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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                -----------------

                                    FORM 10Q
                                -----------------
(Mark One)
 [ X ]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2013

[ ]         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
            ACT
            For the transition period from __________ to ___________

                        Commission file number: 000-26317

                               HINTO ENERGY, INC.
                               ------------------
             (Exact name of registrant as specified in its charter)

     Wyoming                                             84-1384961
     -------                                             ----------
(State of Incorporation)                           (IRS Employer ID Number)

                       7609 Ralston Road, Arvada, CO 80002
                       -----------------------------------
                    (Address of principal executive offices)

                                  303-647-4850
                                  ------------
                         (Registrant's Telephone number)


            (Former Address and phone of principal executive offices)

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 past 12 months (or for such shorter  period that the registrant was required
to file such reports),  and (2) has been subject to the 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 Web site, if any, every  Interactive  Data File required
to be submitted and posted  pursuant to Rule 405 for Regulation S-T  (ss.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 whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of November 18, 2013, there were 21,781,769 shares of the registrant's common stock issued and outstanding.
PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Page Balance Sheets - September 30, 2013 and December 31, 2012 1 Statements of Operations - For Three and Nine Months Ended September 30, 2013 and 2012 2 Statements of Changes in Shareholders' Equity - For the Nine Months Ended September 30, 2013 3 Statements of Cash Flows - For the Nine Months Ended September 30, 2013 and 2012 4 Notes to the Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not Applicable 22 Item 4. Controls and Procedures 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings - Not Applicable 25 Item 1A. Risk Factors - Not Applicable 25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25 -Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable 25 Item 4. Mine Safety Disclosure - Not Applicable 25 Item 5. Other Information - Not Applicable 25 Item 6. Exhibits 25 SIGNATURES 27
PART I ITEM 1. FINANCIAL STATEMENTS
HINTO ENERGY, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) September 30, December 31, 2013 2012 --------------- --------------- Assets Current Assets: Cash $ 308,945 $ 57,709 Accounts Receivable 20,656 - Deposits 15,137 (4,473) --------------- --------------- Total Current Assets 344,738 53,236 --------------- --------------- Property and Equipment: Machinery, net of accumulated depreciation of $4,769 and $0, respectively 54,298 16,500 --------------- --------------- Oil and Natural Gas Properties: Proved Properties 1,004,300 803,200 Unproved Properties - - Other Property and Equipment 368,353 213,555 Less Accumulated Depreciation and Depletion (48,522) (24,283) --------------- --------------- Total Oil and Natural Gas Properties 1,324,131 992,472 --------------- --------------- Other Assets: Deposits 25,000 - --------------- --------------- Total Assets $ 1,748,167 $ 1,062,208 =============== =============== Liabilities and Stockholders' Equity (Deficit) Current liabilities Accounts payable $ 98,366 $ 28,888 Accrued liabilities 61,008 78,268 Subscription received - 250,000 Notes payable, other 125,000 405,000 --------------- --------------- Total Current Liabilities 284,374 762,156 Asset recovery obligations 110,759 72,122 Long term note payable 575,000 500,000 --------------- --------------- Total liabilities $ 970,133 $ 1,334,278 --------------- --------------- Stockholders' Equity (Deficit) 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, 20,121,769 and 16,236,527 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively 20,122 16,237 Additional paid-in capital 4,259,234 2,315,515 Accumulated deficit (3,501,322) (2,603,822) --------------- --------------- Total Stockholders' Equity (Deficit) 778,034 (272,070) --------------- --------------- Total liabilities and stockholders' equity (deficit) $ 1,748,167 $ 1,062,208 =============== =============== See the notes to these consolidated financial statements. 1
HINTO ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS END SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2013 2012 2013 2012 ---------------- ---------------- --------------- ---------------- Revenue: $ 21,107 $ 21,439 $ 42,829 $ 31,803 Direct Cost of Revenue 99,973 22,036 190,186 22,036 Depreciation and Depletion 14,301 - 24,239 - ---------------- ---------------- --------------- ---------------- (93,167) (597) (171,596) 9,767 Operational expenses: Office expenses 109,092 19,045 415,186 442,196 Consulting fees 106,200 130,375 254,200 290,105 ---------------- ---------------- --------------- ---------------- Total operational expenses 215,292 149,420 669,386 732,301 ---------------- ---------------- --------------- ---------------- Other Income (Expenses) Litigation Settlement Expense - - (570) - Interest expense (17,392) (19,875) (55,948) (67,948) ---------------- ---------------- --------------- ---------------- Total other income (expense) (17,392) (19,875) (56,518) (67,948) ---------------- ---------------- --------------- ---------------- Net loss $ (325,851) $ (169,892) $ (897,500) $ (790,482) ================ ================ =============== ================ Per share information Net loss per common share Basic $ (0.02) $ (0.01) $ (0.05) $ (0.06) Fully diluted * * * * ================ ================ =============== ================ Weighted average number of common stock outstanding 17,751,667 14,454,065 18,098,869 13,775,541 ================ ================ =============== ================ * Not provided as it is anti-dilutive See the notes to these consolidated financial statements. 2
