Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2013
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number: 000-26317
HINTO ENERGY, INC.
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(Exact name of registrant as specified in its charter)
Wyoming 84-1384961
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State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
5350 South Roslyn Road, Greenwood Village, CO 80111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303)647-4850
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Securities registered pursuant to Section 12(b) of the Act:
Title of each Name of each exchange
class registered on which registered
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Not Applicable Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. |_|
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data file required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files)
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
|X|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One).
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Large accelerated filer [___] Accelerated filer [___]
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Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
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Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No |X|
On March 31, 2014, the 15,306,875 shares of common stock were held by
non-affiliates and had a value of $11,786,293 based on the average closing bid
and ask.
There were 21,089,893 shares issued and outstanding of the registrant's Common
Stock as of March 31, 2014.
TABLE OF CONTENTS
PART I
ITEM 1 Business 2
ITEM 1 A. Risk Factors 11
ITEM 1 B. Unresolved Staff Comments 19
ITEM 2 Properties 19
ITEM 3 Legal Proceedings 24
ITEM 4 Mine and Safety Disclosure 24
PART II
ITEM 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 25
ITEM 6 Selected Financial Data 28
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 28
ITEM 7 A. Quantitative and Qualitative Disclosures About Market Risk 34
ITEM 8 Financial Statements and Supplementary Data 34
ITEM 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 34
ITEM 9 A. Controls and Procedures
ITEM 9 A(T). Controls and Procedures 34
ITEM 9B Other Information 36
36
PART III
ITEM 10 Directors, Executive Officers, and Corporate Governance 37
ITEM 11 Executive Compensation 40
ITEM 12 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 46
ITEM 13 Certain Relationships and Related Transactions, and Director
Independence 47
ITEM 14 Principal Accounting Fees and Services 50
PART IV
ITEM 15 Exhibits, Financial Statement Schedules 51
SIGNATURES 76
EXPLANATORY NOTE
Hinto Energy, Inc., (the "Company"), is filing this Amendment to its Annual
Report on Form 10-K/A for the Year ended December 31, 2013 filed with the
Securities and Exchange Commission on April 15, 2014, for the sole purpose of
revising the disclosures in Item 15.
This Amendment does not reflect events occurring after the Original Filing
except as noted above. Except for the foregoing amended information, this Form
10-K/A continues to speak as of the date of the Original Filing and the Company
has not otherwise updated disclosures contained therein or herein to reflect
events that occurred at a later date.
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NOTE ABOUT FORWARD-LOOKING STATEMENTS
THIS FROM 10-K CONTAINS FORWARD-LOOKING STATEMENTS, SUCH AS STATEMENTS RELATING
TO OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, PLANS, OBJECTIVES, FUTURE
PERFORMANCE AND BUSINESS OPERATIONS. THESE STATEMENTS RELATE TO EXPECTATIONS
CONCERNING MATTERS THAT ARE NOT HISTORICAL FACTS. THESE FORWARD-LOOKING
STATEMENTS REFLECT OUR CURRENT VIEWS AND EXPECTATIONS BASED LARGELY UPON THE
INFORMATION CURRENTLY AVAILABLE TO US AND ARE SUBJECT TO INHERENT RISKS AND
UNCERTAINTIES. ALTHOUGH WE BELIEVE OUR EXPECTATIONS ARE BASED ON REASONABLE
ASSUMPTIONS, THEY ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND THERE ARE A
NUMBER OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. BY MAKING
THESE FORWARD-LOOKING STATEMENTS, WE DO NOT UNDERTAKE TO UPDATE THEM IN ANY
MANNER EXCEPT AS MAY BE REQUIRED BY OUR DISCLOSURE OBLIGATIONS IN FILINGS WE
MAKE WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE FEDERAL SECURITIES
LAWS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM OUR FORWARD-LOOKING
STATEMENTS.
PART I
ITEM 1. BUSINESS
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GENERAL
THE FOLLOWING IS A SUMMARY OF SOME OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES IN THIS DOCUMENT TO
"HINTO" OR THE "COMPANY" ARE TO HINTO ENERGY, INC.
DESCRIPTION OF BUSINESS
Hinto Energy, Inc. ("We," "Us," "Our") was organized under the laws of the State
of Wyoming on February 13, 1997, as Garner Investments, Inc. On August 18, 2012,
we amended our Articles of Incorporation to change our name to Hinto Energy,
Inc. and to authorize 25,000,000 shares of preferred stock. We were organized to
engage in the acquisition, exploration, and if warranted, development of oil and
gas prospects in the rocky mountain region.
Prior to January 2012, we had minimal operations that were focused mainly on
administrative activities and the identification of potential oil and gas
prospects. On January 23, 2012, we acquired 100% of the issued and outstanding
common stock of South Uintah Gas Properties, Inc. ("South Uintah") pursuant to
the Share Purchase and Exchange Agreement ("the Share Exchange Agreement")
entered into on July 27, 2011, at the time South Uintah was our majority
shareholder, as discussed below.
On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 shares of the Company from its then majority
shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah returned the remaining 2,700,000 shares of common stock
to the Company. We have retired such shares to treasury, concurrent with the
transaction.
COMPANY OVERVIEW
SHARE ACQUISITION AND EXCHANGE AGREEMENT
On July 27, 2011, we entered into a Share Exchange and Acquisition Agreement
with South Uintah and the South Uintah shareholders. On January 23, 2012, we
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entered into an Amended Share Exchange and Acquisition Agreement ("the Amended
Share Exchange Agreement"). Pursuant to the Amended Share Exchange Agreement, we
agreed to issue shares of our restricted common stock for 100% of the issued and
outstanding common stock of South Uintah. The shares are to be exchanged on a
one for one basis. As a result, South Uintah became a wholly-owned subsidiary of
the Company.
SOUTH UINTAH
South Uintah was incorporated in the State of Colorado in March 2011 and is
headquartered in Denver, Colorado. South Uintah has interests in oil and gas
properties in Utah. South Uintah acquired interests in approximately 5,366 gross
acres in the Central part of the Uintah Basin, at Natural Buttes, Utah from a
farmout. The acreage is located in a prolific gas production area from multiple
hydrocarbon reservoirs such as: Castlegate, Mancos, Dakota, Buck Tongue, Emery,
Frontier and Prairie Canyon. The upper zones above 9,800 feet (approximately)
are precluded in the farmout and the overall targets will be zones from 9,800
feet to 16,000 feet.
HINTO ENERGY
The Company intends to strive to be a low cost and effective producer of
hydrocarbons and intends to develop the business model and corporate strategy as
discussed herein.
The Company's approach to lease acquisition, development and production is
founded on the discipline of ONLY acquiring leases in areas of proven
production. In most cases the leases that are under consideration have at one
time contained producing oil or gas wells and currently have production or
shut-in wells that are viable for work over and or re-completion. In addition,
the Company attempts to seek our leases and producing properties that generate
oil and gas at a depth of 6,500 feet or less, where rework and drilling costs
are typically less. There are hundreds of wells in our area of interest that
meet these criteria. In many instances, the wells were shut-in during a period
of declining oil and gas prices and in most cases are ideal for our business
model. Our business model is simple; strict adherence to lease acquisition
surrounded by proven production, offering well workovers, re-completion, and
enhanced oil recovery opportunities in the known producing formations, with long
term production potential at a low cost of development, maintenance, and
operation. The Company is NOT an exploration company, per se; rather it seeks
leases with discovered oil and gas with current or prior production.
One strategy that is quickly growing in prominence and application with respect
to petroleum is to use a development program approach. We describe our
development plan approach as a set of techniques utilizing the injection of
specific fluids such as: water, steam, natural gas, carbon dioxide, nitrogen,
and various chemicals and surfactants intended to increase the amount of oil
that can ultimately be extracted from any oil field. In addition, we intend to
utilize some non-traditional techniques to gain better access to oil and gas,
such as short drilling radius laterals and near well bore fracturing that does
not use chemicals. Many oil exploration and production companies are using
development program approaches to maximize the potential of old oil fields.
Our business operations are in the development, production, and low risk
exploration of oil and gas including unconventional natural gas, in the Rocky
Mountain region of the continental United States; specifically, in the Rocky
Mountain area of Utah, Colorado, Montana and Wyoming.
CORPORATE STRATEGY
Our corporate strategy in developing our operations and evaluating potential
acquisitions is as follows.
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PURSUE CONCURRENT DEVELOPMENT OF OUR CORE AREA OF THE ROCKY MOUNTAINS.
We plan to spend up to $10,000,000 on acquisition, drilling, re-completion,
and development programs, some of which were started in late 2011and will
continue in 2014. We plan to raise these funds in Private Placements of
Common Stock, Preferred Stock and/or convertible debt. All drilling capital
expenditures in 2012 were incurred in Utah and we split between Utah and
Montana in 2013. Many of our targeted prospects are in reservoirs that have
demonstrated predictable geologic attributes and consistent reservoir
characteristics, which typically lead to more repeatable drilling and
re-completion results than those achieved through wildcats.
ACHIEVE CONSISTENT RESERVE GROWTH THROUGH REPEATABLE DEVELOPMENT
We intend to achieve consistent reserve growth over the next five years
through a combination of acquisitions, rework and drilling. In 2013, we
focused our efforts achieving production increases as a result of our
re-work and re-completion activities on our Natural Buttes, Cisco and Mason
Lakes projects. In 2014, we intend to continue to focus on our acquisition,
re-completion, initial drilling and development programs. We anticipate
that the majority of future reserve and production growth will come through
the acquisition of production, the execution of our drilling and
re-completion program, and on development activities on prospects of which
we are aware, which include proved and unproved locations. Our targets
generally will consist of locations in fields that demonstrate low variance
in well performance, which leads to predictable and repeatable field
development.
Our reserve estimates, if any, may change continuously and we intend to
evaluate such reserve estimates internally on a frequent basis -- quarterly
if warranted -- with independent engineering evaluation on an annual basis.
Deviations in the market prices of both crude oil and natural gas and the
effects of acquisitions, dispositions, development and any successful
exploration activities may have a significant effect on the quantities and
future values of our reserves, if any.
MAINTAIN HIGH PERCENTAGE OWNERSHIP AND OPERATIONAL CONTROL OVER OUR ASSET BASE
We intend to retain a high degree of operational control over our asset
base, through a high average Working Interest or acting as the operator in
our areas of significant activity. This is designed to provide us with
controlling interests in a multi-year inventory of drilling locations,
positioning us for reserve and production growth through our drilling
operations. We plan to control the timing, level and allocation of our
drilling capital expenditures and the technology and methods utilized in
the planning, drilling and completion process on related targets. We
believe this flexibility to opportunistically pursue low risk exploration
and development projects relating to selected prospects may provide us with
a meaningful competitive advantage.
ACQUIRE AND MAINTAIN ACREAGE POSITIONS IN HIGH POTENTIAL RESOURCE PLAYS
We believe that our intended acquisition and development in known
production prospects in the Rockies should be supplemented with exploratory
efforts that may lead to new discoveries in the future. We intend to
continually evaluate our opportunities and pursue potential opportunities
that take advantage of our strengths. We are examining potential prospects
in such areas as Utah, Wyoming and Montana, which have gained substantial
interest within the exploration and production sector due to their
relatively under-explored nature and the potential for meaningful
hydrocarbon recoveries. There are other mid-size and large independent
exploration and production companies conducting drilling activities in
these plays.
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DEVELOP IMPROVED TECHNICS TO OBTAIN GREATER DAILY PRODUCTION AND HIGHER ULTIMATE
OIL AND GAS RECOVERY
The Company implemented a plan of action to develop its own proprietary
equipment design for boring lateral holes that extend into productive
formations from the bores of existing wells. The engineering design
provides for the potential to bore holes up to 300 feet out from the well
bore with a diameter of from 1 to 2 inches at depths up to 2,000 feet. The
Company believes based on its research that this process will bypass near
well bore plugging and damage and open significant surface area from which
low pressure shallow oil reserves can be recovered. To date the Company has
expended approximately $200,000 in time and materials on the project,
capitalizing approximately $74,000 of such expenses, and expects initial
field trials in the second quarter or 2014. Ultimately, the engineering
design will provide for drilling of small laterals at depths up to 8,000
feet.
PURSUE A DISCIPLINED ACQUISITION STRATEGY IN OUR CORE AREAS OF OPERATION
We intend to also focus on growing through targeted acquisitions. Although
drilling prospects may provide us with the opportunity to grow reserves and
production without acquisitions, we continue to evaluate acquisition
opportunities, primarily in our core areas of operation.
EXPERIENCED MANAGEMENT AND OPERATIONAL TEAM WITH ADVANCED EXPLORATION AND
DEVELOPMENT TECHNOLOGY
Our senior management team has over 75 years of experience in the oil and
gas industry, and has a proven track record of creating value both
organically and through strategic acquisitions. Our management intends to
utilize the best available and fit-for-purpose technology, sophisticated
geologic and 3-D seismic models to enhance predictability and
reproducibility over significantly larger areas than historically possible.
We also intend to utilize state-of-the art drilling and completion
technology, as well as multi-zone, multi-stage artificial stimulation
("frac") technology in completing wells to substantially increase near-term
production, resulting in faster payback periods and higher rates of return
and present values. Our team has successfully applied these techniques,
normally associated with completions in the most advanced Rocky Mountain
crude oil and natural gas fields, to improve initial and ultimate
production and returns, in other companies.
OIL AND GAS PROJECTS
Our initial projects are centered on the Uintah Basin of Utah and in Musselshell
County, Montana.
The Uintah Basin has long been known to contain petroleum and natural gas and
has established itself as a petroleum production hub in the United States. The
Utah Division of Oil, Gas, and Mining have recently approved a significant
density increase for the Altamont Bluebell Cedar Rim Oil Field, opening up
expanded opportunities for development drilling. This recent increased density
allotment, may allow extended access to some of the richest petroleum reserves
in the United States, that until now have remained unavailable for drilling.
Ever since the discoveries of large reserves in the late 1940s, the Uintah Basin
has proven to be a rich petroleum area for companies. From the time that the
initial boom of the region commenced, it has been in a state of growth. From the
late 1960's through the mid 1980's companies such as Exxon, Chevron Gulf, and
Shell Oil achieved remarkable success in the basin by drilling into
over-pressurized geological formations. Historically, these deep pay zones known
as the Wasatch and Wasatch Transition Formations have led to some of the most
productive onshore "flowing" oil wells in the continental U.S.
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The Musselshell County area has been a producer of oil for many years. The area
has produced from several pay zones such as the Muddy, Cat Creek and Amsden.
There is also considerable interest in developing the Heath shale formation.
Amsden oil wells in the area have flowed in excess of 300 barrels of oil per
day, but the presence of water has often reduced the amount of oil ultimately
recovered. There are opportunities for secondary recovery in fields that have
reduced formation pressure as a result of primary production. Current higher oil
prices often make these secondary recovery projects attractive.
NATURAL BUTTES
South Uintah, in July 2011, acquired deep rights interests via farmout in
approximately 5,366 gross and 4,887 net acres within the Central part of the
Uintah Basin, at Natural Buttes, a prolific gas production area from multiple
hydrocarbon reservoirs such as: Castlegate, Mancos, Dakota, Buck Tongue, Emery,
Frontier and Prairie Canyon. The agreement was subsequently amended on December
31, 2011. The purchase price of the farmout interest was $478,200, made up of
$303,000 in cash, $175,000 in notes payable and $200 in common stock of South
Uintah.
