SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) January 10, 2014
Amerigo Energy, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
000-09047 |
20-3454263 |
(State or Other Jurisdiction |
(Commission |
(IRS Employer |
of Incorporation) |
File Number) |
Identification No.) |
2580 Anthem Village Dr., Henderson, NV |
89052 |
(Address of principal executive offices) |
(Zip Code) |
Registrant's telephone number, including area code: 702-399-9777
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
On January 10, 2014, the Company completed the purchase of Quest Solution, Inc. ("Quest"), an Oregon corporation in the technology, software, and mobile data collection systems business.
The purchase price for Quest was $16,000,000.
The consideration given to the shareholders of Quest Solution, Inc. were as follows:
A. A promissory note for $4,969,000, which payments are to be a minimum of 45.0% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter. Once the Holder has received $3,375,000, the principal and interest payments on the promissory note are to be a minimum of 22.5% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter.
The balance of the promissory note is expected to be paid before February 18,2016, or twenty five (25) months from the date of execution of this agreement. Should the cash flow and payments from EBITDA during the term of this agreement not be sufficient to pay off the loan prior to its maturation, the loan will extend for additional twelve (12) months periods till paid off.
The holder of the note is permitted to convert up $1,594,000 of the Promissory Note into common shares of the Company at a ratio of one share for every $1.00 of promissory note converted. This conversion feature is non-transferrable without written consent from the Company.
B. A promissory note for $11,031,000, which payments are to be payments on the promissory note are to be a minimum of forty five percent (45%) of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter. Once the first promissory note ($4.97mm) has received $3,375,000, the principal and interest payments on this promissory note are to be a minimum of 67.5% of the cash earned from EBITDA of Quest Solutions, Inc. during the prior quarter.
The balance of the promissory note is expected to be paid before January 18, 2017, or three (3) years from the date of execution of this agreement. Should the cash flow and payments from EBITDA during the term of this agreement not be sufficient to pay off the loan prior to its maturation, the loan will extend for additional twelve (12) months periods till paid off.
The holders of the notes are permitted to convert up to $4,781,000 of the Promissory Note into common shares of the Company at a ratio of one share for every $1.00 of promissory note converted. This conversion feature is non-transferrable without written consent from the Company.
2
The prior owners of Quest shall retain a security interest in the subsidiary until the promissory note is satisfied.
On January 10, 2014, the Company came to terms on a settlement with its prior investment in Le Flav Spirits and the related liquor brands. The Company concurrently canceled its consulting contract related to the liquor line and will be receiving back 1,765,000 of the shares that had previously been issued in conjunction with this venture. This cancellation also removed the $2,000,000 promissory note related to the acquisition, as well as the $65,000 annual consulting contract with the Consultant.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
16.1 |
Copy of press release filed January 11, 2014* |
16.2 |
Copy of purchase agreement, dated January 10, 2014* |
16.3 |
Copy of promissory note, dated January 10, 2014* |
16.4 |
Copy of press release filed March 27, 2014 |
16.5 |
Financial statements and footnotes for Quest for year ended December 31, 2013 and 2012. |
16.6 |
Proforma financials for Quest and Amerigo as of September 30, 2013 and December 31, 2012 |
* - filed with original 8K on January 14, 2014
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 27, 2014
Amerigo Energy, Inc
By: /s/ Jason F. Griffith, CPA
Jason F. Griffith, CPA
Chief Executive Officer
4
PRESS RELEASE: Amerigo Energy, Inc.
Amerigo Energy Announces filing of the financials for the Quest Solution, Inc. Acquisition
Financial statement audit completed and filed in Form 8-K Filing
HENDERSON, Nev. March 27, 2014 (GLOBE NEWSWIRE) -- via PRWEB -- Amerigo Energy, Inc. "The Company" (OTCBB: AGOE), announced today that it has filed the financial statements for Quest Solution, Inc ("Quest").
The Company recently completed the financial statement audit for the acquisition of Quest Marketing, Inc. (dba Quest Solution, Inc.) and has filed these with the Securities and Exchange Commission in a Form 8K-A filing.
Jason Griffith, Chief Executive Officer of Amerigo Energy, Inc. stated, "I am excited to have this next step in the process completed. Quest reported gross sales of $33,922,760 in 2013. Based on initial indications from management of Quest, 2014 is off to a record start as well."
The Company discussed how the acquisition of Quest earlier this year fits within the Company's acquisition strategy due to the revenue producing and cash flow positive financial structure.
Griffith continued, "This acquisition became very appealing to the Company when we spoke with management and looked at the financial statements in detail. The 2013 financials reflected a $2,332,429 positive cash flow from operating activities on the Statement of Cash Flows. Digging further into the details, we found the potential for increasing that was even greater as a public company vs as a standalone private company.
By taking the existing cash flows and adding back the related party expenses, which will no longer be incurred at the public company level, we estimated as a public company, the unaudited cash flows provided by operating activities during 2013 would have been over $3 million."
