using quoted market prices on the date of grant.

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 valued at $13,842, based on fair market value using quoted market prices on the date of grant.

For the nine months ended September 30, 2011, the Company recorded a net realized loss of $11,545 on settlement of debt.

The outstanding principal balance of the convertible promissory note at September 30, 2011 was $6,228.

On April 21, 2010, the Company borrowed $40,000 from a non-related third party bearing interest at 5% per annum.  The loan is 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.  The convertible promissory note bears interest at 5% per annum and matured on April 10, 2011, at which date the $40,000 and any accrued interest was payable or convertible at a price of $0.01 per share.

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 September 30, 2011 due to the short-term nature of the note.  For the period ended September 30, 2011, $12,000 was charged to interest expense associated with the amortization of the debt discount.

On January 12, 2011, the holder converted $10,000 face amount of the note into 1,000,000 shares of the Company’s common stock valued at $14,000, based on fair market value using quoted market prices on the date of grant.

For the nine months ended September 30, 2011, the Company recorded a realized loss of $4,000 on settlement of debt.

The outstanding principal balance of the convertible promissory note at September 30, 2011 was $30,000.

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 8% per annum and matured on July 27, 2011, at which date the $63,000 and any accrued interest was 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. 

 
F-10

 
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 the year-ended 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 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 converted $6,000 face amount of the note into 3,333,333 shares of the Company’s common stock valued at $16,667, based on fair market value using quoted market prices on the date of grant.

On July 1, 2011, the holder converted $7,000 face amount of the note into 3,500,000 shares of the Company’s common stock valued at $14,700, based on fair market value using quoted market prices on the date of grant.

On July 22, 2011, the holder converted $4,000 face amount of the note into 2,222,222 shares of the Company’s common stock valued at $8,667, based on fair market value using quoted market prices on the date of grant.

On July 27, 2011, the holder converted $4,500 face amount of the note into 3,750,000 shares of the Company’s common stock valued at $7,500, based on fair market value using quoted market prices on the date of grant.

On August 3, 2011, the holder converted $4,000 face amount of the note into 4,000,000 shares of the Company’s common stock valued at $8,000, based on fair market value using quoted market prices on the date of grant.

For the nine months ended September 30, 2011, the Company recorded a realized loss of $30,033 on settlement of debt.

The outstanding principal balance of the convertible promissory note at September 30, 2011 was $37,500.

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 8% per annum and matured on September 23, 2011, at which date the $32,500 and any accrued interest was 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.

 
F-11

 
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 the year-ended 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 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.
 
 
 
F-12

 
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 September 30, 2011, $1,757 was charged to interest expense associated with the amortization of the debt discount.

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 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.

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.

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 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.

 
F-13

 
On August 23, 2011, the Company borrowed $14,500 from a non-related third party bearing interest at 8% per annum.  The loan is unsecured and the principal and accrued and unpaid interest is payable at maturity on May 25, 2012.  The Company used the proceeds for working capital.

The Company evaluated the terms of the convertible promissory note and concluded that this convertible promissory note did result in a derivative liability (See Note 6).

On September 9, 2011, the Company entered into a promissory note in the amount of $96,499 with its Chief Executive Officer and Director to evidence amounts previously loaned to the Company by him.  The note bears interest at the rate of 8% per annum and is payable on demand.  Any amounts not paid when due bear interest at the rate of 15% per annum until paid in full.

Also on September 9, 2011, the Company entered into a convertible promissory note in favor of a third party in the amount of $105,000, which evidenced a $100,000 bonus and $5,000 of expenses incurred by the third party in contemplation of a management agreement.  The convertible note is payable on demand, accrues interest at the rate of 8% per annum (15% in the event of a default) and is convertible, together with accrued and unpaid interest thereon, at the option of the third party, into shares of the Company’s common stock at a conversion price of $0.002 per share.  The Company also agreed that the third party would earn an additional $100,000 bonus in the event that (a) the Company adopted an asset purchase agreement, share exchange agreement, plan of merger or consolidation, pursuant to which the Company’s shareholders held less than 50% of the voting stock of the resulting entity post transaction, (b) the Board of Directors’ approved the sale of substantially all of the assets of the Company, or (c) voting control of the Company was acquired by any person other than the current control person of the Company ((a) through (c), a “Restructuring”); that the third party would be paid a bonus of $0.20 for every $1.00 of reduction of liabilities (including contingent liabilities) of the Company that the third party is able to affect during the term of a Management Agreement dated September 9, 2011, which has a term of 90 days and automatically renews for additional one-month periods thereafter; and to issue the third party 1% of the Company’s fully-diluted shares of common stock following any Restructuring.  The Company also agreed to indemnify the third party against any liability it may have in connection with the services rendered by the third party pursuant to the Management Agreement or the Company in general and to pay the third party liquidated damages of $50,000 in addition to such indemnification, in the event that the third party becomes party to any claim as a result of the services provided under the Management Agreement or the Company in general.

