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EX-32.1 - Savoy Energy Corpv184178_ex32-1.htm
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EX-31.2 - Savoy Energy Corpv184178_ex31-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

x
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended March 31, 2010
   
¨
Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 
 
  For the transition period _________ to _________
   
  Commission File Number: 333-151960

Savoy Energy Corporation
(Exact name of small business issuer as specified in its charter)

Nevada
26-0429687
(State or other jurisdiction of incorporation or 
organization)
(IRS Employer Identification No.)
 
11200 Westheimer, Suite 900
Houston, TX  77042
(Address of principal executive offices)

713.243.8788
(Issuer’s telephone number)
  
  
(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days  x  Yes     ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 Yes ¨  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

¨ Large accelerated filer Accelerated filer
¨ Accelerated filer
¨ Non-accelerated filer
x Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes   x No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 55,146,000 common shares as of April 25, 2010.
 


TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION
     
Item 1:
Financial Statements
3
     
Item 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
     
Item 3:
Quantitative and Qualitative Disclosures About Market Risk
20
     
Item 4T:
Controls and Procedures
21
     
PART II – OTHER INFORMATION
     
Item 1:
Legal Proceedings
22
     
Item 1A:
Risk Factors
23
     
Item 2:
Unregistered Sales of Equity Securities and Use of Proceeds
23
     
Item 3:
Defaults Upon Senior Securities
24
     
Item 4:
Submission of Matters to a Vote of Security Holders
24
     
Item 5:
Other Information
24
     
Item 6:
Exhibits
24

 
2

 

PART I - FINANCIAL INFORMATION
 
Item 1.    Financial Statements

Our consolidated financial statements included in this Form 10-Q are as follows:

Consolidated Balance Sheets (unaudited) as of March 31, 2010 and December 31, 2009;
4
   
Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2010 and 2009;
5
   
Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2010 and 2009;
6
   
Notes to Consolidated Financial Statements (unaudited);
7

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q and should be read in conjunction with the audited financial statements and notes to thereto contained in the Company’s annual report filed with the SEC on Form 10K for the year ended December 31, 2009.  In the opinion of management, all adjustments consisting of normal recurring adjustments, considered necessary for a fair presentation have been included.  Operating results for the interim period ended March 31, 2010 are not necessarily indicative of the results that can be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year 2009 as reported in Form 10-K have been omitted.

 
3

 

SAVOY ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)

   
March 31,
   
December 31,
 
   
2010
   
2009
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 18,341     $ 60,345  
Accounts receivable
    1,247       2,372  
Total current assets
    19,588       62,717  
                 
OIL AND GAS PROPERTIES, FULL COST METHOD
               
Properties subject to amortization
    778,167       761,987  
Accumulated depletion, depreciation, amortization and impairment
    (654,104 )     (650,813 )
Oil and gas properties, net
    124,063       111,174  
                 
TOTAL ASSETS
  $ 143,651     $ 173,891  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 324,056     $ 354,088  
Advances from related party
    151,003       151,003  
Accrued interest payable
    59,626       57,996  
Notes payable
    470,000       447,500  
Total current liabilities
    1,004,685       1,010,587  
                 
LONG-TERM LIABILITIES
               
Asset retirement obligations
    10,609       9,683  
TOTAL LIABILITIES
    1,015,294       1,020,270  
                 
STOCKHOLDERS’ DEFICIT
               
Common stock, $.001 par value; 100,000,000 shares authorized,
               
53,646,000 and 31,296,000 shares issued and outstanding, respectively
    53,646       31,296  
Additional paid-in-capital
    1,514,068       704,317  
Accumulated deficit
    (2,439,357 )     (1,581,992 )
Total stockholders’ deficit
    (871,643 )     (846,379 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 143,651     $ 173,891  

See notes to consolidated financial statements

 
4

 