The Company also noted it is in the final stages of completing its 2013 Annual Report which will be filed shortly.
About Quest Solution, Inc.
Quest is a leading provider in the technology, software, and mobile data collection systems business. www.QuestSolution.com
Quest Solution is a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The highly tenured team of professionals simplifies the integration process and delivers proven problem solving solutions backed by numerous customer references. Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI and Zebra are major suppliers which Quest Solution uses in our systems.
About Amerigo Energy, Inc.
Amerigo has historically derived our revenues from various sources. Our strategy has developed into leveraging management's relationships in the business world for investments for the Company. The Company intends on continuing with its acquisition and holding strategy of existing companies with revenues and positive cash flow.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 Statements in this press release relating to plans, strategies, economic performance and trends, projections of results of specific activities or investments, and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward- looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, risk factors inherent in doing business. Forward-looking statements may be identified by terms such as "may," "will," "should," "could," "expects," "plans," "intends," "anticipates," "believes," "estimates," "predicts," "forecasts," "potential," or "continue," or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The company has no obligation to update these forward-looking statements.
For more information please contact:
Jason Griffith
702-399-9777
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Quest Marketing Inc.
We have audited the accompanying balance sheets of Quest Marketing Inc. as of December 31, 2013 and 2012, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2013. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quest Marketing Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/ L.L. Bradford & Company, LLC
Las Vegas, NV
March 27, 2014
Quest Marketing, Inc.
Balance Sheets
(Audited)
|
|
|
December 31, | ||||
|
|
|
2013 |
|
2012 | ||
Assets |
|
|
|
| |||
|
|
|
|
|
| ||
Current assets |
|
|
|
| |||
|
Cash |
|
$ |
1,950,121 |
|
$ |
117,366 |
|
Accounts receivable, net of allowance for |
|
|
3,444,744 |
|
|
2,861,084 |
|
doubtful accounts |
|
|
|
|
|
|
|
Inventory |
|
|
59,741 |
|
|
149,166 |
|
Prepaid expenses |
|
|
39,276 |
|
|
19,592 |
|
Prepaid expenses, related party |
|
|
1,273,292 |
|
|
645,333 |
|
Note receivable, related party |
|
|
688,677 |
|
|
544,575 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
7,455,850 |
|
|
4,337,116 |
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation |
|
|
68,081 |
|
|
60,308 |
|
Intangibles, net of accumulated amortization |
|
|
26,246 |
|
|
44,759 |
|
Deposit |
|
|
3,450 |
|
|
3,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,553,627 |
|
$ |
4,445,633 | |
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
| |
|
Accounts payable and accrued liabilities |
|
$ |
3,939,641 |
|
$ |
1,972,401 |
|
Sales tax payable |
|
|
217,509 |
|
|
126,645 |
|
Accrued payroll expenses |
|
|
781,343 |
|
|
487,707 |
|
Revolving line of credit |
|
|
- |
|
|
92,199 |
|
Unearned revenue |
|
|
44,992 |
|
|
88,787 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
4,983,485 |
|
|
2,767,739 |
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
| |
|
Common stock, no par value; 10,000 shares authorized |
|
|
|
|
|
|
|
1,333 issued and outstanding as of December 31, 2013 and 2012 |
|
|
293,156 |
|
|
293,156 |
|
Retained earnings |
|
|
2,276,986 |
|
|
1,384,738 |
|
Total stockholders' equity |
|
|
2,570,142 |
|
|
1,677,894 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
7,553,627 |
|
$ |
4,445,633 |
The accompanying notes are an integral part of these financial statements
1
Quest Marketing, Inc.
