Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2011
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 000-26317
HINTO ENERGY, INC.
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(Exact name of registrant as specified in its charter)
Wyoming 84-138496
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
7609 Ralston Road, Arvada, CO 80002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303)647-4850
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class registered Name of each exchange
on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
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(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark whether the registrant (1) has 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files)
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
|X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
Large accelerated filer [___] Accelerated filer [___] Non-accelerated filer
[___] Smaller reporting company [_X_]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
On April 11, 2012, the 5,467,080 shares of common stock held by non-affiliates
had a value of $5,740,434 based on the average closing bid and ask of $1.05.
There were 13,925,931 shares issued and outstanding of the registrant's Common
Stock as of April 11, 2012.
Page
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TABLE OF CONTENTS
PART I
ITEM 1 Business 1
ITEM 1 A. Risk Factors 10
ITEM 1 B. Unresolved Staff Comments 17
ITEM 2 Properties 18
ITEM 3 Legal Proceedings 18
ITEM 4 Mine and Safety Disclosure
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities 19
ITEM 6 Selected Financial Data 22
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 22
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 27
ITEM 8 Financial Statements and Supplementary Data 27
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 27
ITEM 9 A. Controls and Procedures 27
ITEM 9 A(T). Controls and Procedures
ITEM 9B Other Information 28
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 29
ITEM 11 Executive Compensation 32
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 39
ITEM 13 Certain Relationships and Related Transactions, and Director
Independence 40
ITEM 14 Principal Accounting Fees and Services 43
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 44
SIGNATURES 46
Note about Forward-Looking Statements
This From 10-K contains forward-looking statements, such as statements relating
to our financial condition, results of operations, plans, objectives, future
performance and business operations. These statements relate to expectations
concerning matters that are not historical facts. These forward-looking
statements reflect our current views and expectations based largely upon the
information currently available to us and are subject to inherent risks and
uncertainties. Although we believe our expectations are based on reasonable
assumptions, they are not guarantees of future performance and there are a
number of important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. By making
these forward-looking statements, we do not undertake to update them in any
manner except as may be required by our disclosure obligations in filings we
make with the Securities and Exchange Commission under the Federal securities
laws. Our actual results may differ materially from our forward-looking
statements.
PART I
ITEM 1. BUSINESS
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General
The following is a summary of some of the information contained in this
document. Unless the context requires otherwise, references in this document to
"Hinto" or the "Company" are to Hinto Energy, Inc.
DESCRIPTION OF BUSINESS
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History of Hinto Energy, Inc.
Our Company, Hinto Energy, Inc., was formed February 13, 1997, as Garner
Investments, Inc. On August 18, 2012, we amended our Articles of Incorporation
to change our name to Hinto Energy, Inc. and to authorize 25,000,000 shares of
preferred stock. We were organized to engage in the acquisition, exploration,
and if warranted, development of oil and gas prospects in the rocky mountain
region. Our main emphasis will be to acquire, either by lease, farmout, or
purchase, an interest in oil or gas prospects or properties for exploration,
when available, with third parties.
COMPANY OVERVIEW
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We have been inactive during the last 5 years. We have changed from a farmout
business to actively commence evaluation and possibly exploration of oil and gas
prospects. We had a farmout interest in one lease. There was no producing
acreage and no reserves. On April 30, 2011, the farmout agreement expired.
Prior to January 2012, we had minimal operations that were focused mainly on
administrative activities and the identification of potential oil and gas
prospects. On January 23, 2012, we acquired 100% of the issued and outstanding
common stock of South Uintah Gas Properties, Inc. ("South Uintah") pursuant to
the Share Purchase and Exchange Agreement ("the Share Exchange Agreement")
entered into on July 27, 2011, at the time South Uintah was our majority
shareholder, as discussed below.
1
Change of Control
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On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 shares of the Company from its then majority
shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah has agreed to return the remaining 2,700,000 shares of
common stock to the Company. We retired such shares to treasury, after the
closing of transaction.
Share Acquisition and Exchange Agreement
----------------------------------------
On July 27, 2011, we entered into a Share Exchange and Acquisition Agreement
with South Uintah and the South Uintah shareholders. On January 23, 2012, we
entered into an Amended Share Exchange and Acquisition Agreement ("the Amended
Share Exchange Agreement"). Pursuant to the Amended Share Exchange Agreement, we
agreed to issue shares of the Company's restricted common stock for 100% of the
issued and outstanding common stock of South Uintah. The shares are to be
exchanged on a one for one basis. As a result, South Uintah became a
wholly-owned subsidiary of the Company.
In addition to the exchange of common stock, we have agreed to exchange on a one
for one basis the following outstanding debt and equity instruments with those
of our own. The table below sets forth the equity that is being exchanged.
Type of Equity South Uintah Balance To Be Issued By Hinto
----------------------------------- ------------------------ ---- -------------------------
Common Stock 11,446,931 shares 11,446,931 shares
Warrants (1) 6,700,000 6,700,000
Debt instruments (2) $375,000 $375,000
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(1) The warrants have exercise prices ranging from $0.50 to $3.00 per share and
terms ranging from 2 to 3 years.
(2) The debt instrument has a term of two years.
At the time of the acquisition, George Harris, Gary Herick, Max Sommer and Kevin
Blair, officers and directors of Hinto, were and are officers, directors and
shareholders of South Uintah. Mr. David Keller, a director of Hinto, was also a
shareholder of South Uintah.
The effective date of the acquisition is December 31, 2011, with Hinto being the
legal acquirer. However, since Hinto is a public company, which had nominal
activity, the acquisition has been treated as a recapitalization of South
Uintah. Though Hinto was the legal acquirer in the merger, South Uintah was the
accounting acquirer since its shareholders gained control of Hinto. Therefore at
the date of the merger the historical financial statements of South Uintah
became those of Hinto. As a result for the financial statements issued on or
after the January 23, 2012 merger date will reflect, the historical financial
statements of South Uintah and supersede any prior financial statements of
Hinto.
2
South Uintah Gas Properties, Inc. was incorporated in the state of Colorado on
March 8, 2011. South Uintah was organized to operate as an independent oil and
gas company which would engage in the acquisition, exploration, development,
production and sale of natural gas and crude oil. Selected managed risk
exploration ventures would also be considered from time to time. The core area
of operation is the Rocky Mountain region, which contains all of our areas of
interest.
With the acquisition of South Uintah, the Company intends to strive to be a low
cost and effective producer of hydrocarbons and intends to develop the business
model and corporate strategy as discussed herein.
The Company's approach to lease acquisition, development and production is
founded on the discipline of only acquiring leases in areas of proven
production. In most cases the leases that are under consideration have at one
time contained producing oil or gas wells and currently have production or
shut-in wells that are viable for work over and or re-completion. This managed
risk approach greatly reduces the risk normally associated with oil and gas
development. There are hundreds of wells in our area of interest that meet these
criteria. In many instances, the wells were shut-in during a period of declining
oil and gas prices and in most cases are ideal for our business model. Our
business model is simple; strict adherence to lease acquisition surrounded by
proven production, offering well workovers, re-completion, and enhanced oil
recovery opportunities in the known producing formations, with long term
production potential at a low cost of development, maintenance, and operation.
The Company is not an exploration company, per se, rather it seeks leases with
discovered oil and gas with current or prior production.
One strategy that is quickly growing in prominence and application with respect
to petroleum is to use a development program approach. We describe our
development plan approach as a set of techniques utilizing the injection of
specific fluids such as: water, steam, natural gas, carbon dioxide, nitrogen,
and various chemicals and surfactants intended to increase the amount of oil
that can ultimately be extracted from any oil field. Many oil exploration and
production companies are using development program approaches to maximize the
potential of old oil fields.
Our business operations are in the development, production, and low risk
exploration of oil and gas including unconventional natural gas, in the Rocky
Mountain region of the continental United States; specifically, in the Rocky
Mountain area of Utah, Colorado, Montana and Wyoming.
At this time, we are in the early stage of operational activities and do not
have production. We are currently evaluating numerous development and
exploration projects and potential production acquisitions through our
experienced management.
Current Private Offering Efforts
--------------------------------
We have conducted a Private Offering of shares of our restricted Common Stock
for capital. We intend to raise up to $5,000,000 in the next twelve months with
a structure not yet determined in debt or equity. As of April 11, 2012, the
Company had sold approximately 830,000 shares, raising a total of $415,000. We
cannot give any assurances that we will be able to raise the full $5,000,000.
Further, we will need to raise additional funds to support not only our expected
budget, but our continued operations.
Additional Registration Statement
---------------------------------
The Company does intend to file a Registration Statement on Form S-1 pursuant to
Rule 429 of the Securities Act of 1933 to register 4,758,080 shares of the
Company's common stock held by existing shareholders and 2,000,000 shares
underlying warrants exercisable for shares of the Company's common stock at
$0.50 per share. The Company expects to file such Registration Statement in the
next 30 days.
3
Corporate Strategy
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Our corporate strategy in developing our operations and evaluating potential
acquisitions is as follows.
Pursue concurrent development of our core area of the Rocky Mountains.
We plan to spend up to $10,000,000 on acquisition, drilling,
re-completion, and development programs which were started in late 2011
and will continue in 2013. We plan to raise these funds in Private
Placements of Common Stock, Preferred Stock and/or convertible debt. We
expect that all of the 2012 and 2013 drilling capital expenditures will
be incurred in Utah, Colorado, Wyoming and Montana property and
development prospects. Many of our targeted prospects are in reservoirs
that have demonstrated predictable geologic attributes and consistent
reservoir characteristics, which typically lead to more repeatable
drilling and re-completion results than those achieved through
wildcats.
Achieve consistent reserve growth through repeatable development
We intend to achieve consistent reserve growth over the next four years
through a combination of acquisitions and drilling. In 2012, we intend
to achieve reserve and production increases as a result of our
acquisition, drilling, re-completion and development programs. We
anticipate that the majority of future reserve and production growth
will come through the acquisition of production, the execution of our
drilling and re-completion program, and on development activities on
prospects of which we are aware, which include proved and unproved
locations. Our targets generally will consist of locations in fields
that demonstrate low variance in well performance, which leads to
predictable and repeatable field development.
Our reserve estimates, if any, may change continuously and we intend to
evaluate such reserve estimates internally on a frequent basis --
quarterly if warranted -- with independent engineering evaluation on an
annual basis. Deviations in the market prices of both crude oil and
natural gas and the effects of acquisitions, dispositions, development
and any successful exploration activities may have a significant effect
on the quantities and future values of our reserves, if any.
Maintain high percentage ownership and operational control over our asset base
We intend to retain a high degree of operational control over our asset
base, through a high average Working Interest or acting as the operator
in our areas of significant activity. This is designed to provide us
with controlling interests in a multi-year inventory of drilling
locations, positioning us for reserve and production growth through our
drilling operations. We plan to control the timing, level and
allocation of our drilling capital expenditures and the technology and
methods utilized in the planning, drilling and completion process on
related targets. We believe this flexibility to opportunistically
pursue low risk exploration and development projects relating to
selected prospects may provide us with a meaningful competitive
advantage.
4
Acquire and maintain acreage positions in high potential resource plays
We believe that our intended acquisition and development in known
production prospects in the Rockies should be supplemented with
exploratory efforts that may lead to new discoveries in the future. We
intend to continually evaluate our opportunities and pursue potential
opportunities that take advantage of our strengths. We are examining
potential prospects in such areas as Utah, Wyoming and Montana, which
have gained substantial interest within the exploration and production
sector due to their relatively under-explored nature and the potential
for meaningful hydrocarbon recoveries. There are other mid-size and
large independent exploration and production companies conducting
drilling activities in these plays. We anticipate that meaningful
drilling and completion results will become known in our acquired Utah
properties during late 2012.
Pursue a disciplined acquisition strategy in our core areas of operation
We intend to also focus on growing through targeted acquisitions.
Although drilling prospects may provide us with the opportunity to grow
reserves and production without acquisitions, we continue to evaluate
acquisition opportunities, primarily in our core areas of operation.
Experienced management and operational team with advanced exploration and
development technology
Our senior management team has over 75 years of experience in the oil
and gas industry, and has a proven track record of creating value both
organically and through strategic acquisitions. Our management intends
to utilize the best available and fit-for-purpose technology,
sophisticated geologic and 3-D seismic models to enhance predictability
and reproducibility over significantly larger areas than historically
possible. We also intend to utilize state-of-the art drilling and
completion technology, as well as multi-zone, multi-stage artificial
stimulation ("frac") technology in completing wells to substantially
increase near-term production, resulting in faster payback periods and
higher rates of return and present values. Our team has successfully
applied these techniques, normally associated with completions in the
most advanced Rocky Mountain crude oil and natural gas fields, to
improve initial and ultimate production and returns, in other
companies.
PROPOSED OIL AND GAS PROJECTS
Our initial project will center on the Uintah Basin of Utah. The Uintah Basin
has long been known to contain petroleum and natural gas and has established
itself as a petroleum production hub in the United States. The Utah Division of
Oil, Gas, and Mining have recently approved a significant density increase for
the Altamont Bluebell Cedar Rim Oil Field, opening up expanded opportunities for
development drilling. This recent increased density allotment, may allow
extended access to some of the richest petroleum reserves in the United States,
that until now have remained unavailable for drilling.
Ever since the discoveries of large reserves in the late 1940s, the Uintah Basin
has proven to be a rich petroleum area for companies. From the time that the
initial boom of the region commenced, it has been in a state of growth. From the
late 1960's through the mid 1980's companies such as Exxon, Chevron Gulf, and
Shell Oil achieved remarkable success in the basin by drilling into
over-pressurized geological formations. Historically, these deep pay zones known
as the Wasatch and Wasatch Transition Formations have led to some of the most
productive onshore "flowing" oil wells in the continental U.S.
5
First Proposed Project - Natural Buttes
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South Uintah, in July 2011, acquired deep rights interests via farmout in
approximately 5,656 gross and 5,143 net acres within the Central part of the
Uintah Basin, at Natural Buttes, a prolific gas production area from multiple
hydrocarbon reservoirs such as: Castlegate, Mancos, Dakota, Buck Tongue, Emery,
Frontier and Prairie Canyon. The agreement was subsequently amended on December
31, 2011. The purchase price of the farmout interest was $478,200, made up of
$303,000 in cash, $175,000 in notes payable and $200 in common stock of South
Uintah.
The upper zones above approximately 9,800 feet are precluded in the farmout and
the overall targets will be zones from 9,800 feet to 16,000 feet. The well is
currently holding approximately 3,000 PSI in a 9" casing.