SAVOY ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

   
For the Three
   
For the Three
 
   
Months Ended
   
Months Ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
 
             
REVENUE
           
Oil and gas revenues
  $ 18,755     $ -  
Total revenues
    18,755       -  
                 
COSTS AND EXPENSES
               
Lease operating expenses
    12,931       -  
General and administrative expenses
    650,242       22,804  
Depletion, depreciation, amortization and impairment expense
    3,291       -  
Accretion expense
    926       -  
Total costs and expenses
    667,390       22,804  
Loss from operations
    (648,635 )     (22,804 )
                 
OTHER INCOME (EXPENSES)
               
Interest expense
    (1,630 )     -  
Loss on settlement of debt
    (207,100 )     -  
Total other income (expenses)
    (208,730 )     -  
                 
Net loss
  $ (857,365 )   $ (22,804 )
                 
Basic and diluted net loss per share
  $ (0.02 )   $ (0.00 )
                 
Weighted average common shares outstanding-basic and diluted
    39,175,444       60,400,000  

See notes to consolidated financial statements

 
5

 

SAVOY ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

   
For the Three
   
For the Three
 
   
Months
Ended
   
Months
Ended
 
   
March 31,
   
March 31,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (857,365 )   $ (22,804 )
                 
Adjustments to reconcile net loss to net
               
cash used in operating activities:
               
Depletion, depreciation, amortization and impairment
    3,291       -  
Accretion expense
    926       -  
Stock based compensation
    524,000       -  
Loss on settlement of debt
    207,100       -  
Changes in operating assets and liabilities
               
Accounts receivable
    1,125       -  
Accounts payable and accrued liabilities
    15,099       22,264  
Net cash used in operating activities
    (105,824 )     (540 )
                 
Cash flows from investing activities:
               
Purchase of oil and gas properties
    (16,180 )     -  
Net cash used in investment activities
    (16,180 )     -  
                 
Cash flows from financing activities:
               
Proceeds from issuance of debt
    80,000       -  
Net cash provided by financing activities
    80,000       -  
                 
Net decrease in cash and cash equivalents
    (42,004 )     (540 )
Cash and cash equivalents, at beginning of period
    60,345       540  
Cash and cash equivalents, at end of period
  $ 18,341     $ -  
                 
Supplemental cash flow information:
               
Cash paid for interest
  $ -     $ -  
Cash paid for income tax
  $ -     $ -  
Noncash investing and financing activities:
               
Common stock issued for debt
  $ 57,500     $ -  

See notes to consolidated financial statements

 
6

 

SAVOY ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2010
(unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of Savoy Energy Corporation ("the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in Savoy’s annual report filed with the SEC on Forms 10-K for the year ended December 31, 2009.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.  Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent year 2009 as reported in Form 10-K have been omitted.
 
NOTE 2 – ORGANIZATION AND HISTORY

Savoy Energy Corporation (the “Company”) was incorporated as “Arthur Kaplan Cosmetics, Inc.” on June 25, 2007, in the State of Nevada. Our principal offices are located at 11200 Westheimer, Suite 900, Houston, TX 77042 and our telephone number is (713) 243-8788.

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

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

The results of operations and cash flow for the period ended March 31, 2009 reflect only the results of Arthur Kaplan Cosmetics, Inc., as the acquisition of Plantation Exploration, Inc., Inc. occurred on April 2, 2009.  The following (unaudited) pro forma consolidated results of operations have been prepared as if the acquisition of Plantation Exploration, Inc had occurred as of the first day of the quarter ended March 31, 2009:
 
7

 
  
 
Three
Months
Ended March
31, 2009
 
Total revenues
 
$
15,464
 
Net loss
   
(54,895
Net loss per share—Basic
   
(0.01
Net loss per share—Diluted
   
(0.01

The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, nor is it intended to be a projection of future results.

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

Certain amounts in prior periods have been reclassified to conform to current period presentation

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s consolidated financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and gas properties, and timing and costs associated with its retirement obligations.

Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and financial instruments which mature within three months of the date of purchase.
 
8

 
Debt

The Company accounts for debt at the face amount of the debt offset by applicable discounts and recognizes interest expense for accrued interest payable under the terms of the debt. Principal and interest payments due within one year are classified as current, whereas principal and interest payments for periods beyond one year are classified as long term. Beneficial conversion features of debt are valued and the related amounts recorded as discounts on the debt.  Discounts are amortized to interest expense using the effective interest method over the term of the debt.  Any unamortized discount upon settlement or conversion of debt is recognized immediately as interest expense.

Fair Value of Financial Instruments

As of March 31, 2010, the fair value of cash, accounts receivable, accounts payable and notes payable approximate carrying values because of the short-term maturity of these instruments.

Oil and Gas Properties

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

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

The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The present value of the estimated asset retirement costs is capitalized as part of the carrying amount of the long-lived asset. For The Company, asset retirement obligations (“ARO”) relate to the plugging and abandonment of drilled oil and gas properties. The amounts recognized are based upon numerous estimates including future retirement costs; future recoverable reserve quantities and reserve lives; and the credit-adjusted risk-free interest rate.
 
9

 
Ceiling test

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

Oil and gas properties, not subject to amortization

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

As of March 31, 2010, the carrying value of all oil and gas properties were subject to amortization. The Company has no carrying value for properties not subject to amortization.

Revenue Recognition

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

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

Costs associated with production are expensed in the period incurred.

Stock-Based Compensation

Stock-based compensation expense includes the estimated fair value of equity awards vested during the reporting period. The expense for equity awards vested during the reporting period is determined based upon the grant date fair value of the award and is recognized as expense over the applicable vesting period of the stock award using the straight-line method.
 
10

 
Deferred Taxes

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

Earnings per Share of Common Stock

Basic net income per share calculations are determined by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period.  Diluted net income per share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During the reporting period when they are anti-dilutive, common share equivalents, if any, are not considered in the computation.  No computation for diluted earnings per share was prepared for the convertible debt (See Note 6) to issue 2,666,667 shares of common stock at a conversion price of $0.03 per share that were outstanding because the conversion would be anti-dilutive to diluted net loss per share.

Recent Accounting Pronouncements

The Company does not expect recent accounting standards or interpretations issued or recently adopted to have a material impact on the Company’s consolidated financial position, operations or cash flows.

NOTE 4 - GOING CONCERN

The Company’s consolidated financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. As of the date of this report, the Company has a working capital deficit, has generated limited revenues and has an accumulated deficit. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's operations.
 
11

 
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern

NOTE 5 – OIL AND GAS PROPERTIES

During February 2010 the Company secured a 2.75% working interest in an oil and gas property in Sterling County, Texas for no consideration except to fund the Company’s portion of the costs. During the three months ended March 31, 2010, the Company paid $13,133 for its share of drilling costs. These costs were capitalized as oil and gas properties at March 31, 2010.

NOTE 6 – NOTES PAYABLE
 
On September 24, 2008 Plantation Exploration, Inc. entered into a financing agreement with Oil Investment Leases, Inc. (OIL) for loans totaling $290,000. On January 27, 2009 and May 4, 2009, the Company amended the September 24, 2008 agreement to assign the debt from Plantation Exploration to Savoy; the amended agreements provided for total borrowings of $335,000 and $360,000, respectively, due on demand. The interest is payable in-kind at 30,000 shares of common stock of the Company on May 4, 2009 and 5,000 shares of common stock of the Company for each month the debt remains unpaid. The Company has not issued the shares for interest to OIL but has included the value of the shares to be issued in accrued interest payable. During the three months ended March 31, 2010, the Company repaid $57,500 of the outstanding balance at December 31, 2009 of $360,000 via the issuance of shares to non-related third parties (see Note 9) and as of March 31, 2010, the outstanding balance of due to OIL was $302,500. No additional loans were made to the Company under this financing agreement during the three months ended March 31, 2010.