Statements of Operations
(Audited)
|
|
|
Year ended December 31, | ||||
|
|
|
2013 |
|
2012 | ||
|
|
|
|
|
| ||
Revenues |
|
|
|
| |||
|
Gross sales |
|
$ |
33,922,760 |
|
$ |
20,666,119 |
|
Less sales returns, discounts, & allowances |
|
|
(471,357) |
|
|
(625,536) |
Total net revenues |
|
|
33,451,402 |
|
|
20,040,583 | |
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
|
|
|
| |
|
Cost of goods sold |
|
|
27,716,990 |
|
|
16,168,572 |
|
Cost of goods sold, related party |
|
|
914,542 |
|
|
700,333 |
Total cost of goods sold |
|
|
28,631,532 |
|
|
16,868,905 | |
|
|
|
|
|
|
|
|
Gross profit |
|
|
4,819,871 |
|
|
3,171,678 | |
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
| |
|
General and administrative |
|
|
966,056 |
|
|
822,075 |
|
Salary and employee benefits |
|
|
2,849,280 |
|
|
2,584,198 |
|
Depreciation and amortization |
|
|
49,506 |
|
|
109,997 |
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
3,864,842 |
|
|
3,516,271 | |
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
|
955,029 |
|
|
(344,593) | |
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
| |
|
Interest expense |
|
|
(1,762) |
|
|
(2,158) |
|
Other income (expense) |
|
|
163,588 |
|
|
98,820 |
Total other income (expense) |
|
|
161,826 |
|
|
96,662 | |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
1,116,855 |
|
$ |
(247,931) | |
|
|
|
|
|
|
|
|
Income (loss) per weighted average share, basic and diluted |
|
$ |
838 |
|
$ |
(186) | |
|
|
|
|
|
|
|
|
Weighted average common shares issued and outstanding |
|
|
1,333 |
|
|
1,333 |
The accompanying notes are an integral part of these financial statements
2
Quest
Statement of Stockholders' Equity
(Audited)
|
|
|
|
|
|
|
|
Total | |||
|
|
Common Stock |
|
Retained |
|
Stockholders' | |||||
|
|
Shares |
|
Dollars |
|
Earnings |
|
Equity | |||
|
|
|
|
|
|
|
|
| |||
Balance, December 31, 2011 |
|
1,333 |
|
$ |
293,156 |
|
$ |
2,058,772 |
|
$ |
2,351,928 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder distributions |
|
- |
|
|
- |
|
|
(426,103) |
|
|
(426,103) |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
- |
|
|
- |
|
|
(247,931) |
|
|
(247,931) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012 |
|
1,333 |
|
$ |
293,156 |
|
$ |
1,384,738 |
|
$ |
1,677,894 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholder distributions |
|
- |
|
|
- |
|
|
(224,607) |
|
|
(224,607) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
- |
|
|
- |
|
|
1,116,855 |
|
|
1,116,855 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2013 |
|
1,333 |
|
$ |
293,156 |
|
$ |
2,276,986 |
|
$ |
2,570,142 |
The accompanying notes are an integral part of these financial statements
3
Quest Marketing, Inc.
Statements of Cash Flows
(Audited)
|
|
|
Year ended December 31, | ||||
|
|
|
2013 |
|
2012 | ||
Cash flows from operating activities |
|
|
|
| |||
|
|
|
|
|
| ||
Net income (loss) |
|
$ |
1,116,855 |
|
$ |
(247,931) | |
Adjustments to reconcile net income (loss) from operations |
|
|
|
|
|
| |
to net cash provided by (used in) operating activities: |
|
|
|
|
|
| |
|
Depreciation and amortization |
|
|
49,506 |
|
|
109,997 |
Changes in operating assets and liabilities: |
|
|
|
|
|
| |
|
Decrease (increase) in accounts receivable |
|
|
(583,659) |
|
|
586,458 |
|
Decrease (increase) in inventory |
|
|
89,426 |
|
|
271,476 |
|
Decrease (increase) in prepaid expenses |
|
|
(19,684) |
|
|
(15,106) |
|
Decrease (increase) in prepaid expenses, related party |
|
|
(627,959) |
|
|
(3,666) |
|
Decrease (increase) in deposits |
|
|
- |
|
|
(430) |
|
Decrease (increase) in sales tax payable |
|
|
90,864 |
|
|
(4,662) |
|
Increase (decrease) in accounts payable |
|
|
1,967,240 |
|
|
(1,344,361) |
|
Increase (decrease) in accrued expenses |
|
|
293,636 |
|
|
(34,157) |
|
Increase (decrease) in unearned revenue |
|
|
(43,795) |
|
|
77,368 |
|
|
|
|
|
|
|
|
Total cash flows provided by (used in) operating activities |
|
|
2,332,429 |
|
|
(605,015) | |
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Note receivable, related party (investment in) |
|
|
(199,746) |
|
|
798,556 |
|
Note receivable, related party proceeds from |
|
|
(400,000) |
|
|
- |
|
Purchase of property, plant and equipment |
|
|
(15,061) |
|
|
(51,597) |
|
Purchase of intangible assets |
|
|
(23,706) |
|
|
(3,197) |
|
|
|
|
|
|
|
|
Total cash flows (used in) provided by investing activities |
|
|
(239,021) |
|
|
743,762 | |
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Proceeds from revolving line of credit |
|
|
- |
|
|
92,199 |
|
Payments on revolving line of credit |
|
|
(92,198) |
|
|
- |
|
Distributions |
|
|
(168,455) |
|
|
(412,629) |
|
|
|
|
|
|
|
|
Total cash flows used in financing activities |
|
|
(260,653) |
|
|
(320,430) | |
|
|
|
|
|
|
|
|
Net change in cash |
|
|
1,832,755 |
|
|
(181,683) | |
Cash, beginning |
|
|
117,366 |
|
|
299,049 | |
|
|
|
|
|
|
|
|
Cash, ending |
|
$ |
1,950,121 |
|
$ |
117,366 | |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Taxes paid |
|
$ |
- |
|
$ |
- |
|
Interest paid |
|
$ |
1,762 |
|
$ |
2,158 |
|
|
|
|
|
|
|
|
Non-cash investing and financing activities |
|
|
|
|
|
| |
|
Distributions made in exchange of note receivable - related party |
|
$ |
56,152 |
|
$ |
13,474 |
The accompanying notes are an integral part of these financial statements
4
Quest Marketing, Inc.