We intend to rework the existing well, Federal Conoco 22-1, which was drilled in
1972 to a depth of 20,053 feet. We believe that the well was shut in, primarily
due to low gas prices at the time mechanical production issues and lack of
proximity to a gas pipe line. We completed a lateral pipeline connection that is
approximately 2,000 foot long to the Andarko pipeline for production to commence
in the first quarter of 2012.
We have reviewed the drilling, geological and engineering files for the Conoco
Federal No. 22-1 Well. Our evaluation indicates that the well has significant
hydrocarbon potential in both the Frontier and the Upper Mancos Formations, and
that by utilizing best available completion and stimulation techniques,
commercial production, may be possible.
Well History: This well was drilled in 1972 to a total depth of 20,053, tested
in the Frontier Formation from 14,666 to 14,803 at a rate of 1.15 MMCFD
declining in 8 hours to 0.250 MMCFD, and temporarily abandoned. The well was
re-entered by Gilman A. Hill in 1980. In a Well Completion or Recompletion
Report filed with the USGS in 1981, the well had been cleaned out from the
original plug back depth of 14,108 feet to a new plugged back depth of 14,750
feet. It had been perforated from 14, 580 feet to 14,800 feet and tested at a
rate estimated to be 500 MCFD. In a Sundry Notices and Reports on Wells filed
with the State of Utah, Department of Natural Resources, Division of Oil, Gas,
and Mining in 1985, it was reported that the well had been placed in indefinite
suspended activity.
Planned Re-working Procedure: Our review of the available data indicates that
with the application of best available completion and stimulation practices, the
well could contain commercial reserves in both the Frontier and Upper Mancos
Formations. We plan to re-work the well and individually test these formations.
Our planned re-working procedure calls for the well to be connected to
Anadarko's gathering system, and the pressure to be reduced in increments over
time, until the well can be safely and effectively killed. This "unconventional
completion" will be closely monitored and controlled. Gas will be sold into the
Anadarko system during the time pressure is being reduced until the well can no
longer buck the back pressure of the pipeline system. This process of pressure
reduction could be completed within several days, or it could take several
months. Once the well is killed, a Workover Unit will be rigged-up, the casing
flange removed, and American Petroleum Institute ("API") approved wellhead and
tubing string will be installed. The well will be cleaned out and a testing
program of the Frontier and Upper Mancos Formations will be undertaken. The
process of pressure reduction and subsequent installation of a wellhead and
tubing, and the cleanout and initial testing is estimated to cost $300,000. Gas
sales should cover at least a portion of these costs.
6
Generally, adjacent to the farmout acreage that includes the Conoco Federal No.
22-1 Well is our adjacent acreage, which contains approximately 5,656 gross and
5,143 net acres. If we drill this acreage on 160 acre spacing - a maximum of 27
wells -- and if consistent and similar results are obtained, we believe there is
potential for significant of gas resources. No results can be guaranteed or
assured, and the financing is not in place for a drilling program of this
magnitude.
Available Infrastructure and Multi-well Drill Sites: The 22-1 well location is a
flat developed drill site with close highway access and an access road. This
infrastructure provides the Company with the ability to develop a significant
portion of its acreage from one drill site through slant drilling with
accompanying laterals. A pipeline connection has been installed at the time of
this filing. This environmentally responsible development plan is designed to
minimize surface impacts and is designed to provide a core platform for up to
twelve wells without additional roads, pipelines, rights of way, etc. Assuming
any initial success, the Company plans to drill continuously from this concrete
pad, using drilling technology developed and proved on Alaska's North Slope
which utilizes a moveable drilling rig, allowing efficient and low cost movement
of the rig for a short distance to subsequent wells, without dismantling the rig
and incurring all the downtime and mobilization costs.
Further, the Company intends to eventually have a liquids and gas processing
facility on site to provide all of its fuels for drilling (a major expense of
development) and an environmentally responsible program to diminish transport
traffic for fuels. Here, the concentrated platform for a 12 well development per
drill site will allow best available practices to be followed for the management
of the drilling, completion, and production operations.
Management believes that based on existing seismic data and nearby well control,
that a series of wells drilled in the Sections 22, 18, and 7 of T 9S R20E to a
depth of 16,000 feet would have a high probability of encountering multi-pay
zones containing commercial oil and gas reserves. The substantial variation in
reserves recovered per unit of pore volume in this area is due in large part to
the degree of formation damage induced by drilling and stimulation fluids, and
by problems associated with the inclusion of excessive perforations in borehole
resulting in co-mingling, both of which are preventable occurrences and, to a
lesser extent by lateral discontinuity of individual sand units. Management is
considering drilling the initial well in a state of significant under-balance to
prevent formation damage caused by invasion of mud and mud filtrate. Please keep
in mind that all zones above 9,800 feet are precluded from the farmout and our
overall targets will be zones from depths beginning at 9,800 feet down to depths
of 16,000 feet.
Total Field Development Costs are estimated to be $150 million to drill and
complete up to 27 wells over a 7.5 year development period. None of this
financing for drilling has been obtained and there is no assurance that such
financing could be obtained by the Company.
Subsequent to the date of the audit report for South Uintah, the Company
obtained an updated report as to its interests in the Uintah Basin property.
COMPETITION, MARKETS, REGULATION AND TAXATION
Competition.
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There are a large number of companies and individuals engaged in the exploration
for minerals and oil and gas; accordingly, there is a high degree of competition
for desirable properties. Almost all of the companies and individuals so engaged
have substantially greater technical and financial resources than we do.
6
Markets.
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The availability of a ready market for oil and gas discovered, if any, will
depend on numerous factors beyond our control, including the proximity and
capacity of refineries, pipelines, and the effect of state regulation of
production and of federal regulations of products sold in interstate commerce,
and recent intrastate sales. The market price of oil and gas are volatile and
beyond our control. The market for natural gas is also unsettled, and gas prices
have increased dramatically in the past four years with substantial fluctuation,
seasonally and annually.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is no assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There presently exists an oversupply of gas in the certain areas of
the marketplace due to pipeline capacity, the extent and duration of which is
not known. Such oversupply may result in restrictions of purchases by principal
gas pipeline purchasers.
Effect of Changing Industry Conditions on Drilling Activity.
------------------------------------------------------------
Lower oil and gas prices have caused a decline in drilling activity in the U.S.
from time to time. However, such reduced activity has also resulted in a decline
in drilling costs, lease acquisition costs and equipment costs, and an
improvement in the terms under which drilling prospects are generally available.
We cannot predict what oil and gas prices will be in the future and what effect
those prices may have on drilling activity in general, or on our ability to
generate economic drilling prospects and to raise the necessary funds with which
to drill them.
Federal Regulations.
--------------------
Governmental Regulation and Environmental Consideration.
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Oil and Gas: The oil and gas business in the United States is subject to
regulation by both federal and state authorities, particularly with respect to
pricing, allowable rates of production, marketing and environmental matters.
The production of crude oil and gas has, in recent years, been the subject of
increasing state and federal controls. No assurance can be given that newly
imposed or changed federal laws will not adversely affect the economic viability
of any oil and gas properties we may acquire in the future. Federal income and
"windfall profit" taxes have in the past affected the economic viability of such
properties.
The above paragraphs only give a brief overview of potential state and federal
regulations. Because we have only acquired specific properties, and because of
the wide range of activities in which we may participate, it is impossible to
set forth in detail the potential impact federal and state regulations may have
on us.
Compliance with Environmental Laws and Regulations.
--------------------------------------------------
Our operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. To date our compliance
with these regulations has had no material effect on our operations, capital,
earnings, or competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
7
The Department of Energy.
-------------------------
The Department of Energy Organization Act (Pub. L. No. 95-91) became effective
October 1, 1977. Under this Act various agencies, including the Federal Energy
Administration (FEA) and the Federal Power Commission (FPC), have been
consolidated to constitute the cabinet-level Department of Energy (DOE). The
Economic Regulatory Administration (ERA), a semi-independent administration
within the DOE, now administers most of the regulatory programs formerly managed
by the FEA, including oil pricing and allocation. The Federal Energy Regulatory
Commission (FERC), an independent agency within the DOE, has assumed the FPC's
responsibility for natural gas regulation.
Regulation and Pricing of Natural Gas.
-------------------------------------
Our operations may be subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) with respect to the sale of natural gas for resale
in interstate and intrastate commerce. State regulatory agencies may exercise or
attempt to exercise similar powers with respect to intrastate sales of gas.
Because of its complexity and broad scope, the price impact of future
legislation on the operation of us cannot be determined at this time.
Crude Oil and Natural Gas Liquids Price and Allocation Regulation.
------------------------------------------------------------------
Pursuant to Executive Order Number 12287, issued January 28, 1981, President
Reagan lifted all existing federal price and allocation controls over the sale
and distribution of crude oil and natural gas liquids. Executive Order Number
12287 was made effective as of January 28, 1981, and consequently, sales of
crude oil and natural gas liquids after January 27, 1981 are free from federal
regulation. The price for such sales and the supplier-purchaser relationship
will be determined by private contract and prevailing market conditions. As a
result of this action, oil which may be sold by us will be sold at deregulated
or free market prices. At various times, certain groups have advocated the
reestablishment of regulations and control on the sale of domestic oil and gas.
State Regulations.
-----------------
Our production of oil and gas, if any, will be subject to regulation by state
regulatory authorities in the states in which we may produce oil and gas. In
general, these regulatory authorities are empowered to make and enforce
regulations to prevent waste of oil and gas and to protect correlative rights
and opportunities to produce oil and gas as between owners of a common
reservoir. Some regulatory authorities may also regulate the amount of oil and
gas produced by assigning allowable rates of production.
Proposed Legislation.
---------------------
A number of legislative proposals have been and probably will continue to be
introduced in Congress and in the legislatures of various states, which, if
enacted, would significantly affect the petroleum industries. Such proposals and
executive actions involve, among other things, the imposition of land use
controls such as prohibiting drilling activities on certain federal and state
lands in roadless wilderness areas. At present, it is impossible to predict what
proposals, if any, will actually be enacted by Congress or the various state
legislatures and what effect, if any, such proposals will have. However,
President Clinton's establishment of numerous National Monuments by executive
order has had the effect of precluding drilling across vast areas of the Rocky
Mountain West.
8
Environmental Laws.
-------------------
Oil and gas exploration and development are specifically subject to existing
federal and state laws and regulations governing environmental quality and
pollution control. Such laws and regulations may substantially increase the
costs of exploring for, developing, or producing oil and gas and may prevent or
delay the commencement or continuation of a given operation.
All of our operations involving the exploration for or the production of any
minerals are subject to existing laws and regulations relating to exploration
procedures, safety precautions, employee health and safety, air quality
standards, pollution of stream and fresh water sources, odor, noise, dust, and
other environmental protection controls adopted by federal, state and local
governmental authorities as well as the right of adjoining property owners. We
may be required to prepare and present to federal, state or local authorities
data pertaining to the effect or impact that any proposed exploration for or
production of minerals may have upon the environment. All requirements imposed
by any such authorities may be costly, time consuming, and may delay
commencement or continuation of exploration or production operations.
It may be anticipated that future legislation will significantly emphasize the
protection of the environment, and that, as a consequence, our activities may be
more closely regulated to further the cause of environmental protection. Such
legislation, as well as future interpretation of existing laws, may require
substantial increases in equipment and operating costs to us and delays,
interruptions, or a termination of operations, the extent to which cannot now be
predicted.
Title to Properties.
--------------------
We are not the record owner of our interest in our properties and rely instead
on contracts with the owner or operator of the property, pursuant to which,
among other things, we have is the right to have our interest placed of record.
As is customary in the oil and gas industry, a preliminary title examination
will be conducted at the time unproved properties or interests are acquired by
us. Prior to commencement of drilling operations on such acreage and prior to
the acquisition of proved properties, we will conduct a title examination and
attempt extremely significant defects before proceeding with operations or the
acquisition of proved properties, as we may deem appropriate.
Our properties are subject to royalty, overriding royalty and other interests
customary in the industry, liens incident to agreements, current taxes and other
burdens, minor encumbrances, easements and restrictions. Although we are not
aware of any material title defects or disputes with respect to its undeveloped
acreage, to the extent such defects or disputes exist, we would suffer title
failures.
Backlog of Orders.
-----------------
We currently have no orders for sales at this time.
Government Contracts.
--------------------
We have no government contracts.
Company Sponsored Research and Development.
------------------------------------------
We are not conducting any research.
9
Number of Persons Employed.
--------------------------
As of April 11, 2012, Hinto had no full-time employees. George Harris, Gary
Herick, David Keller, Kevin Blair and Max Sommer, officers and directors of
Hinto, have Consulting and/or Corporate Advisor Agreements with our subsidiary
South Uintah. Officers and Directors work on an as needed part-time basis up to
25 hours per week.
ITEM 1A. RISK FACTORS
----------------------
FORWARD LOOKING STATEMENTS
This document includes forward-looking statements, including, without
limitation, statements relating to Hinto's plans, strategies, objectives,
expectations, intentions and adequacy of resources. These forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the Company's actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These factors include,
among others, the following: our ability of to implement our business strategy;
ability to obtain additional financing; Hinto limited operating history; unknown
liabilities associated with future acquisitions; ability to manage growth;
significant competition; ability to attract and retain talented employees; and
future government regulations; and other factors described in this filing or in
other of Hinto's filings with the Securities and Exchange Commission. Hinto is
under no obligation, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RISK FACTORS RELATED TO OUR COMPANY
Our business is a development stage company and unproven and therefore risky.
-----------------------------------------------------------------------------
We have only very recently begun operations under the business plan discussed
herein. Potential investors should be made aware of the risk and difficulties
encountered by a new enterprise in the oil and gas industry, especially in view
of the intense competition from existing businesses in the industry.
We have a lack of revenue history and investors cannot view our past performance
--------------------------------------------------------------------------------
since we are a start-up company.
--------------------------------
We were formed on February 13, 1997 for the purpose of engaging in any lawful
business and have adopted a plan to engage the acquisition, exploration, and if
warranted, development of natural resource properties. We have had no revenues
in the last five years. We are not profitable and the business effort is
considered to be in an early development stage. We must be regarded as a new or
development venture with all of the unforeseen costs, expenses, problems, risks
and difficulties to which such ventures are subject.
We are not diversified and we will be dependent on only one business.
---------------------------------------------------------------------
Because of the limited financial resources that we have, it is unlikely that we
will be able to diversify our operations. Our probable inability to diversify
our activities into more than one area will subject us to economic fluctuations
within the energy industry and therefore increase the risks associated with our
operations due to lack of diversification.