The upper zones above approximately 9,800 feet are precluded in the farmout and
the overall targets will be zones from 9,800 feet to 16,000 feet.
In 2012, we began the re-work of Federal Conoco 22-1, a well which was drilled
in 1972 to a depth of 20,053 feet. We believe that the well was shut in,
primarily due to low gas prices at the time, mechanical production issues and a
lack of proximity to a gas pipe line. We completed a lateral pipeline connection
that is approximately 2,000 foot long to the Anadarko pipeline in late 2011, the
early part of 2012.
We have reviewed the drilling, geological and engineering files for the Conoco
Federal No. 22-1 Well. Our evaluation indicates that the well has significant
hydrocarbon potential in both the Frontier and the Upper Mancos Formations, and
that by utilizing best available completion and stimulation techniques,
commercial production, may be possible.
WELL HISTORY: This well was drilled in 1972 to a total depth of 20,053, tested
in the Frontier Formation from 14,666 to 14,803 at a rate of 1.15 MMCFD
declining in 8 hours to 0.250 MMCFD, and temporarily abandoned. The well was
re-entered by Gilman A. Hill in 1980. In a WELL COMPLETION OR RECOMPLETION
REPORT filed with the USGS in 1981, the well had been cleaned out from the
original plug back depth of 14,108 feet to a new plugged back depth of 14,750
feet. It had been perforated from 14, 580 feet to 14,800 feet and tested at a
rate estimated to be 500 MCFD. In a SUNDRY NOTICES AND REPORTS ON WELLS filed
with the State of Utah, Department of Natural Resources, Division of Oil, Gas,
and Mining in 1985, it was reported that the well had been placed in indefinite
suspended activity.
PLANNED RE-WORKING: Our review of the available data indicates that with the
application of best available completion and stimulation practices, the well
could contain commercial reserves in both the Frontier and Upper Mancos
Formations. We plan to re-work the well and individually test these formations,
when gas prices justify the expense.
Generally, adjacent to the farmout acreage that includes the Conoco Federal No.
22-1 Well is our adjacent acreage, which contains approximately 5,336 gross and
4,887 net acres. If we drill this acreage on 160 acre spacing - a maximum of 27
wells -- and if consistent and similar results are obtained, we believe there is
potential for significant gas resources. No results can be guaranteed or
assured, and the financing is not in place for a drilling program of this
magnitude.
AVAILABLE INFRASTRUCTURE AND MULTI-WELL DRILL SITES: The 22-1 well location is a
flat developed drill site with close highway access and an access road. This
infrastructure provides the Company with the ability to develop a significant
portion of its acreage from one drill site through slant drilling with
accompanying laterals. A pipeline connection has been installed at the time of
this filing. This environmentally responsible development plan is designed to
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minimize surface impacts and is designed to provide a core platform for up to
twelve wells without additional roads, pipelines, rights of way, etc. Assuming
any initial success, the Company plans to drill continuously from this concrete
pad, using drilling technology developed and proved on Alaska's North Slope
which utilizes a moveable drilling rig, allowing efficient and low cost movement
of the rig for a short distance to subsequent wells, without dismantling the rig
and incurring all the downtime and mobilization costs.
Total Field Development Costs are estimated to be $150 million to drill and
complete up to 27 wells over a 7.5 year development period. None of this
financing for drilling has been obtained and there is no assurance that such
financing could be obtained.
CISCO SPRING FIELD PROPERTIES
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
June 7, 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 Cisco
Springs Field is known to produce from the channel sands in the Mancos, Dakota
and Morrison formations, with natural gas production from the Mancos and Dakota
formations. Target formations often have stacked pay zones at depths from 500 to
2,200 feet.
The assets acquired include 4,783 gross acres in the Cisco Spring Fields with an
80% Net Revenue Interest (NRI) and approximately 3,827 net acres. The property
includes 27 wells, some on production, some that need to be re-worked, connected
to a gas pipeline, or offset drilled. The Company is beginning a rework program
in early 2014 that will continue throughout the year. The Company also plans to
apply for permits to drill several offset wells in 2013 and 2015.
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 has an interest rate of 8% and is due May 30, 2013. The
convertible promissory note and accrued interest may be converted into
shares of the Company's restricted common stock. In May 2013, the note
was paid in full.
On June 17, 2013, the Company expanded its holdings in the Cisco Springs area
when it acquired a 100 percent Working Interest in Pride Ventures interest in
approximately 4,400 acres. The property included 9 gas wells that need to be
re-worked or offset drilled. The leases acquired also included a natural gas
gathering system connected to a local pipeline that greatly simplifies
collection and sale of natural gas from existing Company gas wells in the area.
In exchange for such mineral estates, the Company paid a total of $100,000 in a
combination of cash and stock as follows:
- $75,000 in cash; and
- $25,000 in the form of 50,000 shares of the Company's restricted
common stock.
MUSSELSHELL COUNTY, MONTANA - MASON LAKES FIELD
On June 14, 2013, the Company entered into a Purchase and Sale agreement with
Jake Oil, LLC and Mr. Eric Olsen and acquired all right and title to oil and gas
leases in the Federal Unit for the 1st Cat Creek formation for 559 gross acres
in the Musselshell County, Montana. The property included 6 wells in a field to
be water flooded that needed the wells and field gathering system to be
re-worked. During the second half of 2013 the Company worked to bring field
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production back online. As of the end of 2013, new production lines had been
installed, existing lines repaired along with installation of oil/water
separators and tank relocation. The injection well received State approval for
use and the field began its initial trial production, with the water source
well, water injection well and two production wells operating. The Company plans
to rework the two production wells with larger pumping systems and increase
fluids production in the first half of 2014. The Company believes it currently
has sufficient capital to complete this project. After evaluation the increased
production, the current field development plan, which calls for the drilling of
several production and injection wells, will be re-evaluated for implementation.
In exchange for such mineral estates, the Company paid a total of $25,000 in a
combination of cash and Carried Working Interest as follows:
- $25,000 in cash; and
- 5 percent Carried Working Interest
On June 14, 2013, the Company acquired all right and title to additional oil and
gas leases for 722 gross acres in the Mason Lakes Field area from S & L Energy,
Inc. Approximately 120 gross acres are for formations other than the 1st Cat
Creek formation Federal Unit mentioned previously. The other 602 gross acres are
held by production by the production from the Mason Lakes Federal Unit. The
Company plans to create a drilling development plan for this acreage in the next
12 to 24 months.
Initial target production zones are from 4,000 to 5,000 feet deep and include
the 1St Cat Creek and Amsden formations. Deeper drilling prospects such as the
Heath shale will also be evaluated for future opportunity.
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.
COMPETITION, MARKETS, REGULATION AND TAXATION
COMPETITION.
There are a large number of companies and individuals engaged in the exploration
for minerals and oil and gas; accordingly, there is a high degree of competition
for desirable properties. Almost all of the companies and individuals so engaged
have substantially greater technical and financial resources than we do.
MARKETS.
The availability of a ready market for oil and gas discovered, if any, will
depend on numerous factors beyond our control, including the proximity and
capacity of refineries, pipelines, and the effect of state regulation of
production and of federal regulations of products sold in interstate commerce,
and recent intrastate sales. The market price of oil and gas are volatile and
beyond our control. The market for natural gas is also unsettled, and gas prices
have increased dramatically in the past four years with substantial fluctuation,
seasonally and annually.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
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is no assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There presently exists an oversupply of gas in the certain areas of
the marketplace due to pipeline capacity, the extent and duration of which is
not known. Such oversupply may result in restrictions of purchases by principal
gas pipeline purchasers.
EFFECT OF CHANGING INDUSTRY CONDITIONS ON DRILLING ACTIVITY.
Lower oil and gas prices have caused a decline in drilling activity in the U.S.
from time to time. However, such reduced activity has also resulted in a decline
in drilling costs, lease acquisition costs and equipment costs, and an
improvement in the terms under which drilling prospects are generally available.
We cannot predict what oil and gas prices will be in the future and what effect
those prices may have on drilling activity in general, or on our ability to
generate economic drilling prospects and to raise the necessary funds with which
to drill them.
FEDERAL REGULATIONS.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATION.
Oil and Gas: The oil and gas business in the United States is subject to
regulation by both federal and state authorities, particularly with respect to
pricing, allowable rates of production, marketing and environmental matters.
The production of crude oil and gas has, in recent years, been the subject of
increasing state and federal controls. No assurance can be given that newly
imposed or changed federal laws will not adversely affect the economic viability
of any oil and gas properties we may acquire in the future. Federal income and
"windfall profit" taxes have in the past affected the economic viability of such
properties.
The above paragraphs only give a brief overview of potential state and federal
regulations. Because we have only acquired specific properties, and because of
the wide range of activities in which we may participate, it is impossible to
set forth in detail the potential impact federal and state regulations may have
on us.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS.
Our operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. To date our compliance
with these regulations has had no material effect on our operations, capital,
earnings, or competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
THE DEPARTMENT OF ENERGY.
The Department of Energy Organization Act (Pub. L. No. 95-91) became effective
October 1, 1977. Under this Act various agencies, including the Federal Energy
Administration (FEA) and the Federal Power Commission (FPC), have been
consolidated to constitute the cabinet-level Department of Energy (DOE). The
Economic Regulatory Administration (ERA), a semi-independent administration
within the DOE, now administers most of the regulatory programs formerly managed
by the FEA, including oil pricing and allocation. The Federal Energy Regulatory
Commission (FERC), an independent agency within the DOE, has assumed the FPC's
responsibility for natural gas regulation.
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REGULATION AND PRICING OF NATURAL GAS.
Our operations may be subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) with respect to the sale of natural gas for resale
in interstate and intrastate commerce. State regulatory agencies may exercise or
attempt to exercise similar powers with respect to intrastate sales of gas.
Because of its complexity and broad scope, the price impact of future
legislation on the operation of us cannot be determined at this time.
CRUDE OIL AND NATURAL GAS LIQUIDS PRICE AND ALLOCATION REGULATION.
Pursuant to Executive Order Number 12287, issued January 28, 1981, President
Reagan lifted all existing federal price and allocation controls over the sale
and distribution of crude oil and natural gas liquids. Executive Order Number
12287 was made effective as of January 28, 1981, and consequently, sales of
crude oil and natural gas liquids after January 27, 1981 are free from federal
regulation. The price for such sales and the supplier-purchaser relationship
will be determined by private contract and prevailing market conditions. As a
result of this action, oil which may be sold by us will be sold at deregulated
or free market prices. At various times, certain groups have advocated the
reestablishment of regulations and control on the sale of domestic oil and gas.
STATE REGULATIONS.
Our production of oil and gas, if any, will be subject to regulation by state
regulatory authorities in the states in which we may produce oil and gas. In
general, these regulatory authorities are empowered to make and enforce
regulations to prevent waste of oil and gas and to protect correlative rights
and opportunities to produce oil and gas as between owners of a common
reservoir. Some regulatory authorities may also regulate the amount of oil and
gas produced by assigning allowable rates of production.
PROPOSED LEGISLATION.
A number of legislative proposals have been and probably will continue to be
introduced in Congress and in the legislatures of various states, which, if
enacted, would significantly affect the petroleum industries. Such proposals and
executive actions involve, among other things, the imposition of land use
controls such as prohibiting drilling activities on certain federal and state
lands in roadless wilderness areas. At present, it is impossible to predict what
proposals, if any, will actually be enacted by Congress or the various state
legislatures and what effect, if any, such proposals will have. However,
President Clinton's establishment of numerous National Monuments by executive
order has had the effect of precluding drilling across vast areas of the Rocky
Mountain West.
ENVIRONMENTAL LAWS.
Oil and gas exploration and development are specifically subject to existing
federal and state laws and regulations governing environmental quality and
pollution control. Such laws and regulations may substantially increase the
costs of exploring for, developing, or producing oil and gas and may prevent or
delay the commencement or continuation of a given operation.
All of our operations involving the exploration for or the production of any
minerals are subject to existing laws and regulations relating to exploration
procedures, safety precautions, employee health and safety, air quality
standards, pollution of stream and fresh water sources, odor, noise, dust, and
other environmental protection controls adopted by federal, state and local
governmental authorities as well as the right of adjoining property owners. We
may be required to prepare and present to federal, state or local authorities
data pertaining to the effect or impact that any proposed exploration for or
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production of minerals may have upon the environment. All requirements imposed
by any such authorities may be costly, time consuming, and may delay
commencement or continuation of exploration or production operations.
It may be anticipated that future legislation will significantly emphasize the
protection of the environment, and that, as a consequence, our activities may be
more closely regulated to further the cause of environmental protection. Such
legislation, as well as future interpretation of existing laws, may require
substantial increases in equipment and operating costs to us and delays,
interruptions, or a termination of operations, the extent to which cannot now be
predicted.
TITLE TO PROPERTIES.
We are not the record owner of our interest in our properties and rely instead
on contracts with the owner or operator of the property, pursuant to which,
among other things, we have the right to have our interest placed of record. As
is customary in the oil and gas industry, a preliminary title examination will
be conducted at the time unproved properties or interests are acquired by us.
Prior to commencement of drilling operations on such acreage and prior to the
acquisition of proved properties, we will conduct a title examination and
attempt extremely significant defects before proceeding with operations or the
acquisition of proved properties, as we may deem appropriate.
Our properties are subject to royalty, overriding royalty and other interests
customary in the industry, liens incident to agreements, current taxes and other
burdens, minor encumbrances, easements and restrictions. Although we are not
aware of any material title defects or disputes with respect to its undeveloped
acreage, to the extent such defects or disputes exist, we would suffer title
failures.
BACKLOG OF ORDERS.
We currently have no orders for sales at this time.
GOVERNMENT CONTRACTS.
We have no government contracts.
COMPANY SPONSORED RESEARCH AND DEVELOPMENT.
We are not conducting any research.
NUMBER OF PERSONS EMPLOYED.
As of December 31, 2013, Hinto had no full-time employees. George Harris, Gary
Herick, David Keller, Kevin Blair and Max Sommer, officers and directors of
Hinto, have Consulting and/or Corporate Advisor Agreements with our subsidiary
South Uintah, which are on a month - to month basis. George Harris works up to
40 hours per week pursuant to his Consulting Agreement. The other Officers and
Directors work on an as needed part-time basis up to 25 hours per week.
ITEM 1A. RISK FACTORS
----------------------
FORWARD LOOKING STATEMENTS
THIS DOCUMENT INCLUDES FORWARD-LOOKING STATEMENTS, INCLUDING, WITHOUT
LIMITATION, STATEMENTS RELATING TO HINTO'S PLANS, STRATEGIES, OBJECTIVES,
EXPECTATIONS, INTENTIONS AND ADEQUACY OF RESOURCES. THESE FORWARD-LOOKING
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS
THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE,
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AMONG OTHERS, THE FOLLOWING: OUR ABILITY OF TO IMPLEMENT OUR BUSINESS STRATEGY;
ABILITY TO OBTAIN ADDITIONAL FINANCING; HINTO LIMITED OPERATING HISTORY; UNKNOWN
LIABILITIES ASSOCIATED WITH FUTURE ACQUISITIONS; ABILITY TO MANAGE GROWTH;
SIGNIFICANT COMPETITION; ABILITY TO ATTRACT AND RETAIN TALENTED EMPLOYEES; AND
FUTURE GOVERNMENT REGULATIONS; AND OTHER FACTORS DESCRIBED IN THIS FILING OR IN
OTHER OF HINTO'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. HINTO IS
UNDER NO OBLIGATION, TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
RISK FACTORS RELATED TO OUR COMPANY
OUR BUSINESS HAS AN OPERATING HISTORY OF ONLY A YEAR AND A HALF AND IS UNPROVEN
AND THEREFORE RISKY.