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.

In connection with the Company’s entry into the convertible note, the Company entered into a security agreement with the third party and provided the third party a first priority security interest in all of the Company’s assets to secure the repayment of the convertible note.

NOTE 6 – CONVERTIBLE NOTE PAYABLE AND DERIVATIVES

On August 23, 2011, the Company borrowed $14,500 from a non-related third party bearing interest at 8% per annum.  The loan is unsecured and the principal and accrued and unpaid interest is payable at maturity on May 25, 2012.  The Company used the proceeds for working capital.  The Conversion price (the “Conversion price”) shall be the greater of (i) the Variable Conversion Price and (ii) $0.00009 per share (subject to equitable adjustments for stock splits, stock dividends or rights offerings and similar events).  The “Variable Conversion Price” is defined as 45% of the average of the lowest three (3) trading prices for the Company’s common stock during the ten (10) trading day period ending on the last trading day prior to the conversion date.

The Company evaluated the conversion options of the promissory note under FASB ASC 815-40 for derivative treatment and determined that the conversion options are required to be accounted for as a derivative.

 
F-14

 
As of August 23, 2011 (date of note issuance), the fair value of the derivatives was $23,607.  As a result, a discount of $14,500 on the promissory note, a derivative liability of $23,607, and a resulting loss on the fair value of the derivative liability were recorded on August 23, 2011.  As of September 30, 2011, the fair value of the derivatives was $7,900, which resulted in a recorded net gain on the fair value of derivative liability of $6,600 in the accompanying consolidated statements of operations.  For the period from August 23, 2011 to September 30, 2011, the Company also amortized the discount on the note for $51, with the unamortized discount on the promissory note of $3,782.

The fair value of the derivative was determined using the Black-Scholes option pricing model with the following assumptions:
 
   
August 23, 2011
 
September 30, 2011
Common stock issuable upon conversion
    16,959,064     8,055,556
 
Estimated market value of common stock on measurement date
  $ 0.002   $ 0.002
Exercise price
  $ 0.00086   $ 0.00180
Risk free interest rate (1)
    0.10 %     0.10 %
Term in years
 
0.76 years
 
0.65 years
Expected volatility
    154 %     152 %
Expected dividends (2)
    0 %     0 %

(1) The risk-free interest rate was estimated by management using the U.S. Treasury zero-coupon yield over the contractual term of the note.

(2) Management estimated the dividend yield at 0% based upon its expectation that there will not be earnings available to pay dividends in the near term.

NOTE 7 – FAIR VALUE MEASUREMENTS

As defined in FASB ASC Topic 820 – 10, “Fair Value Measurements and Disclosures,” fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  FASB ASC Topic 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.  The statement requires fair value measurements be classified and disclosed in one of the following categories:

Level 1:
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.  The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:
Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.  This category includes those derivative instruments that the Company values using observable market data.  Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3:
Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity).  The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments.  The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

 
F-15

 
As required by FASB ASC Topic 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The estimated fair value of the derivative liability was calculated using the Black-Scholes option pricing model (See Note 6).

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2011:

   
Fair Value Measurements at September 30, 2011
 
Description
 
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total Carrying Value
 
Derivative liability
  $ -     $ -     $ 12,425     $ -  
Total
  $ -     $ -     $ 12,425     $ -  

NOTE 8 – STOCK OPTIONS AND WARRANTS

Summary information regarding stock option activity is as follows:

   
Number of Shares
   
Weighted Average
Exercise Price
 
Outstanding at December 31, 2010
   
8,000,000
   
$
       1.00
 
Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Cancelled/Expired
   
-
     
-
 
Outstanding at September 30, 2011
   
8,000,000
   
$
       1.00
 
                 
Options outstanding and their relative exercise price at September 30, 2011 are as follows:

Exercise Price
 
Number of Shares
 
Remaining Life
 
Aggregate Intrinsic Value (In-the-Money) Options
 
  1.00      
8,000,000
 
2.25 years
 
$
-
 
         
8,000,000
     
$
-
 

NOTE 9 – COMMON STOCK

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 into 2,000,000 shares of 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 into 1,000,000 shares of common stock.