HINTO ENERGY, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 (UNAUDITED) Additional Common Stock paid-in Accumulated Number of Shares Amount Capital Deficit --------------------- ------------- ---------------- ---------------- Balance - January 1, 2013 16,236,527 $ 16,237 $ 2,315,515 $(2,603,822) Issuance of Shares for cash 1,663,000 1,663 829,842 - Issuance of shares for warrant exercise 2,000,000 2,000 998,000 - Issuance of shares for services 60,000 60 29,940 - Issuance of shares for interest 50,000 50 24,950 - Issuance of shares for leases 112,242 112 60,987 - Net Loss - - - (897,500) --------------------- ------------- ---------------- ---------------- Balance - September 30, 2013 20,121,769 $ 20,122 $ 4,259,234 $(3,501,322) ===================== ============= ================ ================ See the notes to these consolidated financial statements. 3
HINTO ENERGY, INC. CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 (UNAUDITED) (Continued) Total Stockholders' Equity ---------------- Balance - January 1, 2013 $ (272,070) Issuance of Shares for cash 831,505 Issuance of shares for warrant exercise 1,000,000 Issuance of shares for services 30,000 Issuance of shares for interest 25,000 Issuance of shares for leases 61,099 Net Loss (897,500) ---------------- Balance - September 30, 2013 $ 778,034 ================ See the notes to these consolidated financial statements. 4
HINTO ENERGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 (UNAUDITED) September 30, September 30, 2013 2012 ----------------------------------------------- Cash Flows from Operating Activities: Net Loss $ (897,500) $ (790,482) Adjustments to net loss for non-cash items: Accrued interest converted to stock 25,000 30,898 Stock issued for services 30,000 203,834 Amortization, Depreciation and Depletion 29,008 - Asset Remediation expense 38,637 - Adjustments to reconcile net loss to net cash used in operating activities: Increase in accounts receivable (20,656) (4,112) Decrease (increase) in deposits and advances (44,606) 20,000 Increase in accounts payable 69,478 76,444 Increase in accrued liabilities (17,260) 20,057 --------------------- ------------------ Net Cash Used by Operating Activities (787,899) (443,361) --------------------- ------------------ Cash Flows from Investing Activities Purchase of leases (140,000) (175,000) Purchase of machinery and equipment (42,567) - Well rework (154,798) (198,500) --------------------- ------------------ Net Cash Used in Investing Activities (337,365) (373,500) --------------------- ------------------ Cash Flows from Financing Activities: Proceeds from convertible promissory notes 75,000 25,000 Payments on other notes payable (280,000) (5,000) Proceeds from sale of common stock 581,500 317,500 Proceeds from exercise of warrants 1,000,000 - --------------------- ------------------ Net Cash Provided by Financing Activities 1,376,500 337,500 --------------------- ------------------ Net Increase (decrease) in Cash 251,236 (479,361) Cash and Cash Equivalents - Beginning of Period 57,709 487,501 --------------------- ------------------ Cash and Cash Equivalents - End of Period $ 308,945 $ 8,140 ===================== ================== 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 notes payable for assets $ - $ 150,000 ===================== ================== Issuance of common stock for deposits and accounts payable $ - $ 199,309 ===================== ================== Issuance of common stock for leases $ 61,099 $ - ===================== ================== See the notes to these consolidated financial statements. 5
HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Nine Months Ended September 30, 2013 and 2012 (Unaudited) 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 and its wholly-owned subsidiary, South Uintah Gas Properties, Inc. are involved in the acquisition and development of oil and gas prospects in the rocky mountain region. The Company has oil and gas leases, wells and new drilling prospects in both Utah and Montana. The Company's fiscal year end is December 31st. The Company's financial statements are presented on the accrual basis of accounting under GAAP (Generally Accepted Accounting Principles). Basis of Presentation Consolidation The accompanying audited consolidated financial statements include the accounts of Hinto Energy, Inc. and its wholly owned subsidiary, South Uintah Gas Properties, Inc. (collectively the "Company"). All intercompany balances and transactions have been eliminated in consolidation. Interim Presentation In the opinion of the management of the Company, the accompanying unaudited consolidated financial statements include all material adjustments, including all normal and recurring adjustments, considered necessary to present fairly the financial position and operating results of the Company for the periods presented. The financial statements and notes do not contain certain information included in the Company's financial statements for the year ended December 31, 2012. It is the Company's opinion that when the interim financial statements are read in conjunction with the December 31, 2012 Audited Financial Statements, the disclosures are adequate to make the information presented not misleading. Interim results are not necessarily indicative of results for a full year or any future period. NOTE 2 - 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. 6
Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally on the straight-line method over the estimated useful life of each type of asset which ranges from five to seven years. Maintenance and repairs are charged to expense as incurred; improvements and betterments are capitalized. Upon retirement or disposition, the related costs and accumulated depreciation are removed from the accounts, and any resulting gains or losses are credited or charged to income. Life in September 30, December 31, 2012 Asset Type Years 2013 ------------------------------------------ ------------ ------------------ ------------------- Machinery 5 - 7 $59,067 $ 16,500 ------------ ------------------ ------------------- Subtotal 59,067 16,500 Less Accumulated Depreciation (4,769) - ------------ ------------------ ------------------- Net Book Value $ 54,298 $ 16,500 ============ ================== =================== 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. 7
Impairment The Company reviews long-lived assets held for use, principally oil and gas leases, for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the undiscounted cash flows expected from its use and eventual disposition. We determine the amount of the impairment loss by comparing the carrying value of the long-lived asset to its estimated fair value. In the absence of quoted market prices, we determine estimated fair value generally based on the present value of future probability weighted cash flows expected from the continued use and value at sale of the long-lived asset. 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 nine months ended September 30, 2013 and 2012, 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 Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and notes payable are carried at cost, which approximates fair value due to the short-term maturity of these 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. 8
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 nine months ended September 30, 2013, none of which are expected to have a material impact on the Company's financial position, operations or cash flows. NOTE 3 - GOING CONCERN AND MANAGEMENTS' PLAN The Company's unaudited consolidated financial statements for the nine months ended September 30, 2013 and 2012 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 $897,500 for the nine months ended September 30, 2013, and an accumulated deficit of $3,501,322 as of September 30, 2013. At September 30, 2013, the Company had a working capital deficit of $60,364. The future success of the Company is dependent on its ability to attract additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to develop 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 4 - OIL AND GAS LEASES Oil and gas properties consisted of the following as of September 30, 2013: September 30, December 31, 2013 2012 ------------------- ------------------ Proved properties $ 1,004,300 $803,200 Unproved properties - - ------------------- ------------------ $ $803,200 1,004,300 Accumulated depletion 5,019 2,047 ------------------- ------------------ $999,281 $801,153 =================== ================== During the nine months ended September 30, 2013 and 2012, the Company recognized a depletion expense of $5,019 and $-0-, respectively ($625 and $-0- for the three months ended September 30, 2013 and 2012, respectively). 9
Natural Buttes The Company purchased a farmout of deep right interests in approximately 5,366 gross and 4,887 net acres in the central part of the Uintah Basin at Natural Buttes in Utah during July 2011, such purchase agreement was amended in December 2011. The final 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 (2,000,000 shares.) 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. During the nine months ended September 30, 2013, the Company did not expend any development costs in connection with the re-working of this well. During the year ended December 31, 2012, the Company expended $198,500 in cash for the completion of a gas pipeline connection, surface equipment and initial well rework on the 22-1 Well. Cisco, Utah On May 9, 2012, the Company and Pacific Energy and Mining Company ("Pacific") entered into an Asset Purchase and Sale Agreement ("The Pacific Agreement"). On May 30, 2012, the Company closed the transaction. As part of the Pacific Agreement, the Company acquired certain oil and gas wells and related assets in the Greater Cisco area of the Uintah Basin in Grand County, Utah. The assets acquired include 4,783 gross acres in the Cisco Fields with an 80% Net Revenue Interest (NRI) and approximately 3,827 net acres. The property includes 27 wells that need to be re-worked, connected to a gas pipeline, or offset drilled. In exchange for such oil and gas wells and related assets, the Company paid $325,000 in a combination of cash and a convertible promissory note, as follows: $175,000 cash; and a $150,000 convertible promissory note. The convertible promissory note had an interest rate of 8% and was paid in full on May 20, 2013. During the nine months ended September 30, 2013, the Company expended $100,243 in connection with the re-work of the wells on this property. On June 4, 2013, the Company and Pride Ventures, LLC and James Woolsey entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to certain mineral estates in Grand County, Utah. The transaction had a closing date of June 17, 2013. The mineral estates include 4,435 acres, 9 well bores and space to drill additional wells. In addition, the Company acquired Pride's natural gas gathering system, which interconnects with the Company's existing gathering system, thereby reducing new pipe gathering system construction by several miles. The Company has acquired 100% of the working interests in the estates. In exchange for such mineral estates, the Company paid a total of $100,000 in a combination of cash and stock, as follows: (a) $75,000 in cash; and $25,000 in the form of 50,000 shares of the Company's restricted common stock. The properties are located in Grand County, Utah in the Greater Cisco area of the Uintah Basin and are located in the vicinity of the Company's existing properties in the Greater Cisco area. 10