We have only very recently begun operations under the business plan discussed
herein. Potential investors should be made aware of the risk and difficulties
encountered by a new enterprise in the oil and gas industry, especially in view
of the intense competition from existing businesses in the industry.
WE HAVE A LACK OF REVENUE HISTORY AND HAVE A SHORT HISTORY OF OPERATIONS.
We were formed on February 13, 1997 for the purpose of engaging in any lawful
business and have adopted a plan to engage the acquisition, exploration, and if
warranted, development of natural resource properties. Prior to the year ended
December 31, 2012, we had no revenues in the last five years. During the year
ended December 31, 2013, we did recognize revenues of $65,615 compared to
$29,908 during the year ended December 31, 2012. We are not profitable and the
business effort is considered to be in an early stage of operations. We must be
regarded as a new or development venture with all of the unforeseen costs,
expenses, problems, risks and difficulties to which such ventures are subject.
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS.
Because of the limited financial resources that we have, it is unlikely that we
will be able to diversify our operations. Our probable inability to diversify
our activities into more than one area will subject us to economic fluctuations
within the energy industry and therefore increase the risks associated with our
operations due to lack of diversification.
WE CAN GIVE NO ASSURANCE OF SUCCESS OR PROFITABILITY TO OUR INVESTORS.
There is no assurance that we will ever operate profitably. There is no
assurance that we will generate revenues or profits, or that the market price of
our common stock will be increased thereby.
WE MAY HAVE A SHORTAGE OF WORKING CAPITAL IN THE FUTURE WHICH COULD JEOPARDIZE
OUR ABILITY TO CARRY OUT OUR BUSINESS PLAN.
Our capital needs consist primarily of expenses related to geological
evaluation, general and administrative and potential exploration participation
and could exceed $750,000 in the next twelve months. Such funds are not
currently committed.
We have issued a total of 5,600,000 shares of common stock underlying Warrants
exercisable at exercise prices ranging from $0.25 to $3.00 per share, which if
exercised; we would receive proceeds totaling $7,700,000 from the exercise of
the Warrants. We cannot provide any assurances that such warrants will be
exercised or when they will be exercised.
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If we find oil and gas reserves to exist on a prospect we will need substantial
additional financing to fund the necessary exploration and development work.
Furthermore, if the results of that exploration and development work are
successful, we will need substantial additional funds for continued development.
We will not receive proceeds from this offering to conduct such work and,
therefore, we will need to obtain the necessary funds either through debt or
equity financing, some form of cost-sharing arrangement with others, or the sale
of all or part of the property. There is no assurance that we will be successful
in obtaining any financing. These various financing alternatives may dilute the
interest of our shareholders and/or reduce our interest in the properties.
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY
JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carry out the
business plan in the oil and gas industry. Our ultimate success depends upon our
ability to raise additional capital. We have not investigated the availability,
source, or terms that might govern the acquisition of additional capital and
will not do so until it determines a need for additional financing. If we need
additional capital, we have no assurance that funds will be available from any
source or, if available, that they can be obtained on terms acceptable to us. If
not available, our operations will be limited to those that can be financed with
our modest capital.
WE MAY IN THE FUTURE ISSUE MORE SHARES WHICH COULD CAUSE A LOSS OF CONTROL BY
OUR PRESENT MANAGEMENT AND CURRENT STOCKHOLDERS.
We may issue further shares as consideration for the cash or assets or services
out of our authorized but unissued common stock that would, upon issuance,
represent a majority of the voting power and equity of our Company. The result
of such an issuance would be those new stockholders and management would control
our Company, and persons unknown could replace our management at this time. Such
an occurrence would result in a greatly reduced percentage of ownership of our
Company by our current shareholders, which could present significant risks to
investors.
WE HAVE WARRANTS ISSUED AND OUTSTANDING WHICH ARE CONVERTIBLE INTO OUR COMMON
STOCK. A CONVERSION OF SUCH EQUITY INSTRUMENTS COULD HAVE A DILUTIVE EFFECT TO
EXISTING SHAREHOLDERS.
At December 31, 2013, we have warrants issued and outstanding exercisable into
5,600,000 shares of our common stock at ranges from $0.50 to $3.00 per share.
The warrants are exercisable in whole or in part. The exercise of the warrants
into shares of our common stock could have a dilutive effect to the holdings of
our existing shareholders.
WE WILL DEPEND UPON MANAGEMENT BUT WE WILL HAVE LIMITED PARTICIPATION OF
MANAGEMENT.
Our directors are also acting as our officers. We will be heavily dependent upon
their skills, talents, and abilities, as well as several consultants to us, to
implement our business plan, and may, from time to time, find that the inability
of the officers, directors and consultants to devote their full-time attention
to our business results in a delay in progress toward implementing our business
plan. Consultants may be employed on a part-time basis under a contract to be
determined.
Our directors and officers are, or may become, in their individual capacities,
officers, directors, controlling shareholder and/or partners of other entities
engaged in a variety of businesses. Thus, our officers and directors may have
potential conflicts including their time and efforts involved in participation
with other business entities. Each officer and director of our business is
engaged in business activities outside of our business, and the amount of time
they devote as Officers and Directors, with the exception of George Harris,
Chief Executive Officer and Chief Financial Officer, to our business will be up
to 25 hours per week. Mr. Harris devotes up to 40 hours per week. (See
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"Executive Team") Because investors will not be able to manage our business,
they should critically assess all of the information concerning our officers and
directors.
We do not know of any reason other than outside business interests that would
prevent them from devoting full-time to our Company, when the business may
demand such full-time participation.
OUR OFFICERS AND DIRECTORS MAY HAVE CONFLICTS OF INTERESTS AS TO CORPORATE
OPPORTUNITIES WHICH WE MAY NOT BE ABLE OR ALLOWED TO PARTICIPATE IN.
Presently there is no requirement contained in our Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of our business to
disclose to us business opportunities which come to their attention. Our
officers and directors do, however, have a fiduciary duty of loyalty to us to
disclose to us any business opportunities which come to their attention, in
their capacity as an officer and/or director or otherwise. Excluded from this
duty would be opportunities which the person learns about through his
involvement as an officer and director of another company. We have no intention
of merging with or acquiring business opportunity from any affiliate or officer
or director.
WE HAVE AGREED TO INDEMNIFICATION OF OFFICERS AND DIRECTORS AS IS PROVIDED BY
WYOMING STATUTE.
Wyoming Statutes provide for the indemnification of our directors, officers,
employees, and agents, under certain circumstances, against attorney's fees and
other expenses incurred by them in any litigation to which they become a party
arising from their association with or activities our behalf. We will also bear
the expenses of such litigation for any of our directors, officers, employees,
or agents, upon such person's promise to repay us therefore if it is ultimately
determined that any such person shall not have been entitled to indemnification.
This indemnification policy could result in substantial expenditures by us that
we will be unable to recoup.
OUR DIRECTORS' LIABILITY TO US AND SHAREHOLDERS IS LIMITED
Wyoming Revised Statutes exclude personal liability of our directors and our
stockholders for monetary damages for breach of fiduciary duty except in certain
specified circumstances. Accordingly, we will have a much more limited right of
action against our directors that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
RISK FACTORS RELATING TO OUR BUSINESS
OUR BUSINESS, THE OIL AND GAS BUSINESS HAS NUMEROUS RISKS WHICH COULD RENDER US
UNSUCCESSFUL.
The search for new oil and gas reserves frequently results in unprofitable
efforts, not only from dry holes, but also from wells which, though productive,
will not produce oil or gas in sufficient quantities to return a profit on the
costs incurred. There is no assurance we will find or produce oil or gas from
any of the wells we have acquired or which may be acquired by us, nor are there
any assurances that if we ever obtain any production it will be profitable. (See
"Business and Properties")
WE HAVE SUBSTANTIAL COMPETITORS WHO HAVE AN ADVANTAGE OVER US IN RESOURCES AND
MANAGEMENT.
We are and will continue to be an insignificant participant in the oil and gas
business. Most of our competitors have significantly greater financial
resources, technical expertise and managerial capabilities than us and,
consequently, we will be at a competitive disadvantage in identifying and
developing or exploring suitable prospects. Competitor's resources could
-14-
overwhelm our restricted efforts to acquire and explore oil and gas prospects
and cause failure of our business plan.
WE WILL BE SUBJECT TO ALL OF THE MARKET FORCES IN THE ENERGY BUSINESS, MANY OF
WHICH COULD POSE A SIGNIFICANT RISK TO OUR OPERATIONS.
The marketing of natural gas and oil which may be produced by our prospects will
be affected by a number of factors beyond our control. These factors include the
extent of the supply of oil or gas in the market, the availability of
competitive fuels, crude oil imports, the world-wide political situation, price
regulation, and other factors. Current economic and market conditions have
created dramatic fluctuations in oil prices. Any significant decrease in the
market prices of oil and gas could materially affect our profitability of oil
and gas activities.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There may, on occasion, be an oversupply of gas in the marketplace or
in pipelines; the extent and duration may affect prices adversely. Such
oversupply may result in reductions of purchases and prices paid to producers by
principal gas pipeline purchasers. (See "Our Business and Competition, Markets,
Regulation and Taxation.")
WE BELIEVE INVESTORS SHOULD CONSIDER CERTAIN NEGATIVE ASPECTS OF OUR OPERATIONS.
DRY HOLES: We may expend substantial funds acquiring and potentially
participating in exploring properties which we later determine not to be
productive. All funds so expended will be a total loss to us.
TECHNICAL ASSISTANCE: We will find it necessary to employ technical assistance
in the operation of our business. As of the date of this Prospectus, we have not
contracted for any technical assistance. When we need it such assistance is
likely to be available at compensation levels we would be able to pay.
UNCERTAINTY OF TITLE: We will attempt to acquire leases or interests in leases
by option, lease, farmout or by purchase. The validity of title to oil and gas
property depends upon numerous circumstances and factual matters (many of which
are not discoverable of record or by other readily available means) and is
subject to many uncertainties of existing law and our application.
GOVERNMENT REGULATIONS: The area of exploration of natural resources has become
significantly regulated by state and federal governmental agencies, and such
regulation could have an adverse effect on our operations. Compliance with
statutes and regulations governing the oil and gas industry could significantly
increase the capital expenditures necessary to develop our prospects.
NATURE OF OUR BUSINESS: Our business is highly speculative, involves the
commitment of high-risk capital, and exposes us to potentially substantial
losses. In addition, we will be in direct competition with other organizations
which are significantly better financed and staffed than we are.
GENERAL ECONOMIC AND OTHER CONDITIONS: Our business may be adversely affected
from time to time by such matters as changes in general economic, industrial and
international conditions; changes in taxes; oil and gas prices and costs; excess
supplies and other factors of a general nature.
-15-
OUR BUSINESS IS SUBJECT TO SIGNIFICANT WEATHER INTERRUPTIONS.
Our activities may be subject to periodic interruptions due to weather
conditions. Weather-imposed restrictions during certain times of the year on
roads accessing properties could adversely affect our ability to benefit from
production on such properties or could increase the costs of drilling new wells
because of delays.
WE ARE SUBJECT TO SIGNIFICANT OPERATING HAZARDS AND UNINSURED RISK IN THE ENERGY
INDUSTRY.
Our proposed operations will be subject to all of the operating hazards and
risks normally incident to exploring, drilling for and producing oil and gas,
such as encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. We will maintain general liability
insurance but we have not obtained insurance against such things as blowouts and
pollution risks because of the prohibitive expense. Should we sustain an
uninsured loss or liability, or a loss in excess of policy limits, our ability
to operate may be materially adversely affected.
WE ARE SUBJECT TO FEDERAL INCOME TAX LAWS AND CHANGES THEREIN WHICH COULD
ADVERSELY IMPACT US.
Federal income tax laws are of particular significance to the oil and gas
industry in which we engage. Legislation has eroded various benefits of oil and
gas producers and subsequent legislation could continue this trend. Congress is
continually considering proposals with respect to Federal income taxation which
could have a material adverse effect on our future operations and on our ability
to obtain risk capital which our industry has traditionally attracted from
taxpayers in high tax brackets.
WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION IN THE ENERGY INDUSTRY WHICH
COULD ADVERSELY IMPACT US.
The production and sale of oil and gas are subject to regulation by state and
federal authorities, the spacing of wells and the prevention of waste. There are
both federal and state laws regarding environmental controls which may
necessitate significant capital outlays, resulting in extended delays,
materially affect our earnings potential and cause material changes in the in
our proposed business. We cannot predict what legislation, if any, may be passed
by Congress or state legislatures in the future, or the effect of such
legislation, if any, on us. Such regulations may have a significant affect on
our operating results.
RISK FACTORS RELATED TO OUR STOCK
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF OUR SECURITIES.
We are a "penny stock" company. Our securities are subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
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In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
Shareholders should be aware that, according to Securities and Exchange
Commission, the market for penny stocks has suffered in recent years from
patterns of fraud and abuse. Such patterns include (i) control of the market for
the security by one or a few broker-dealers that are often related to the
promoter or issuer; (ii) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (iii) "boiler room"
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (iv) excessive and undisclosed
bid-ask differentials and markups by selling broker-dealers; and (v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired consequent investor losses. Our
management is aware of the abuses that have occurred historically in the penny
stock market. Although we do not expect to be in a position to dictate the
behavior of the market or of broker-dealers who participate in the market,
management will strive within the confines of practical limitations to prevent
the described patterns from being established with respect to our securities.
WE WILL PAY NO FORESEEABLE DIVIDENDS IN THE FUTURE.
We have not paid dividends on our common stock and do not ever anticipate paying
such dividends in the foreseeable future.
OUR INVESTORS MAY SUFFER FUTURE DILUTION DUE TO ISSUANCES OF SHARES FOR VARIOUS
CONSIDERATIONS IN THE FUTURE.
There may be substantial dilution to our shareholders purchasing in this
Offering as a result of future decisions of the Board to issue shares without
shareholder approval for cash, services, or acquisitions.
At December 31, 2012, we have warrants issued and outstanding exercisable into
7,500,000 shares of our common stock at ranges from $0.25 to $3.00 per share. We
have registered 2,000,000 shares underlying our $0.50 Warrants in an effective
registration statement. We do not intend to register the warrants held by our
officers and directors. The warrants are exercisable in whole or in part. The
exercise of the warrants into shares of our common stock could have a dilutive
effect to the holdings of our existing shareholders.
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering all of our outstanding shares so officers,
directors and affiliates will be able to sell their shares if this Registration
Statement becomes effective. Rule 144 provides in essence that a person who has
held restricted securities for six months, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
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nonaffiliate after the owner has held the restricted securities for a period of
six month. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
OUR COMMON STOCK MAY BE VOLATILE, WHICH SUBSTANTIALLY INCREASES THE RISK THAT
YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE THAT YOU MAY PAY
FOR THE SHARES.
