Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10Q
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(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.
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(Exact name of registrant as specified in its charter)
Wyoming 84-1384961
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(State of Incorporation) (IRS Employer ID Number)
7609 Ralston Road, Arvada, CO 80002
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(Address of principal executive offices)
303-647-4850
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(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
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Assets
Current Assets:
Cash $ 308,945 $ 57,709
Accounts Receivable 20,656 -
Deposits 15,137 (4,473)
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Total Current Assets 344,738 53,236
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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)
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Total Oil and Natural Gas Properties 1,324,131 992,472
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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
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Total Current Liabilities 284,374 762,156
Asset recovery obligations 110,759 72,122
Long term note payable 575,000 500,000
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Total liabilities $ 970,133 $ 1,334,278
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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)
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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
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Net Cash Used by Operating Activities (787,899) (443,361)
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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)
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Net Cash Used in Investing Activities (337,365) (373,500)
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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 -
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Net Cash Provided by Financing Activities 1,376,500 337,500
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Net Increase (decrease) in Cash 251,236 (479,361)
Cash and Cash Equivalents - Beginning of Period 57,709 487,501
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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
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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
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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
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$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)
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(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.
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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