During the three months ended September 30, 2013, the Company spent $3,663 development costs in connection with the re-working of this field. Musselshell County, Montana On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to oil and gas leases for a total of 559 gross acres in the Unit for the 1st Cat Creek formation in the Musselshell County, Montana. In exchange for such oil and gas leases, the Company paid $25,000 in cash and a 5% working interest. The property includes 6 wells in a field to be water flooded, with 2 wells placed on production. An additional 2 that needs the wells need to be re-worked. Additional drilling may be performed to maximize the oil recovery from the formation. In addition, the Company and S&L Energy, Inc. ("S&L") entered into a Purchase and Sale Agreement, whereby the Company acquired all right and title to oil and gas leases for a total of 722 gross acres in the Musselshell County, Montana. The property includes 120 acres for all zones other than the 1st Cat Creek. The 1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil LLC. In exchange for such oil and gas leases, the Company paid $101,100 in a combination of cash and stock, as follows: $65,000 in cash; and $36,100 payable in restricted common stock valued at $0.58 per share (2/3 of the June 4, 2013 closing price of $0.87) for a total of 62,242 shares. The properties are located in the Mason Lake field in Central Montana in the Amsden (Alaska Bench) Formation which is late Mississippian to Early Pennsylvanian in age. The Amsden formation is a series of sandstone, shale and limestone, which was deposited under marine conditions in the Paleozoic Era. The Amsden Formation overlays the Tensleep Formation and is above the Heath Formation, traditionally known as the Pennsylvanian Tyler Sand Play area. The 1st Cat Creek is at a depth of approximately 4,200 feet and is above the Amsden formation. During the three months ended September 30, 2013, the Company spent $58,391 for development costs in connection with the re-working of this field. NOTE 5 - CONVERTIBLE PROMISSORY NOTE In May 2012, the Company, as part of the purchase of Cisco Pacific, issued the seller a $150,000 convertible promissory note. On May 31, 2013, the outstanding principal and accrued interest was paid in full for cash of $162,000. NOTE 6 - SUBSCRIPTIONS RECEIVED During the year ended December 31, 2012, the Company had outstanding subscriptions receivable of $250,000 to purchase 500,000 shares of the Company's restricted common stock at $0.50 per share. The Company issued the 500,000 shares in March 2013. 11
NOTE 7 - NOTES PAYABLES, OTHER On July 15, 2011, as part of the purchase of the Natural Buttes properties, South Uintah entered into two promissory notes. The first was for $100,000 had a term of the earlier of July 5, 2013 or the completion of a $2 Million stock offering. The second note was for $250,000, had a due date of July 5, 2013 and a conversion rate of $5 per share. Both notes did not accrue interest. In December 2011, as part of the amendment of the purchase agreement for the Natural Buttes, the terms and the amounts of the notes were modified. The amount of the $100,000 note was reduced to $75,000 and the due date changed to July 5, 2013. The $250,000 note was reduced to $100,000, the conversion rate of $5 removed and the due date of the note remained at July 5, 2013. At September 30, 2013, the Company owed $100,000 under the note. The Company is in the process of renegotiating the terms of the note. In July 2012, the Company re-negotiated the terms of the original $75,000 note in exchange for $5,000 principal payment on the note. As a result, the Company re-issued the note for a principal of $70,000, a new due date of July 5, 2013 and for payments of $5,000 to be made on a monthly basis. As of September 30, 2013, the Company had made total payments principal payments of $30,000 and still owed $25,000 on the note. The Company is in discussions to extend the due date of the note. As part of the Settlement with Bridge Industries, discussed in Note 11, the Company agreed to pay Bridge Industries a total of $100,000 in two tranches of $50,000 due on March 31, 2013 and June 30, 2013. As of September 30, 2013, the amount was paid in full. NOTE 8 - LONG TERM NOTE PAYABLES, CONVERTIBLE During the nine months ended September 30, 2013, the Company issued its Class A Secured Convertible Promissory Notes ("Class A Promissory Notes") in exchange for $75,000, used to support ongoing operations. The Class A Promissory Notes have a term of 3 years an accrue interest at a rate of 12% per annum. The Class A Promissory Notes are convertible into shares of the Company's common stock at a rate of $1.00 per share. In addition, for every $5.00 in principal converted, the note holder will receive a warrant to purchase one (1) common share with a purchase price of $2.00 per share. The Warrant would have a term of 3 years from the issuance date of the Class A Promissory Note. In December 2011, the Company, in exchange for cash, issued a $500,000, secured three-year note payable, convertible at a $1 per share and bearing interest at 10% per annum, with interest payable quarterly. The note is secured by a well bore held by South Uintah in the Natural Buttes area. During the three months ended March 31, 2013, the Company paid accrued interest through the issuance of 50,000 shares of its restricted common stock valued at $0.50 per share. During the quarter ended June 30, 2013, the Company issued the holder a Class A Promissory Note, as a replacement of the original note, with the terms described above. At September 30, 2013, the Company had $575,000 in outstanding Class A Promissory Notes and has accrued $17,391 in interest in connection with the Class A Promissory Notes. 12