Because of the limited trading market for our common stock and because of the
possible price volatility, you may not be able to sell your shares of common
stock when you desire to do so. The inability to sell your shares in a rapidly
declining market may substantially increase your risk of loss because of such
illiquidity and because the price for our Securities may suffer greater declines
because of our price volatility.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you may pay. Certain factors,
some of which are beyond our control, that may cause our share price to
fluctuate significantly include, but are not limited to the following:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, and the
over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or
disproportionate to the operating performance of the underlying company. These
market and industry factors may materially and adversely affect our stock price,
regardless of our operating performance. In the past, class action litigation
often has been brought against companies following periods of volatility in the
market price of those companies common stock. If we become involved in this type
of litigation in the future, it could result in substantial costs and diversion
of management attention and resources, which could have a further negative
effect on your investment in our stock.
ANY NEW POTENTIAL INVESTORS WILL SUFFER A DISPROPORTIONATE RISK AND THERE WILL
BE IMMEDIATE DILUTION OF EXISTING INVESTOR'S INVESTMENTS.
Our present shareholders have acquired their securities at a cost significantly
less than that which the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, any new potential investors will bear most of the risk of loss.
OUR BUSINESS IS HIGHLY SPECULATIVE AND THE INVESTMENT IS THEREFORE RISKY.
Due to the speculative nature of our business, it is probable that the
investment in shares offered hereby will result in a total loss to the investor.
Investors should be able to financially bear the loss of their entire
investment. Investment should, therefore, be limited to that portion of
discretionary funds not needed for normal living purposes or for reserves for
disability and retirement.
ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
Not Applicable.
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ITEM 2. PROPERTIES
------------------
REAL ESTATE.
None.
PATENTS AND PATENT APPLICATIONS.
None.
OIL AND GAS PROPERTIES.
Our oil and natural gas properties are located in the Uintah Basin, Utah in two
fields, the Natural Buttes Field in Uintah County and the Greater Cisco Springs
Field in Grand County and the Mason Lakes Field in Musselshell County, Montana.
The following is a description of our properties in the Uintah Basin.
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 in July 2011, amended in December 2011. The purchase price of the
farmout interest was $478,200, made up of $303,000 in cash, $175,000 in notes
payable and $200 in common stock (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.
In 2013, the Company expended $223,554 to further evaluate the best method to
apply to enhance well production. During the year ended December 31, 2012, the
Company subsequently expended an additional $198,500 in cash for the completion
of a gas pipeline connection, surface equipment and initial well rework on the
22-1 Well. Since the leases are Held By Production and given low gas prices, the
Company had placed expenditures for additional production enhancements on hold.
The Company does plan to further evaluate methods to increase production in
2014.
CISCO PACIFIC
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 has an interest rate of 8% and is due May 30, 2013. The
convertible promissory note and accrued interest could have been converted into
shares of the Company's restricted common stock at $1.00 per share, but the note
was instead repaid on June 1, 2013.
-19-
During 2013, the Company did expend some development costs to assess the
potential for additional production enhancement from existing wells. During the
year ended December 31, 2012, the Company did not expend any development costs
in connection with the re-working of these wells. This included pulling pumps,
rods and tubing, cleaning casing, logging and clearing lower well bores. Much of
this work was done in anticipation of establishing wells on which to test the
Company's lateral drilling technology in the first half of 2014. The Company
anticipates expending from $250,000 to $500,000 on these activities and
currently believes it has sufficient funds to complete these activities.
On June 17, 2013, the Company expanded its holdings in the Cisco Springs area
when it acquired a 100 percent Working Interest in Pride Ventures interest in
approximately 4,400 acres. The property included 9 gas wells that need to be
re-worked or offset drilled. The leases acquired also included a natural gas
gathering system connected to a local pipeline that greatly simplifies
collection and sale of natural gas from existing Company gas wells in the area.
In exchange for such mineral estates, the Company paid a total of $100,000 in a
combination of cash and stock as follows:
- $75,000 in cash; and
- $25,000 in the form of 50,000 shares of the Company's restricted
common stock.
MUSSELSHELL COUNTY, MONTANA - MASON LAKES FIELD
On June 14, 2013, the Company entered into a Purchase and Sale agreement with
Jake Oil, LLC and Mr. Eric Olsen and acquired all right and title to oil and gas
leases in the Federal Unit for the 1st Cat Creek formation for 559 gross acres
in the Musselshell County, Montana. The property included 6 wells in a field to
be water flooded that needed the wells and field gathering system to be
re-worked. During the second half of 2013 the Company worked to bring field
production back online. As of the end of 2013, new production lines had been
installed, existing lines repaired along with installation of oil/water
separators and tank relocation. The injection well received State approval for
use and the field began its initial trial production, with the water source
well, water injection well and two production wells operating. The Company plans
to rework the two production wells with larger pumping systems and increase
fluids production in the first half of 2014. The Company believes it currently
has sufficient capital to complete this project. After evaluation the increased
production, the current field development plan, which calls for the drilling of
several production and injection wells, will be re-evaluated for implementation.
In exchange for such mineral estates, the Company paid a total of $25,000 in a
combination of cash and Carried Working Interest as follows:
- $25,000 in cash; and
- 5 percent Carried Working Interest
On June 14, 2013, the Company acquired all right and title to additional oil and
gas leases for 722 gross acres in the Mason Lakes Field area from S & L Energy,
Inc. Approximately 120 gross acres are for formations other than the 1st Cat
Creek formation Federal Unit mentioned previously. The other 602 gross acres are
Held By Production by production from the Mason Lakes Federal Unit. The Company
plans to create a drilling development plan for this acreage in the next 12 to
24 months.
Initial target production zones are from 4,000 to 5,000 feet deep and include
the 1St Cat Creek and Amsden formations. Deeper drilling prospects such as the
Heath shale will also be evaluated for future opportunity.
-20-
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.
TITLE TO PROPERTIES
As is customary in the oil and natural gas industry, we generally conduct a
preliminary title examination prior to the acquisition of properties or
leasehold interests. Prior to commencement of operations on such acreage, a
thorough title examination will usually be conducted and any significant defects
will be remedied before proceeding with operations. We believe the title to our
leasehold properties is good, defensible and customary with practices in the oil
and natural gas industry, subject to such exceptions that we believe do not
materially detract from the use of such properties. With respect to our
properties of which we are not the record owner, we rely instead on contracts
with the owner or operator of the property or assignment of leases, pursuant to
which, among other things, we generally have the right to have our interest
placed on record.
Our properties are generally subject to royalty, overriding royalty and other
interests customary in the industry, liens incident to agreements, current taxes
and other burdens, minor encumbrances, easements and restrictions. We do not
believe any of these burdens will materially interfere with our use of these
properties.
SUMMARY OF OIL AND NATURAL GAS RESERVES
The following disclosure does not include any reserves attributable to our
interests in the Natural Buttes or Musselshell County, Montana areas.
PROVED RESERVES
The following table sets forth our estimated net proved reserves as of December
31, 2013 and 2012.
RESERVES
------------------------------------------------
2013 2012
------------------------ -----------------------
ESTIMATED PROVED RESERVES DATA: OIL NATURAL GAS OIL NATURAL GAS
(MBBLS) (MMSCF) (MBBLS) (MMSCF)
---------- ------------- --------- -------------
Proved developed reserves 23 20.8 24 -0-
Proved undeveloped reserves 313 282.01 243 147
---------- ------------- --------- -------------
Total proved reserves 336 302.81 267 147
========== ============= ========= =============
Estimates of proved developed and undeveloped reserves are inherently imprecise
and are continually subject to revision based on production history, results of
additional exploration and development, price changes and other factors. See "--
Qualifications of Technical Persons and Internal Controls Over Reserves
Estimation Process."
PROVED UNDEVELOPED RESERVES
Our proved undeveloped reserves at December 31, 2013 and 2012 were 336 MBbls of
oil and 302 MMScf of natural gas. Our proved undeveloped reserves at December
31, 2012, were 267 MBbls of oil and 147 MMScf of natural gas.
-21-
QUALIFICATIONS OF TECHNICAL PERSONS AND INTERNAL CONTROLS OVER RESERVES
ESTIMATION PROCESS
Our reserve report for the year ended December 31, 2013 was prepared by RSM
Resources, LLC, an independent petroleum engineer ("RSM"). RSM estimated, in
accordance with petroleum engineering and evaluation principles set forth in the
Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve
Information promulgated by the Society of Petroleum Engineers ("SPE Standards")
and definitions and guidelines established by the SEC, 100% of the proved
reserve information for our onshore properties as of December 31, 2013.
Our reserve report for the year ended December 31, 2012 was prepared by Tariq
Ahmed, an independent petroleum engineer ("Ahmed"). Ahmed estimated, in
accordance with petroleum engineering and evaluation principles set forth in the
Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserve
Information promulgated by the Society of Petroleum Engineers ("SPE Standards")
and definitions and guidelines established by the SEC, 100% of the proved
reserve information for our onshore properties as of December 31, 2012.
The principal person at RSM who prepared the reserve report is Mr. Richard K.
Dembowski. Mr. Dembowski is the principal engineer at RSM Resources, LLC. RSM
has over 25 years in the oil and gas industry in such areas as technical
consulting, litigation support and reserve reporting.
Mr. George Harris, the Company's Chief Executive Officer and Chief Financial
Officer, is primarily responsible for the determination of and the presentation
of the reserves presented by the Company.
The technical persons responsible for preparing the reserves estimates presented
herein meet the requirements regarding qualifications, independence, objectivity
and confidentiality set forth in the Standards Pertaining to the Estimating and
Auditing of Oil and Natural Gas Reserves Information promulgated by the Society
of Petroleum Engineers.
Our internal staff of geoscience professionals who work closely with our
independent petroleum engineer to ensure the integrity, accuracy and timeliness
of data furnished to them in their reserves estimation process. We review with
them our properties and discuss methods and assumptions used in their
preparation of our fiscal year-end reserves estimates. While we have no formal
committee specifically designated to review reserves reporting and the reserves
estimation process, a copy of each of the RSM reserve report is reviewed with
representatives of RSM and our internal technical staff before we disseminate
any of the information. Additionally, our senior management reviews and approves
the Ahmed reserve report and any internally estimated significant changes to our
proved reserves on an annual basis.
Estimates of oil and natural gas reserves are projections based on a process
involving an independent third party engineering firm's collection of all
required geologic, geophysical, engineering and economic data, and such firm's
complete external preparation of all required estimates and are forward-looking
in nature. These reports rely upon various assumptions, including assumptions
required by the SEC, such as constant oil and natural gas prices, operating
expenses and future capital costs. The process also requires assumptions
relating to availability of funds and timing of capital expenditures for
development of our proved undeveloped reserves. These reports should not be
construed as the current market value of our reserves. The process of estimating
oil and natural gas reserves is also dependent on geological, engineering and
economic data for each reservoir. Because of the uncertainties inherent in the
interpretation of this data, we cannot be certain that the reserves will
ultimately be realized. Our actual results could differ materially. See "Note 14
-- Supplemental Information Relating to Oil and Natural Gas Producing Activities
(Unaudited)" to our audited consolidated financial statements for additional
information regarding our oil and natural gas reserves.
-22-
Under SEC rules, proved reserves are those quantities of oil and natural gas,
which, by analysis of geoscience and engineering data, can be estimated with
reasonable certainty to be economically producible from a given date forward,
from known reservoirs, and under existing economic conditions, operating
methods, and government regulations. The term "reasonable certainty" implies a
high degree of confidence that the quantities of oil and/or natural gas actually
recovered will equal or exceed the estimate. To achieve reasonable certainty,
RSM employs technologies consistent with the standards established by the
Society of Petroleum Engineers. The technologies and economic data used in the
estimation of our proved reserves include, but are not limited to, well logs,
geologic maps and available downhole and production data, seismic data and well
test data.
SUMMARY OF OIL AND NATURAL GAS PROPERTIES AND PROJECTS
PRODUCTION, PRICE AND COST HISTORY
The following table presents net production sold, average sales prices and
production costs and expenses for the year ended December 31, 2013 and 2012.
During the year ended December 31, 2013 and 2012, the Company did not have any
production of or sales of natural gas.
For the Years Ending
December 31,
2013 2012
-------------- -------------
Revenue
Oil sales $ 65,615 $ 29,208
Net production sold
Oil (Bbl) 1,262 468
Average sales prices
Oil ($/Bbl) $ 51.91 $ 62.41
Costs and expenses (per Bbl)
Lease operating expenses - -
Transportation and marketing expenses - -
DEVELOPED AND UNDEVELOPED ACREAGE
The following table presents our total gross and net developed and undeveloped
acreage by region as of December 31, 2013 and 2012:
2013 2012
---------------------------------------------- ----------------------------------------------
Developed Acres Undeveloped Acres Developed Acres Undeveloped Acres
----------------------- ---------------------- ----------------------- ----------------------
Gross(1) Net (2) Gross Net Gross Net Gross Net
----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Natural Buttes 80 64 5,575 5,079 80 64 5,575 5,079
Cisco Springs 550 496 8,938 8,610 270 216 4,783 3,827
Mason Lakes 520 494 602 562 - - - -
----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
Total 1,150 1,054 15,115 14,251 350 280 10,358 8,906
=========== =========== =========== ========== =========== =========== =========== ==========
------------------
(1) "Gross" means the total number of acres in which we have a working
interest.
(2) "Net" means the sum of the fractional working interests that we own in
gross acres.
-23-
PRODUCTIVE WELLS
The following table presents the total gross and net productive wells by area
and by oil or natural gas completion as of December 31, 2013 and 2012:
2013 2012
------------------------------------------- -------------------------------------------------
Oil Wells Natural Gas Wells Oil Wells Natural Gas Wells
---------------------- -------------------- ---------------------- --------------------------
Gross(1) Net(2) Gross Net Gross Net Gross Net
------------ --------- ---------- --------- ---------- ----------- ------------ -------------
Natural Buttes - - 1 0.62 - - 1 0.62
Cisco Springs
(3,4) 34 28 7 7 27 21 - -
Mason Lakes 5 4.75 - - - - - -
------------ --------- ---------- --------- ---------- ----------- ------------ -------------
Total 32 25.75 8 7.62 27 21 1 0.08
============ ========= ========== ========= ========== =========== ============ =============
------------------
(1) "Gross" means the total number of wells in which we have a working
interest.
(2) "Net" means the sum of the fractional working interest that we own in
gross wells.
(3) The Company has done minimal rework on the 27 oil wells and as it
begins a more intensive rework effort it may discover that some of
these well may need to be plugged or abandoned.
(4) Cisco Springs - The Company has done minimal rework on the 7 gas wells
and as it begins a more intensive rework effort, it may discover that
some of these well may need to be plugged or abandoned.
DRILLING ACTIVITY
The Company's operational activities are focused on re-work of existing wells
for production purposes.
During the year ended December 31, 2012, the Company has subsequently expended
an additional $213,555 in cash for the completion of a gas pipeline connection,
surface equipment and initial well rework on the 22-1 Well in the Natural Buttes
field. During 2013, Company has expended $223,554 in cash for re-work on wells
not only in the Natural Buttes field, but also in the Mason Lakes field.