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.

 
F-16

 
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.

NOTE 10 – SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date the financial statements were issued and filed with this Form 10-Q.
 
 
 
 
F-17

 
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”.  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.   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, except as required by law.  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 (as described below).
 
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.
  
 
-3-

 
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.
 
Recent Developments in Expansion of Wells
 
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 nine-month period ended September 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 52.500% 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 was recorded as a gain on sale of working interest.  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.

In March 2011, the Company sold a 25.750% 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 working interest.  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 $20,000.  The full amount was recorded as a gain on sale of working interest.

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 $20,000.  The full amount was recorded as a gain on sale of working interest.
 
Recent Material Agreements
 
On September 9, 2011, the Company entered into a Promissory Note in the amount of $96,499 with Arthur Bertagnolli, the Chief Executive Officer and Director of the Company to evidence amounts previously loaned to the Company by Mr. Bertagnolli (the “Bertagnolli Note”).  The Bertagnolli Note bears interest at the rate of 8% per annum and is payable on demand.  Any amounts not paid when due bear interest at the rate of 15% per annum until paid in full.
 
 
-4-

 
 
Additionally, on September 9, 2011, the Company entered into a Management Services Agreement with ASL Energy Corp. (“ASL” and the “Management Agreement”), pursuant to which ASL agreed to provide the Company oil and gas related management and consulting services.  The Management Agreement has a term of 90 days and automatically renews thereafter on a month-to-month basis unless terminated by either party with 30 days prior written notice.   We agreed to pay ASL a one-time signing bonus of $100,000 pursuant to the terms of the Management Agreement (the “Bonus”), due at the time the parties entered into the agreement; that ASL would earn an additional $100,000 bonus in the event that (a) the Company adopted an asset purchase agreement, share exchange agreement, plan of merger or consolidation, pursuant to which the Company’s shareholders held less than 50% of the voting stock of the resulting entity post transaction, (b) the Board of Directors’ approved the sale of substantially all of the assets of the Company, or (c) voting control of the Company was acquired by any person other than the current control person of the Company ((a) through (c), a “Restructuring”); that ASL would be paid a bonus of $0.20 for every $1.00 of reduction of liabilities (including contingent liabilities) of the Company that ASL is able to affect during the term of the Management Agreement; and to issue ASL 1% of the Company’s fully-diluted shares of common stock following any Restructuring.  The Company also agreed to indemnify ASL against any liability it may have in connection with the services rendered by ASL pursuant to the Management Agreement or the Company in general and to pay ASL liquidated damages of $50,000 in addition to such indemnification, in the event that ASL becomes party to any claim as a result of the services provided under the Management Agreement or the Company in general.
 
The Company also entered into a Convertible Promissory Note in favor of ASL in the amount of $105,000, which evidenced the Bonus and $5,000 of expenses previously incurred by ASL in contemplation of the Management Agreement (the “Convertible Note”).  The Convertible Note is payable on demand, accrues interest at the rate of 8% per annum (15% in the event of a default) and is convertible, together with accrued and unpaid interest thereon, at the option of ASL, into shares of the Company’s common stock at a conversion price of $0.002 per share.  The Convertible Note includes a provision which prohibits ASL from converting the Convertible Note into shares of the Company’s stock if ASL would own more than 4.99% of the Company’s common stock following such conversion, subject to ASL’s ability to waive such limitation with 61 days prior written notice to the Company.  In the event the Company desires to repay the Convertible Note, it is required to provide ASL at least 30 days prior written notice.  Any amounts owed under the Management Agreement which are not paid within thirty (30) days of the date they are due as provided therein are automatically added to the principal amount of the Convertible Note.
 
In connection with the Company’s entry into the Convertible Note the Company entered into a Security Agreement with ASL and provided ASL a first priority security interest in all of the Company’s assets to secure the repayment of the Convertible Note.
 
Notes Payables

Notes 5 and 6 of the attached financial statements contain a description of the Company’s outstanding Notes Payable and Convertible Promissory Notes.
  
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2010
 
Revenues .   Our total revenue reported for the three months ended September 30, 2011 was $3,948 compared to $12,650 in the comparable period for the prior year, representing a decrease of $8,702 or 69% from the prior period.  The decrease was due to the sale of various of the Company’s interests as discussed above.
 