On December 17, 2009, the Company borrowed $37,500 from a non-related third party bearing interest at 6% per annum. The loan is unsecured and the principal and accrued and unpaid interest are payable at maturity on June 30, 2010. The Company is using the proceeds for working capital. The outstanding balance of $37,500 has been classified as current debt at March 31, 2010.

On December 29, 2009, the Company borrowed $50,000 from a two non-related third parties bearing interest at 5% per annum. The loans are unsecured and the principal and accrued and unpaid interest are payable at maturity on June 30, 2010. The Company is using the proceeds for working capital. The outstanding aggregate balance of $50,000 has been classified as current debt at March 31, 2010.
 
12

 
On March 17, 2010, the Company borrowed $80,000 under two convertible promissory notes from non-related third parties bearing interest at 5% per annum. The loans are unsecured and the principal and accrued and unpaid interest are payable at maturity on September 17, 2010. The Company is using the proceeds for working capital. The outstanding   balance of $80,000 has been classified as current debt at March 31, 2010.  At any time prior to the payment in full of the entire balance of the notes, the lenders have the option of converting all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to $0.03 per share, subject to adjustment upon certain events.  Assuming no adjustment to the conversion price, if the lenders convert the entire principal balance of the note, they would receive 2,666,667 shares of  the Company’s common stock. The Company evaluated the terms of the note and concluded that the notes did not result in derivatives nor were there beneficial conversion features since the notes were convertible into shares of common stock at the market value of the common stock.  

NOTE 7 – RELATED PARTY TRANSACTIONS

From time to time, the Company receives cash advances from related parties, including stockholders and their affiliates, to cover operating expenses. The advances do not bear interest and are due upon demand. During the three months ended March 31, 2010, the Company received no additional cash advances. As of March 31, 2010, the outstanding balance of advances from related party was $151,003.

NOTE 8 – STOCK OPTIONS AND WARRANTS

Summary information regarding stock option activity is as follows:

   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Outstanding at 12/31/09
   
8,000,000
   
$
1.00
 
Granted
   
-
     
-
 
Exercised
   
-
     
-
 
Cancelled/Expired
   
-
     
-
 
Outstanding at 03/31/10
   
8,000,000
   
$
1.00
 

Options outstanding and their relative exercise price at March 31, 2010 are as follows:

Exercise Price
 
Number of
shares
 
Remaining
life
 
Aggregate
Intrinsic Value
(In-the-money)
Options
 
$1.00
   
8,000,000
 
4.00 years
 
$
-
 
     
8,000,000
     
$
-
 
 
13

 
NOTE 9 - COMMON STOCK


On February 1, 2010, the Company issued 800,000 common shares valued at $44,800, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $32,300 on settlement of debt.

On February 1, 2010, the Company issued 800,000 common shares valued at $44,800, based on the fair market value using quoted market prices on the date of grant to Barclay Lyons, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $32,300 on settlement of debt.

On February 1, 2010, the Company issued 1,250,000 common shares valued at $70,000, based on the fair market value using quoted market prices on the date of grant to Tombstone Capital, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $57,500 on settlement of debt.

On March 4, 2010, the Company issued 10,000,000 common shares valued at $330,000, based on the fair market value using quoted market prices on the date of grant to Arthur Bertagnolli in satisfaction of accrued but unpaid compensation due to Arthur Bertagnolli of $43,500 and recorded compensation expense of $286,500 in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 4, 2010, the Company issued 2,000,000 common shares valued at $66,000, based on the fair market value using quoted market prices on the date of grant to Excelsus Capital Partners, LLC for services rendered. The  value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 4, 2010, the Company issued 3,000,000 common shares valued at $99,000, based on the fair market value using quoted market prices on the date of grant to Excelsus Consulting, LLC for services rendered. The  value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 4, 2010, the Company issued 500,000 common shares valued at $16,500, based on the fair market value using quoted market prices on the date of grant to Robert  Diener, LLC for services rendered. The value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.
 