NOTE 9 - COMMITMENTS & CONTINGENCIES General There have been significant changes in the U.S. economy, oil and gas prices and the finance industry which have adversely affected and may continue to adversely affect the Company in its attempt to obtain financing or in its process to produce commercially feasible oil and gas production. Federal, state and local authorities regulate the oil and gas industry. In particular, gas and oil production operations and economics are affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry, as well as changes in such laws, changing administrative regulations and the interpretations and application of such laws, rules and regulations. The Company believes it is in compliance with all federal, state and local laws, regulations, and orders applicable to the Company and its properties and operations, the violation of which would have a material adverse effect on the Company or its financial condition. Operating Hazards and Insurance The gas and oil business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formation, and environmental hazards such as oil spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which could result in substantial losses to the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. The Company to date has not acquired its own insurance coverage over its interests in the properties, instead the Company has relied on the third party operators for its properties to maintain insurance to cover its operations; however, the Company may purchase additional insurance coverage when necessary. There can be no assurance that insurance, if any, will be adequate to cover any losses or exposure to liability. Although the Company believes that the policies obtained by the third party operators provide coverage in scope and in amounts customary in the industry, they do not provide complete coverage against all operating risks. An uninsured or partially insured claim, if successful and of significant magnitude, could have a material adverse effect on the Company and its financial condition via its contractual liability to the prospect. Title to Properties The Company's practice has been to acquire ownership or leasehold rights to oil and natural gas properties from third parties. Most of the Company's current operations are conducted on properties acquired from third parties. Our existing rights are dependent on those previous third parties having obtained valid title to the properties. Prior to the commencement of gas drilling operations on those properties, the third parties customarily conduct a title examination. The Company generally does not conduct examinations of title prior to obtaining its interests in its operations, but rely on representations from the third parties that they have good, valid and enforceable title to the oil and gas properties. Based upon the foregoing, we believe that we have satisfactory title to our producing properties in accordance with customary practices in the gas industry. The Company is not aware of any title deficiencies as of the date of these financial statements. 13
NOTE 10 - 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 September 30, 2013, the Company had 20,121,769 shares of its common stock issued and outstanding. During the nine months ended September 30, 2013, the Company issued 1,163,000 shares of its restricted common stock for $581,500 at a price of $0.50 per share. During the nine months ended September 30, 2013, the Company issued 500,000 shares of its restricted common stock as payment for an outstanding subscription agreement of $250,000. During the nine months ended September 30, 2013, the Company issued 2,000,000 shares of its restricted common stock upon the exercise of warrants at $0.50 per share. During the nine months ended September 30, 2013, the Company issued 60,000 shares of its restricted common stock for investor relation services valued at $30,000. During the nine months ended September 30, 2013, the Company issued 50,000 shares of its restricted stock as a payment of $25,000 in interest on its outstanding long term $500,000 note payable. During the nine months ended September 30, 2013, the Company issued 50,000 shares of its restricted common stock as part of the purchase price of oil and gas leases in Cisco, Utah as described in Note 3. The shares were valued at $0.50 per share for a total value of $25,000. During the nine months ended September 30, 2013, the Company issued 62,242 shares of its restricted common stock as part of the purchase price of oil and gas leases in Montana, as described in Note 3. The shares were valued at $0.58 per share for a total value of $36,100. 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. 14