10
We can give no assurance of success or profitability to our investors.
----------------------------------------------------------------------
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits, or that the market price of
our common stock will be increased thereby.
We may have a shortage of working capital in the future which could jeopardize
--------------------------------------------------------------------------------
our ability to carry out our business plan.
-------------------------------------------
Our capital needs consist primarily of expenses related to geological
evaluation, general and administrative and potential exploration participation
and could exceed $750,000 in the next twelve months. Such funds are not
currently committed.
We will not receive any proceeds from the sale of the common shares held by the
--------------------------------------------------------------------------------
Selling Shareholders.
---------------------
We have issued a total of 6,700,000 shares of common stock underlying Warrants
exercisable at exercise prices ranging from $0.50 to $3.00 per share, which if
exercised; we would receive proceeds totaling $9,900,000 from the exercise of
the Warrants. We cannot provide any assurances that such warrants will be
exercised or when they will be exercised.
If we find oil and gas reserves to exist on a prospect we will need substantial
additional financing to fund the necessary exploration and development work.
Furthermore, if the results of that exploration and development work are
successful, we will need substantial additional funds for continued development.
We will not receive proceeds from this offering to conduct such work and,
therefore, we will need to obtain the necessary funds either through debt or
equity financing, some form of cost-sharing arrangement with others, or the sale
of all or part of the property. There is no assurance that we will be successful
in obtaining any financing. These various financing alternatives may dilute the
interest of our shareholders and/or reduce our interest in the properties. (See
"Use of Proceeds" and "Our Business")
We will need additional financing for which we have no commitments, and this may
--------------------------------------------------------------------------------
jeopardize execution of our business plan.
------------------------------------------
We have limited funds, and such funds may not be adequate to carry out the
business plan in the oil and gas industry. Our ultimate success depends upon our
ability to raise additional capital. We have not investigated the availability,
source, or terms that might govern the acquisition of additional capital and
will not do so until it determines a need for additional financing. If we need
additional capital, we have no assurance that funds will be available from any
source or, if available, that they can be obtained on terms acceptable to us. If
not available, our operations will be limited to those that can be financed with
our modest capital.
We may in the future issue more shares which could cause a loss of control by
--------------------------------------------------------------------------------
our present management and current stockholders.
------------------------------------------------
We may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be those new stockholders and management would control
our Company, and persons unknown could replace our management at this time. Such
an occurrence would result in a greatly reduced percentage of ownership of our
Company by our current shareholders, which could present significant risks to
investors.
11
We have warrants issued and outstanding which are convertible into our common
--------------------------------------------------------------------------------
stock. A conversion of such equity instruments could have a dilutive effect to
--------------------------------------------------------------------------------
existing shareholders.
----------------------
At April 11, 2012, we have warrants issued and outstanding exercisable into
6,700,000 shares of our common stock at ranges from $0.50 to $3.00 per share. We
will be registering 2,000,000 shares underlying our $0.50 Warrants in a
registration statement. We do not intend to register warrants held by our
officers and directors. The warrants are exercisable in whole or in part. The
2,000,000 shares underlying our warrants that will be separately registered,
upon the effectiveness of that registration statement, will be free trading
shares and available for immediate transfer. The exercise of the warrants into
shares of our common stock could have a dilutive effect to the holdings of our
existing shareholders.
We will depend upon management but we will have limited participation of
--------------------------------------------------------------------------------
management.
----------
Our directors are also acting as our officers. We will be heavily dependent upon
their skills, talents, and abilities, as well as several consultants to us, to
implement our business plan, and may, from time to time, find that the inability
of the officers, directors and consultants to devote their full-time attention
to our business results in a delay in progress toward implementing our business
plan. Consultants may be employed on a part-time basis under a contract to be
determined.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, our officers and directors may have
potential conflicts including their time and efforts involved in participation
with other business entities. Each officer and director of our business is
engaged in business activities outside of our business, and the amount of time
they devote as Officers and Directors to our business will be up to 25 hours per
week. (See "Executive Team") Because investors will not be able to manage our
business, they should critically assess all of the information concerning our
officers and directors.
We do not know of any reason other than outside business interests that would
prevent them from devoting full-time to our Company, when the business may
demand such full-time participation.
Our officers and directors may have conflicts of interests as to corporate
--------------------------------------------------------------------------------
opportunities which we may not be able or allowed to participate in.
--------------------------------------------------------------------
Presently there is no requirement contained in our Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of our business to
disclose to us business opportunities which come to their attention. Our
officers and directors do, however, have a fiduciary duty of loyalty to us to
disclose to us any business opportunities which come to their attention, in
their capacity as an officer and/or director or otherwise. Excluded from this
duty would be opportunities which the person learns about through his
involvement as an officer and director of another company. We have no intention
of merging with or acquiring business opportunity from any affiliate or officer
or director.
12
We have agreed to indemnification of officers and directors as is provided by
--------------------------------------------------------------------------------
Wyoming Statute.
----------------
Wyoming Statutes provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities our behalf. We will also bear
the expenses of such litigation for any of our directors, officers, employees,
or agents, upon such person's promise to repay us therefore if it is ultimately
determined that any such person shall not have been entitled to indemnification.
This indemnification policy could result in substantial expenditures by us that
we will be unable to recoup.
Our directors' liability to us and shareholders is limited
----------------------------------------------------------
Wyoming Revised Statutes exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
RISK FACTORS RELATING TO OUR BUSINESS
Our business, the oil and gas business has numerous risks which could render us
--------------------------------------------------------------------------------
unsuccessful.
-------------
The search for new oil and gas reserves frequently results in unprofitable
efforts, not only from dry holes, but also from wells which, though productive,
will not produce oil or gas in sufficient quantities to return a profit on the
costs incurred. There is no assurance we will find or produce oil or gas from
any of the undeveloped acreage farmed out to us or which may be acquired by us,
nor are there any assurances that if we ever obtain any production it will be
profitable. (See "Business and Properties")
We have substantial competitors who have an advantage over us in resources and
--------------------------------------------------------------------------------
management.
-----------
We are and will continue to be an insignificant participant in the oil and gas
business. Most of our competitors have significantly greater financial
resources, technical expertise and managerial capabilities than us and,
consequently, we will be at a competitive disadvantage in identifying and
developing or exploring suitable prospects. Competitor's resources could
overwhelm our restricted efforts to acquire and explore oil and gas prospects
and cause failure of our business plan.
We will be subject to all of the market forces in the energy business, many of
--------------------------------------------------------------------------------
which could pose a significant risk to our operations.
------------------------------------------------------
The marketing of natural gas and oil which may be produced by our prospects will
be affected by a number of factors beyond our control. These factors include the
extent of the supply of oil or gas in the market, the availability of
competitive fuels, crude oil imports, the world-wide political situation, price
regulation, and other factors. Current economic and market conditions have
created dramatic fluctuations in oil prices. Any significant decrease in the
market prices of oil and gas could materially affect our profitability of oil
and gas activities.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There may, on occasion, be an oversupply of gas in the marketplace or
in pipelines, the extent and duration may affect prices adversely. Such
oversupply may result in reductions of purchases and prices paid to producers by
principal gas pipeline purchasers. (See "Our Business and Competition, Markets,
Regulation and Taxation.")
13
We believe investors should consider certain negative aspects of our operations.
--------------------------------------------------------------------------------
Dry Holes: We may expend substantial funds acquiring and potentially
participating in exploring properties which we later determine not to be
productive. All funds so expended will be a total loss to us.
Technical Assistance: We will find it necessary to employ technical assistance
in the operation of our business. As of the date of this Prospectus, we have not
contracted for any technical assistance. When we need it such assistance is
likely to be available at compensation levels we would be able to pay.
Uncertainty of Title: We will attempt to acquire leases or interests in leases
by option, lease, farmout or by purchase. The validity of title to oil and gas
property depends upon numerous circumstances and factual matters (many of which
are not discoverable of record or by other readily available means) and is
subject to many uncertainties of existing law and our application. We intend to
obtain an oil and gas attorney's opinion of valid title before any significant
expenditure upon a lease.
Government Regulations: The area of exploration of natural resources has become
significantly regulated by state and federal governmental agencies, and such
regulation could have an adverse effect on our operations. Compliance with
statutes and regulations governing the oil and gas industry could significantly
increase the capital expenditures necessary to develop our prospects.
Nature of our Business: Our business is highly speculative, involves the
commitment of high-risk capital, and exposes us to potentially substantial
losses. In addition, we will be in direct competition with other organizations
which are significantly better financed and staffed than we are.
General Economic and Other Conditions: Our business may be adversely affected
from time to time by such matters as changes in general economic, industrial and
international conditions; changes in taxes; oil and gas prices and costs; excess
supplies and other factors of a general nature.
Our business is subject to significant weather interruptions.
-------------------------------------------------------------
Our activities may be subject to periodic interruptions due to weather
conditions. Weather-imposed restrictions during certain times of the year on
roads accessing properties could adversely affect our ability to benefit from
production on such properties or could increase the costs of drilling new wells
because of delays.
We are subject to significant operating hazards and uninsured risk in the energy
--------------------------------------------------------------------------------
industry.
---------
Our proposed operations will be subject to all of the operating hazards and
risks normally incident to exploring, drilling for and producing oil and gas,
such as encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. We will maintain general liability
insurance but we have not obtained insurance against such things as blowouts and
pollution risks because of the prohibitive expense. Should we sustain an
uninsured loss or liability, or a loss in excess of policy limits, our ability
to operate may be materially adversely affected.
14
We are subject to Federal Income Tax laws and changes therein which could
--------------------------------------------------------------------------------
adversely impact us.
--------------------
Federal income tax laws are of particular significance to the oil and gas
industry in which we engage. Legislation has eroded various benefits of oil and
gas producers and subsequent legislation could continue this trend. Congress is
continually considering proposals with respect to Federal income taxation which
could have a material adverse effect on our future operations and on our ability
to obtain risk capital which our industry has traditionally attracted from
taxpayers in high tax brackets.
We are subject to substantial government regulation in the energy industry which
--------------------------------------------------------------------------------
could adversely impact us.
--------------------------
The production and sale of oil and gas are subject to regulation by state and
federal authorities, the spacing of wells and the prevention of waste. There are
both federal and state laws regarding environmental controls which may
necessitate significant capital outlays, resulting in extended delays,
materially affect our earnings potential and cause material changes in the in
our proposed business. We cannot predict what legislation, if any, may be passed
by Congress or state legislatures in the future, or the effect of such
legislation, if any, on us. Such regulations may have a significant affect on
our operating results.
RISK FACTORS RELATED TO OUR STOCK
The regulation of penny stocks by SEC and FINRA may discourage the tradability
--------------------------------------------------------------------------------
of our securities.
------------------
We are a "penny stock" company. Our securities are subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
15
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
We will pay no foreseeable dividends in the future.
---------------------------------------------------
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future.
Our investors may suffer future dilution due to issuances of shares for various
--------------------------------------------------------------------------------
considerations in the future.
-----------------------------
There may be substantial dilution to our shareholders purchasing in this
Offering as a result of future decisions of the Board to issue shares without
shareholder approval for cash, services, or acquisitions.
At April 11, 2012, we have warrants issued and outstanding exercisable into
6,700,000 shares of our common stock at ranges from $0.50 to $3.00 per share. We
intend to register 2,000,000 shares underlying our $0.50 Warrants in a
registration statement. We do not intend to register the warrants held by our
officers and directors. The warrants are exercisable in whole or in part. The
exercise of the warrants into shares of our common stock could have a dilutive
effect to the holdings of our existing shareholders.
The Company does intend to file a Registration Statement on Form S-1 pursuant to
Rule 429 of the Securities Act of 1933 to register 4,758,080 shares of the
Company's common stock held by existing shareholders and 2,000,000 shares
underlying warrants exercisable for shares of the Company's common stock at
$0.50 per share. The Company expects to file such Registration Statement in the
next 30 days.
Rule 144 sales in the future may have a depressive effect on our stock price.
-----------------------------------------------------------------------------
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering all of our outstanding shares so officers,
directors and affiliates will be able to sell their shares if this Registration
Statement becomes effective. Rule 144 provides in essence that a person who has
held restricted securities for six months, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the owner has held the restricted securities for a period of
six month. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
16
Our common stock may be volatile, which substantially increases the risk that
--------------------------------------------------------------------------------
you may not be able to sell your shares at or above the price that you may pay
--------------------------------------------------------------------------------
for the shares.
---------------
Because of the limited trading market for our common stock and because of the
possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. The inability to sell your shares in a rapidly
declining market may substantially increase your risk of loss because of such
illiquidity and because the price for our Securities may suffer greater declines
because of our price volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant transactions;
o Additions or departures of key personnel; and o Fluctuations in stock
market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
Any new potential investors will suffer a disproportionate risk and there will
--------------------------------------------------------------------------------
be immediate dilution of existing investor's investments.
---------------------------------------------------------
Our present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, any new potential investors will bear most of the risk of loss.
Our business is highly speculative and the investment is therefore risky.
-------------------------------------------------------------------------
Due to the speculative nature of our business, it is probable that the
investment in shares offered hereby will result in a total loss to the investor.
Investors should be able to financially bear the loss of their entire
investment. Investment should, therefore, be limited to that portion of
discretionary funds not needed for normal living purposes or for reserves for
disability and retirement.
ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
Not Applicable.
17
ITEM 2. PROPERTIES
-------------------
REAL ESTATE.
------------
None.
TITLE TO PROPERTIES.
--------------------
None.
OIL AND GAS PROPERTIES.
-----------------------
Subsequent to the date of the audit report of South Uintah at September 30,
2011, we obtained an updated report as to its interests in the Uintah Basin
property.
Oil and Gas properties, wells, operations and acreage*
Gas Wells Productive Acreage Undeveloped Acreage
----------------------------- --------------------------- ---------------------------
Gross Net Gross Net Gross Net
---------------- ------------ -------------- ------------ ------------- -------------
1 0.8 80 64 5,575 5,079
* Note - The one well has been shut in due to no available pipeline for gas
carriage. During January 2012, a lateral connection to a pipeline was completed.
The well is expected to begin gas production in the first quarter of 2012.
PATENTS.
--------
None.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
On June 30, 2011, Bridge Industries, Inc. ("Bridge") entered into a subscription
agreement with South Uintah, the now wholly-owned subsidiary the Company. The
Subscription Agreement provided for the purchase of a Secured Convertible
Promissory Note in the amount of $500,000, 1,000,000 shares of South Uintah's
restricted common stock and warrants exercisable for 1,000,000 shares of South
Uintah's common stock.