Notes to Financial Statements
December 31, 2013
Note 1 - Organization and Nature of Business
Quest Marketing, Inc. (“the Company” or "Quest" or "Quest Solution") d/b/a Quest Solution was formed on July 15, 1994 and incorporated on June 7, 1996 (date of inception) under the laws of the State of Oregon. The Company is a leading provider in the technology, software, and mobile data collection systems business throughout the United States and several foreign countries. Sales outside of the United States totaled $313,490 in 2013 and $1,428,411 in 2012.
The company has two shareholders who are also employees.
Quest Solution is a national mobility systems integrator with a focus on design, delivery, deployment and support of fully integrated mobile solutions. The Company takes a consultative approach by offering end to end solutions that include hardware, software, communications and full lifecycle management services. The professionals simplify the integration process and deliver the solutions to our customers. Motorola, Intermec, Honeywell, Panasonic, AirWatch, Wavelink, SOTI and Zebra are major suppliers which Quest Solution uses in our systems.
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States, and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting of normal recurring adjustments, which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company as of and for the years ended December 31, 2013 and 2012.
Summary of Significant Accounting Policies
This summary of significant accounting policies of Quest Marketing, Inc. dba Quest Solution (the Company) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management who is responsible for the integrity and objectivity of the financial statements. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash
Cash consists of petty cash, checking, savings, and money market accounts. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of December 31, 2013 and 2012.
The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits. At December 31, 2013 and 2012, the Company’s uninsured cash balance totaled $1,684,582 and $0, respectively.
5
Accounts Receivable
Accounts receivable are carried at their estimated collectible amounts. The Company provides allowances for uncollectible accounts receivable equal to the estimated collection losses that will be incurred in collection of all receivables. Accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. The Company’s management determines which accounts are past due and if deemed uncollectible, the Company charges off the receivable in the period the determination is made. The Company generally requires no collateral to secure its ordinary accounts receivable. At December 31, 2013 and 2012, accounts receivable past 90 days due totaled $9,406 and $42,455, respectively. Based on management’s evaluation, accounts receivable has a balance in the allowance for doubtful accounts of $13,291 and $15,261 for the years ended December 31, 2013 and 2012, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated using both straight-line and accelerated methods over estimated useful lives ranging from 3 to 15 years. Upon disposition of property and equipment, related gains and losses are recorded in operations. Depreciation expense for the years ended December 31, 2013 and 2012 was $7,287 and $11,838, respectively. For federal income tax purposes, depreciation is computed using the modified accelerated cost recovery system. Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expenses as incurred.
Intangible Assets
Intangible assets are stated at cost, net of accumulated amortization. The assets are being amortized on the straight-line method over useful lives ranging from 3 to 10 years. Amortization expense for the years ended December 31, 2013 and 2012 was $42,219 and $42,219, respectively.
|
2013 |
2012 |
Software |
$ 1,276,524 |
$ 1,252,818 |
Accumulated amortization |
(1,251,033) |
(1,208,059) |
Intangibles, net |
$ 26,246 |
$ 44,759 |
Total expected amortization expense for the next 3 years are as follows:
Years ending December 31, |
|
2014 |
9,376 |
2015 |
8,968 |
2016 |
7,902 |
Total |
$26,246 |
The company has made a significant investment in software over the years. This amount is treated as intangible assets which are being amortized over the expected useful life. Intangible assets are evaluated annually for potential impairment.
Shipping and Handling Costs
The Company classifies shipping and handling costs as operating expenses in the statements of income. Total delivery costs for the years ending December 31, 2013 and 2012 were $158,736 and $107,829, respectively.
6
Advertising
The Company generally expenses advertising costs as incurred. During 2013 and 2012, the Company spent $161,904 and $68,776 on advertising, respectively.
The Company received rebates on advertising due to co-operative advertising agreements. These rebates have been recorded as a reduction to advertising expense.
Inventory
Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market. The determination of whether the carrying amount of inventory requires a write-down is based on a detailed evaluation of inventory relative to any potential slowing moving products or discontinued items as well as the market conditions for the specific inventory items.
Depreciation and amortization
Depreciation and amortization expense primarily consists of the non-cash write-down of tangible and intangible assets over their expected economic lives. We expect this expense to continue to grow in absolute dollars and potentially as a percentage of revenue as we continue to grow and incur capital expenditures to improve our technological infrastructure and acquire assets through potential future acquisitions.
Revenue Recognition
Recurring technology and services revenue consists of subscription-based fees, software subscription license fees, software maintenance fees and hosting fees related to the use of our solution to manage our customers' communications expenses, as well as fees for perpetual software licenses and professional services and products sold.
We recognize revenue when persuasive evidence of an arrangement exists, pricing is fixed and determinable, collection is reasonably assured and delivery or performance of service has occurred. Recurring technology and services subscription-based fees, software subscription license fees, software maintenance fees and hosting fees are recognized ratably over the term of the period of service. The subscription-based services we provide include help desk, staging, carrier activations and provisioning.