The Plan provides for a total of 2,000,000 shares of common stock to be reserved for issuance subject to options. During the nine months ended September30, 2013 and the year ended December 31, 2012, the Board did not approve the grant of any options to purchase shares of common stock, nor the conditions, performance or vesting requirements. Warrants During the nine months ended September 30, 2013, the Company received exercise notices and funds of $1,000,000 for the exercise of 2,000,000 shares. During the nine months ended September 30, 2013, the Company issued a warrant exercisable for 100,000 shares of its common stock at $2.00 per share with a term of 3 years. A summary of warrant activity for the nine months ended September 30, 2013 is presented below: Weighted Average -------------------------------------- Remaining Shares Under Contractual Warrant Exercise Price Life ------------------ ------------------- ------------------ Outstanding at December 31, 2012 7,500,000 $1.25 2.44 Granted 100,000 2.00 - Exercised (2,000,000) $0.50 - Expired - - - ------------------ ------------------- ------------------ Outstanding at September 30, 2013 5,600,000 $1.54 2.29 ================== =================== ================== NOTE 11 - INCOME TAXES The Company is subject to domestic income taxes. The Company has recognized minimal income during the nine months ended September 30, 2013, 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 2031. 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: Estimated NOL Valuation Net Tax Carry-forward benefit Allowance Benefit ========================================================= September 30, 2013 $700,264 $(700,264) - December 31, 2012 $520,764 $(520,764) - 15
NOTE 12 - SUBSEQUENT EVENTS The Company has evaluated it activities subsequent to September 30, 2013 and through the issuance of the financial statements and found no other reportable subsequent events. 16
ITEM 2. 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, 2012, 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 only began to recognize minimal revenues from our operations during the last half of 2012. We have minimal capital and, moderate cash. 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 first nine months of 2013, we continued our re-work efforts on our properties in the Cisco Springs oil and gas field in the Uintah Basin of Grand County, Utah; performance of geological analysis of existing properties and the identification of potential properties for acquisition. Re-work efforts in the Cisco Springs field focused on the Company's 5A well and the well is now being tested and results of the testing are being evaluated. Property Acquisitions On June 4, 2013, the Company and Pride Ventures, LLC and James Woolsey entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to certain mineral estates in Grand County, Utah. The transaction had a closing date of June 17, 2013. The mineral estates include 4,435 acres, 9 well bores and space to drill additional wells. In addition, the Company acquired Pride's natural gas gathering system, which interconnects with the Company's existing gathering system, thereby reducing new pipe gathering system construction by several miles. The Company has acquired 100% of the working interests in the estates. In exchange for such mineral estates, the Company paid a total of $100,000 in a combination of cash and stock, as follows: (a) $75,000 in cash; and $25,000 in the form of 50,000 shares of the Company's restricted common stock. The properties are located in Grand County, Utah in the Greater Cisco area of the Uintah Basin and are located in the vicinity of the Company's existing properties in the Greater Cisco area. 17
On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to oil and gas leases for a total of 559 gross acres in the Unit for the 1st Cat Creek formation in the Musselshell County, Montana. In exchange for such oil and gas leases, the Company paid $25,000 in cash and a 5% working interest. The property includes 6 wells in a field to be water flooded and that needs the wells need to be re-worked. Additional drilling may be performed to maximize the oil recovery from the formation. In addition, the Company and S&L Energy, Inc. ("S&L") entered into a Purchase and Sale Agreement, whereby the Company acquired all right and title to oil and gas leases for a total of 722 gross acres in the Musselshell County, Montana. The property includes 120 acres for all zones other than the 1st Cat Creek. The 1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil LLC. In exchange for such oil and gas leases, the Company paid $101,100 in a combination of cash and stock, as follows: $65,000 in cash; and $36,100 payable in restricted common stock valued at $0.58 per share (2/3 of the June 4, 2013 closing price of $0.87) for a total of 62,242 shares. The properties are located in the Mason Lake field in Central Montana also containing in the Amsden (Alaska Bench) Formation which is late Mississippian to Early Pennsylvanian in age. The Amsden formation is a series of sandstone, shale and limestone, which was deposited under marine conditions in the Paleozoic Era. The Amsden Formation overlays the Tensleep Formation and is above the Heath Formation, traditionally known as the Pennsylvanian Tyler Sand Play area. The 1st Cat Creek is at a depth of approximately 4,200 feet and is above the Amsden formation. During the three months ended September 30, 2013, we have focused our efforts in the Mason Lake Field on re-work activities including the laying of new pipeline and the rework of the water injection well. Financing Efforts During the nine months ended September 30, 2013, the Company issued 1,163,000 shares of its restricted common stock for $581,500 at a price of $0.50 to $0.58 per share. During the nine months ended September 30, 2013, the Company issued $75,000 in Class A Secured Convertible Promissory Notes in exchange for $75,000 in cash to support ongoing operations. The Class A Promissory Notes have a term of 3 years an accrue interest at a rate of 12% per annum. The Class A Promissory Notes are convertible into shares of the Company's common stock at a rate of $1.00 per share. In addition, for every $5.00 in principal converted, the note holder will receive a warrant to purchase one (1) common share with a purchase price of $2.00 per share. The Warrant would have a term of 3 years from the issuance date of the Class A Promissory Note. During the nine months ended September 30, 2013, the Company received funds of $1,000,000 in the connection with the exercise of warrants for 2,000,000 shares of its common stock at an exercise price of $0.50 per share. 18