In September 2011, South Uintah terminated the Subscription Agreement, due
to a failure to pay in full. At the time of termination South Uintah had only
received $400,000 of the $500,000 in funds. South Uintah cancelled the shares of
its common stock; warrants and Secured Convertible Promissory Note. At December
31, 2011, $200,000 of the funds advanced by Bridge had been re-paid.
On December 28, 2011, Bridge filed a Complaint and Summons with the Eighteenth
Judicial Circuit in and for Seminole County, Florida against Hinto Energy, Inc.,
Case Number 2011-CA-005314.
18
The suit is requests the Court for declaratory judgments for the following:
1. The return of all monies owed to Bridge Industries, LLC under the Secured
Convertible Promissory Note of South Uintah Gas Properties, Inc., dated
June 30, 2011.
2. The value of the 1,000,000 shares of common stock and warrants exercisable
for 1,000,000 shares of the common stock of South Uintah Gas Properties,
Inc.
3. Compensation for services which according to Bridge Industries, LLC
includes development of a website, travel expenses and offering of services
at board of directors meetings.
The suit requests such declaratory judgments against both the Company and South
Uintah Gas Properties, Inc., both jointly and separately, even though South
Uintah Gas Properties, Inc. is not properly named in the action.
Due to the fact that this is in the early days of proceedings and that the
Company has not filed an answer or that discovery has not started, we can
neither evaluate the likelihood of an-unfavorable outcome nor can we estimate an
amount or range of potential loss, if any.
ITEM 4. MINING AND SAFETY DISCLOSURE.
--------------------------------------
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
--------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
Market Information
There is a limited public trading market for the common stock. On December 31,
2010, the Company's common stock was accepted for trading by FINRA on the OTCBB
and the Over The Counter Markets OTCQB and was assigned the symbol is "GVTS". In
August 2011, as result of the Company's name change to Hinto Energy, Inc. its'
symbol was changed to "HENI."
HIGH LOW
Quarter Ended:
December 31, 2011 $ 1.75 $ 1.50
September 30, 2011 $ -- $ --
June 30, 2011 $ -- $ --
March 31, 2011 $ -- $ --
HIGH LOW
Quarter Ended:
December 31, 2010 $ -- $ --
19
Holders
There are approximately 47 holders of record of Hinto's common stock as of
December 31, 2011.
Dividend Policy
Holders of the Company's common stock are entitled to receive such dividends as
may be declared by Hinto's board of directors. The Company has not declared or
paid any dividends on Hinto's common shares and it does not plan on declaring
any dividends in the near future. The Company currently intends to use all
available funds to finance the operation and expansion of its business.
Recent Sales of Unregistered Securities
During the year ended December 31, 2010, the Company did not make any sales of
its unregistered securities.
During the year ended December 31, 2011, the Company made the following sales of
its unregistered shares.
NO. OF
DATE OF SALE TITLE OF SECURITIES SHARES CONSIDERATION CLASS OF PURCHASER
======================= ===================== ============= ======================== =====================
10/1/2011 through Common Shares 420,000 $210,000 Business Associates
12/31/2011
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D of the Securities Act
of 1933, as amended (the "1933 Act"). All of the individuals and/or entities
that purchased the unregistered securities were primarily existing shareholders,
known to the Company and its management, through pre-existing business
relationships, as long standing business associates. All purchasers were
provided access to all material information, which they requested, and all
information necessary to verify such information and were afforded access to
management of the Company in connection with their purchases. All purchasers of
the unregistered securities acquired such securities for investment and not with
a view toward distribution, acknowledging such intent to the Company. All
certificates or agreements representing such securities that were issued
contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being
first registered or otherwise exempt from registration in any further resale or
disposition.
20
Subsequent to year end, the Company has made the following unregistered
issuances of its securities.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------------ ------------------------ ---------------- ------------------------------ ----------------------
Shares of South Uintah
pursuant to the Amended Shareholders of
1/23/12 Share Exchange and South Uintah Gas
Common Shares 11,446,931 Acquisition Agreement Properties
Warrants of South Uintah
pursuant to the Amended Warrant holders of
1/23/12 Share Exchange and South Uintah Gas
Warrants 2,000,000 Acquisition Agreement Properties
Warrant holders of
Warrants of South Uintah South Uintah Gas
1/23/12 pursuant to the Amended Properties
Warrants 4,700,000 Share Exchange and (Directors and
Acquisition Agreement Officers)
2/29/12 Common Shares 69,000 Services Business Associate
3/31/12 Common Shares 410,000 $205,000 Business Associate
Exemption From Registration Claimed
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D of the Securities Act
of 1933, as amended (the "1933 Act"). All of the individuals and/or entities
that purchased the unregistered securities were primarily existing shareholders,
known to the Company and its management, through pre-existing business
relationships, as long standing business associates and employees. All
purchasers were provided access to all material information, which they
requested, and all information necessary to verify such information and were
afforded access to management of the Company in connection with their purchases.
All purchasers of the unregistered securities acquired such securities for
investment and not with a view toward distribution, acknowledging such intent to
the Company. All certificates or agreements representing such securities that
were issued contained restrictive legends, prohibiting further transfer of the
certificates or agreements representing such securities, without such securities
either being first registered or otherwise exempt from registration in any
further resale or disposition.
Issuer Purchases of Equity Securities
Hinto did not repurchase any shares of its common stock during the year ended
December 31, 2011.
21
On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 common shares of the Company from its then
majority shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah has agreed to return the remaining 2,700,000 shares of
common stock to the Company. We retired such shares to treasury, after the
closing of the transaction
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desire to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward-looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward-looking statements.
The independent registered public accounting firm's report on the Company's
financial statements as of December 31, 2011, and for each of the years in the
two-year period then ended, includes a "going concern" explanatory paragraph,
that describes substantial doubt about the Company's ability to continue as a
going concern.
PLAN OF OPERATIONS
------------------
We had no operations prior to 2011 and we did not have any revenues during the
fiscal years ended December 31, 2011, 2010 and 2009. We did not recognize any
income in the years ended December 31, 2011 and 2010. We have minimal capital,
moderate cash and only our intangible assets which consist of our business plan,
relationships, and contacts. We are illiquid and need cash infusions from
investors or shareholders to provide capital, or loans from any sources, none of
which have been arranged nor assured.
During the years ended December 31, 2011 and 2010, our operations were focused
on the listing of the Company's common stock on the OTCBB and the maintenance of
our accounting records and the beginnings of oil and gas exploration prospect
evaluations.
22
During the 2012 fiscal year, the Company intends to continue its efforts to
acquire, either by lease, farmout, or purchase, interests in oil or gas
prospects or properties for development, production, and low risk exploration,
when available, by itself, or with third parties. The Company intends to
continue to raise funds to support the efforts through the sale of its equity
securities, and occasionally through commercial debt.
Expected 2012 Budget - 12 months
--------------------------------
Development of connection, rework, recompletion, 3 well program $1,500,000
Working Capital $1,300,000
Acquisitions $1,000,000
Payment of Debt $375,000
General and Administrative Expenses:
Legal and Accounting/Auditing $157,000
Consulting $495,000
Filing Fees (State, SEC, etc.) $7,500
Travel $60,000
Interest $66,000
Miscellaneous $405,000
--------------------
TOTAL $5,000,000
The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional capital to support its
budget. The Company has no revenues to date in the oil and gas exploration,
development and production business.
We have conducted a Private Offering of shares of our restricted Common Stock
for capital. We intend to raise up to $5,000,000 in the next twelve months with
a structure not yet determined in debt or equity. As of April 11, 2012, the
Company had sold approximately 830,000 shares, raising a total of $415,000. We
cannot give any assurances that we will be able to raise the full $5,000,000 to
fund the budget. Further, we will need to raise additional funds to support not
only our expected budget, but our continued operations. We cannot make any
assurances that we will be able to raise such funds or whether we would be able
to raise such funds with terms that are favorable to us.
We will not receive any proceeds from sales of shares by selling shareholders.
Furthermore, given that we have limited operating history and no revenues, it is
unlikely that our warrants will be exercised in the foreseeable future.
We make no assurance that all the warrants will be exercised. We have not
included any funds from the sale of warrants in our 2012 operating plan and
budget. If any warrants are exercised in 2012, the funds received from such
exercised warrants would be used as working capital and for oil and gas
acquisition and development.
23
Our plan of operations is as follows:
MILESTONES
---------------------------------------- -- ------------------------------------------------------------------------
1st Quarter 2012 Completion of share exchange and acquisition with South Uintah;
Raise funds through a private placement; and
Gas well hookup to pipeline.
---------------------------------------- -- ------------------------------------------------------------------------
---------------------------------------- -- ------------------------------------------------------------------------
2nd Quarter 2012 Development of South Uintah properties;
Commencement of Recompletion Operations;
Identification of possible oil and gas prospect candidates; and
Seeking Additional Capital of Company
---------------------------------------- -- ------------------------------------------------------------------------
---------------------------------------- -- ------------------------------------------------------------------------
3rd Quarter 2012 Continuation of Recompletion Operations;
Dependent upon receipt of Additional Capital the acquisition of
additional oil and gas prospects
---------------------------------------- -- ------------------------------------------------------------------------
---------------------------------------- -- ------------------------------------------------------------------------
4th Quarter 2012 Continuation of Recompletion Operations and development of
any new oil and gas prospects
---------------------------------------- -- ------------------------------------------------------------------------
We will need substantial additional capital to support our proposed future
energy operations. We have no revenues. We have no committed source for any
funds as of date here. No representation is made that any funds will be
available when needed. In the event funds cannot be raised when needed, we may
not be able to carry out our business plan, may never achieve sales or royalty
income, and could fail in business as a result of these uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
RESULTS OF OPERATIONS
---------------------
For the Year Ended December 31, 2011 Compared to the Year Ended December 31,
2010
During the years ended December 31, 2011 and 2010, Hinto did not recognize
revenues from its operational activities. A result of the Company's
acquisition of South Uintah Gas Properties in January 2012 and since the 22-1
gas well has been attached to a pipeline, the Company believes it should begin
to recognize at least minimal minimal revenues during the year ended December
31, 2012.
During the year ended December 31, 2011, we incurred total operational expenses
of $345,894 compared to $25,435 during the year ended December 31, 2010. The
increase of $320,459 was a direct result of the Company's increased operational
activities relating to the acquisition of South Uintah. During the year ended
December 31, 2011, professional fees increased $67,034, office expenses
increased $10,607 and the Company incurred an impairment of $3,500 on the
farmout agreement that expired in April 2011. During the year ended December 31,
2011, the Company also recognized an impairment charge of $239,318 on its
intercompany receivable with South Uintah, the Company's majority shareholder at
December 31, 2011.
During the year ended December 31, 2011, we recognized a net loss of $347,949
compared to $25,435 during the year ended December 31, 2010. The increase of
$322,514 was a result of the $320,459 increase in operational expenses,
discussed above, combined with the $2,055 increase in interest expense.
24
LIQUIDITY
---------
At December 31, 2011, the Company had total current assets of $477,742,
consisting solely of cash. At December 31, 2011, the Company had total current
liabilities of $77,791, consisting of accounts payable of $35,486, accrued
liabilities of $2,305 and a stock subscription payable of $40,000. At December
31, 2011, the Company had working capital of $399,951.
During the year ended December 31, 2011, the Company used $322,258 in its
operations. During the year ended December 31, 2011, we recognized a net loss of
$347,949, which was reconciled for the non-cash items consisting of a $3,500
impairment on a farmout agreement and the $239,318 impairment on the
intercompany receivable.
During the year ended December 31, 2010, the Company used $1,500 in its
operations.
During the years ended December 31, 2011 and 2010, the Company did not use or
receive any funds from its investing activities.
During the year ended December 31, 2011, the Company received $800,000 from its
financing activities. During the year ended December 31, 2010, the Company
received $1,500 from its financing activities.
In December 2011, the Company issued a $500,000 secured convertible note payable
with a single investor. The note has a term of 3 years, an interest rate of 10%,
is convertible into the Company's common stock at $1 per share and is secured by
oil and gas leases held by South Uintah.
At December 31, 2011, the Company has $40,000 classified as stock subscriptions
payable, representing subscriptions for 80,000 shares of common stock sold at a
price of $.50 per common share for which the underlying common shares have not
yet been issued.
During the year ended December 31, 2011, the Company issued 420,000 shares of
its common stock to investors that purchased $210,000 of the securities at a
price of $.50 per common share.
Short Term.
On a short-term basis, we have not generated any revenue or revenues sufficient
to cover operations. Based on prior history, we will continue to have
insufficient revenue to satisfy current and recurring liabilities the Company
continues exploration activities.
Capital Resources
The Company has only common stock as its capital resource.
We have no material commitments for capital expenditures within the next year,
however if operations are commenced, substantial capital will be needed to pay
for participation, investigation, exploration, acquisition and working capital.
Need for Additional Financing
We do not have capital sufficient to meet its cash needs. The Company will have
to seek loans or equity placements to cover such cash needs. Once exploration
commences, its needs for additional financing is likely to increase
substantially.
25
No commitments to provide additional funds have been made by the Company's
management or other stockholders. Accordingly, there can be no assurance that
any additional funds will be available to us to allow us to cover the Company's
expenses as they may be incurred.
The Company will need substantial additional capital to support its proposed
future energy operations. We have no revenues. The Company has no committed
source for any funds as of the date hereof. No representation is made that any
funds will be available when needed. In the event funds cannot be raised when
needed, we may not be able to carry out our business plan, may never achieve
sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. The Company
may, in any particular case, decide to participate or decline participation. If
participating, we may pay its proportionate share of costs to maintain the
Company's proportionate interest through cash flow or debt or equity financing.
If participation is declined, the Company may elect to farmout, non-consent,
sell or otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
Critical Accounting Policies
----------------------------
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
Oil and Gas Properties, Full Cost Method
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present 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. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
26
Revenue Recognition
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
Our operations do not employ financial instruments or derivatives which are
market sensitive. Short term funds are held in non-interest bearing accounts and
funds held for longer periods are placed in interest bearing accounts. Large
amounts of funds, if available, will be distributed among multiple financial
institutions to reduce risk of loss. The Company's cash holdings do not generate
interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The audited financial statements of Hinto Energy, Inc. for the years ended
December 31, 2011 and 2010, and the period from February 13, 1997 (inception)
through December 31, 2011, appear as pages F-1 through F-10, at the end of the
document.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------
The Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company's management,
including the Chief Financial Officer as appropriate to allow timely decisions
regarding required disclosure.