Sales revenue is recognized upon the shipment of merchandise to customers. The Company recognizes revenues from software sales when software products are shipped.
Software license fees consist of fees paid for a perpetual license agreement for our technology, which are recognized in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC 605, Software Revenue Recognition, as amended.
Professional services related to the implementation of our software products, which we refer to as consulting services, are generally performed on a fixed fee basis under separate service arrangements. Consulting services revenue is recognized as the services are performed by measuring progress towards completion based upon either costs or the achievement of certain milestones.
Fair Value of Financial Instruments
The Company’s financial instruments include cash, accounts receivable, accounts payable, and notes payable. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2013 and 2012. The Company did not engage in any transaction involving derivative instruments.
7
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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;
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Stockholders' Equity
The Company has 10,000 authorized shares and 1,333 shares issued and outstanding. Those shares are owed by two individuals. The owners have all rights and obligations that normally pertain to owners of an Oregon Corporation.
Income Taxes
As of December 31, 2013, the Company was taxed as an S-Corporation for federal income tax purposes and does not incur income taxes. Instead, its earnings and losses are allocated and reported on the stockholders' tax returns. Accordingly, no provision for income tax is included in the financial statements.
Recently Issued Accounting Pronouncements
As of and for the years ended December 31, 2013 and 2012, the Company does not expect any of the recently issued accounting pronouncements to have a material impact on its consolidated financial condition or consolidated results of operations.
Note 3 - Concentrations
The Company maintains its cash in bank deposit accounts which, at times, may exceed federal insured limits. At December 31, 2013 and 2012, the Company’s uninsured cash balance totaled $1,700,121 and $0, respectively.
For the year ended December 31, 2013 and 2012, one customer accounted for 14.96% and 11.60% of the Company’s revenues.
Accounts receivable at December 31, 2013 and 2012 are made up of receivables due from approximately 87 and 90 customers respectively, with two customers and one customer respectively making up more than 10% of the accounts receivable balance. One customer made up 36.81% of the balance and another made up 17.64% of the balance for 2013 and for 2012 one customer made up 11.89% of the balance.
Accounts payable at December 31, 2013 and 2012 is made up of payables due to approximately 46 and 56 vendors respectively, with two vendors and one vendor respectively making up more than 10% of the accounts payable balance. One vendor made up 76.22% of the balance and another made up 13.28% of the balance for 2013 and for 2012 one vendor made up 81.93% of the balance.
8
Note 4 - Inventories
At December 31, inventories consisted of the following:
|
2013 |
2012 |
Equipment |
$ 45,011 |
$ 142,902 |
Parts |
2,385 |
6,866 |
Demo units |
1,281 |
4,399 |
Clearing service |
11,064 |
(5,001) |
Total inventories |
$ 59,741 |
$ 420,641 |
Note 5 - Prepaid Expenses, related party
As of December 31, 2013 and 2012, there were $39,276 and $19,592 of prepaid expenses in the company.
As of December 31, 2013 and 2012, there were $1,273,292 and $645,333 of related party prepaid expenses. The prepaid expenses are made up of prepaid insurance which will be expensed over the coming 11 months.
Quest maintains insurance policies with an insurance company for which the stockholders also own. The Company deems this to be a related party and the insurance expenses paid during 2013 and 2012 were $914,542 and $700,333. Additionally, there is $1,273,292 in prepaid expenses for insurance coverage, paid in 2013, for 2014 coverage. As of January 1, 2014, the Company will not be renewing any of these policies once they expire.
Note 6 - Note Receivable, related party
|
2013 |
2012 |
Note receivable from stockholder, interest at .32%, |
|
|
due on demand, unsecured. |
$ 688,677 |
$ 544,575 |
|
|
|
Total notes receivable, related party |
$ 688,677 |
$ 544,575 |
The above notes are classified as short-term as these notes will be settled against loan proceeds as part of the Amerigo transaction. See Note 10 Subsequent Events.
Note 7 - Operating Lease Commitments
An Oregon office lease was entered into in April 2009. The lease called for required insurance and monthly payments of $1,654 through March 2012. The lease was not renewed in 2012.
The lease on the warehouse in Eugene, Oregon calls for month-to-month payments of $1,520 and requires the Company to pay insurance and maintenance and to give six months notice before vacating the building. A six month rolling lease was renewed in July 2011. The lease was terminated at the end of March 2012.
In April 2012, the Company signed an operating lease at 860 Conger Street, Eugene, OR 97402. The premises, consisting of approximately 7,000 square feet of warehouse/office space shall serve as the Company’s new headquarters. The lease provides for monthly payments of $3,837 through March 2013, and adjusted annually to reflect changes in the cost of living for the remainder of the lease term. In no event shall the monthly rent be increased by more than 2 percent in any one year. The lease is due to expire March 2017.