We will need substantial additional capital to support our existing and proposed future energy operations. We have only recognized minimal and sporadic revenues. We have 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. 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 Three Months Ended September 30, 2013 Compared to the Three Months Ended September 30, 2012 During the three months ended September 30, 2013, the Company recognized revenues of $21,107 from its operational activities compared to $21,439 during the three months ended September 30, 2012. During the Three Months Ended September 30, 2013 2012 ------------------ -------------------- Revenues $21,107 $21,439 Number of Barrels 327.52 bbls 339 bbls Average Price Per Barrel $80.85 $63.24 During the three months ended September 30, 2013, the Company recognized a direct cost of revenue of $99,973. During the three months ended September 30, 2013, the Company recognized depletion and depreciation expenses of $14,301. This resulted in a negative gross profit of ($93,167). During the three months ended September 30, 2012, the Company recognized a direct cost of revenue of $22,036, but did not recognize depletion and depreciation expense, as the sales resulted, in part, from product that had been already extracted prior to the Company's purchase of the properties. During the three months ended September 30, 2013, we incurred total operational expenses of $215,292 compared to $149,420 during the three months ended September 30, 2012. The increase of $65,872 was a result of the $90,047 increase in office expenses combined with a $24,175 decrease in consulting expenses. The $90,047 increase in office expenses was a result of a $20,490 in well services, a $19,182 increase in travel, meal and entertainment expense and $51,580 in well repair and maintenance. During the three months ended September 30, 2013, we recognized a net loss of $325,851 compared to a net loss of $169,892 during the three months ended September 30, 2012. The increase of $155,959 was a result of the $77,937 and $14,301 increases in direct cost of revenues and depreciation and depletion expenses combined with a $65,872 increase in operational expenses and a $2,483 increase in interest expense. 19
For the Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012 During the nine months ended September 30, 2013, the Company recognized revenues of $42,829 from its operational activities compared to $31,803 during the nine months ended September 30, 2012. During the Nine Months Ended September 30, 2013 2012 ------------------ -------------------- Revenues $42,829 $31,803 Number of Barrels 673.76 bbls 464.36 bbls Average Price Per Barrel $63.56 $68.48 During the nine months ended September 30, 2013, the Company recognized a direct cost of revenue of $190,186. During the nine months ended September 30, 2013, the Company recognized depletion and depreciation expenses of $24,239. This resulted in a negative gross profit of ($171,596). During the nine months ended September 30, 2012, the Company recognized a direct cost of revenue of $22,036 but not a depletion and depreciation expense, as the sales, in part, resulted from product that had been already extracted prior to the Company's purchase of the properties. During the nine months ended September 30, 2013, we incurred total operational expenses of $669,386 compared to $732,301 during the nine months ended September 30, 2012. The decrease of $62,915 was a result of the $27,010 decrease in office combined with a $35,905 decrease in consulting expenses. The $27,010 decrease in office expenses was a result of a $133,402 decrease in investor relation expenses combined with a $239,317 decrease in receivable reserve expense and a $30,161 decrease in legal expenses, offset by a $57,982 increase in well services and analysis, a $20,234 increase in professional fees, a $47,878 increase in travel expenses combined with a $38,637 increase in asset recovery obligations and a $51,579 increase in well repair and maintenance. During the nine months ended September 30, 2013, we recognized a net loss of $897,500 compared to a net loss of $790,482 during the nine months ended September 30, 2012. The increase of $107,018 was a result of the $11,026 increase in revenues offset by the $168,150 and $24,239 increases in direct cost of revenues and depreciation and depletion expenses offset by a $62,915 decrease in operational expenses combined with a $12,000 decrease in interest expense. LIQUIDITY At September 30, 2013, the Company had total current assets of $344,738, consisting of cash of $308,945, accounts receivable of $20,656 and deposits of $15,137. At September 30, 2013, the Company had total current liabilities of $284,374, consisting of, accounts payable of $98,366, accrued liabilities of $61,008, and notes payables of $125,000. At September 30, 2013, we have a working capital surplus of $60,364. During the nine months ended September 30, 2013, we used cash of $787,899 in operations. During the nine months ended September 30, 2013, we recognized a net loss of $897,500, which was adjusted for the non-cash items of accrued interest of $25,000, services of $30,000 paid in common stock and depletion and depreciation of $29,008 and asset remediation expense of $38,637. During the nine months ended September 30, 2012, we used cash of $443,361 in operations. During the nine months ended September 30, 2012, the Company recognized a net loss of $790,482, which was adjusted for the non-cash items of $30,898 in interest paid for using stock and $203,834 in services paid for with stock. 20