Management, after evaluating the effectiveness of the Company's disclosure
controls and procedures as defined in Exchange Act Rules 13a-14(c) as of
December 31, 2011 (the "Evaluation Date") concluded that as of the Evaluation
Date, the Company's disclosure controls and procedures were effective to ensure
that material information relating to the Company would be made known to them by
individuals within those entities, particularly during the period in which this
annual report was being prepared and that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC's rules and forms.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Hinto's management is responsible for establishing and maintaining adequate
internal control over financial reporting for the company in accordance with as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company's internal control over financial
reporting includes those policies and procedures that:
27
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
Company's assets;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that the Company's receipts and
expenditures are being made only in accordance with authorizations of
Hinto's management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that
could have a material effect on Hinto's financial statements.
We have identified certain material weaknesses in internal control over
financial reporting relating to a shortage of accounting and reporting personnel
due to limited financial resources and the size of our Company, as detailed
below:
(1) The Company currently does not have, but is in the process of developing
formally documented accounting policies and procedures, which includes
establishing a well-defined process for financial reporting.
(2) Due to the limited size of our accounting department, we currently lack the
resources to handle complex accounting transaction. We believe this
deficiency could lead to errors in the presentation and disclosure of
financial information in our annual, quarterly, and other filings.
(3) As is the case with many companies of similar size, we currently a lack of
segregation of duties in the accounting department. Until our operations
expand and additional cash flow is generated from operations, a complete
segregation of duties within our accounting function will not be possible.
Considering the nature and extent of our current operations and any risks or
errors in financial reporting under current operations and the fact that we have
been a small business with limited employees, such items caused a weakness in
internal controls involving the areas disclosed above.
We have concluded that our internal controls over financial reporting were
ineffective as of December 31, 2010, due to the existence of the material
weaknesses noted above that we have yet to fully remediate.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to permanent rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal year ended December 31, 2011, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
---------------------------
Not applicable.
28
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
----------------------------------------------------------------
The following table sets forth information as to persons who currently serve as
Hinto Energy, Inc. directors or executive officers, including their ages as of
December 31, 2011.
Name Age Position Term
------------------------ -------- ----------------------------------------------------------------- -----------
George Harris 62 Chief Financial Officer and Director Annual
Gary Herick 48 Vice President of Finance, Secretary and Director Annual
J. David Keller 57 Vice President of Exploration and Development and
Director Annual
Max Sommer 80 Director Annual
Kevin Blair 40 Director Annual
All current directors of the Company were elected by the shareholders on August
18, 2011. The Company's officers were appointed by the Board of Directors on
August 18, 2011. With the exception of Mr. Keller, the above officers and
directors hold the same positions with South Uintah, Hinto's wholly-owned
subsidiary.
The officers are elected by the board of directors at the first meeting after
each annual meeting of the Company's shareholders and hold office until their
successors are duly elected and qualified under Hinto's bylaws.
The directors named above will serve until the next annual meeting of Hinto's
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the board of directors absent any employment agreement. There is no
arrangement or understanding between the directors and officers and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
Biographical Information
------------------------
GEORGE HARRIS, CHIEF FINANCIAL OFFICER, TREASURER & DIRECTOR. Mr. Harris
currently serves as the Chief Financial Officer of South Uintah Gas Properties,
Inc. From January 2008 to April 2009, Mr. Harris served as the President and
Chief Financial Officer for China Wi-Max Communications, Inc. Mr. Harris served
as a Senior Vice President at Falkenberg Capital Corporation, a boutique
investment bank to the telecommunications community from March 2006 to January
2008. Mr. Harris' experience includes active roles in several technology
startups and in his role at Falkenberg, he worked closely with companies that
deliver telecommunications and data services utilizing wired and wireless
technologies. Mr. Harris is also the President of Harris Products, Inc. and
Integrated Components, Inc., where he developed and managed component
manufacturing facilities based in the United States and Southern China. Mr.
Harris was formerly the Chief Financial Officer at Farm Credit Banks of St.
Louis, Missouri and managed a large financial organization with Lucent
Technologies.
Mr. Harris has been a Certified Public Accountant since 1977 in the state of
California, where he worked for Arthur Young and Company, and earned a Bachelor
of Science degree in Accounting and an MBA from Pepperdine University.
29
GARY HERICK, VICE PRESIDENT OF FINANCE, SECRETARY & DIRECTOR. Mr. Herick has
been a licensed Securities Representative since 1985, involved in different
aspects of the business including: IPO's, Retail Accounts, Investment Advisory
Accounts, Commodities, Alternative Investments and Venture Capital Funding. From
2001 to 2005, he handled accounts as a Registered Investment Advisor
specializing in Alternative Investments and Stock Analysis for managed accounts
with Herick Asset Management.
Mr. Herick is currently licensed with Capwest Securities, a FINRA member firm
and resides in Edwards, Colorado. He holds a Series 7 and 63 Licenses and is
also a Registered Investment Advisor Representative.
He attended the University of Florida from 1981-1985 and holds a BS in
marketing.
J. DAVID KELLER, VICE PRESIDENT OF EXPLORATION & DEVELOPMENT & DIRECTOR. Mr.
Keller has been the Managing Partner and Exploration and Development Manager of
Powderhorn Energy of Boulder, Colorado. Mr. Keller founded Powderhorn Energy in
2009. Powderhorn Energy focuses on oil and gas opportunities in the Rocky
Mountain Basins. Mr. Keller is responsible for structuring projects to achieve
and surpass industry average profitability, cash flow and, especially, upside
potential. From 2006 through May 2009, Mr. Keller was the Chief Geophysicist for
TTI Exploration in Boulder, Colorado. While there he was responsible for all
geoscience technology for project evaluation, exploration, development and
exploitation.
Mr. Keller received his Bachelor of Science in Geoscience from the University of
Texas, Dallas in 1980 and his Master of Science in Geophysics from the Colorado
School of Mines in 1987.
MAX P. SOMMER, DIRECTOR. Since 1997, Mr. Sommer has served as the President,
Rose Run Energy Company, Inc., providing Consulting and Oil and Gas Production
activities mostly in the Appalachian Region. Mr. Sommer provided prospects to
Oil and Gas Partnership which drilled and participated in 140 wells. Rose Run
Energy sold its production in 2009. Mr. Sommer served as a director of
Intercontinental Energy Corporation from 1976-1977 and as a director of Gerber
Energy Corporation from 1977-1980, both public reporting companies.
Mr. Sommer's received his doctorate degree in Geology-Paleontology in 1955 from
the University of Basel, Switzerland.
Mr. Sommer's brings to the Board of Directors fifty-five years of experience in
operations and management of geological and geophysical exploration activities
for oil, gas and minerals in various countries.
KEVIN BLAIR, DIRECTOR. Mr. Blair has been the Principal and Attorney for General
Capital Partners, LLC of Denver, Colorado, since January 2010. There he has
complete business development responsibilities including strategic planning,
negotiation of agreements, acquisition of properties, supervision of
subcontractors, supervision of personnel, and financial reporting. He was a
Private Equity Broker at Capwest Securities, Inc. (Denver, Colorado, from
January 2007 to 2010), a federally licensed broker dealer specializing in
syndications of private debt and equity securities marketed exclusively to high
net worth clients for the purpose of acquiring real estate and energy
properties. He was an Attorney and Mergers & Acquisitions Intermediary at
Merchant Banking Associates, LLC (Denver, Colorado, from January 2000 to
December 2006).
Mr. Blair's education is as follows: LLM, University of Denver College of Law,
In Progress, Juris Doctorate, University of Denver College of Law, May 1994,
Bachelor of Science, Colorado School of Mines, Civil Engineering, May 1989.
30
His Skills, Licenses and Associations include: Admitted to the Colorado Bar,
Series 7 Federal Securities License, Series 63 Federal Securities License,
Completed Landman Training Course, Real Estate Broker in Colorado, Minnesota,
Alabama, and Louisiana, Member of the International Business Brokers
Association, Certified Business Intermediary and a Member of the Association for
Corporate Growth.
Our Officers and Directors prior to August 18, 2011 were:
Roy C. Smith, age 55, was the President and a Director of since the Company from
2006 through August 18, 2011. Mr. Smith attended the University of Wyoming and
Casper College. He earned an A.S.S. in Marketing. He began his career in the Oil
and Gas business with his father Charles B. Smith in Gillette, Wyoming. From
1978 until present he has been a self-employed independent Landman.
Michael R. Butler, age 57, was the Secretary/Treasurer and a Director of the
Company. Mr. Butler was employed for 19 years by Amoco Production Company, an
oil and gas producing company operating in the state of Wyoming. In 1997 and
1998, Mr. Butler has owned and operated a farm/ranch west of Casper, Wyoming.
Mr. Butler has been trained in and has experience in waterflood injection, oil
and gas producing operations, maintenance, and wetland development. Mr. Butler
is a Director of Hindsight, Inc. dba Oil City Printers, a commercial printing
business (since 1988). Mr. Butler was a Director and Secretary/Treasurer of The
Art Boutique, Inc. (1996 to 2003), Phillips 44, Inc., (1998 - 2001) and Tempus,
Inc. (1997 - 2000).
Z.S. Merritt, age 83 was a Director of the Company. Mr. Merritt attended the
University of Wyoming as a Geology Major. He received a BS Degree in 1954 and an
MA Degree in 1958. From 1978 to 1994 Mr. Merritt worked with Viable Resources,
Inc. as an Exploration Manager, Officer and Director. Mr. Merritt has been an
independent consulting Geologist and Landman in Wyoming since 1994.
Committees of the Board of Directors
The Company is managed under the direction of its board of directors.
Executive Committee
The Company does not have an executive committee, at this time.
Audit Committee
The Company does not have an audit committee at this time.
Conflicts of Interest - General.
The Company's directors and officers are, or may become, in their individual
capacities, officers, directors, controlling shareholder and/or partners of
other entities engaged in a variety of businesses. Thus, there exist potential
conflicts of interest including, among other things, time, efforts and
corporation opportunity, involved in participation with such other business
entities. While each officer and director of the Company's business is engaged
in business activities outside of its business, the amount of time they devote
to our business will be up to approximately 25 hours per week.
31
Conflicts of Interest - Corporate Opportunities
Presently no requirement contained in the Company's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of the Company's
business to disclose to Hinto business opportunities which come to their
attention. The Company's officers and directors do, however, have a fiduciary
duty of loyalty to Hinto to disclose to it any business opportunities which come
to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
learns about through his involvement as an officer and director of another
company. The Company has no intention of merging with or acquiring an affiliate,
associate person or business opportunity from any affiliate or any client of any
such person.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2011, 2010 and 2009. The
table sets forth this information for Hinto Energy, Inc. including salary,
bonus, and certain other compensation to the Board members and named executive
officers for the past three fiscal years.
The compensation paid to Mr. Harris, Herick and Keller was paid by South Uintah
the Company's majority shareholder, at the time.
SUMMARY EXECUTIVES COMPENSATION TABLE
Non-equity Non-qualified
incentive deferred
Stock Option plan compensation All other
Salary Bonus awards awards compensation earnings compensation Total
Name & Position Year ($) ($) ($) ($) ($) ($) ($) ($)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
George Harris, CFO 2011 60,000 0 $55 0 0 0 0 60,055
(1)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
Gary Herick, VP of 2011 85,000 0 $200 0 0 0 0 85,200
Finance & Secretary
(2)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
J. David Keller, 2011 55,000 0 $52 0 0 0 0 55,052
VP of Exploration
& Development (3)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
Roy C. Smith, 2011 0 0 0 0 0 0 0 0
President (4)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
Michael R. Butler, 2011 0 0 0 0 0 0 0 0
Secretary &
Treasurer (4)
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
-------------------- -------- --------- -------- -------- ------- ------------- -------------- ------------- --------
(1) Mr. Harris was appointed the Chief Financial Officer on August 18,
2011. He serves in the same capacity for South Uintah. Mr. Harris
salary was paid pursuant to a consulting agreement with and by South
Uintah. Mr. Harris was issued 550,000 shares of the common stock of
South Uintah, prior to the merger for his services as an officer and
director of South Uintah. The shares had a value of $55, or $0.0001
(par value) as part of the merger, the shares were exchanged for an
equal number of shares of Hinto's common stock. Mr. Harris was also
issued warrants to purchase 550,000 shares of common stock of South
32
Uintah prior to the merger, which have been exchanged for warrants to
purchase Hinto's common stock at the same terms. The warrants are
subject to vesting terms and have a term of 3 years. Warrants for
350,000 shares have an exercise price of $1.00 per share and warrants
for 200,000 shares have an exercise price of $3.00 per share.
(2) Mr. Herick was appointed the Vice President of Finance and the
Secretary of the Company on August 2011. He serves in the same capacity
for South Uintah. Mr. Herick salary was paid pursuant to a consulting
agreement with and by South Uintah. Mr. Herick was issued 2,000,000
shares of common stock of South Uintah, prior to the merger for his
services and as founder of South Uintah. The shares had a value of
$200, or $0.0001 (par value) as part of the merger, the shares were
exchanged for an equal number of shares of Hinto. Arrowhead Consulting,
LLC, which Mr. Herick has control of, was issued a warrant to purchase
an additional 1,000,000 shares of common stock, which have been
exchanged for warrants to purchase Hinto's common stock at the same
terms. The warrant is subject to vesting terms and has a term of 3
years. The Warrant has an exercise price of $2.00 per share.
(3) Mr. J. David Keller was appointed the Vice President of Exploration and
Development on August 18, 2011. Mr. Keller holds the same position with
South Uintah. Mr. Harris was issued 525,000 shares of the common stock
of South Uintah, prior to the merger for his services as an officer and
director of South Uintah. The shares had a value of $52.50, or $0.0001
(par value) as part of the merger, the shares were exchanged for an
equal number of shares of Hinto's common stock. Mr. Keller was also
issued warrants to purchase 525,000 shares of common stock of South
Uintah prior to the merger, which have been exchanged for warrants to
purchase Hinto's common stock at the same terms. The warrants are
subject to vesting terms and have a term of 3 years. Warrants for
325,000 shares have an exercise price of $1.00 per share and warrants
for 200,000 shares have an exercise price of $3.00 per share.