The lease at the Company’s Ohio location, signed in July 2011, provides for monthly payments of $2,587 through June 2012; and $2,691 thereafter. The lease is due to expire June 30, 2018.
9
Total rent expense was $76,920 and $83,487 for the years-ending December 31, 2013 and 2012, respectively.
The Company leases two (2) offices under signed agreements located in Eugene, Oregon, and Akron, Ohio. The monthly rental payments under the agreements are $3,837 (Eugene) and $2,700 (Akron). The terms of the agreements are for five years with the end date set to expire on March 31, 2017 (Eugene) and June 30, 2018 (Akron).
SUMMARY OF OPERATING LEASE COMMITMENTS
The future minimum operating lease payments are as follows:
Years ending December 31, |
|
2014 |
47,091 |
2015 |
47,691 |
2016 |
48,292 |
Thereafter |
12,111 |
Total |
$155,185 |
Note 8 - Other liabilities
The company maintains a revolving line of credit with Wells Fargo with a credit limit of $750,000.
During December of 2011 the Company acquired a $750,000 revolving line of credit from Wells Fargo Bank. Borrowings are collateralized by accounts receivable, equipment and inventory owned by the Company as well as a personal guarantee from the two shareholders. This line of credit expires September 15, 2014. Monthly interest only payments are required with the principal portion due at maturity. The balance at December 31, 2013 and 2012 was $0.00 and $92,199. Interest is charged at a rate of prime plus .5% (currently 3.75%), with a floor rate of 4.5%.
Note 9 - Profit Sharing Plan
The company maintains a contributory profit sharing plan covering substantially all fulltime employees within the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). The company is required to make a safe harbor non-elective contribution equal to 3 percent of a participant’s compensation. The plan also includes a 401(k) savings plan feature that allows substantially all employees to make voluntary contributions and provides for discretionary matching contributions determined annually by the Board of Directors. Company safe harbor contributions were $100,452 and $86,791 for 2013 and 2012, respectively.
Note 10 - Subsequent Events
On January 10, 2014, with an effective date of January 1, 2014, the shareholders of Quest Marketing, Inc. (d/b/a Quest Solution, "Quest") sold their interest in Quest to Amerigo Energy, Inc. ("Amerigo"). Quest will be a wholly owned subsidiary of Amerigo. The related party notes receivables outstanding will be settled against the loan proceeds owed to the selling Stockholders. There has been no change of control for Quest in its management. The purchase price for the Company was $16,000,000. Consideration is given in the form of two promissory notes which will be paid to the selling stockholders. No shares of stock were issued with the acquisition; however, up to $6,375,000 of the promissory note is eligible for conversion into the Common Stock of Amerigo for $1.00 per share. The balance of the promissory notes are to be paid by Amerigo through other proceeds or as a percentage of the earnings from the Company.
Management evaluates events and transactions that occur after the balance sheet date as potential subsequent events. Management has performed this evaluation through the date of the accountant’s report. As of March 26, 2014, all other material subsequent events have been disclosed.
10
Amerigo Energy, Inc
Pro-Forma Consolidated Balance Sheet
September 30, 2013
(unaudited)
|
Amerigo Energy, Inc |
Quest Marketing, Inc |
Pro-Forma |
Pro-Forma | ||||
|
|
|
Adjustments |
Consolidated | ||||
ASSETS |
|
|
|
| ||||
Current assets: |
|
|
|
| ||||
Cash |
$ |
- |
$ |
739,318 |
$ |
- |
$ |
739,318 |
Account receivable |
|
1,559 |
|
3,746,698 |
|
- |
|
3,748,257 |
Inventory |
|
- |
|
1,635,420 |
|
- |
|
1,635,420 |
Prepaids |
|
54,119 |
|
58,155 |
|
- |
|
112,274 |
Prepaid related party |
|
- |
|
370,533 |
|
- |
|
370,533 |
Interest receivable |
|
16,266 |
|
- |
|
- |
|
16,266 |
Loan receivable |