During the nine months ended September 30, 2013, we used $337,365 in our investing activities, $154,798 in the re-work efforts of our wells in the Cisco Springs Field and $182,567 in the acquisition of additional oil and gas leases and equipment. During the nine months ended September 30, 2012, we used $373,500 in our investing activities, $198,500 in the development of our 22-1 well and $175,000 in the purchase of oil and gas leases in the Greater Cisco area. During the nine months ended September 30, 2013, we received $1,376,500 from our financing activities compared to $337,500 during the nine months ended September 30, 2012. During the nine months ended September 30, 2013, the Company issued its Class A Secured Convertible Promissory Notes ("Class A Promissory Notes") in exchange for $75,000, used to support ongoing operations. The Class A Promissory Notes have a term of 3 years an accrue interest at a rate of 12% per annum. The Class A Promissory Notes are convertible into shares of the Company's common stock at a rate of $1.00 per share. In addition, for every $5.00 in principal converted, the note holder will receive a warrant to purchase one (1) common share with a purchase price of $2.00 per share. The Warrant would have a term of 3 years from the issuance date of the Class A Promissory Note. During the nine months ended September 30, 2013, the Company made payments of $280,000 on outstanding promissory notes. During the nine months ended September 30, 2013, the Company issued 1,163,000 shares of its restricted common stock for $581,500 at a price of $0.50 per share. During the nine months ended September 30, 2013, the Company issued 500,000 shares of its restricted common stock as payment for an outstanding subscription agreement of $250,000. During the nine months ended September 30, 2013, the Company issued 1,000,000 shares in connection with the exercise of warrants at $0.50 per share. Short Term. On a short-term basis, we do not generate any revenue or revenues insufficient to cover operations. Based on prior history, we will continue to have insufficient revenue to satisfy current and recurring expenses and liabilities. For short term needs we will be dependent on receipt, if any, of offering proceeds. Capital Resources We have only common and preferred stock as our capital resources. 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 our cash needs. We will have to seek loans or equity placements to cover such cash needs. Once exploration commences, our needs for additional financing is likely to increase substantially. 21
No commitments to provide additional funds have been made by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred. 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. Revenue Recognition The Company recognizes revenue when it is earned and expenses are recognized when they occur. ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not Applicable 22
ITEM 4. CONTROLS AND PROCEDURES Disclosures Controls and Procedures We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Financial Officer (Principal Executive Officer and Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation and the evaluation conducted at September 30, 2013, our Chief Financial Officer has concluded that our disclosure controls and procedures are not effective in timely alerting management them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Financial Officer, to allow timely decisions regarding required disclosure. MANAGEMENT'S 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: (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. 23
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 transactions. 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 lack 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 September 30, 2013, due to the existence of the material weaknesses noted above that we have yet to fully remediate. There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 1A. RISK FACTORS Not Applicable to Smaller Reporting Companies. ITEM 2. CHANGES IN SECURITIES During the period of July 1, 2013 through September 30, 2013, the Company has made the following unregistered issuances of its securities. DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER ------------------------------ ----------------------- ----------------- ------------------------- ----------------------- August 2013 Common Shares 23,000 $11,500 Business Associate August 2013 Common Shares 25,000 Services Business Associate July 2013 Common Shares 664,000 $332,000 Warrant Holders 24
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 and Section 4(2) 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. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. MINE SAFETY DISCLOSURE. Not Applicable. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS Exhibits. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. Exhibit 31.1 Certification of Chief Financial Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 32.1 Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS XBRL Instance Document (1) 101.SCH XBRL Taxonomy Extension Schema Document (1) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1) 101.LAB XBRL Taxonomy Extension Label Linkbase Document (1) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1) ----------- 25
(1) 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. 26
SIGNATURES Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HINTO ENERGY, INC. (Registrant) Dated: November 18, 2013 By: /s/ George Harris ---------------- George Harris (Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer) 27