(4) Mr. Smith and Mr. Butler resigned as officers of the Company on August
18, 2011.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
--------------------------------------------
The following table sets forth certain information concerning outstanding equity
awards held by the Chief Financial and the Company's most highly compensated
executive officers for the fiscal year ended December 31, 2011 (the "Named
Executive Officers"):
---------------- ------------------------------------------------------------- -------------------------------------------
Option Awards Stock awards
---------------- ------------------------------------------------------------- -------------------------------------------
Equity
incentive
Equity plan
incentive awards:
plan Market
awards: or
Equity Number payout
incentive of value of
plan Number Market unearned unearned
awards: of value of shares, shares,
Number of Number of shares shares units or units or
securities Number of securities or units of units other others
underlying securities underlying of stock of stock rights rights
unexercised underlying unexercised Option that that that that
options unexercised unearned exercise Option have not have not have not have not
(#) options (#) options price expiration vested vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
---------------- ------------ ------------- ------------- --------- ---------- ---------- ---------- ---------- ----------
George 0 0 0 0 0 550,000 962,500 0 0
Harris, (1)
---------------- ------------ ------------- ------------- --------- ---------- ---------- ---------- ---------- ----------
Gary Herick,
VP of Finance
(2) 0 0 0 0 0 2,000,000 3,500,000 0 0
---------------- ------------ ------------- ------------- --------- ---------- ---------- ---------- ---------- ----------
J. David
Keller, VP of
Exploration &
Development 0 0 0 0 0 525,000 918,750 0 0
---------------- ------------ ------------- ------------- --------- ---------- ---------- ---------- ---------- ----------
33
(1) Mr. Harris was appointed the Chief Financial Officer on August 18,
2011. Mr. Harris was issued warrants to purchase 550,000 shares of
common stock of South Uintah prior to the merger, which have been
exchanged for warrants to purchase Hinto's common stock at the same
terms. The warrants are subject to vesting terms and have a term of 3
years. Warrants for 350,000 shares have an exercise price of $1.00 per
share and warrants for 200,000 shares have an exercise price of $3.00
per share. At December 31, 2011, none of the shares underlying the
warrants have vested. The market value of the shares underlying the
warrants is based upon a closing market price of $1.75 on December 31,
2011.
(2) Mr. Herick was appointed the Vice President of Finance and the
Secretary of the Company on August 2011. Arrowhead Consulting, LLC,
which Mr. Herick has control of, was issued a warrant to purchase an
additional 1,000,000 shares of common stock, which have been exchanged
for warrants to purchase Hinto's common stock at the same terms. The
warrant is subject to vesting terms and has a term of 3 years. The
Warrant has an exercise price of $2.00 per share.
(3) Mr. J. David Keller was appointed the Vice President of Exploration and
Development on August 18, 2011. Mr. Keller was issued warrants to
purchase 525,000 shares of common stock of South Uintah prior to the
merger, which have been exchanged for warrants to purchase Hinto's
common stock at the same terms. The warrants are subject to vesting
terms and have a term of 3 years. Warrants for 325,000 shares have an
exercise price of $1.00 per share and warrants for 200,000 shares have
an exercise price of $3.00 per share.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
In August, 2011, the Board of Directors and the stockholders of Hinto approved
the 2011 Hinto Energy, Inc.'s Stock Option Award and Incentive Plan ("the 2011
Plan.") There are 2,000,000 shares of the Company's common stock reserved under
the 2011 Plan. During the year ended December 31, 2011, no options were issued
under the 2011 Plan.
Consulting Agreements with Officers and Directors of South Uintah
Messrs. George Harris, Gary Herick, Kevin Blair, J. David Keller and Max Sommer
have entered into Consulting Agreements with South Uintah for their services.
They do not have any such Agreements with Hinto.
Mr. Herick has entered into a Consulting Agreement on April 15, 2011 with South
Uintah to provide services to South Uintah as a director and secretary. The
Consulting Agreement has a term of 1 year unless terminated with 30 days notice
by either party. The Consulting Agreement provides for Mr. Herick to receive
$10,000 per month beginning July 1, 2011 to perform such services. In addition,
Mr. Herick was issued a warrant exercisable for 1,000,000 shares of South Uintah
common stock, which pursuant to the Amended Share Exchange Agreement were
exchanged for shares and warrants of Hinto.
Mr. Harris has entered into a Consulting Agreement on June 1, 2011 with South
Uintah to provide services to South Uintah as a director and Chief Financial
Officer. The Consulting Agreement has a term of 1 year unless terminated with 30
days notice by either party. The Consulting Agreement provides for Mr. Harris to
receive a minimum $5,000 per month beginning April 15, 2011 to perform such
services. In addition, Mr. Harris was issued 300,000 shares of South Uintah
common stock and a warrant exercisable for 300,000 shares of South Uintah common
stock, which pursuant to the Amended Share Exchange Agreement were exchanged for
shares and warrants of Hinto.
34
Mr. Kevin Blair has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 100,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto.
Mr. J. David Keller has entered into a Corporate Advisor/Consulting Agreement on
August 4, 2011 with South Uintah to provide services as a director and the Vice
President Exploration and Development to South Uintah. The Agreement has a term
of 1 year unless terminated with 30 days notice by either party. The Agreement
provides for a cash retainer of $5,000 for the month of July 2011 and then
$10,000 for each month thereafter. The Agreement provides for Mr. Keller to be
issued 300,000 shares of South Uintah common stock and a warrant exercisable for
300,000 shares of South Uintah common stock for such services, which pursuant to
the Amended Share Exchange Agreement were exchanged for shares and warrants of
Hinto. Mr. Keller became an employee of South Uintah on December 16, 2011, with
a monthly base salary of $10,000.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 200,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto.
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
We have no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
DIRECTOR COMPENSATION
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
The Company does not pay any Directors fees for meeting attendance.
35
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2011:
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Fees Non-equity Non-qualified
earned or incentive deferred
paid in plan compensation All other
cash Stock Option compensation earnings compensation Total
Name ($) awards ($) awards ($) ($) ($) ($) ($)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
George $60,000 $55 $ -0- $ -0- $ -0- $-0- $60,055
Harris (1)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Gary Herick $85,000 $200 $ -0- $ -0- $ -0- $ -0- $85,200
(1)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
J. David $55,000 $52 $ -0- $ -0- $ -0- $ -0- $55,052
Keller (1)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Kevin Blair $2,000 $32 $ -0- $ -0- $ -0- $ -0- $2,032
(1)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Max Sommer $2,000 $20 $ -0- $ -0- $ -0- $ -0- $2,020
(1)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Roy C. Smith $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
(2)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Michael R. $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
Butler (2)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
Z.S. Merritt $ -0- $ -0- $-0- $ -0- $-0- $ -0- $ -0-
(2)
-------------- ----------- ----------- ----------- --------------- --------------- ---------------- ---------
(1) Mr. Harris, Herick, Keller, Blair and Sommer were elected to the Board of
Directors on August 18, 2011. The compensation discussed in the table above
and in this footnote were paid by South Uintah.
Messrs. George Harris, Gary Herick, Max Sommer and Kevin Blair, officers
and directors of Hinto, were and are officers, directors and shareholders
of South Uintah, as such they were issued common shares of South Uintah and
warrants exercisable into common shares of South Uintah. Mr. David Keller,
a director of Hinto, was issued shares of South Uintah in connection with
services offered to South Uintah. As a result, they were issued shares and
warrants of Hinto pursuant to the Amended Share Exchange Agreement. .
Messrs. Harris, Herick, Blair, Keller and Sommer have consulting agreements
with South Uintah that provides for cash compensation and such compensation
is paid by South Uintah as discussed prior to this section.
36
The tables below show the number of common shares issued by South Uintah to
these individuals during the period of March 8, 2011 (inception) through
December 31, 2011.
COMMON STOCK
-----------------------------------------------------
Number of South Uintah
Name and Position at South Uintah Shares Issued Value of Shares
--------------------------------------------------------------------------------
George Harris, CFO & Director 550,000 $55
Gary Herick, Secretary & Director 2,000,000 $200
Max Sommer, Director 200,000 $20
Kevin Blair, Director 325,000 $32.50
J. David Keller 525,000 $52.50
The common shares issued by South Uintah were valued at $0.0001 par value, since
South Uintah does not have a trading market. The shares were issued for services
as officers and directors of South Uintah.
During the period of March 8, 2011 (inception) through December 31, 2011, South
Uintah issued the following warrants to their officers and directors. No expense
was recorded by South Uintah on the issuance of any of the warrants, as South
Uintah's common stock has no trading market and no material common stock cash
sales have been made, and thus none of the warrants were in the money.
Number of South Uintah Warrants
Name and Position at South Uintah Issued
--------------------------------- ------
George Harris, CFO & Director (a) 550,000
Gary Herick, Secretary & Director (b) 1,000,000
Max Sommer, Director (c) 200,000
Kevin Blair, Director (d) 325,000
J. David Keller, (e) 525,000
a) Mr. Harris holds warrants to purchase 550,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
350,000 shares have an exercise price of $1.00 per share and the
remaining 200,000 shares have an exercise price of $3.00 per share.
b) Arrowhead Consulting, LLC, which Mr. Herick has voting control of,
holds warrants to purchase an additional 1,000,000 shares of common
stock. In addition, the warrant is subject to vesting terms. The
warrant has an exercise price of $2.00 per share and will expire in
July 2016. The warrant vests at a rate of 1/3 per year throughout the
term of the warrant and will expire 2 years after vesting.
c) Mr. Sommer holds warrants to purchase 200,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
100,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
d) Mr. Blair holds warrants to purchase 325,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
225,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
e) Mr. Keller holds warrants to purchase 525,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
325,000 shares have an exercise price $1.00 per share and the remaining
200,000 shares have a $3.00 per share.
37
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Hinto's officers and directors are indemnified as provided by the Wyoming
Revised Statutes and the bylaws.
Under the Wyoming Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. The
Company's Articles of Incorporation do not specifically limit the directors'
immunity. Excepted from that immunity are: (a) a willful failure to deal fairly
with Hinto or its shareholders in connection with a matter in which the director
has a material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
The Company's bylaws provide that it will indemnify the directors to the fullest
extent not prohibited by Wyoming law; provided, however, that it may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that the Company shall not be required to
indemnify any director or officer in connection with any proceeding, or part
thereof, initiated by such person unless such indemnification: (a) is expressly
required to be made by law, (b) the proceeding was authorized by the board of
directors, (c) is provided by the Company, in sole discretion, pursuant to the
powers vested under Wyoming law or (d) is required to be made pursuant to the
bylaws.
The Company's bylaws provide that it will advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of Hinto as a director or
executive officer of another company, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefore, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under the bylaws or otherwise.
The Company's bylaws provide that no advance shall be made by Hinto to an
officer except by reason of the fact that such officer is or was the Company's
director in which event this paragraph shall not apply, in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of Hinto.
EQUITY COMPENSATION PLAN INFORMATION
In August 2011, the Board of Directors and the stockholders of Hinto approved
the 2011 Hinto Energy, Inc.'s Stock Option Award and Incentive Plan ("the 2011
Plan.") There are 2,000,000 shares of the Company's common stock reserved under
the 2011 Plan. During the year ended December 31, 2011, no options were issued
under the 2011 Plan. Any options issued under the 2011 Plan are done at the
determination of and the approval of the Board of Directors.
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS.
----------------------------
The following table sets forth information with respect to the beneficial
ownership of Hinto's outstanding common stock by:
o each person who is known by Hinto to be the beneficial owner of five
percent (5%) or more of Hinto common stock;
o Hinto chief financial officer, its other executive officers, and each
director as identified in the "Management -- Executive Compensation"
section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Hinto`s common stock
that we believe was beneficially owned by each person or entity as of April 11,
2012.
Amount and
Nature of
Beneficial Percent of
Title of Class Name and Address of Beneficial Owner * Owner* Class (1)
------------------------ --------------------------------------------- ---------------- ---------------
Common shares George Harris, 550,000 3.98%
Chief Financial Officer and Director (2)
Common shares Gary Herick, VP of Finance, 1,640,000 11.87%
Secretary, & Director (3)
Common shares J. David Keller, VP of Exploration & 525,000 3.80%
Development & Director (4)
Common shares Kevin Blair, Director (5) 325,000 2.35%
Common shares Max Sommer, Director (6) 200,000 1.44%
Common shares Craig Phillips (7) 1,000,000 7.24%
Common shares Michael A. Littman (8) 2,000,000 14.47%
Common shares Paul Dickstein (9) 718,851 5.20%
Common shares Natural Buttes Gas Corp 750,000 5.43%
Common shares Uinta Oil and Gas, Inc. 750,000 5.43%
------------------------ --------------------------------------------- ---------------- ---------------
Common shares All Directors and Executive Officers as a 3,240,000 23.46%
Group (5 persons)
---------------- ---------------
*The Address for the above individuals and entities is c/o 7609 Ralston
Road, Arvada, Colorado 80002.
39
(1) Based upon 13,925,931 shares issued and outstanding on a fully diluted
basis. Warrants exercisable for 6,700,000 shares of common stock are
not included in this number as they are not considered to be
exercisable in the next 60 days.
(2) Mr. Harris holds 550,000 shares of common stock and warrants to
purchase an additional 550,000 shares of common stock. The warrants are
subject to vesting terms and have a term of 3 years, 350,000 shares
have an exercise price of $1.00 per share and the remaining 200,000
shares have an exercise price of $3.00 per share.
(3) Mr. Herick has direct ownership of 250,000 shares and indirect
ownership of 1,390,000 shares of common stock. Arrowhead Consulting,
LLC, which Mr. Herick has voting control of holds 700,000 shares of
common stock and a warrant to purchase an additional 1,000,000 shares
of common stock. The warrant has an exercise price of $2.00 per share
and will expire in July 2016. The warrant vests at a rate of 1/3 per
year throughout the term of the warrant and will expire 2 years after
vesting. Mr. Herick has beneficial ownership of 690,000 shares of
common stock through his wife's ownership of Whitemoon Energy, LLC
which holds the shares.
(4) Mr. Keller holds 525,000 shares of common stock and warrants to
purchase an additional 525,000 shares of common stock. The warrants are
subject to vesting terms and have a term of 3 years, 325,000 shares
have an exercise price $1.00 per share and the remaining 200,000 shares
have a $3.00 per share.
(5) Mr. Blair holds 325,000 shares of common stock and warrants to purchase
an additional 325,000 shares of common stock. The warrants are subject
to vesting terms and have a term of 3 years, 225,000 shares have an
exercise price of $1.00 per share and the remaining 100,000 shares have
an exercise price of $3.00 per share.
(6) Mr. Sommer holds 200,000 shares of common stock and warrants to
purchase an additional 200,000 shares of common stock. The warrants are
subject to vesting terms and have a term of 3 years, 100,000 shares
have an exercise price of $1.00 per share and the remaining 100,000
shares have an exercise price of $3.00 per share.
(7) Mr. Phillips owns 1,000,000 shares of common stock and warrant to
purchase an additional 1,000,000 shares of common stock. The warrant
is subject to vesting terms.