At December 31, 2013, the Company had no wells being drilled.
ITEM 3. LEGAL PROCEEDINGS
-------------------------
Hinto anticipates that it (including current and any future subsidiaries) will
from time to time become subject to claims and legal proceedings arising in the
ordinary course of business. It is not feasible to predict the outcome of any
such proceedings and we cannot assure that their ultimate disposition will not
have a materially adverse effect on the Company's business, financial condition,
cash flows or results of operations. The Company is not a party to any pending
legal proceedings, nor is the Company aware of any civil proceeding or
government authority contemplating any legal proceeding as of the date of this
filing.
ITEM 4. MINING AND SAFETY DISCLOSURE.
------------------------------------
Not Applicable.
-24-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
--------------------------------------------------------------------------------
MARKET INFORMATION
There is a limited public trading market for the common stock. The Company's
common stock is listed for trading on the OTCBB and the Over The Counter Markets
OTCQB and has the symbol "HENI."
HIGH LOW
QUARTER ENDED: --------- --------
December 31, 2013 $0.89 $0.69
September 30, 2013 $1.03 $0.75
June 30, 2013 $1.01 $0.79
March 31, 2013 $0.99 $0.30
QUARTER ENDED:
December 31, 2012 $1.60 $0.30
September 30, 2012 $1.01 $0.65
June 30, 2012 $1.50 $0.65
March 31, 2012 $1.75 $0.75
HOLDERS
There are approximately 137 holders of record of Hinto's common stock as of
December 31, 2013.
DIVIDEND POLICY
Holders of the Company's common stock are entitled to receive such dividends as
may be declared by Hinto's board of directors. The Company has not declared or
paid any dividends on Hinto's common shares and it does not plan on declaring
any dividends in the near future. The Company currently intends to use all
available funds to finance the operation and expansion of its business.
RECENT SALES OF UNREGISTERED SECURITIES
During the years ended December 31, 2012 and 2013, the Company made the
following sales of its unregistered shares.
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
DATE OF TITLE OF NO. OF CLASS OF
SALE SECURITIES SHARES CONSIDERATION PURCHASER
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
January Common Shares 11,446,931 Shares of South Uintah Shareholders of
2012 pursuant to the Amended South Uintah Gas
Share Exchange and Properties
Acquisition Agreement
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
January Warrants 2,000,000 Warrants of South Uintah Warrant holders
2012 pursuant to the Amended Of South Uintah
Share Exchange and Gas Properties
Acquisition Agreement
-25-
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
January Warrants 4,700,000 Warrants of South Uintah Warrant holders
2012 pursuant to the Amended of South Uintah
Share Exchange and Gas Properties
Acquisition Agreement (Directors and
Officers)
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
February Common Shares 69,000 Services Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
March 2012 Common Shares 410,000 $205,000 Business Associate
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
April 2012 - Common Shares 55,000 Services Business Associate
May 2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
May 2012 Common Shares 205,000 $102,500 Business Associate
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
June 2012 Common Shares 191,618 Outstanding Invoices Business
Associate/Affiliate
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
May 2012 Common Shares 25,000 Interest Business Associate
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
May 2012 Convertible - $25,000 Business Associate
Promissory Note
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
September Common Shares 50,724 Conversion of Convertible Business Associate
2012 Promissory Note
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
September Common Shares 100,000 $50,000 Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
September Common Shares 23,250 Consulting Services Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Common Shares 200,000 $100,000 Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Common Shares 10,000 Consulting Services Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Common Shares 50,000 Interest Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Common Shares 1,400,000 Litigation Settlement Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Warrants 800,000 Litigation Settlement Business Associate
2012
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
December Subscription 500,000 $250,000 Business Associate
2012 Agreement
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
-26-
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
January Common Shares 850,000 $425,000 Business Associate
2013
through
February
2013
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
February Common Shares 10,000 Services Business Associate
2013
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
March 2013 Common Shares 50,000 Interest Business Associate
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
April 2013 Common Shares 850,000 $425,000 Business Associate
through
June 30,
2013
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
May 2013 Common Shares 25,000 Services Business Associate
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
April 2013 Common Shares 336,000 $168,000 Warrant Holders
Through
June 30,
2013
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
June 2013 Common Shares 50,000 Acquisition of Oil Business Associate
and Gas Leases
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
June 2013 Common Shares 62,242 Acquisition of Oil Business Associate
and Gas Leases
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
April & May Class A -- $575,000 Business Associates
2013 Convertible
Promissory Notes
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
April 2013 Warrant 100,000 Attached to Convertible Business Associate
Promissory Note
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
July 2013 Common Shares 664,000 $332,000 Warrant Holders
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
August 2013 Common Shares 23,000 $11,500 Business Associate
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
August 2013 Common Shares 25,000 Services Business Associate
------------------ ------------------------ ---------------- ------------------------------- ---------------------------------
October Common Shares 30,000 Interest Business Associate
2013
------------------ ------------------------ ---------------- ------------------------------ ----------------------------------
-27-
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 either primarily
existing shareholders, sophisticated shareholders of the acquire, South Uintah,
consultants or sophisticated investors known to the Company and its management,
through pre-existing business relationships. All purchasers were provided access
to all material information, which they requested, and all information necessary
to verify such information and were afforded access to management of the Company
in connection with their purchases. All purchasers of the unregistered
securities acquired such securities for investment and not with a view toward
distribution, acknowledging such intent to the Company. All certificates or
agreements representing such securities that were issued contained restrictive
legends, prohibiting further transfer of the certificates or agreements
representing such securities, without such securities either being first
registered or otherwise exempt from registration in any further resale or
disposition.
ISSUER PURCHASES OF EQUITY SECURITIES
Hinto did not repurchase any shares of its common stock during the years ended
December 31, 2012 and 2011.
On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 common shares of the Company from its then
majority shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah returned the remaining 2,700,000 shares of common stock
to the Company. We retired such shares to treasury, after the closing of the
with the transaction
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
-28-
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON THE COMPANY'S
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2013, 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 year ended December 31, 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.
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 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.
-29
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 second half of 2013, we 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 year ended December 31, 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 year ended December 31, 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 year ended December 31, 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.
On January 22, 2014, the Company issued a Secured Convertible Promissory Note in
exchange for cash of $2,000,000 in order to support continuing operations and
the Company's re-completion and drilling plans in its oil and gas fields in Utah
and Montana.
The Secured Convertible Promissory Note has a term of 3 years and accrues
interest at a rate of a rate of 10% per annum with quarterly interest payments
starting in July 2014. The Note is convertible into shares of the Company's
common stock at a rate of $1.25 per share. The Note has provisions for issuance
of up to 480,000 warrants exercisable for shares of the Company's common stock,
such warrants to be issued to the Noteholder based on the amount of note
principal converted into common stock, if any. The warrants, if issued, would
have a term of 3 years from the issuance of the promissory note and an exercise
price of $2.00 per share.
The Note is secured by the assets consisting of the Company's leases and wells
in Musselshell County, Montana.
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.
-30-
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013 COMPARED TO THE YEAR ENDED DECEMBER 31,
2012
During the years ended December 31, 2013, the Company recognized revenues of
$65,615 from its operational activities compared to $29,908 during the year
ended December 31, 2012. Revenues increased by $35,707, as result of not only
increased production at our Utah properties, but also as a result of oil
produced in the testing of our field in Montana. Management expects that
revenues will continue to increase in the next twelve months, as the field in
Montana is brought into full production and re-work on properties in Utah, is
continued. Management though does not expect revenue to be sufficient enough to
cover the full costs of operations and administrative expenses in the near
future.
During the Years Ended
December 31,
2013 2012
------------------ --------------------
Revenues $65,615 $29,908
Number of Barrels 1,262.33 bbls 468 bbls
Average Price Per Barrel $51.97 $63.91
During the year ended December 31, 2013 and 2012, the Company recognized a
direct cost of revenue of $389,866 and $204,387, respectively. An increase of
$185,479, which is direct result of the costs incurred with our acquisition and
work on our Mason Lakes Field in Musselshell County, Montana. Direct cost of
revenue consists of the following items:
INCREASE /
2013 2012 (DECREASE)
----------- ----------- --------------
Field Expenses $ 157,400 $ 47,129 110,271
Well Repair and Maintenance 99,316 6,123 93,193
Well Stimulation 19,305 54,399 (35,094)
Field tools and equipment 11,937 - 11,937
Field auto expenses 10,731 - 10,731
Field utilities 13,344 - 13,344
Taxes 935 - 935
Freight 3,920 331 3,589
Depletion 3,896 2,047 1,849
Amortization and depreciation 30,445 22,236 8,209
Asset Recovery Obligation 38,637 72,122 (33,485)
----------- ----------- --------------
TOTAL $ 389,866 $ 204,387 185,479
During the years ended December 31, 2013, we recognized total operational
expenses of $932,764 compared to $810,836 during the year ended December 31,
2012, an increase of $121,928. The increase was a result of increases of $50,766
in professional fees, $24,777 in travel and entertainment expenses and a $20,134
increase in insurance expense offset by a $28,774 decrease in advertising.
During the year ended December 31, 2013, we recognized a net loss of $1,332,312
compared to $1,776,527 during the year ended December 31, 2012. The decrease of
-31-
$444,215 was a result of the $185,479 increase in direct revenue costs combined
with the $121,928 increase in operational expenses offset by the increase of
$35,707 in costs of revenue and a one-time gain on the write off of accrued
liabilities along with a $17,815 finance cost associated with the issuance of a
warrant with convertible debt and a decrease in the one-time litigation
settlement expense of $704,247.
LIQUIDITY
At December 31, 2013, the Company had total current assets of $129,615,
consisting of $97,716 in cash, $29,886 in accounts receivable and $2,103 in
deposits. At December 31, 2013, the Company had total current liabilities of
$717,409, consisting of accounts payable of $127,601, accrued liabilities of
$44,136, a stock subscription payable of $425,000 and notes payable of $115,000.
At December 31, 2013, the Company had working capital deficit of $582,123.
During the year ended December 31, 2013, the Company used $1,270,927 in its
operations. During the year ended December 31, 2013, we recognized a net loss of
$1,314,497, which was reconciled for the non-cash items consisting of a $40,123
in interest converted to common stock, $30,000 in stock issued for services,
$$40,006 in amortization, depreciation and depletion expense and $38,637 in
asset remediation expense.
During the year ended December 31, 2012, the Company used $535,651 in its
operations. During the year ended December 31, 2012, we recognized a net loss of
$1,776,527, which was reconciled for the non-cash items consisting of a $37,418
in accrued interest converted to common stock, $174,435 in stock issued for
services, $24,283 in depreciation and depletion and $72,122 in asset remediation
expense.
During the year ended December 31, 2013, we used $480,566 in our investing
activities. $140,000 of which was used to purchase properties, $42,567 to
purchase machinery and equipment, $223,554 in the re-work of wells and $74,445
in the development of our technological process.
During the year ended December 31, 2012, we used $405,050 in our investing
activities, $213,550 solely in the development of our 22-1 well, $175,000 on the
purchase of certain oil and gas properties and related assets in the Greater
Cisco area of the Uintah Basin in Grand County, Utah, and $16,500 in the
purchase of machinery.
During the year ended December 31, 2013, we received $1,791,500 from our
financing activities compared to $497,500 during the year ended December 31,
2012.
During the year ended December 31, 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 year ended December 31, 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 year ended December 31, 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.
-32-
SHORT TERM.
On a short-term basis, we have not generated any revenue or revenues sufficient
to cover operations. Based on prior history, we will continue to have
insufficient revenue to satisfy current and recurring liabilities as the Company
continues exploration activities.
CAPITAL RESOURCES
The Company has only common stock as its capital resource.
We have no material commitments for capital expenditures within the next year,
however if operations are commenced, substantial capital will be needed to pay
for participation, investigation, exploration, acquisition and working capital.
NEED FOR ADDITIONAL FINANCING
We do not have capital sufficient to meet its cash needs. The Company will have
to seek loans or equity placements to cover such cash needs. Once exploration
commences, its needs for additional financing is likely to increase
substantially.
No commitments to provide additional funds have been made by the Company's
management or other stockholders. Accordingly, there can be no assurance that
any additional funds will be available to us to allow us to cover the Company's
expenses as they may be incurred.
The Company will need substantial additional capital to support its proposed
future energy operations. We have NO revenues. The Company has NO committed
source for any funds as of the date hereof. No representation is made that any
funds will be available when needed. In the event funds cannot be raised when
needed, we may not be able to carry out our business plan, may never achieve
sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. The Company
may, in any particular case, decide to participate or decline participation. If
participating, we may pay its proportionate share of costs to maintain the
Company's proportionate interest through cash flow or debt or equity financing.
If participation is declined, the Company may elect to farmout, non-consent,
sell or otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
CRITICAL ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
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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.
The Company performs a quarterly "ceiling test" calculation to test its oil and
gas properties for possible impairment. The primary components impacting this
calculation are commodity prices, reserve quantities added and produced, overall
development costs, depletion expense, and tax effects. If the net capitalized
cost of the Company's oil and gas properties subject to amortization (the
carrying value) exceeds the ceiling limitation, the excess would be charged to
expense. The ceiling limitation is equal to the sum of the present value
discounted at 10% of estimated future net cash flows from proved reserves, the
cost of properties not being amortized, the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, and all
related tax effects. At December 31, 2013, the calculated value of the ceiling
limitation exceeded the carrying value of the Company's oil and gas properties
subject to the test, and no impairment was necessary.
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 AND ACCOUNTS RECEIVABLE
The Company recognizes revenue for its production when the quantities are
delivered to, or collected by, the purchaser. Prices for such production are
generally defined in sales contracts and are readily determinable based on
certain publicly available indices. All transportation costs are included in
lease operating expenses.
Accounts receivable -- oil and natural gas sales consist of uncollateralized
accrued revenues due under normal trade terms, generally requiring payment
within 30 to 60 days of production. The Company reviews accounts receivable
periodically and reduces the carrying amount by a valuation allowance that
reflects its best estimate of the amount that may not be collectible. No
valuation allowance was recognized as of December 31, 2013 and 2012.
DEPENDENCE ON MAJOR CUSTOMERS
For the fiscal year ended December 31, 2013, the Company's revenues were
attributable to sales of oil to two customers. For the fiscal year ended
December 31, 2012, the Company's revenues were attributable to sales of oil to
one customer. The Company believes that there are potential alternative
purchasers and that it may be necessary to establish relationships with new
purchasers. However, there can be no assurance that the Company can establish
such relationships and that those relationships will result in an increased
number of purchasers. Although the Company is exposed to a concentration of
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credit risk, the Company believes that all of its purchasers are credit worthy.
The Company had no bad debt for the fiscal years ended December 31, 2013 and
2012.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
Our operations do not employ financial instruments or derivatives which are
market sensitive. Short term funds are held in non-interest bearing accounts and
funds held for longer periods are placed in interest bearing accounts. Large
amounts of funds, if available, will be distributed among multiple financial
institutions to reduce risk of loss. The Company's cash holdings do not generate
interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The audited financial statements of Hinto Energy, Inc. for the years ended
December 31, 2013 and 2012 for the, appear as pages 53 through 73 at the end of
the document.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------
None.
