8K/A


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


ex-16.4

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













ex-16.5

 

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


ex-16.6


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