14

 
On March 18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a loss of $42,500 on settlement of debt.

On March 18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on the fair market value using quoted market prices on the date of grant to Barclay Lyons, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a loss of $42,500 on settlement of debt.

NOTE 10 – COMMITMENTS, CONTINGENCIES AND LITIGATION
 
During January 2010, the Company entered into a consulting agreement with an unrelated third party and paid the consultant a commitment fee of $5,000 and issued the consultant 1,000,000 fully vested shares of common stock (see Note 9). The Company amended the consulting agreement in March 2010 that extended the term for twelve months from the date of the amendment and issued the consultant 5,000,000 fully vested shares of common stock (2,000,000 shares on March 4, 2010 valued at $66,000 and 3,000,000 shares on March 4, 2010 valued at $99,000 – See Note 9). As amended, the consulting agreement includes the following commitments:
 
i.
 
The consultant will receive $5,000 per month for twelve months;
ii.
 
The consultant will receive a referral fee of 10% cash and 10% equity of the aggregate amount of each successful equity financing;
iii.
 
The consultant will receive a referral fee of 5% cash and 5% equity of the aggregate amount of each successful debt financing.
 
During March 2010, the Company executed an investor relations agreement whereby the Company agreed to pay an initial payment of $15,000 and 100,000 shares of the Company’s common stock. The Company paid the $15,000 and has accrued the value of the 100,000 common shares of $3,200, based on the fair market value using quoted market prices on the date of grant. The Company has committed to pay the consultant $15,000 per month for six months, automatically renewed for another six months and thereafter renewable by mutual agreement.

The Company’s Employment Agreement with Arthur Bertagnolli provides for certain compensation and benefits based on Company output over and above base compensation based on the Company’s achievement of specified milestones.  As of March 31, 2010, none of those milestones have been achieved.  Under certain circumstances, Mr. Bertagnolli is also entitled to an additional payment upon sale of the Company to a larger company.
 
 
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Panos Industries, LLC v. Savoy Energy Corporation, et. al., District Court, Clark County, Nevada Case # A-10-612340-C.

On March 19, 2010, this action was filed in the above-entitled Court seeking damages “…in excess of $50,000” based upon monies which the Plaintiff claims were advanced by Plaintiff on behalf of the Company.  This action is in its very early stages and as of this date the Company has not been served with the Summons and Complaint and has therefore not filed any Answer to the Complaint. While the outcome of this matter cannot be predicted, the Company specifically denies that it is indebted to Plaintiff and believes that any claims purportedly asserted in the lawsuit are without merit.  The Company further believes that it has meritorious claims against Plaintiff which arose in connection with the merger of the Company’s predecessor (Arthur Kaplan Cosmetics, Inc.) with Plantation Exploration, Inc. and in connection with the aftermath of the merger.  The Company intends to vigorously defend any claims asserted by the Plaintiff and to aggressively prosecute its claims against the Plaintiff.  Even if the Company is ultimately successful in defending this action, it will incur legal fees and other expenses in connection with such defense, the amount of which cannot be predicted at this time.  Such expenses could have a material impact on the Company’s future operating results and have an adverse impact on the Company’s funds available for its operations.

NOTE 11 – SUBSEQUENT EVENTS

On April 15, 2010, the Company issued 1,500,000 common shares valued at $45,000, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a realized loss of $35,000 on settlement of debt.

 
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Item 2.     Management’s Discussion and Analysis or Plan of Operation

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.   These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.  We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions.  Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.  Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview

We are in the business of re-entering, re-completing, extracting oil, and selling oil from previously drilled wells in the United States. Our plan of operations is to economically extract a significant amount of the “left-behind” oil from previously drilled sites.