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------
The Company maintains a system of disclosure controls and procedures that are
designed for the purposes of ensuring that information required to be disclosed
in the Company's SEC reports is recorded, processed, summarized, and reported
within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company's management as
appropriate to allow timely decisions regarding required disclosure.
Management, consisting of the Company's Chief Executive Officer and Chief
Financial Officer (the same individual) after evaluating the effectiveness of
the Company's disclosure controls and procedures as defined in Exchange Act
Rules 13a-14(c) as of December 31, 2013 (the "Evaluation Date") concluded that
as of the Evaluation Date, the Company's disclosure controls and procedures were
not effective to ensure that material information relating to the Company would
be made known to them by individuals within those entities, particularly during
the period in which this annual report was being prepared and that information
required to be disclosed in the Company's SEC reports is recorded, processed,
summarized, and reported within the time periods specified in the SEC's rules
and forms, as discussed further below.
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
-35-
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on Hinto's financial
statements.
We have identified certain material weaknesses in internal control over
financial reporting relating to a shortage of accounting and reporting personnel
due to limited financial resources and the size of our Company, as detailed
below:
(1) The Company currently does not have, but is in the process of
developing formally documented accounting policies and procedures,
which includes establishing a well-defined process for financial
reporting.
(2) Due to the limited size of our accounting department, we currently
lack the resources to handle complex accounting transaction. We
believe this deficiency could lead to errors in the presentation and
disclosure of financial information in our annual, quarterly, and
other filings.
(3) As is the case with many companies of similar size, we currently a
lack of segregation of duties in the accounting department. Until our
operations expand and additional cash flow is generated from
operations, a complete segregation of duties within our accounting
function will not be possible.
Considering the nature and extent of our current operations and any risks or
errors in financial reporting under current operations and the fact that we have
been a small business with limited employees, such items caused a weakness in
internal controls involving the areas disclosed above.
We have concluded that our internal controls over financial reporting were
ineffective as of December 31, 2013, due to the existence of the material
weaknesses noted above that we have yet to fully remediate.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to permanent rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
There was no change in our internal control over financial reporting that
occurred during the fiscal year ended December 31, 2013, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
---------------------------
Not applicable.
-36-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
----------------------------------------------------------------
The following table sets forth information as to persons who currently serve as
Hinto Energy, Inc. directors or executive officers, including their ages as of
December 31, 2013.
NAME AGE POSITION TERM
---------------- ----- -------------------------------------------------- ------
George Harris 64 Chief Executive Officer, Chief Financial Officer Annual
and Director
Gary Herick 50 Vice President of Finance, Secretary and Director Annual
J. David Keller 59 Vice President of Exploration and Development and
Director Annual
Max Sommer 82 Director Annual
Kevin Blair 42 Director Annual
All current directors of the Company were elected by the shareholders on August
18, 2011. The Company's officers were appointed by the Board of Directors on
August 18, 2011. With the exception of Mr. Keller, the above officers and
directors hold the same positions with South Uintah, Hinto's wholly-owned
subsidiary.
The officers are elected by the board of directors at the first meeting after
each annual meeting of the Company's shareholders and hold office until their
successors are duly elected and qualified under Hinto's bylaws.
The directors named above will serve until the next annual meeting of Hinto's
stockholders. Thereafter, directors will be elected for one-year terms at the
annual stockholders' meeting. Officers will hold their positions at the pleasure
of the board of directors absent any employment agreement. There is no
arrangement or understanding between the directors and officers and any other
person pursuant to which any director or officer was or is to be selected as a
director or officer.
BIOGRAPHICAL INFORMATION
GEORGE HARRIS, CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER & DIRECTOR.
Mr. Harris was appointed the Chief Executive Officer of the Company on June 29,
2012. Mr. Harris also serves as the Chief Financial Officer of South Uintah Gas
Properties, Inc. From January 2008 to April 2009, Mr. Harris served as the
President and Chief Financial Officer for China Wi-Max Communications, Inc. Mr.
Harris served as a Senior Vice President at Falkenberg Capital Corporation, a
boutique investment bank to the telecommunications community from March 2006 to
January 2008. Mr. Harris' experience includes active roles in several technology
startups and in his role at Falkenberg, he worked closely with companies that
deliver telecommunications and data services utilizing wired and wireless
technologies. Mr. Harris is also the President of Harris Products, Inc. and
Integrated Components, Inc., where he developed and managed component
manufacturing facilities based in the United States and Southern China. Mr.
Harris was formerly the Chief Financial Officer at Farm Credit Banks of St.
Louis, Missouri and managed a large financial organization with Lucent
Technologies.
Mr. Harris has been a Certified Public Accountant since 1977 in the state of
California, where he worked for Arthur Young and Company, and earned a Bachelor
of Science degree in Accounting and an MBA from Pepperdine University.
-37-
Mr. Harris enhances the Company's Board of Directors, with not only for his
management experience, but also with his accounting and public company
experience.
GARY HERICK, VICE PRESIDENT OF FINANCE, SECRETARY & DIRECTOR.
Mr. Herick has been a licensed Securities Representative since 1985, involved in
different aspects of the business including: IPO's, Retail Accounts, Investment
Advisory Accounts, Commodities, Alternative Investments and Venture Capital
Funding. From 2001 to 2005, he handled accounts as a Registered Investment
Advisor specializing in Alternative Investments and Stock Analysis for managed
accounts with Herick Asset Management.
Mr. Herick is currently licensed with Capwest Securities, a FINRA member firm.
He holds a Series 7 and 63 Licenses and is also a Registered Investment Advisor
Representative.
He attended the University of Florida from 1981-1985 and holds a Bachelor of
Science in marketing.
Mr. Herick enhances the Board of Directors with not only his securities
background, but also provides the Board with his knowledge and experience in
venture capital.
J. DAVID KELLER, VICE PRESIDENT OF EXPLORATION & DEVELOPMENT & DIRECTOR.
Mr. Keller has been the Managing Partner and Exploration and Development Manager
of Powderhorn Energy of Boulder, Colorado. Mr. Keller founded Powderhorn Energy
in 2009. Powderhorn Energy focuses on oil and gas opportunities in the Rocky
Mountain Basins. Mr. Keller is responsible for structuring projects to achieve
and surpass industry average profitability, cash flow and, especially, upside
potential. From 2006 through May 2009, Mr. Keller was the Chief Geophysicist for
TTI Exploration in Boulder, Colorado. While there he was responsible for all
geoscience technology for project evaluation, exploration, development and
exploitation.
Mr. Keller received his Bachelor of Science in Geoscience from the University of
Texas, Dallas in 1980 and his Master of Science in Geophysics from the Colorado
School of Mines in 1987.
Mr. Keller provides the Board of Directors with both geology experience and oil
and gas industry experience.
MAX P. SOMMER, DIRECTOR.
Since 1997, Mr. Sommer has served as the President, Rose Run Energy Company,
Inc., providing Consulting and Oil and Gas Production activities mostly in the
Appalachian Region. Mr. Sommer provided prospects to Oil and Gas Partnership
which drilled and participated in 140 wells. Rose Run Energy sold its production
in 2009. Mr. Sommer served as a director of Intercontinental Energy Corporation
from 1976-1977 and as a director of Gerber Energy Corporation from 1977-1980,
both public reporting companies. Starting in 2013, Mr. Sommer has provided Hinto
Energy with consulting services in connection with its oil and gas production
activities.
Mr. Sommer's received his doctorate degree in Geology-Paleontology in 1955 from
the University of Basel, Switzerland.
Mr. Sommer's brings to the Board of Directors fifty-five years of experience in
operations and management of geological and geophysical exploration activities
for oil, gas and minerals in various countries.
Mr. Sommer provides the Board of Directors with his experience and knowledge of
not only geology, but also oil and gas production.
-38-
KEVIN BLAIR, DIRECTOR.
Mr. Blair has been the Principal and Attorney for General Capital Partners, LLC
of Denver, Colorado, since January 2010. There he has complete business
development responsibilities including strategic planning, negotiation of
agreements, acquisition of properties, supervision of subcontractors,
supervision of personnel, and financial reporting. He was a Private Equity
Broker at Capwest Securities, Inc. (Denver, Colorado, from January 2007 to
2010), a federally licensed broker dealer specializing in syndications of
private debt and equity securities marketed exclusively to high net worth
clients for the purpose of acquiring real estate and energy properties. He is an
Attorney and Mergers & Acquisitions Intermediary at Merchant Banking Associates,
LLC (Denver, Colorado, from January 2000 to December 2006).
Mr. Blair's education is as follows: LLM, University of Denver College of Law,
In Progress, Juris Doctorate, University of Denver College of Law, May 1994,
Bachelor of Science, Colorado School of Mines, Civil Engineering, May 1989.
His Skills, Licenses and Associations include: Admitted to the Colorado Bar,
Series 7 Federal Securities License, Series 63 Federal Securities License,
Completed Landman Training Course, Real Estate Broker in Colorado, Minnesota,
Alabama, and Louisiana, Member of the International Business Brokers
Association, Certified Business Intermediary and a Member of the Association for
Corporate Growth.
Mr. Blair provides the Board of Directors with not only legal experience but
also securities and investment experience.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company is managed under the direction of its board of directors.
EXECUTIVE COMMITTEE
The Company does not have an executive committee, at this time.
AUDIT COMMITTEE
The Company does not have an audit committee at this time.
CONFLICTS OF INTEREST - GENERAL.
The Company's directors and officers are, or may become, in their individual
capacities, officers, directors, controlling shareholder and/or partners of
other entities engaged in a variety of businesses. Thus, there exist potential
conflicts of interest including, among other things, time, efforts and
corporation opportunity, involved in participation with such other business
entities. While each officer and director of the Company's business is engaged
in business activities outside of its business, the amount of time they devote
to our business will be up to approximately 25 hours per week. Mr. Harris, the
Company's Chief Executive Officer and Chief Financial Officer, devotes up to 40
hours per week to the Company's business.
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in the Company's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of the Company's
business to disclose to Hinto business opportunities which come to their
attention. The Company's officers and directors do, however, have a fiduciary
duty of loyalty to Hinto to disclose to it any business opportunities which come
to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
-39-
learns about through his involvement as an officer and director of another
company. The Company has no intention of merging with or acquiring an affiliate,
associate person or business opportunity from any affiliate or any client of any
such person.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2013, 2012 and 2011. The
table sets forth this information for Hinto Energy, Inc. including salary,
bonus, and certain other compensation to the Board members and named executive
officers for the past three fiscal years.
The compensation paid to Mr. Harris, Herick and Keller in 2011 was paid by South
Uintah, the Company's majority shareholder, at the time.
SUMMARY EXECUTIVES COMPENSATION TABLE
Non-equity Non-qualified
incentive deferred All
Stock Option plan compensation other
Salary Bonus awards awards compensation earnings compensation Total
Name & Position Year ($) ($) ($) ($) ($) ($) ($) ($)
----------------------- ------ --------- -------- -------- ------- ---------- ----------- ------------ ---------
George Harris, CEO 2013 153,000 0 0 0 0 0 0 153,000
& CFO (1) 2012 127,000 0 0 0 0 0 0 127,000
2011 60,000 0 $55 0 0 0 0 60,055
Gary Herick, VP of 2013 125,000 0 0 0 0 0 0 125,000
Finance & Secretary 2012 140,000 0 0 0 0 0 0 140,000
(2) 2011 85,000 0 $200 0 0 0 0 85,200
J. David Keller, VP 2013 10,000 0 0 0 0 0 0 10,000
of Exploration & 2012 77,613 0 0 0 0 0 0 77,613
Development (3) 2011 55,000 0 $52 0 0 0 0 55,052
-----------------------
(1) Mr. Harris was appointed the Chief Financial Officer on August 18,
2011 and the Chief Executive Officer on June 29, 2012. He serves in
the same capacity for South Uintah. Mr. Harris salary was paid
pursuant to a consulting agreement with and by South Uintah. During
the year ended December 31, 2011, Mr. Harris was issued 550,000 shares
of the common stock of South Uintah, prior to the merger for his
services as an officer and director of South Uintah. The shares had a
value of $55, or $0.0001 (par value) as part of the merger, the shares
were exchanged for an equal number of shares of Hinto's common stock.
Mr. Harris was also issued warrants to purchase 550,000 shares of
common stock of South Uintah prior to the merger, which have been
exchanged for warrants to purchase Hinto's common stock at the same
terms. The warrants are subject to vesting terms and have a term of 3
years. Warrants for 350,000 shares have an exercise price of $1.00 per
share and warrants for 200,000 shares have an exercise price of $3.00
per share.
(2) Mr. Herick was appointed the Vice President of Finance and the
Secretary of the Company on August 2011. He serves in the same
capacity for South Uintah. Mr. Herick salary was paid pursuant to a
consulting agreement with and by South Uintah. During the year ended
December 31, 2011, Mr. Herick was issued 2,000,000 shares of common
stock of South Uintah, prior to the merger for his services and as
founder of South Uintah. The shares had a value of $200, or $0.0001
(par value) as part of the merger, the shares were exchanged for an
equal number of shares of Hinto. During the year ended December 31,
2011, Arrowhead Consulting, LLC, which Mr. Herick has control of, was
issued a warrant to purchase an additional 1,000,000 shares of common
stock, which have been exchanged for warrants to purchase Hinto's
-40-
common stock at the same terms. The warrant is subject to vesting
terms and has a term of 3 years. The Warrant has an exercise price of
$2.00 per share.
(3) Mr. J. David Keller was appointed the Vice President of Exploration
and Development on August 18, 2011. Mr. Keller holds the same position
with South Uintah. During the year ended December 31, 2011, Mr. Keller
was issued 525,000 shares of the common stock of South Uintah, prior
to the merger for his services as an officer and director of South
Uintah. The shares had a value of $52.50, or $0.0001 (par value) as
part of the merger, the shares were exchanged for an equal number of
shares of Hinto's common stock. During the year ended December 31,
2011, Mr. Keller was also issued warrants to purchase 525,000 shares
of common stock of South Uintah prior to the merger, which have been
exchanged for warrants to purchase Hinto's common stock at the same
terms. The warrants are subject to vesting terms and have a term of 3
years. Warrants for 325,000 shares have an exercise price of $1.00 per
share and warrants for 200,000 shares have an exercise price of $3.00
per share.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the Chief Executive and Financial Officer and the Company's most
highly compensated executive officers for the fiscal year ended December 31,
2013 (the "Named Executive Officers"):
---------------- ------------------------------------------------------------- ----------------------------------------
OPTION AWARDS STOCK AWARDS
---------------- ------------------------------------------------------------- ----------------------------------------
Equity
incentive
Equity plan
incentive awards:
Market plan Market
Number value awards: or
Equity of of Number payout
incentive shares shares of value of
plan or of unearned unearned
awards: units units shares, shares,
Number of Number of of of units or units or
securities Number of securities stock stock other others
underlying securities underlying that that rights rights
unexercised underlying unexercised Option have have that that
options unexercised unearned exercise Option not not have not have not
(#) options (#) options price expiration vested vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
---------------- ------------ ------------- ------------- --------- ---------- -------- --------- ---------- ----------
George 0 0 0 0 0 0 0 0 0
Harris (1)
---------------- ------------ ------------- ------------- --------- ---------- -------- --------- ---------- ----------
Gary Herick, 0 0 0 0 0 333,333 243,333 0 0
VP of
Finance (2)
---------------- ------------ ------------- ------------- --------- ---------- -------- --------- ---------- ----------
J. David 0 0 0 0 0 0 0 0 0
Keller, VP of
Exploration &
Develop. (3)
---------------- ------------ ------------- ------------- --------- ---------- -------- --------- ---------- ----------
(1) During the year ended December 31, 2011, Mr. Harris was issued
warrants to purchase 550,000 shares of common stock of South Uintah
prior to the merger, which have been exchanged for warrants to
purchase Hinto's common stock at the same terms. The warrants have a
term of 3 years. Warrants for 350,000 shares have an exercise price of
$1.00 per share and warrants for 200,000 shares have an exercise price
of $3.00 per share. At December 31, 2013, all of the shares underlying
the warrants have vested.