Lease Operating Expenses.   The lease operating expenses for the three months ended September 30, 2011 were $364, compared to $10,420 in the comparable period of the prior year, representing a decrease of $10,056 or 97% from the prior period.
 
Depreciation, Depletion, Amortization and Impairment.   Depreciation, depletion, amortization and impairment for the three months ended September 30, 2011 was $0 compared to $934 in the comparable period the prior year.
 
 
-5-

 
General and Administrative Expenses.   General and administrative expenses for the three months ended September 30, 2011 were $198,476 compared to $116,291 for the same quarter in 2010, an increase of $82,185 or 71% from the prior period, which increase was mainly due to the professional fees associated with the Company entering into an oil and gas related management and consulting services agreement.
 
Gain on Sale of Working Interest.   During the three months ended September 30, 2010, the sale by the Company of certain oil and gas properties resulted in a gain of $76,944, compared to no gain or loss on the sale of assets during the three months ended September 30, 2011.
 
Other Income (Expenses) .   We recorded interest expense of $4,848 for the three months ended September 30, 2011 compared to $3,054 in the comparable quarter the prior year.  This increase was largely attributable to the cost of increased debt.

Loss on Settlement of Debt . We had a loss on settlement of debt of $19,367 for the three months ended September 30, 2011 in connection with the conversion of debt into shares of the Company’s common stock.

Gain on Fair Value of Derivative Liability .  We had a gain on fair value of derivative liability of $6,600 for the three months ended September 30, 2011 in connection with the change in the fair value of a derivative instrument, associated with the conversion options of a promissory note, from the date of issuance thru the end of the quarter.

Net Loss .  We had a net loss of $212,507 for the three months ended September 30, 2011, compared to a net loss of $42,031 for the three months ended September 31, 2010, an increase in net loss of $170,476 from the prior period.
 
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2010
 
Revenues .   Our total revenue reported for the nine months ended September 30, 2011 was $9,703 compared to $48,043 in the comparable period for the prior year, a decrease of $38,340 or 80% from the prior period.  The decrease was due to the sale of various of the Company’s interests.
 
Lease Operating Expenses.   The lease operating expenses for the nine months ended September 30, 2011 were $5,202, compared to $36,516 in the comparable period of the prior year, a decrease of $31,314 or 86% from the prior period.
 
Depreciation, Depletion, Amortization and Impairment.   Depreciation, depletion, amortization and impairment for the nine months ended September 30, 2011 was $65 compared to $5,451 in the comparable period the prior year.
 
General and Administrative Expenses.   General and administrative expenses for the nine months ended September 30, 2011 were $391,020 compared to $997,605 for the same period in 2010, a decrease of $606,585 or 61% from the prior period, which decrease was mainly due to the recognition of stock-based compensation in 2010.
 
Gain on Sale of Working Interest.   During the nine months ended September 30, 2011, the Company recognized a gain of $136,827 on the sale of certain oil and gas properties, compared to a gain on oil and gas properties of $310,264 for the nine months ended September 30, 2010.
 
Other Income (Expenses) .   We recorded interest expense of $50,477 for the nine months ended September 30, 2011 compared to $7,597 in the comparable period the prior year.  This increase was largely attributable to the cost of increased debt.
 
Loss on Settlement of Debt . We had a loss on settlement of debt of $71,263 for the nine months ended September 30, 2011 in connection with the conversion of debt into shares of the Company’s common stock, compared to a loss on settlement of debt of $242,100 for the nine months ended September 30, 2010 in connection with the Company’s common stock issued for payment of debt.

 
-6-

 
Gain on Fair Value of Derivative Liability .  We had a gain on fair value of derivative liability of $6,600 for the nine months ended September 30, 2011 in connection with the change in the fair value of a derivative instrument, associated with the conversion options of a promissory note, from the date of issuance thru the end of the quarter.

Net Loss .  We had a net loss of $365,005 for the nine months ended September 30, 2011, compared to a net loss of $933,740 for the nine months ended September 31, 2010, a decrease in net loss of $568,735 from the prior period.

Liquidity and Capital Resources
 
As of September 30, 2011, we had total current assets of $636, consisting solely of cash. We had total assets of $27,965 which included $636 of cash and $27,329 of net oil and gas properties.

Our total current liabilities as of September 30, 2011 were $1,044,074, consisting solely of current liabilities and including $163,337 of accounts payable and accrued liabilities, $3,000 of advances from unrelated parties, relating to amounts advanced for operating expenses, which are payable on demand, $167,833 of related party payable, which represented amounts due to officers and directors of the Company, $47,943 of accrued interest payable, $647,061 of notes payable, net of discount (as further described in Note 5 and 6 to the financial statements attached hereto), $7,000 of deferred revenue and $7,900 of derivative liability. 