We currently hold leases on and are producing oil from the following wells: our working interests in Ali-O No.1, Rozella Kifer No. 1, Zavadil No.1, our 8.6% overriding royalty interest in Team Bank, our 2.0% overriding royalty interest in Henry E. –A- #1 Christian, our 1.0% overriding royalty interest in Mary Martha #1, and our 5.0% overriding royalty interest in W.L. Barnett ET AL #1 & #2. We also own a 2.75% working interest in the Glass 59 #2 well.  We will continue our workover efforts on these wells, and seek to duplicate our successful efforts with other wells. We have retained Forrest A. Garb & Associates, a petroleum consulting firm specializing in geological analyses of oil wells, to work with us to locate and screen a number of abandoned oil wells prospects for viability.  Our evaluations include an assessment of production potential of each well using geological evaluations including the use of seismic data as available.  In addition to the four wells that we are currently have in operation, we have also already identified 34 other wells as targets for acquisition: six that are producing and 28 that have been abandoned but have seismic or other data indicating that they are favorable candidates for recompletion or workover.
 
 
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Once we have determined which wells have the greatest production potential and are most likely to respond to our workover efforts, we will then pursue acquiring interests in those wells. We will then engage in workover operations as with our previous wells, primarily through horizontal drilling and acidization. We hope to extract and sell crude oil through a third party purchaser.

Our strategy is to concentrate on existing low maintenance production, exploit low risk sidetrack drilling opportunities as and when identified, and use the accumulated information and results to advance operations.

Large oil companies with high overhead costs require high production rates for wells to be economically viable. Our small size and lower overhead allows profitably extraction of oil at low production rates. Our goal is to turn wells rendered uneconomical and abandoned by large companies into profitable ones.

We continue to find ways to reduce expenses and increase efficiency. Recently, decisions were made to convert all applicable wells to operate on electricity. The Company believes that electricity is cheaper as an energy source and also electric motors have lower maintenance expenses than gas-operated engines. To further this end, plans were made to install the “Jack Shaft Reducer” on our Rozella Kifer Well. The Jack Shaft Reducer is expected to both increase efficiency and decrease maintenance costs which will in turn extend the life of the well’s production, although this cannot be quantified at this time.

On March 27, 2010 the Zavadil #1 well was placed online and closely monitored under full electric power. This is the second producing well that the Company has operating under full electric power.   The Company will now begin the process to convert its Ali-O #1 oil well to operate under full electric power.
 
Developments in Expansion of Wells

We signed a letter of intent to acquire 100% of the working interest in the Wright Well in Gonzalez County, Texas from Lucas Energy, Inc., an independent crude oil and gas company.  The letter of intent has expired, however, as of the date of this report negotiations are continuing to purchase a 100% interest in the well. No definitive agreements have been signed to date, but we are continuing to pursue the proposed transaction.
 
 
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We signed a participation agreement with Paragon Petroleum, Inc., an independent crude oil and gas company, in the Glass 59 #2 well which has been recently completed. The completion data from Bright & Co., the operator has increased from anticipated production to initial production levels of 53 bopd of oil and 858 mcf of gas. 

Results of Operations for the Three Months Ended March 31, 2010 and 2009

Revenues. Our total revenue reported for the three months ended March 31, 2010 was $18,755. The increase was due to the acquisition of Plantation Exploration, Inc. on April 2, 2009.  

Lease Operating Expenses.   The lease operating expenses for the three months ended March 31, 2010 was $12,931. The increase was due to the acquisition of Plantation Exploration, Inc. on April 2, 2009.  

Depreciation, Depletion, Amortization and Impairment.  Depreciation, depletion, amortization and impairment for the three months ended March 31, 2010 was $3,291. The increase was due to the acquisition of Plantation Exploration, Inc. on April 2, 2009.  The net carrying values of our oil and gas properties in increased at March 31, 2010 to $124,063 as compared to $111,174 at December 31, 2009.  We had no impairment in the three months ended March 31, 2010.