-41-
(2) During the year ended December 31, 2011, Arrowhead Consulting, LLC,
which Mr. Herick has control of, was issued a warrant to purchase an
additional 1,000,000 shares of common stock, which have been exchanged
for warrants to purchase Hinto's common stock at the same terms. The
warrant is subject to vesting terms and has a term of 3 years. The
Warrant has an exercise price of $2.00 per share. During the year
ended December 31, 2013, 666,667 shares under the warrant were vested.
The market value of the shares underlying the warrant is based upon a
closing market price of $0.73 per share.
(3) During the year ended December 31, 2011, Mr. Keller was issued
warrants to purchase 525,000 shares of common stock of South Uintah
prior to the merger, which have been exchanged for warrants to
purchase Hinto's common stock at the same terms. The warrants have a
term of 3 years. Warrants for 325,000 shares have an exercise price of
$1.00 per share and warrants for 200,000 shares have an exercise price
of $3.00 per share. During the year ended December 31, 2012, the
warrants vested in full.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
In August, 2011, the Board of Directors and the stockholders of Hinto approved
the 2011 Hinto Energy, Inc.'s Stock Option Award and Incentive Plan ("the 2011
Plan.") There are 2,000,000 shares of the Company's common stock reserved under
the 2011 Plan. During the years ended December 31, 2013 and 2012, no options
were issued under the 2011 Plan.
CONSULTING AGREEMENTS WITH OFFICERS AND DIRECTORS OF SOUTH UINTAH
Messrs. George Harris, Gary Herick, Kevin Blair, J. David Keller and Max Sommer
have entered into Consulting Agreements with South Uintah for their services.
They do not have any such Agreements with Hinto.
Mr. Harris has entered into a Consulting Agreement on June 1, 2011 with South
Uintah to provide services to South Uintah as a director and Chief Financial
Officer. The Consulting Agreement has a term of 1 year unless terminated with a
30 days notice by either party. The Consulting Agreement provides for Mr. Harris
to receive a minimum $5,000 per month beginning April 15, 2011 to perform such
services. In July 2011, the amount was increased to $10,000 per month and in May
2013 it was increased to $15,000 per month. In addition, Mr. Harris was issued
300,000 shares of South Uintah common stock and a warrant exercisable for
300,000 shares of South Uintah common stock, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto. During the
year ended December 31, 2012, the Consulting Agreement's term ran out, the
Consulting Agreement has not been terminated and rather runs on a month to month
basis.
Mr. Herick has entered into a Consulting Agreement on April 15, 2011 with South
Uintah to provide services to South Uintah as a director and secretary. The
Consulting Agreement has a term of 1 year unless terminated with a 30 days
notice by either party. The Consulting Agreement provides for Mr. Herick to
receive $10,000 per month beginning July 1, 2011 to perform such services. In
addition, Mr. Herick was issued a warrant exercisable for 1,000,000 shares of
South Uintah common stock, which pursuant to the Amended Share Exchange
Agreement were exchanged for shares and warrants of Hinto. During the year ended
December 31, 2012, the Consulting Agreement's term ran out, the Consulting
Agreement has not been terminated and rather runs on a month to month basis.
Mr. J. David Keller has entered into a Corporate Advisor/Consulting Agreement on
August 4, 2011 with South Uintah to provide services as a director and the Vice
President Exploration and Development to South Uintah. The Agreement has a term
of 1 year unless terminated with a 30 days notice by either party. The Agreement
provides for a cash retainer of $5,000 for the month of July 2011 and then
$10,000 for each month thereafter. The Agreement provides for Mr. Keller to be
issued 300,000 shares of South Uintah common stock and a warrant exercisable for
-42-
300,000 shares of South Uintah common stock for such services, which pursuant to
the Amended Share Exchange Agreement were exchanged for shares and warrants of
Hinto. Mr. Keller became an employee of South Uintah on December 16, 2011, with
a monthly base salary of $10,000. In 2012, Mr. Keller took a full time job
elsewhere, though he has agreed to consult on an as needed basis with the
Company.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with a 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 200,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto. In July
2012, Mr. Sommer started to receive $5,000 per month for his services. During
the year ended December 31, 2012, the Consulting Agreement's term ran out, the
Consulting Agreement has not been terminated and rather runs on a month to month
basis.
All of our officers and/or directors will continue to be active in other
companies. All officers and directors have retained the right to conduct their
own independent business interests.
It is possible that situations may arise in the future where the personal
interests of the officers and directors may conflict with our interests. Such
conflicts could include determining what portion of their working time will be
spent on our business and what portion on other business interest. To the best
ability and in the best judgment of our officers and directors, any conflicts of
interest between us and the personal interests of our officers and directors
will be resolved in a fair manner which will protect our interests. Any
transactions between us and entities affiliated with our officers and directors
will be on terms which are fair and equitable to us. Our Board of Directors
intends to continually review all corporate opportunities to further attempt to
safeguard against conflicts of interest between their business interests and our
interests.
We have no intention of merging with or acquiring an affiliate, associated
person or business opportunity from any affiliate or any client of any such
person.
DIRECTOR COMPENSATION
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
The Company does not pay any Directors fees for meeting attendance.
-43-
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2013:
DIRECTORS' COMPENSATION
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
Fees Non-equity Non-qualified
earned or incentive deferred
paid in Stock Option plan compensation All other
cash awards awards compensation earnings compensation Total
Name ($) ($) ($) ($) ($) ($) ($)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
George $153,000 $ -0- $ -0- $ -0- $ -0- $-0- $153,000
Harris (1)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
Gary $125,000 $ -0- $ -0- $ -0- $ -0- $ -0- $125,000
Herick (1)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
J. David $10,000 $ -0- $ -0- $ -0- $ -0- $ -0- $10,000
Keller (1)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
Kevin $-0- $ -0- $ -0- $ -0- $ -0- $ -0- $-0-
Blair (1)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
Max $50,000 $ -0- $ -0- $ -0- $ -0- $ -0- $50,000
Sommer(2)
--------------- ----------- ---------- ---------- --------------- --------------- ---------------- ----------
(1) Mr. Harris, Herick, and Keller's compensation discussed in the table
above and in this footnote were paid for their services as officers of
the Company as discussed in the Executive Compensation table.
(2) Mr. Sommer receives a monthly fee of $5,000 for providing geological
and oil and gas production consulting services to the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Hinto's officers and directors are indemnified as provided by the Wyoming
Revised Statutes and the bylaws.
Under the Wyoming Revised Statutes, director immunity from liability to a
company or its shareholders for monetary liabilities applies automatically
unless it is specifically limited by a company's Articles of Incorporation. The
Company's Articles of Incorporation do not specifically limit the directors'
immunity. Excepted from that immunity are: (a) a willful failure to deal fairly
with Hinto or its shareholders in connection with a matter in which the director
has a material conflict of interest; (b) a violation of criminal law, unless the
director had reasonable cause to believe that his or her conduct was lawful or
no reasonable cause to believe that his or her conduct was unlawful; (c) a
transaction from which the director derived an improper personal profit; and (d)
willful misconduct.
The Company's bylaws provide that it will indemnify the directors to the fullest
extent not prohibited by Wyoming law; provided, however, that it may modify the
extent of such indemnification by individual contracts with the directors and
officers; and, provided, further, that the Company shall not be required to
indemnify any director or officer in connection with any proceeding, or part
thereof, initiated by such person unless such indemnification: (a) is expressly
required to be made by law, (b) the proceeding was authorized by the board of
directors, (c) is provided by the Company, in sole discretion, pursuant to the
powers vested under Wyoming law or (d) is required to be made pursuant to the
bylaws.
-44-
The Company's bylaws provide that it will advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the Company, or is or was serving at the request of Hinto as a director or
executive officer of another company, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly following
request therefore, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under the bylaws or otherwise.
The Company's bylaws provide that no advance shall be made by HInto to an
officer except by reason of the fact that such officer is or was the Company's
director in which event this paragraph shall not apply, in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, if a
determination is reasonably and promptly made: (a) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (b) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of Hinto.
EQUITY COMPENSATION PLAN INFORMATION
In August 2011, the Board of Directors and the stockholders of Hinto approved
the 2011 Hinto Energy, Inc.'s Stock Option Award and Incentive Plan ("the 2011
Plan.") There are 2,000,000 shares of the Company's common stock reserved under
the 2011 Plan. During the years ended December 31, 2013 and 2012, no options
were issued under the 2011 Plan. Any options issued under the 2011 Plan are done
at the determination of and the approval of the Board of Directors.
-45-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------
The following table sets forth information with respect to the beneficial
ownership of Hinto's outstanding common stock by:
o each person who is known by Hinto to be the beneficial owner of five
percent (5%) or more of Hinto common stock;
o Hinto chief financial officer, its other executive officers, and each
director as identified in the "Management -- Executive Compensation"
section; and
o all of the Company's directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock and options, warrants
and convertible securities that are currently exercisable or convertible within
60 days of the date of this document into shares of the Company's common stock
are deemed to be outstanding and to be beneficially owned by the person holding
the options, warrants or convertible securities for the purpose of computing the
percentage ownership of the person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information below is based on the number of shares of Hinto`s common stock
that we believe was beneficially owned by each person or entity as of December
31, 2013.
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF TOTAL NUMBER PERCENT OF
BENEFICIAL BENEFICIAL OF SHARES COMMON STOCK
OWNER OWNER VESTED BENEFICIALLY ISSUED AND
NAME AND ADDRESS OF BENEFICIAL OWNER * COMMON STOCK* WARRANTS HELD OUTSTANDING (1)
----------------------------------------------- --------------- ---------------- --------------- ----------------
George Harris, Chief Executive Officer, 537,500 550,000 1,087,500 2.66%
Chief Financial Officer and Director (2)
Gary Herick, VP of Finance, 1,210,000 666,667 1,876,667 5.99%
Secretary & Director (3)
J. David Keller, VP of Exploration & 525,000 525,000 1,050,000 2.60%
Development & Director (4)
Kevin Blair, Director (5) 325,000 325,000 650,000 1.61%
Max Sommer, Director (6) 200,000 200,000 400,000 0.99%
Bridge Industries, LLC (7) 1,400,000 800,000 2,200,000 6.93%
Michael A. Littman (8) 1,585,518 666,667 2,252,185 7.85%
----------------------------------------------- --------------- ---------------- --------------- ----------------
All Directors and Executive Officers as 2,797,500 2,266,667 5,064,167 13.86%
a Group (5 persons) --------------- ---------------- --------------- ----------------
* The Address for the above individuals and entities is c/o 7609 Ralston
Road, Arvada, Colorado 80002.
-46-
(1) Based upon 20,181,769 shares of issued and outstanding common stock at
December 31, 2013.
(2) Mr. Harris holds 537,500 shares of common stock and warrants to
purchase an additional 550,000 shares of common stock. The warrants
are subject to vesting terms and have a term of 3 years, 350,000
shares have an exercise price of $1.00 per share and the remaining
200,000 shares have an exercise price of $3.00 per share.
(3) Mr. Herick has direct ownership of 50,000 shares and indirect
ownership of 1,160,000 shares of common stock. Arrowhead Consulting,
LLC, which Mr. Herick has voting control of holds 660,000 shares of
common stock and a warrant to purchase an additional 1,000,000 shares
of common stock. The warrant has an exercise price of $2.00 per share
and will expire in July 2016. The warrant vests at a rate of 1/3 per
year throughout the term of the warrant and will expire 2 years after
vesting. Mr. Herick has beneficial ownership of 500,000 shares of
common stock through his wife's ownership of Whitemoon Energy, LLC
which holds the shares.
(4) Mr. Keller holds 525,000 shares of common stock and warrants to
purchase an additional 525,000 shares of common stock. The warrants
are subject to vesting terms and have a term of 3 years, 325,000
shares have an exercise price $1.00 per share and the remaining
200,000 shares have a $3.00 per share.
(5) Mr. Blair holds 325,000 shares of common stock and warrants to
purchase an additional 325,000 shares of common stock. The warrants
are subject to vesting terms and have a term of 3 years, 225,000
shares have an exercise price of $1.00 per share and the remaining
100,000 shares have an exercise price of $3.00 per share.
(6) Mr. Sommer holds 200,000 shares of common stock and warrants to
purchase an additional 200,000 shares of common stock. The warrants
are subject to vesting terms and have a term of 3 years, 100,000
shares have an exercise price of $1.00 per share and the remaining
100,000 shares have an exercise price of $3.00 per share.
(7) Bridge Industries, LLC holds 1,400,000 shares of common stock and
warrants exercisable into 800,000 shares of common stock. The warrants
have exercise prices of 200,000 shares at $0.25 per share, 200,000
shares at $0.50 per share, 200,000 shares at $1.00 per share and
200,000 shares at $1.25 per share. The warrants have a term of 5
years.
(8) Mr. Littman holds 191,618 shares of common stock directly and 493,500
shares of common stock indirectly through his wife. Mr. Littman holds
a warrant exercisable for 1,000,000 shares of common stock. The
warrant is subject to vesting terms. Mr. Littman has the ability to
vote the 900,000 shares held by the M.A. Littman Pension Plan.
Rule 13d-3 under the Securities Exchange Act of 1934 governs the determination
of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares
voting power and/or investment power with respect to such security. Rule 13d-3
also provides that a beneficial owner of a security includes any person who has
the right to acquire beneficial ownership of such security within sixty days,
including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options,
warrants or conversion privileges are deemed to be outstanding for the purpose
of computing the percentage of outstanding securities of the class owned by such
person. Those securities are not deemed to be outstanding for the purpose of
computing the percentage of the class owned by any other person.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
Other than the stock transactions discussed below, the Company has not entered
into any transaction nor is there any proposed transactions in which any of the
founders, directors, executive officers, shareholders or any members of the
immediate family of any of the foregoing had or is to have a direct or indirect
material interest.
-47-
CONSULTING AGREEMENTS WITH OFFICERS AND DIRECTORS
Messrs. George Harris, Gary Herick, Kevin Blair, David Keller and Max Sommer
have entered into Consulting Agreements with South Uintah for their services.
Mr. Herick has entered into a Consulting Agreement on April 15, 2011 with South
Uintah to provide services to South Uintah as a director and secretary. The
Consulting Agreement has a term of 1 year unless terminated with a 30 days
notice by either party. The Consulting Agreement provides for Mr. Herick to
receive $10,000 per month beginning April 15, 2011 to perform such services. In
addition, Mr. Herick was issued a warrant exercisable for 1,000,000 shares of
South Uintah common stock, which pursuant to the Amended Share Exchange
Agreement were exchanged for shares and warrants of Hinto. During the year ended
December 31, 2012, the Consulting Agreement's term ran out, the Consulting
Agreement has not been terminated and rather runs on a month to month basis.