We had negative working capital of $1,043,438 and a total accumulated deficit of $3,064,421 as of September 30, 2011.

We had net cash used in operating activities of $368,975 for the nine months ended September 30, 2011, which mainly included $365,005 of net loss, $136,827 of loss on sale of working interest and $148,003 of advances from unrelated parties, offset by $167,833 of related party payable and $71,263 of loss on settlement of debt.

We had $141,942 of net cash provided by investment activities for the nine months ended September 30, 2011, which was mainly due to proceeds from the sale of oil and gas properties.

We had $218,499 of net cash provided by financing activities for the nine months ended September 30, 2011, which included $258,499 of proceeds from issuance of debt offset by $20,000 of return of capital and $20,000 of repayment of long-term 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 and we may be forced to cease our filings with the Securities and Exchange Commission and seek bankruptcy protection, which could cause any investment in the Company to become worthless. There can be no assurance that additional financing will be available to us on acceptable terms or at all.
 
The Company’s Board of Directors has acknowledged that   Arthur Bertagnolli, the Company’s Chief Executive Officer and Director, has not been receiving payment for services rendered to the Company and as a result, Mr. Bertagnolli may enter into agreements or transactions outside of the Company (including transactions with ASL Energy Corp. (“ASL”), which the Company is party to a Management Agreement and Convertible Promissory Note with, which the Company will receive no benefit in connection with), which may be competitive to the Company’s interests and operations and the Company’s Board of Directors has waived any potential claims for conflict of interest in connection with such transactions.  As a result, we may not benefit from connections he makes and/or agreements or transactions he enters into while employed by us, and he, or companies he is associated with, which may include but not be limited to ASL, may profit from transactions which they undertake while we do not.  As a result, he may find it more lucrative or beneficial to cease serving as an officer or Director of the Company in the future and may resign from the Company at that time. Furthermore, while employed by us, shareholders should keep in mind that he is under no obligation to share his contacts and/or enter into favorable contracts and/or agreements he may come across with the Company, and as a result may choose to enter into such contracts or agreements through separate companies which are not affiliated with us, including ASL, or individually.  If that were to occur, we would receive no benefit from such agreements or transactions while Mr. Bertagnolli may personally benefit.  As of the date of this filing, no agreements or transactions have been agreed to or completed.

 
-7-

 
Going Concern
 
Our financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  As of the date of this report, we have generated losses from operations, have an accumulated deficit and a working capital deficiency.  These factors raise substantial doubt regarding our ability to continue as a going concern.
 
In order to continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources and to develop a consistent source of revenues sufficient to meet our operating expenses.  Our continuation as a going concern is dependent upon our ability to raise equity or debt financing, and the attainment of profitable operations from our planned business.
 
Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations.  The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
 
Off Balance Sheet Arrangements
 
As of September 30, 2011, there were no off balance sheet arrangements.
 
Item 3.     Quantitative and Qualitative Disclosures About Market Risk
 
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).
 
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 Securities Exchange Act of 1934, as amended (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of September 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 September 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 September 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.
  
 
-8-

 
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 three months ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
-9-

 
PART II – OTHER INFORMATION
 
Item 1.     Legal Proceedings
 
The Company is a party to the following litigation:
 
  Panos Industries, LLC v. Savoy Energy Corporation, et. al., District Court, Clark County, Nevada Case # A-10-612340-C.
 
On March 19, 2010, this action was filed in the above-entitled Court seeking damages “…in excess of $50,000” based upon monies which the Plaintiff claims were advanced by Plaintiff on behalf of the Company.  As of this date, the Company has filed an Answer to the complaint and has filed a Cross-Complaint against the Plaintiff. The Plaintiff has filed a Motion to Dismiss the Cross-Complaint, which is pending.  While the outcome of this matter cannot be predicted, the Company specifically denies that it is indebted to Plaintiff and believes that any claims purportedly asserted in the lawsuit are without merit.  The Company further believes that it has meritorious claims against Plaintiff which arose in connection with the merger of the Company’s predecessor (Arthur Kaplan Cosmetics, Inc.) with Plantation Exploration, Inc. and in connection with the aftermath of the merger.  The Company intends to vigorously defend any claims asserted by the Plaintiff and to aggressively prosecute its claims against the Plaintiff.  Even if the Company is ultimately successful in defending this action, it will incur legal fees and other expenses in connection with such defense, the amount of which cannot be predicted at this time.  Such expenses could have a material impact on the Company’s future operating results and have an adverse impact on the Company’s funds available for its operations.
 