(8) Mr. Littman holds 600,000 shares of common stock directly and 500,000
shares of common stock indirectly through his wife. Mr. Littman
holds a warrant exercisable for 1,000,000 shares of common stock.
The warrant is subject to vesting terms. Mr. Littman has the ability
to vote the 900,000 shares held by the M.A. Littman Pension Plan.
(9) Mr. Dickstein holds 468,851 shares of common stock directly and has
beneficial ownership of 250,000 shares through JBPD, LLC.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Other than the stock transactions discussed below, the Company has not entered
into any transaction nor is there any proposed transactions in which any of the
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
40
Change of Control
-----------------
On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 shares of the Company from its then majority
shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah has agreed to return the remaining 2,700,000 shares of
common stock to the Company. We have retired such shares to treasury, concurrent
with the transaction.
Share Acquisition and Exchange Agreement
----------------------------------------
On July 27, 2011, we entered into a Share Exchange and Acquisition Agreement
with South Uintah and the South Uintah shareholders. On January 23, 2012, we
entered into an Amended Share Exchange Agreement. Pursuant to the Amended Share
Exchange Agreement, we agreed to issue shares of its restricted common stock for
100% of the issued and outstanding common stock of South Uintah. The shares are
to be exchanged on a one for one basis. As a result, South Uintah became a
wholly-owned subsidiary of the Company.
At the time of the acquisition, Mr. George Harris, Gary Herick, Max Sommer and
Kevin Blair, officers and directors of Hinto, were and are officers, directors
and shareholders of South Uintah. Mr. David Keller, a director of Hinto was also
a shareholder of South Uintah. As such, they were they issued shares of the
Company's common stock under the Amended Share Exchange Agreement.
Consulting Agreements with Officers and Directors
-------------------------------------------------
Messrs. George Harris, Gary Herick, Kevin Blair, David Keller and Max Sommer
have entered into Consulting Agreements with South Uintah for their services.
Mr. Herick has entered into a Consulting Agreement on April 15, 2011 with South
Uintah to provide services to South Uintah as a director and secretary. The
Consulting Agreement has a term of 1 year unless terminated with 30 days notice
by either party. The Consulting Agreement provides for Mr. Herick to receive
$10,000 per month beginning April 15, 2011 to perform such services. In
addition, Mr. Herick was issued a warrant exercisable for 1,000,000 shares of
South Uintah common stock, which pursuant to the Amended Share Exchange
Agreement were exchanged for shares and warrants of Hinto.
Mr. Harris has entered into a Consulting Agreement on June 1, 2011 with South
Uintah to provide services to South Uintah as a director and Chief Financial
Officer. The Consulting Agreement has a term of 1 year unless terminated with 30
days notice by either party. The Consulting Agreement provides for Mr. Harris to
receive a minimum $5,000 per month beginning July 1, 2011 to perform such
services. In addition, Mr. Harris was issued 300,000 shares of South Uintah
common stock and a warrant exercisable for 300,000 shares of South Uintah common
stock, which pursuant to the Amended Share Exchange Agreement were exchanged for
shares and warrants of Hinto.
Mr. Kevin Blair has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 100,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto.
41
Mr. J. David Keller has entered into a Corporate Advisor/Consulting Agreement on
August 4, 2011 with South Uintah to provide services as a director and the Vice
President Exploration and Development to South Uintah. The Agreement has a term
of 1 year unless terminated with 30 days notice by either party. The Agreement
provides for a cash retainer of $5,000 for the month of July 2011 and then
$10,000 for each month thereafter. The Agreement provides for Mr. Keller to be
issued 300,000 shares of South Uintah common stock and a warrant exercisable for
300,000 shares of South Uintah common stock for such services, which pursuant to
the Amended Share Exchange Agreement were exchanged for shares and warrants of
Hinto. Mr. Keller became an employee of the Company on December 16, 2011 with a
monthly base salary of $10,000.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 200,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto.
Equity Issuances to Officers and Directors
------------------------------------------
Mr. George Harris, Gary Herick, Max Sommer and Kevin Blair, officers and
directors of Hinto, were and are officers, directors and shareholders of South
Uintah, as such they were issued common shares of South Uintah and warrants
exercisable into common shares of South Uintah. Mr. David Keller, a director of
Hinto was issued shares of South Uintah in connection with services offered to
South Uintah. As a result, they were issued shares of Hinto pursuant to the
Amended Share Exchange Agreement, after the January 23, 2012 merger of South
Uintah with Hinto.
The tables below show the number of common shares and/or warrants issued by the
companies to these individuals.
COMMON STOCK
----------------------------------- -----------------------------------
Number of South Uintah Shares Number of Shares of Hinto
Issued Issued
------ ------
George Harris 550,000 550,000
Gary Herick (2) 2,000,000 1,640,000
Max Sommer 200,000 200,000
Kevin Blair 325,000 325,000
David Keller 525,000 525,000
WARRANTS
----------------------------------- -----------------------------------
Number of South Uintah Warrants Number of Warrants of Hinto
Issued Issued
------ ------
George Harris (1) 550,000 550,000
Gary Herick (2) 1,000,000 1,000,000
Max Sommer (3) 200,000 300,000
Kevin Blair (4) 325,000 325,000
David Keller (5) 525,000 525,000
42
(1) Mr. Harris holds warrants to purchase 550,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
350,000 shares have an exercise price of $1.00 per share and the
remaining 200,000 shares have an exercise price of $3.00 per share.
(2) Mr. Herick has direct ownership of 250,000 shares and indirect
ownership of 1,390,000 shares of common stock. Arrowhead Consulting,
LLC, which Mr. Herick has voting control of holds 700,000 shares of
common stock and a warrant to purchase an additional 1,000,000 shares
of common stock. The warrant has an exercise price of $2.00 per share
and will expire in July 2016. The warrant vests at a rate of 1/3 per
year throughout the term of the warrant and will expire 2 years after
vesting. .Mr. Herick has beneficial ownership of 690,000 shares of
common stock through his wife's ownership of Whitemoon Energy, LLC
which holds the shares.
(3) Mr. Sommer holds warrants to purchase 200,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
100,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
(4) Mr. Blair holds warrants to purchase 325,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
225,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
(5) Mr. Keller holds warrants to purchase 525,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
325,000 shares have an exercise price $1.00 per share and the remaining
200,000 shares have a $3.00 per share.
Other
-----
Mr. Littman, an affiliate, was owed $23,000 for legal services. Mr. Littman has
an Engagement Agreement with South Uintah to provide legal services. The
Agreement was entered into on May 1, 2011 and has a term of 1 year unless
terminated prior to that date. The Engagement Agreement provides for Mr. Littman
to receive a monthly retainer of $10,000 and the issuance of a warrant
exercisable for 1,000,000 shares. The warrant has an exercise price of $2.00 per
share and will expire in July 2016. The warrant vests at a rate of 1/3 per year
throughout the term of the warrant and will expire 2 years after vesting.
Sharon K. Fowler, founder and majority shareholder, at the time, was granted a
farmout of the lease in Section 16, T38N, R81W in Natrona County, Wyoming, to
the Company for 3,500,000 shares issued in August 2006. The Farmout Agreement
with Fowler provides that the Company must commence drilling a well within
eighteen months after the date of the farmout or the farmed acreage will revert
to Ms. Fowler, however, on October 13, 2009 an extension of the farmout was
executed to extend the performance date to December 31, 2010. On December 31,
2010, the Farmout Agreement was extended to April 30, 2011. On April 30, 2011,
the Farmout Agreement expired and was not renewed.
During the year ended December 31, 2010, a shareholder of the Company paid the
Company's outstanding audit fees of $1,500. The Company has treated the payment
as a capital contribution and credited Additional Paid In Capital for $1,500.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
-----------------------------------------------
GENERAL. Ronald R. Chadwick, PC ("Chadwick") is the Company's principal auditing
accountant firm. The Company's Board of Directors has considered whether the
provisions of audit services are compatible with maintaining Chadwick's
independence.
43
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2011 and 2010.
Year Ended December 31,
2011 2010
----------------------------- ----------------------------
Audit Fees $1,500 $1,500
Audit-related Fees $0 $0
Tax Fees $0 $0
All Other Fees $0 $0
----------------------------- ----------------------------
Total Fees $1,500 $1,500
All audit work was performed by the auditors' full time employees.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
--------------- -------------------------------------------------------------------- -----------------
Number Description
3.1 Articles of Incorporation of Hinto Energy, Inc. (1)
3.2 Bylaws of Hinto Energy, Inc. (1)
3.3 Amendment to Articles of Incorporation of Hinto Energy, Inc. (7)
3.4 Articles of Incorporation of South Uintah Gas Properties, Inc. (8)
3.5 Amendment to Articles of Incorporation of South Uintah Gas
Properties, Inc. (8)
3.6 Bylaws of South Uintah Gas Properties, Inc. (8)
4.1 Form of Vesting Warrants (8)
4.2 Form of $0.50 Warrants (8)
10.1 Farmout Agreement (2)
10.2 Extension to Farmout Agreement (2)
10.3 Extension to Farmout Agreement - 2009 (3)
10.4 Extension to Farmout Agreement - 2010 (4)
10.5 Share Purchase Agreement (5)
10.6 Share Acquisition and Exchange Agreement (6)
10.7 Amended Share Exchange and Acquisition Agreement, dated January 23, (8)
2012 (8)
31.1 Certification of Chief Financial Officer & Principal Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act Filed Herewith
32.2 Certification of Chief Financial Officer & Principal Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act Filed Herewith
101.INS XBRL Instance Document Filed Herewith (9)
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith (9)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith (9)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith (9)
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith (9)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith (9)
--------------- ---------------------------------------------------------------------- ---------------------
44
(1)Incorporated by reference from the exhibits included in the Company's SB-2
Registration Statement filed with the Securities and Exchange Commission
(www.sec.gov), dated November 13, 2007.
(2)Incorporated by reference from the exhibits included in the Company's second
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 23, 2008.
(3)Incorporated by reference from the exhibits included in the Company's fifth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated December 2, 2009.
(4)Incorporated by reference from the exhibits included in the Company's sixth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 27, 2011.
(5)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated July 12,
2011.
(6)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August 5,
2011.
(7)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August
17, 2011.
(8)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated January
23, 2012.
(9)Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed
not filed or part of a registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
45
HINTO ENERGY, INC.
(FORMERLY GARNER INVESTMENTS, INC.)
(A Development Stage Company)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
RONALD R. CHADWICK, P.C.
Certified Public Accountant
2851 South Parker Road, Suite 720
Aurora, Colorado 80014
Telephone (303)306-1967
Fax (303)306-1944
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Hinto Energy, Inc.
Arvada, Colorado
I have audited the accompanying balance sheets of Hinto Energy, Inc. (a
development stage company) as of December 31, 2011 and 2010 and the related
statements of operations, stockholders' equity and cash flows for the years then
ended, and for the period from February 13, 1997 (inception) through December
31, 2011. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Hinto Energy, Inc. as of December
31, 2011 and 2010, and the results of its operations and its cash flows for the
years then ended, and for the period from February 13, 1997 (inception) through
December 31, 2011 in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements the Company has suffered recurring losses from operations
and has a working capital deficit and stockholders' deficit that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Aurora, Colorado /s/Ronald R. Chadwick, P.C.
-----------------------
March 30, 2012 RONALD R. CHADWICK, P.C.
F-1
HINTO ENERGY, INC.
(Formerly Garner Investments, Inc.)
(A Development Stage Company)
BALANCE SHEETS
December 31, December 31,
2011 2010
--------------- ---------------
Assets
Current Assets:
Cash $ 477,742 $ -
--------------- ---------------
Total Current Assets 477,742 -
--------------- ---------------
Other assets:
Farmout Agreement - 3,500
--------------- ---------------
Total Other Assets - 3,500
--------------- ---------------
Total Assets $ 477,742 $ 3,500
=============== ===============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable $ 35,486 $ 55,600
Accrued liabilities 2,305 -
Stock subscriptions payable 40,000 -
--------------- ---------------
Total Current Liabilities 77,791 55,600
Long term note payable 500,000 -
--------------- ---------------
Total liabilities $ 577,791 $ 55,600
--------------- ---------------
Stockholders' (Deficit) Equity
Preferred stock, $0.001 par value; 25,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $0.001 par value; 50,000,000 shares authorized,
4,700,000 and 4,280,000 shares issued and outstanding
at December 31, 2011 and December 31, 2010, respectively 4,700 4,280
Additional paid-in capital 308,290 8,710
Deficit accumulated during the development stage (413,039) (65,090)
--------------- ---------------
Total Stockholders' (Deficit) Equity (100,049) (52,100)
--------------- ---------------
Total liabilities and stockholders' (deficit) equity $ 477,742 $ 3,500
=============== ===============
See the notes to these financial statements.
F-2
HINTO ENERGY, INC.
(Formerly Garner Investments, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
February 13, 1997
For The Years Ended (Inception) to
December 31, December 31,
2011 2010 2011
-------------- ------------- ----------------------
Revenue: $ - $ - $ -
-------------- ------------- ----------------------
Operational expenses:
Office expenses 10,607 - 10,607
Impairment of farmout 3,500 - 3,500
Impairment of intercompany receivable 239,318 - 239,318
Professional fees 92,469 25,435 157,559
-------------- ------------- ----------------------
Total operational expenses 345,894 25,435 (410,984)
-------------- ------------- ----------------------
Interest expense 2,055 - 2,055
-------------- ------------- ----------------------
Net loss $ (347,949) $ (25,435) $ (413,039)
============== ============= ======================
Per share information
Net loss per common share
Basic $ (0.08) $ (0.01)
Fully diluted $ (0.08) $ (0.01)
============== =============
Weighted average number of common
stock outstanding 4,307,616 4,280,000
============== =============
See the notes to these financial statements.
F-3
HINTO ENERGY, INC.