|
78,733 |
|
344,699 |
|
- |
|
423,432 |
Total current assets |
|
150,677 |
|
6,894,823 |
|
- |
|
7,045,500 |
|
|
|
|
|
|
|
|
|
Fixed assets: |
|
|
|
|
|
|
|
|
Total fixed assets |
|
- |
|
104,850 |
|
- |
|
104,850 |
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Deposits |
|
950 |
|
3,450 |
|
- |
|
4,400 |
License agreement |
|
2,212,400 |
|
- |
|
- |
|
2,212,400 |
Total other assets |
|
2,213,350 |
|
3,450 |
|
- |
|
2,216,800 |
|
|
|
|
|
|
|
|
|
Total assets |
$ |
2,364,027 |
$ |
7,003,123 |
$ |
- |
$ |
9,367,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
$ |
206,490 |
$ |
4,074,967 |
$ |
- |
$ |
4,281,457 |
Accounts payable - related party |
|
179,800 |
|
- |
|
- |
|
179,800 |
Unearned revenue |
|
- |
|
46,259 |
|
- |
|
46,259 |
Payroll liabilities |
|
243,000 |
|
338,225 |
|
- |
|
581,225 |
Sales tax payable |
|
- |
|
159,548 |
|
- |
|
159,548 |
Loan payable |
|
19,000 |
|
- |
|
- |
|
19,000 |
Line of credit & interest accrued |
|
95,535 |
|
- |
|
- |
|
95,535 |
Judgment payable |
|
120,000 |
|
- |
|
- |
|
120,000 |
Current portion of long-term convertible debt |
|
25,000 |
|
- |
|
- |
|
25,000 |
Total current liabilities |
|
888,825 |
|
4,618,999 |
|
- |
|
5,507,824 |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
Convertible Note payable |
|
1,975,000 |
|
- |
|
|
|
1,975,000 |
Total liabilities |
|
2,863,825 |
|
4,618,999 |
|
- |
|
7,482,824 |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 25,000,000 shares authorized 3,500,000 shares outstanding as of September 30, 2013 |
|
3,500 |
|
- |
|
- |
|
3,500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 25,424,824 shares outstanding of September 30, 2013 |
|
25,424 |
|
293,156 |
|
(293,156) |
|
25,424 |
Common stock-authorized and unissued; 755,592 shares and no shares as of September 30, 2013 |
|
2,896 |
|
- |
|
- |
|
2,896 |
Unamortized stock-based compensation |
|
(26,100) |
|
- |
|
- |
|
(26,100) |
Treasury shares |
|
(46,000) |
|
- |
|
- |
|
(46,000) |
Additional paid-in capital |
|
15,990,761 |
|
- |
|
- |
|
15,990,761 |
Accumulated (deficit) |
|
(16,450,279) |
|
- |
|
293,156 |
|
(14,066,155) |
Total Stockholders' Equity |
|
(499,798) |
|
2,090,968 |
|
- |
|
1,884,326 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
$ |
2,364,027 |
$ |
7,003,123 |
$ |
- |
$ |
9,367,150 |
1
Amerigo Energy, Inc
Pro-Forma Consolidated Statement
For the Nine Months Ended September 30, 2013
(unaudited)
|
Amerigo Energy, Inc |
Quest Marketing, Inc |
Pro-Forma |
Pro-Forma | ||||
|
|
|
Adjustments |
Consolidated | ||||
|
|
|
|
| ||||
Revenue |
|
|
|
| ||||
Sales |
$ |
2,073 |
$ |
22,708,659 |
$ |
- |
$ |
22,710,732 |
Net sales |
|
2,073 |
|
22,708,659 |
|
- |
|
22,710,732 |
|
|
|
|
|
|
|
|
|
Cost of sales, related party |
|
- |
|
17,459,981 |
|
- |
|
17,459,981 |
Cost of sales |
|
- |
|
(370,533) |
|
- |
|
(370,533) |
|
|
|
|
|
|
|
|
|
Gross profit |
|
2,073 |
|
5,619,211 |
|
- |
|
5,621,284 |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Lease operating expenses |
|
282 |
|
- |
|
- |
|
282 |
Depreciation and amortization |
|
- |
|
35,825 |
|
- |
|
35,825 |
Consulting expenses |
|
418,781 |
|
- |
|
- |
|
418,781 |
Salary and employee benefits |
|
- |
|
2,840,781 |
|
- |
|
2,840,781 |
Professional fees |
|
12,256 |
|
- |
|
- |
|
12,256 |
General and administrative expenses |
|
13,829 |
|
1,476,491 |
|
- |
|
1,490,320 |
Total expenses |
|
445,148 |
|
4,353,097 |
|
- |
|
4,798,245 |
|
|
|
|
|
|
|
|
|
(Gain) on settlement of debt |
|
(19,195) |
|
- |
|
- |
|
(19,195) |
Interest expenses, net |
|
103,878 |
|
- |
|
- |
|
103,878 |
|
|
84,683 |
|
- |
|
- |
|
84,683 |
|
|
|
|
|
|
|
|
|
Net (loss) |
$ |
(527,758) |
$ |
1,266,114 |
$ |
- |
$ |
738,356 |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
24,678,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic |
|
|
|
|
|
|
|
$0.03 |
2
Amerigo Energy, Inc
Pro-Forma Consolidated Balance Sheet
December 31, 2012
(unaudited)
|
Amerigo Energy, Inc |
Quest Marketing, Inc |
Pro-Forma |
Pro-Forma | ||||
|
|
|
Adjustments |