General and Administrative Expense.  General and administrative expense for the three months ended March 31, 2010 increased to $650,242 from $22,804 for the comparable quarter in 2009 of $33,406. The increase in general and administrative expense was largely attributable to the recognition of stock compensation expense. Stock was issued for services during the quarter ended March 31, 2010 versus none in the comparable quarter of 2009.  

Other Income (Expenses). We recorded interest expenses of $1,630 for the three months ended March 31, 2010.  The increase was due to the acquisition of Plantation Exploration, Inc. on April 2, 2009.  We also recorded a loss on the settlement of a debt of $207,100 with Oil Investment Leases, Inc. as a result of the repayment of a portion of our debt with common shares that had a greater fair value than the amount of debt settled.

Liquidity and Capital Resources

As of March 31, 2010, we had total current assets of $19,588. Our total current liabilities as of March 31, 2010 were $1,004,685.  Thus, we had a working capital deficit of $985,097 as of March 31, 2010.

Operating activities used $105,824 in cash for the three months ended March 31, 2010. Our net loss of $857,365 was the primary component of our negative operating cash flow, offset by non-cash expenses—common stock-based compensation and loss on the settlement of a debt. Cash flows used in investing activities were $16,180 during the quarter ended March 31, 2010 compared to $0 in the comparable quarter the prior year related to the acquisition of oil and gas interests. Cash flows provided by financing activities during the quarter ended March 31, 2010 was $80,000 consisting of proceeds from notes payable of $80,000. All repayments of notes payable were non-cash repayments accomplished via the issuance of the Company’s common stock.
 
 
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Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We have negative working capital and rely on investments and loans to fund our operations.  We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 Going Concern

Our financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  As of the date of this report, we have generated losses from operations, have an accumulated deficit and a working capital deficiency. These factors raise substantial doubt regarding our ability to continue as a going concern.

In order to continue as a going concern and achieve a profitable level of operations, we will need, among other things, additional capital resources and to develop a consistent source of revenues.  Our continuation as a going concern is dependent upon the continued financial support from our shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from our planned business.

Our ability to continue as a going concern is dependent upon our ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations.  The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Off Balance Sheet Arrangements

As of March 31, 2010, there were no off balance sheet arrangements.

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information required by this Item.
 
 
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Item 4T.     Controls and Procedures

 We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2010.   The Company's internal control over financial reporting is a process and procedures designed under the supervision of the Company's Principal Executive Officer and Principal Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 
 
Based upon that evaluation, our Chief Executive Officer who is also our Principal Financial Officer concluded that, as of March 31, 2010, our disclosure controls and procedures over financing reporting were not effective.  This conclusion was based on the existence of the material weaknesses in our internal control over financial reporting previously disclosed and discussed below. There have been no changes in our internal controls over financial reporting during the quarter ended March 31, 2010.  To address the need for more effective internal controls, management has plans to improve the existing controls and implement new controls as our financial position and capital availability improves.  Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

We identified and continue to have the following material weakness in our internal controls over financial reporting:

There is a lack of segregation of duties and technical accounting expertise. Our financial reporting and all accounting functions are performed by an external consultant with no oversight by a professional with accounting expertise.  Our management does not possess accounting expertise and hence our controls over the selection and application of accounting policies in accordance with generally accepted accounting principles were inadequate and constitute a material weakness in the design of internal control over financial reporting.  This weakness is due to the Company’s lack of working capital to hire additional staff.

 Limitations on the Effectiveness of Internal Controls
 
 
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Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION

Item 1.     Legal Proceedings

The Company is a party to the following litigation:

Panos Industries, LLC v. Savoy Energy Corporation, et. al., District Court, Clark County, Nevada Case # A-10-612340-C.