(Formerly Garner Investments, Inc.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
From February 13, 1997 (Inception) through December 31, 2011
Deficit accum
Additional During
Common Stock paid-in Development
Number of shares Amount Capital Stage Totals
------------- ----------- ------------ ----------- --------------
Issuance of stock for cash 480,000 $ 480 $ 1,020 $ - $ 1,500
Net loss - - - (144) (144)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 1997 480,000 480 1,020 (144) 1,356
------------- ----------- ------------ ----------- --------------
Issuance of stock for cash 300,000 300 450 - 750
Net loss - - - (1,557) (1,557)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 1998 780,000 780 1,470 (1,701) 549
------------- ----------- ------------ ----------- --------------
Net loss - - - (240) (240)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 1999 780,000 780 1,470 (1,941) 309
------------- ----------- ------------ ----------- --------------
Net loss - - - (50) (50)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2000 780,000 780 1,470 (1,991) 259
------------- ----------- ------------ ----------- --------------
Net loss - - - (259) (259)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2001 780,000 780 1,470 (2,250) -
------------- ----------- ------------ ----------- --------------
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2002 780,000 780 1,470 (2,250) -
------------- ----------- ------------ ----------- --------------
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2003 780,000 780 1,470 (2,250) -
------------- ----------- ------------ ----------- --------------
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2004 780,000 780 1,470 (2,250) -
------------- ----------- ------------ ----------- --------------
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2005 780,000 780 1,470 (2,250) -
------------- ----------- ------------ ----------- --------------
Issuance of stock for oil lease 3,500,000 3,500 - - 3,500
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2006 4,280,000 4,280 1,470 (2,250) 3,500
------------- ----------- ------------ ----------- --------------
Net loss - - - - -
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2007 4,280,000 4,280 1,470 (2,250) 3,500
------------- ----------- ------------ ----------- --------------
Shareholder capital contribution - - 5,740 - 5,740
Net loss - - - (22,461) (22,461)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2008 4,280,000 4,280 7,210 (24,711) (13,221)
------------- ----------- ------------ ----------- --------------
Net loss - - - (14,944) (14,944)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2009 4,280,000 4,280 7,210 (39,655) (28,165)
------------- ----------- ------------ ----------- --------------
Shareholder capital contribution - - 1,500 - 1,500
Net Loss - - - (25,435) (25,435)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2010 4,280,000 4,280 8,710 (65,090) (52,100)
------------- ----------- ------------ ----------- --------------
Issuance of stock for cash 420,000 420 209,580 - 210,000
Shareholder capital contribution 90,000 - 90,000
Net Loss - - - (347,949) (347,949)
------------- ----------- ------------ ----------- --------------
Balance - December 31, 2011 4,700,000 $ 4,700 $ 308,290 $(413,039) $ (100,049)
------------- ----------- ------------ ----------- --------------
See the notes to these financial statements.
F-4
HINTO ENERGY, INC.
(Formerly Garner Investments, Inc.)
(A Development Stage Company)
STATEMENT OF CASH FLOWS
February 13,
1997
For The Years Ended (Inception) to
December 31, December 31,
2011 2010 2011
-------------- ------------- ---------------
Cash Flows from Operating Activities:
Net Loss $ (347,949) $ (25,435) $ (413,039)
Adjustments to net loss for non-cash items:
Impairment to farmout agreement 3,500 - 3,500
Receivable reserve expense 239,318 - 239,318
Adjustments to reconcile net loss to net cash used
in operating activities:
Increase in advances to parent company (239,318) - (239,318)
Increase (decrease) in accounts payable (20,114) 23,935 35,486
Increase in accrued liabilities 250 - 250
Increase in accrued interest 2,055 - 2,055
Increase in stock subscriptions payable 40,000 - 40,000
-------------- ------------- ---------------
Net Cash Used by Operating Activities (322,258) (1,500) (331,748)
-------------- ------------- ---------------
Net Cash Used in Investing Activities - - -
-------------- ------------- ---------------
Cash Flows from Financing Activities:
Shareholder payment of accounts payable 90,000 1,500 97,240
Issuance of notes 500,000 - 500,000
Proceeds from stock issuance, net of
issuance costs 210,000 - 212,250
-------------- ------------- ---------------
Net Cash Provided by Financing Activities 800,000 1,500 809,490
-------------- ------------- ---------------
Net Increase (decrease) in Cash 477,742 - 477,742
Cash and Cash Equivalents - Beginning of Period - - -
-------------- ------------- ---------------
Cash and Cash Equivalents - End of Period $477,742 $ - $ 477,742
============== ============= ===============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest expense $ - $ - $ -
============== ============= ===============
Cash paid for income taxes $ - $ - $ -
============== ============= ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Issuance of common stock for oil lease $ - $ - $ 3,500
============== ============= ===============
See the notes to these financial statements.
F-5
HINTO ENERGY, INC.
(Formerly Garner Investments, Inc.)
(A Development Stage Company)
Notes to the Financial Statements
For the Years Ended December 31, 2011 and 2010
NOTE 1 - BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Hinto Energy, Inc. ("the Company") was incorporated in February 13, 1997 in the
state of Wyoming. The Company was originally incorporated for the purpose of
general investing. Due to an inability to raise adequate financing the Company
was forced to cease operations in 2001. On October 12, 2004, the Company filed a
Form 15-12G, with the Securities and Exchange Commission ("SEC") to cease its
filing obligations under the Securities Act of 1934. On November 14, 2007, the
Company filed a Registration Statement on Form S-1 in order to register its
outstanding shares of common stock and resume its SEC filing status.
The Company's fiscal year end is December 31st. The Company's financial
statements are presented on the accrual basis of accounting.
Shareholder Meeting
On August 17, 2011, the Company held a Special and Annual Shareholder Meeting
("Meeting.") At such Meeting, a majority of the Company's shareholders approved
the following:
- To authorize an Amendment to the Articles of Incorporation to change the
corporate name to Hinto Energy, Inc. On August 18, 2011, the Company filed
an amendment to its Articles of Incorporation to change the corporate name
from Garner Investments, Inc. to Hinto Energy, Inc.
- To authorize 25,000,000 Preferred Shares, in such classes or series with
designation of rights, privileges, and preferences as the Board may later
determine. On August 18, 2011, the Company filed an amendment to its
Articles of Incorporation to authorize such preferred shares.
- To authorize the Hinto Energy, Inc. Stock Option and Award Incentive Plan.
- To approve and appoint our Auditor, Ronald R. Chadwick, PC for the year
ending December 31, 2011.
- To approve the Share Exchange and Acquisition Agreement by and between the
Company and South Uintah Gas Properties, Inc.
- The election of George Harris, Max Sommers, Gary Herick, Kevin Blair and J.
David Keller to our Board of Directors.
Share Exchange Agreement
On July 27, 2011, the Company entered into a Share Exchange and Acquisition
Agreement with South Uintah Gas Properties, Inc. ("South Uintah") and the South
Uintah shareholders. Pursuant to the Share Exchange and Acquisition Agreement
("the Agreement"), the Company has agreed to issue shares of its restricted
common stock for 100% of the issued and outstanding common stock of South
Uintah. The shares are to be exchanged on a one for one basis.
The closing of the transaction is dependent upon the delivery of audited
financial statements by South Uintah.
Prior to the signing of the Agreement, South Uintah had purchased 3,000,000
shares of the Company's common stock from its then majority shareholder Ms.
Sharon Fowler. After such purchase, South Uintah holds approximately 70% of the
issued and outstanding common stock of the Company. As part of the Agreement,
South Uintah has agreed to return the 3,000,000 shares of common stock to the
Company. On December 22, 2011 the Company and South Uintah modified the purchase
agreement and reduced the number of shares to be returned by South Uintah by
300,000, to 2,700,000. The Company plans to retire such shares to treasury at
that time.
F-6
Basis of Presentation
Development Stage Company
The Company has not earned significant revenues from planned operations.
Accordingly, the Company's activities have been accounted for as those of a
"Development Stage Company." Therefore, the Company's financial statements of
operations, stockholders' equity and cash flows disclose activity since the date
of the Company's inception.
Going Concern
The Company's financial statements for the nine months ended December 31, 2011
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company reported an accumulated deficit of $413,039 as of
December 31, 2011. The Company did not recognize revenues from its activities
during the year ended December 31, 2011. These factors raise substantial doubt
about the Company's ability to continue as a going concern.
Significant Accounting Policies
Use of Estimates
The preparation of the 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 periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
Oil and Gas Properties, Full Cost Method
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present 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. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
F-7
Revenue Recognition
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
Net Loss per Share
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the years ended December
31, 2011 and 2010, there were no potential common equivalent shares used in the
calculation of weighted average common shares outstanding as the effect would be
anti-dilutive because of the net loss.
Stock-Based Compensation
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
Fair Value of Financial Instruments
The carrying amount of accounts payable is considered to be representative of
respective fair values because of the short-term nature of these financial
instruments.
Other Comprehensive Income
The Company has no material components of other comprehensive income (loss) and
accordingly, net loss is equal to comprehensive loss in all periods.
Income Taxes
Provision for income taxes represents actual or estimated amounts payable on tax
return filings each year. Deferred tax assets and liabilities are recorded for
the estimated future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying balance
sheets, and for operating loss and tax credit carry forwards. The change in
deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustment to the tax
provision or benefit in the period of enactment.
Recent Accounting Pronouncements
There were accounting standards and interpretations issued during the year ended
December 31, 2011, none of which are expected to have a material impact on the
Company's financial position, operations or cash flows.
NOTE 2 - GOING CONCERN AND MANAGEMENTS' PLAN
In the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2011, the Report of the Independent Registered Public Accounting Firm
includes an explanatory paragraph that describes substantial doubt about the
Company's ability to continue as a going concern. The Company's financial
statements for the years ended December 31, 2011 and 2010 have been prepared on
a going concern basis, which contemplates the realization of assets and the
settlement of liabilities and commitments in the normal course of business. The
Company reported a net loss of $347,949 for the year ended December 31, 2011,
and an accumulated deficit of $413,039 as of December 31, 2011. At December 31,
2011, the Company had working capital of $399,951.
F-8
The future success of the Company is likely dependent on its ability to attain
additional capital, or to find an acquisition to add value to its present
shareholders and ultimately, upon its ability to attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern.
NOTE 3 - OTHER ASSETS
In August 2006, the Company issued 3,500,000 shares of its restricted common
stock to an unrelated third party in exchange for and as part of a Farmout
Agreement on an oil lease located in Natrona County, Wyoming. The shares were
valued at $3,500 at the time of the transaction ($0.001 per share). The Farmout
Agreement provides for the Company to retain 75% of the W.I. after payout by
drilling a 7,000 foot Madison test. The Company will retain 100% of the W.I.
income until payout.
In December 31, 2010, the Farmout Agreement was extended to April 30, 2011. On
April 30, 2011, Farmout Agreement expired and the Company chose not to renew the
Farmout Agreement. As a result, the Company fully expensed the $3,500 value of
the Farmout Agreement.
NOTE 4 - CURRENT LIABILITIES
The Company has $40,000 classified as stock subscriptions payable, representing
subscriptions for 80,000 shares of common stock sold at a price of $.50 per
common share for which the underlying common shares have not yet been issued.
NOTE 5- LONG TERM NOTE PAYABLE
The Company placed a $500,000 secured convertible note payable with a single
investor. The note has a term of 3 years, an interest rate of 10%, is
convertible into the Company's common stock at $1 per share and is secured by
oil and gas leases held by South Uintah Gas Properties, Inc.
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of the Company is 50,000,000 shares of common stock
with a $0.001 par value. At December 31, 2011, the Company had 4,700,000 shares
of its common stock issued and outstanding.
During the year ended December 31, 2011, the Company issued 420,000 shares of
its common stock to investors that purchased $210,000 of the securities at a
price of $.50 per common share.
Preferred Stock
On August 18, 2011, the Company filed an amendment to the Articles of
Incorporation with the Secretary of State of Wyoming to authorize 25,000,000
shares of Preferred Shares to be designated in any series or classes and with
those rights, privileges and preferences to be determined at the discretion of
the Company's Board of Directors. At this time, the Company has not designated
any series of preferred stock or issued any shares of preferred stock.
Stock Option Plan
On August 17, 2011, the Company's shareholders approved the 2011 Hinto Energy,
Inc. Stock Option and Award Incentive Plan ("Plan"). The Plan provides for the
grant of stock options to directors, officers, employees, consultants, and
advisors of the Company. The Plan is administered by a committee consisting of
members of the Board of Directors (the "Stock Option Committee"), or in its
absence, the Board of Directors.
The Plan provides for a total of 2,000,000 shares of common stock to be reserved
for issuance subject to options. As of the date of this Proxy Statement, the
Board has not approved the grant of any options to purchase shares of common
stock, nor the conditions, performance or vesting requirements.
F-9
Shareholder Capital Contribution
During the year ended December 31, 2011, a shareholder of the Company paid the
Company's outstanding legal fees of $90,000. The Company has treated the payment
as a capital contribution and credited Additional Paid In Capital for $90,000.
NOTE 7 - INCOME TAXES
The Company is subject to federal and domestic income taxes. The Company has had
no income, and therefore has paid no income tax.
Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carry-forwards. The NOL carry forwards expire in various years through
2030. The Company's deferred tax assets are offset by a valuation allowance due
to the uncertainty of the realization of the NOL carry-forwards. NOL
carry-forwards may be further limited by a change in company ownership and other
provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
Period Ending Estimated NOL
Carry-forward benefit Valuation Allowance Net Tax Benefit
---------------------------------------------------------------------------------------
December 31, 2010 $ 13,108 $ (13,108) -
December 31, 2011 $108,200 $(108,200) -
NOTE 8 - SUBSEQUENT EVENTS
The Company has evaluated it activities subsequent to the year ended December
31, 2011 through April 6, 2012 and found the following reportable subsequent
events.
The acquisition of South Uintah Gas Properties, Inc. occurred on January 23,
2012. The acquisition resulted in the Company issuing 9,375,000 common shares,
6,700,000, 2 to 5 year warrants, with prices from $1 to $3 dollars per share to
be purchased, assumption of $500,000 in notes payable convertible into common
stock at $.50 per share, $175,000 in promissory notes payable and the return of
2,700,000 shares of the Company's common stock currently held by South Uintah.
In March 2012 a note holder of South Uintah Gas Properties, Inc., Bridge
Industries, LLC filed a complaint against the Company in the Circuit Court of
the Eighteenth Judicial Circuit, Seminole County, Florida, alleging in general
breach of contract and seeking return of all monies lent to South Uintah Gas
Properties, Inc. of $400,000, the value of 1,000,000 shares of the Company's
common stock and other equity appreciation, and compensation for services and
costs. The Company is evaluating the action and its response, and the outcome of
the case is currently unknown.
F-10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HINTO ENERGY, INC.
Dated: April 12, 2012
By: /s/ George Harris
-------------------------------
George Harris, Chief
Financial Officer
(Principal Executive Officer
& Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: April 12, 2012
HINTO ENERGY, INC.
/s/ George Harris
--------------------------------------
George Harris, Director
/s/ Gary Herick
--------------------------------------
Gary Herick, Director
/s/ J. David Keller
--------------------------------------
J. David Keller, Director
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