Item 1A:  Risk Factors
 
A smaller reporting company is not required to provide the information required by this Item.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

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 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.
 
On August 23, 2011, the Company borrowed $14,500 from a non-related third party bearing interest at 8% per annum.  The loan is unsecured and the principal and accrued and unpaid interest is payable at maturity on May 25, 2012.  The Company used the proceeds for working capital.  The Conversion price (the “Conversion price”) shall be the greater of (i) the Variable Conversion Price and (ii) $0.00009 per share (subject to equitable adjustments for stock splits, stock dividends or rights offerings and similar events).  The “Variable Conversion Price” is defined as 45% of the average of the lowest three (3) trading prices for the Company’s common stock during the ten (10) trading day period ending on the last trading day prior to the conversion date.

On September 9, 2011, the Company entered into a convertible promissory note in favor of a third party in the amount of $105,000, which evidenced a $100,000 bonus and $5,000 of expenses incurred by the third party in contemplation of a management agreement.  The convertible note is payable on demand, accrues interest at the rate of 8% per annum (15% in the event of a default) and is convertible, together with accrued and unpaid interest thereon, at the option of the third party, into shares of the Company’s common stock at a conversion price of $0.002 per share.  The Company also agreed that the third party would earn an additional $100,000 bonus in the event that (a) the Company adopted an asset purchase agreement, share exchange agreement, plan of merger or consolidation, pursuant to which the Company’s shareholders held less than 50% of the voting stock of the resulting entity post transaction, (b) the Board of Directors’ approved the sale of substantially all of the assets of the Company, or (c) voting control of the Company was acquired by any person other than the current control person of the Company ((a) through (c), a “Restructuring”); that the third party would be paid a bonus of $0.20 for every $1.00 of reduction of liabilities (including contingent liabilities) of the Company that the third party is able to affect during the term of a Management Agreement dated September 9, 2011, which has a term of 90 days and automatically renews for additional one-month periods thereafter; and to issue the third party 1% of the Company’s fully-diluted shares of common stock following any Restructuring.  The Company also agreed to indemnify ASL against any liability it may have in connection with the services rendered by the third party pursuant to the Management Agreement or the Company in general and to pay the third party liquidated damages of $50,000 in addition to such indemnification, in the event that the third party becomes party to any claim as a result of the services provided under the Management Agreement or the Company in general.

 
-10-

 
On September 14, 2011, the Company’ Board of Directors approved the issuance to Mr.   Bertagnolli of 100,000,000 shares of the Company’s restricted common stock in consideration for services rendered to the Company by Mr. Bertagnolli as the Company’s Chief Executive Officer (the “ Bertagnolli Shares ”) ,   of which only 5,000,000 shares will be issued at this time as the Company has reserved shares for issuance in connection with a prior transaction, provided that such shares had not been issued as of the date of this Report.

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

We claim an exemption from registration afforded by Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), for the above conversions, as the securities were exchanged by the Company with its existing security holders exclusively in transactions where no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange and Section 4(2) of the Act for the other issuances, since the issuances did not involve a public offering, the recipients took the securities for investment and not resale and we took appropriate measures to restrict transfer.

  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
   
 
-11-

 
Item 6.      Exhibits
 
Exhibit Number
Description of Exhibit
   
10.1(1)
Promissory Note with Arthur Bertagnolli
   
10.2(1)
Management Services Agreement - ASL Energy Corp.
   
10.3(1)
Convertible Promissory Note – ASL Energy Corp.
   
10.4(1)
Security Agreement – ASL Energy Corp.
   
31*
Certification of Chief Executive Officer and 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*
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
101.INS**
XBRL Instance Document
   
101.SCH**
XBRL Taxonomy Extension Schema Document
   
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

(1) Filed as an exhibit to the Company’s Form 8-K filing, filed with the Commission on September 16, 2011, and incorporated herein by reference.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
-12-

 

SIGNATURES
 
In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
SAVOY ENERGY CORPORATION
 
     
Date: November 29, 2011
November 21, 2011
 
     
 
By:
/s/ Arthur Bertagnolli
 
   
Arthur Bertagnolli
 
 
Title:
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
-13-

 

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