Consolidated | ||||
ASSETS |
|
|
|
| ||||
Current assets: |
|
|
|
| ||||
Cash |
$ |
55 |
$ |
117,366 |
|
- |
$ |
117,421 |
Account receivable |
|
- |
|
2,861,084 |
|
- |
|
2,861,084 |
Inventory |
|
|
|
149,166 |
|
- |
|
149,166 |
Prepaids |
|
- |
|
19,592 |
|
- |
|
19,592 |
Prepaids, related party |
|
|
|
645,333 |
|
- |
|
645,333 |
Loan receivable, related party |
|
- |
|
544,575 |
|
- |
|
544,575 |
Total current assets |
|
55 |
|
4,337,116 |
|
- |
|
4,337,171 |
|
|
|
|
|
|
|
|
|
Fixed assets: |
|
|
|
|
|
|
|
|
Total fixed assets |
|
- |
|
60,308 |
|
- |
|
60,308 |
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Deposits |
|
950 |
|
3,450 |
|
- |
|
4,400 |
Intangibles |
|
|
|
44,759 |
|
- |
|
44,759 |
Total other assets |
|
950 |
|
48,209 |
|
- |
|
49,159 |
|
|
|
|
|
|
|
|
|
Total assets |
$ |
1,005 |
$ |
4,445,633 |
$ |
- |
$ |
4,446,638 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
38,087 |
|
1,972,401 |
|
- |
|
2,010,488 |
Accounts payable - related party |
|
154,732 |
|
- |
|
- |
|
154,732 |
Sales tax payable |
|
|
|
126,645 |
|
- |
|
126,645 |
Payroll liabilities |
|
108,000 |
|
487,707 |
|
- |
|
595,707 |
Accrued Interest - related Parties |
|
36,571 |
|
- |
|
- |
|
36,571 |
Unearned revenue |
|
|
|
88,787 |
|
- |
|
88,787 |
Line of credit & interest accrued |
|
- |
|
92,199 |
|
- |
|
92,199 |
Judgment payable |
|
120,000 |
|
- |
|
- |
|
120,000 |
Total current liabilities |
|
457,390 |
|
2,767,739 |
|
- |
|
3,225,129 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
457,390 |
|
2,767,739 |
|
- |
|
3,225,129 |
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Preferred stock; $0.001 par value; 25,000,000 shares authorized 500,000 shares outstanding as of December 31, 2012 |
|
500 |
|
- |
|
- |
|
500 |
Common stock; $0.001 par value; 100,000,000 shares authorized; 24,124,824 shares outstanding as of December 31, 2012 |
|
24,124 |
|
293,156 |
|
(293,156) |
|
3,379,912 |
Additional paid-in capital |
|
15,441,512 |
|
- |
|
- |
|
15,441,512 |
Accumulated (deficit) |
|
(15,922,521) |
|
1,384,738 |
|
293,156 |
|
(17,600,415) |
Total Stockholders' Equity |
|
(456,385) |
|
1,677,894 |
|
- |
|
1,221,509 |
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity |
$ |
1,005 |
$ |
4,445,633 |
$ |
- |
$ |
4,446,638 |
3
Amerigo Energy, Inc
Pro-Forma Consolidated Statement
For the Year Ended December 31, 2012
(unaudited)
|
|
Amerigo Energy, Inc |
|
Quest Marketing, Inc |
|
Pro-Forma |
|
Pro-Forma | ||||
|
|
|
|
|
|
Adjustments |
|
Consolidated | ||||
|
|
|
|
|
|
|
|
| ||||
Revenue |
|
|
|
|
|
|
|
| ||||
Sales |
|
$ |
1,248 |
|
$ |
20,666,119 |
|
$ |
- |
|
$ |
20,667,367 |
Allowance and discounts |
|
|
- |
|
|
(625,536) |
|
|
- |
|
|
(625,536) |
Net sales |
|
|
1,248 |
|
|
20,040,583 |
|
|
- |
|
|
20,041,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
- |
|
|
16,168,572 |
|
|
- |
|
|
16,168,572 |
Cost of sales - related party |
|
|
- |
|
|
700,333 |
|
|
- |
|
|
700,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,248 |
|
|
3,171,678 |
|
|
- |
|
|
3,172,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
671 |
|
|
- |
|
|
- |
|
|
671 |
Depreciation and amortization |
|
|
- |
|
|
109,997 |
|
|
- |
|
|
109,997 |
Salary and employee benefits |
|
|
- |
|
|
2,584,198 |
|
|
- |
|
|
2,584,198 |
Professional fees |
|
|
186,326 |
|
|
- |
|
|
- |
|
|
186,326 |
General and administrative expenses |
|
|
4,635 |
|
|
822,075 |
|
|
- |
|
|
826,710 |
Total expenses |
|
|
191,632 |
|
|
3,516,271 |
|
|
- |
|
|
3,707,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expense |
|
|
- |
|
|
(98,820) |
|
|
- |
|
|
(98,820) |
Interest expenses, net |
|
|
980 |
|
|
2,158 |
|
|
- |
|
|
3,138 |
|
|
|
980 |
|
|
(96,662) |
|
|
- |
|
|
(95,682) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) |
|
$ |
(191,364) |
|
$ |
(247,931) |
|
$ |
- |
|
$ |
(439,295) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic |
|
|
|
|
|
|
|
|
|
|
|
24,194,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic |
|
|
|
|
|
|
|
|
|
|
|
($0.02) |
4