On March 19, 2010, this action was filed in the above-entitled Court seeking damages “…in excess of $50,000” based upon monies which the Plaintiff claims were advanced by Plaintiff on behalf of the Company.  This action is in its very early stages and as of this date the Company has not been served with the Summons and Complaint and has therefore not filed any Answer to the Complaint. While the outcome of this matter cannot be predicted, the Company specifically denies that it is indebted to Plaintiff and believes that any claims purportedly asserted in the lawsuit are without merit.  The Company further believes that it has meritorious claims against Plaintiff which arose in connection with the merger of the Company’s predecessor (Arthur Kaplan Cosmetics, Inc.) with Plantation Exploration, Inc. and in connection with the aftermath of the merger.  The Company intends to vigorously defend any claims asserted by the Plaintiff and to aggressively prosecute its claims against the Plaintiff.  Even if the Company is ultimately successful in defending this action, it will incur legal fees and other expenses in connection with such defense, the amount of which cannot be predicted at this time.  Such expenses could have a material impact on the Company’s future operating results and have an adverse impact on the Company’s funds available for its operations.
 
 
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Item 1A:  Risk Factors

A smaller reporting company is not required to provide the information required by this Item.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

On January 26, 2010, the Company issued 1,000,000 common shares valued at $56,000, based on the fair market value using quoted market prices on the date of grant to Excelsus Capital Partners, LLC for services rendered. The  value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On February 1, 2010, the Company issued 800,000 common shares valued at $44,800, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $32,300 on settlement of debt.

On February 1, 2010, the Company issued 800,000 common shares valued at $44,800, based on the fair market value using quoted market prices on the date of grant to Barclay Lyons, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $32,300 on settlement of debt.

On February 1, 2010, the Company issued 1,250,000 common shares valued at $70,000, based on the fair market value using quoted market prices on the date of grant to Tombstone Capital, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $12,500 and recorded a loss of $57,500 on settlement of debt.

On March 4, 2010, the Company issued 10,000,000 common shares valued at $330,000, based on the fair market value using quoted market prices on the date of grant to Arthur Bertagnolli in satisfaction of accrued but unpaid compensation due to Arthur Bertagnolli of $43,500 and recorded compensation expense of $286,500 in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 4, 2010, the Company issued 2,000,000 common shares valued at $66,000, based on the fair market value using quoted market prices on the date of grant to Excelsus Capital Partners, LLC for services rendered. The  value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 4, 2010, the Company issued 3,000,000 common shares valued at $99,000, based on the fair market value using quoted market prices on the date of grant to Excelsus Consulting, LLC for services rendered. The  value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.
 
 
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On March 4, 2010, the Company issued 500,000 common shares valued at $16,500, based on the fair market value using quoted market prices on the date of grant to Robert  Diener, LLC for services rendered. The value of the shares were recognized in the Company’s consolidated results of operations for the three months ended March 31, 2010.

On March 18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a loss of $42,500 on settlement of debt.

On March 18, 2010, the Company issued 1,500,000 common shares valued at $52,500, based on the fair market value using quoted market prices on the date of grant to Barclay Lyons, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and recorded a loss of $42,500 on settlement of debt.

On April 15, 2010, the Company issued 1,500,000 common shares valued at $45,000, based on the fair market value using quoted market prices on the date of grant to Rio Sterling Holdings, LLC for payment on the Company’s note payable with Oil Investment Leases, Inc. (OIL) in the amount of $10,000 and will record a realized loss of $35,000 on settlement of debt.

The above issuances were performed in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act.

Item 3.     Defaults upon Senior Securities

None

 Item 4.     Submission of Matters to a Vote of Security Holders

None

Item 5.     Other Information

None

Item 6.      Exhibits

 
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Exhibit 
Number
 
Description of Exhibit
     
31.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
 
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
SAVOY ENERGY CORPORATION
   
Date:
May 10, 2010
   
 
By:
/s/ Arthur Bertagnolli
 
   
Arthur Bertagnolli
 
Title:
Chief Executive Officer and Chief Financial Officer
 
 
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