Mr. Harris has entered into a Consulting Agreement on June 1, 2011 with South
Uintah to provide services to South Uintah as a director and Chief Financial
Officer. The Consulting Agreement has a term of 1 year unless terminated with a
30 days notice by either party. The Consulting Agreement provides for Mr. Harris
to receive a minimum $5,000 per month beginning July 1, 2011 to perform such
services. In July 2011, the amount was increased to $10,000 per month and in May
2013 it was increased to $15,000 per month. In addition, Mr. Harris was issued
300,000 shares of South Uintah common stock and a warrant exercisable for
300,000 shares of South Uintah common stock, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto. During the
year ended December 31, 2012, the Consulting Agreement's term ran out, the
Consulting Agreement has not been terminated and rather runs on a month to month
basis.
Mr. Kevin Blair has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with a 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 100,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto. During the
year ended December 31, 2012, the Consulting Agreement's term ran out, the
Consulting Agreement has not been terminated and rather runs on a month to month
basis.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with a 30 days notice by
either party. The Agreement provides for Mr. Blair to be issued 100,000 shares
of South Uintah common stock and a warrant exercisable for 200,000 shares of
South Uintah common stock for such services, which pursuant to the Amended Share
Exchange Agreement were exchanged for shares and warrants of Hinto. In July
2012, Mr. Sommer started to receive $5,000 per month for his services. During
the year ended December 31, 2012, the Consulting Agreement's term ran out, the
Consulting Agreement has not been terminated and rather runs on a month to month
basis.
EQUITY ISSUANCES TO OFFICERS AND DIRECTORS
Mr. George Harris, Gary Herick, Max Sommer and Kevin Blair, officers and
directors of Hinto, were and are officers, directors and shareholders of South
Uintah, as such they were issued common shares of South Uintah and warrants
exercisable into common shares of South Uintah. Mr. David Keller, a director of
Hinto was issued shares of South Uintah in connection with services offered to
South Uintah. As a result, they were issued shares of Hinto pursuant to the
Amended Share Exchange Agreement, after the January 23, 2012 merger of South
Uintah and Hinto.
-48-
The tables below show the number of common shares and/or warrants issued by the
companies to these individuals.
COMMON STOCK
-------------------------------------------------------------
NUMBER OF SOUTH UINTAH NUMBER OF SHARES OF
SHARES ISSUED HINTO ISSUED
George Harris 550,000 550,000
Gary Herick (2) 2,000,000 1,640,000
Max Sommer 200,000 200,000
Kevin Blair 325,000 325,000
David Keller 525,000 525,000
WARRANTS
-------------------------------------------------------------
NUMBER OF SOUTH UINTAH NUMBER OF WARRANTS OF
WARRANTS ISSUED HINTO ISSUED
George Harris (1) 550,000 550,000
Gary Herick (2) 1,000,000 1,000,000
Max Sommer (3) 200,000 300,000
Kevin Blair (4) 325,000 325,000
David Keller (5) 525,000 525,000
-------------------
(1) Mr. Harris holds warrants to purchase 550,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
350,000 shares have an exercise price of $1.00 per share and the
remaining 200,000 shares have an exercise price of $3.00 per share.
(2) Mr. Herick has direct ownership of 250,000 shares and indirect
ownership of 1,390,000 shares of common stock. Arrowhead Consulting,
LLC, which Mr. Herick has voting control of holds 700,000 shares of
common stock and a warrant to purchase an additional 1,000,000 shares
of common stock. The warrant has an exercise price of $2.00 per share
and will expire in July 2016. The warrant vests at a rate of 1/3 per
year throughout the term of the warrant and will expire 2 years after
vesting. .Mr. Herick has beneficial ownership of 690,000 shares of
common stock through his wife's ownership of Whitemoon Energy, LLC
which holds the shares.
(3) Mr. Sommer holds warrants to purchase 200,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
100,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
(4) Mr. Blair holds warrants to purchase 325,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
225,000 shares have an exercise price of $1.00 per share and the
remaining 100,000 shares have an exercise price of $3.00 per share.
(5) Mr. Keller holds warrants to purchase 525,000 shares of common stock.
The warrants are subject to vesting terms and have a term of 3 years,
325,000 shares have an exercise price $1.00 per share and the
remaining 200,000 shares have a $3.00 per share.
OTHER
During the year ended December 31, 2012, Mr. Littman, an affiliate of the
Company was issued 191,618 shares of the Company's restricted common stock in
settlement of outstanding legal fees of $95,617. Mr. Littman has an Engagement
Agreement with South Uintah to provide legal services.
DIRECTOR INDEPENDENCE
Our board of directors undertook its annual review of the independence of the
directors and considered whether any director had a material relationship with
-49-
us or our management that could compromise his ability to exercise independent
judgment in carrying out his responsibilities. As a result of this review, the
board of directors affirmatively determined that Mr. Blair is "independent" as
such term is used under the rules and regulations of the Securities and Exchange
Commission. Messrs. Harris, Herick and David Keller as Officers of the Company
and Mr. Sommer as a paid consultant, are not considered to be "independent."
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
-----------------------------------------------
GENERAL. BF Borger's CPA LLC ("Borgers") is the Company's principal auditing
accountant firm. The Company's Board of Directors has considered whether the
provisions of audit services are compatible with maintaining Chadwick's
independence.
The following table represents aggregate fees billed to the Company for the
years ended December 31, 2013 and 2012.
Year Ended December 31,
2013 2012
------------------------- ------------------------
Audit Fees $25,380 $14,960*
Audit-related Fees $ 0 $ 0
Tax Fees $ 0 $ 0
All Other Fees $ 0 $ 0
------------------------- -----------------------
Total Fees $25,380 $14,960
*Fees paid during the year ended December 31, 2012, were paid to Company's prior
auditor Ronald Chadwick, PC.
All audit work was performed by the auditors' full time employees.
-50-
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
-------------------------------------------------
The following is a complete list of exhibits filed as part of this Form 10K.
Exhibit number corresponds to the numbers in the Exhibit table of Item 601 of
Regulation S-K.
--------------- -------------------------------------------------------------------- ----------------------
NUMBER DESCRIPTION
--------------- -------------------------------------------------------------------- ----------------------
3.1 Articles of Incorporation of Hinto Energy, Inc. (1)
3.2 Bylaws of Hinto Energy, Inc. (1)
3.3 Amendment to Articles of Incorporation of Hinto Energy, Inc. (7)
3.4 Articles of Incorporation of South Uintah Gas Properties, Inc. (8)
3.5 Amendment to Articles of Incorporation of South Uintah Gas (8)
Properties, Inc.
3.6 Bylaws of South Uintah Gas Properties, Inc. (8)
4.1 Form of Vesting Warrants (8)
4.2 Form of $0.50 Warrants (8)
10.1 Farmout Agreement (2)
10.2 Extension to Farmout Agreement (2)
10.3 Extension to Farmout Agreement - 2009 (3)
10.4 Extension to Farmout Agreement - 2010 (4)
10.5 Share Purchase Agreement (5)
10.6 Share Acquisition and Exchange Agreement (6)
10.7 Amended Share Exchange and Acquisition Agreement, dated (8)
January 23, 2012
10.8 Asset Purchase & Sales Agreement, dated May 9, 2012 (9)
10.9 Consulting Agreement with George Harris, dated June 1, 2011 (10)
10.10 Corporate Advisor Director Consulting Engagement Agreement with Gary (11)
Herick, dated April 15, 2011
10.11 Consulting Agreement with Kevin Blair, dated June 1, 2011 (11)
10.12 Consulting Agreement with David Keller, dated August 4, 2011 (11)
10.13 Consulting Agreement with Max Sommer, dated June 1, 2011 (11)
23.1 Consent of Geologist (11)
31.1 Certification of Chief Financial Officer & Principal Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act Filed Herewith
32.1 Certification of Chief Financial Officer & Principal Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act Filed Herewith
99.1 Reserve Report, dated March 22, 2014 (11)
101.INS XBRL Instance Document Filed Herewith(12)
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith(12)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith(12)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith(12)
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith(12)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith(12)
--------------- ---------------------------------------------------------------------- ---------------------
(1)Incorporated by reference from the exhibits included in the Company's SB-2
Registration Statement filed with the Securities and Exchange Commission
(www.sec.gov), dated November 13, 2007.
(2)Incorporated by reference from the exhibits included in the Company's second
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 23, 2008.
-51-
(3)Incorporated by reference from the exhibits included in the Company's fifth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated December 2, 2009.
(4)Incorporated by reference from the exhibits included in the Company's sixth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 27, 2011.
(5)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated July 12,
2011.
(6)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August 5,
2011.
(7)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August
17, 2011.
(8)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated January
23, 2012.
(9)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated June 1,
2012.
(10)Incorporated by reference from the Company's Registration Statement No.
333-182538 on Form S-1 filed with the Securities and Exchange Commission
(www.sec.gov), dated July 3, 2012.
(11)Incorporated by reference from the Company's Amended Annual Report on Form
10-K/A filed with the Securities and Exchange Commission (www.sec.gov), dated
October 28, 2014.
(12)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.
-52-
HINTO ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
-53-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF HINTO ENERGY, INC.:
We have audited the accompanying balance sheets of Hinto Energy, Inc. ("the
Company") as of December 31, 2013 and 2012, and the related statement of
operations, stockholders' equity (deficit) and cash flow for the years ended
December 31, 2013 and 2012. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hinto Energy, Inc., as of
December 31, 2013 and 2012 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles in the United States of America.
The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the Company's internal control over financial
reporting. Accordingly, we express no such opinion.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F BORGERS CPA PC
Denver, CO
April 14, 2014
-54-
HINTO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2013 2012
----------------- -----------------
Assets
Current Assets:
Cash $ 97,716 $ 57,709
Accounts Receivable 29,886 -
Deposits 2,013 (4,473)
----------------- -----------------
Total Current Assets 129,615 53,236
----------------- -----------------
Property and Equipment:
Machinery, net of accumulated depreciation
of $7,754 and $0, respectively 51,313 16,500
Development of Technological Process 74,445 -
----------------- -----------------
Total Property and Equipment 125,758 16,500
Oil and Natural Gas Properties:
Proved Properties 1,004,300 803,200
Unproved Properties - -
Other Property and Equipment 437,109 213,555
Less Accumulated Depreciation and Depletion (58,624) (24,283)
----------------- -----------------
Total Oil and Natural Gas Properties 1,382,785 992,472
----------------- -----------------
Other Assets:
Deposits 135,500 -
----------------- -----------------
Total Assets $ 1,773,658 $ 1,062,208
================= =================
Liabilities and Stockholders' Euiqty (Deficit)
Current liabilities
Accounts payable $ 127,602 $ 28,888
Accrued liabilities 44,136 78,268
Subscriptions received 425,000 250,000
Notes payable, other 115,000 405,000
----------------- -----------------
Total Current Liabilities 711,738 762,156
Asset recovery obligations 110,759 72,122
Long term note payable 575,000 500,000
----------------- -----------------
Total liabilities $ 1,397,497 $ 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,
20,151,769 and 16,236,527 shares issued and outstanding
at December 31, 2013 and 2012, respectively 20,152 16,237
Additional paid-in capital 4,292,143 2,315,515
Subscription receivable (30,000) -
Common stock, subscribed 30,000 -
Accumulated deficit (3,936,134) (2,603,822)
----------------- -----------------
Total Stockholders' Equity(Deficit) 376,161 (272,070)
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 1,773,658 $ 1,062,208
================= =================
See the notes to these consoldiated financial statements.
-55-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
2013 2012
---------------- ---------------
Revenue: $ 65,615 $ 29,908
Direct Cost of Revenue 316,888 107,982
Accretion of asset recovery obligation 38,637 72,122
Depreciation and Depletion 34,341 24,283
---------------- ---------------
(324,251) (174,479)
Operational expenses:
Office expenses 582,997 446,231
Consulting fees 349,767 364,605
---------------- ---------------
Total operational expenses 932,764 810,836
---------------- ---------------
Other Income (Expenses)
Gain on write off of accrued debt 11,250 -
Litigation Settelment Expense (570) (704,247)
Finance Expense (17,815) -
Interest expense (68,162) (86,965)
---------------- ---------------
Total other income (expense) (75,297) (791,212)
---------------- ---------------
Net loss $ (1,332,312) $ (1,776,527)
================ ===============
Per share information
Net loss per common share
Basic $ (0.07) $ (0.12)
Fully diluted * *
================ ===============
Weighted average number of common
stock outstanding 18,581,806 14,270,997
================ ===============
* Not provided as it is anti-dilutive
See the notes to these consolidated financial statements.
-56-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
Common Stock Common Total
------------------------ Stock Additional Stock-
Number Subscription Subscribed paid-in Accumulated holders'
of Shares Amount Receivable For Capital Deficit Equity
------------ ---------- ------------ ---------- ----------- ------------ -----------
Balance - January 1, 2012 11,375,000 $ 11,375 $ - $ - $ 272,796 $ (827,295) $ (543,124)
Issuance of Shares for cash 915,000 915 - - 456,585 - 457,500
Conversion of notes to common stock 2,121,931 2,122 - - 540,910 - 543,032
Issuance of shares for services 348,868 349 - - 174,086 - 174,435
Issuance of shares for interest 75,728 76 - - 37,738 - 37,814
Issuance of shares for litigation settlement 1,400,000 1,400 - - 698,600 - 700,000
Issuance of warrants for litigation settlement - - - - 134,800 - 134,800
Net Loss - - - - - (1,776,527) (1,776,527)
------------ ---------- ------------ ---------- ----------- ------------ -----------
Balance - December 31, 2012 16,236,527 16,237 - - 2,315,515 (2,603,822) (272,070)
------------ ---------- ------------ ---------- ----------- ------------ -----------
Issuance of Shares for cash 1,663,000 1,663 - - 829,843 - 831,506
Issuance of shares for warrant exercise 2,000,000 2,000 - - 998,000 - 1,000,000
Issuance of shares for services 60,000 60 - - 29,940 - 30,000
Issuance of shares for interest 80,000 80 - - 40,043 - 40,123
Issuance of shares for leases 112,242 112 - - 60,987 - 61,099
Common stock subscribed for - - (30,000) 30,000 - - -
Issuance of Warrant with convertible note - - - - 17,815 - 17,815
Net Loss - - - - - (1,332,312) (1,332,312)
------------ ---------- ------------ ---------- ----------- ------------ -----------
Balance - December 31, 2013 20,151,769 $ 20,152 $ (30,000) $ 30,000 $4,292,143 $(3,936,134) $ 376,161
============ ========== ============ ========== =========== ============ ===========
See the notes to these consolidated financial statements.
-57-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012
2013 2012
-------------------------------------------
Cash Flows from Operating Activities:
Net Loss $ (1,332,312) $ (1,776,527)
Adjustments to net loss for non-cash items:
Accrued interest converted to stock 40,123 37,814
Stock issued for services 30,000 174,435
Financing cost of warrant issuance 17,815 -
Litigation settlement expense - 934,800
Amortization, Depreciation and Depletion 42,144 24,283
Asset Remediation expense 38,637 72,122
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in accounts receivable (29,886) -
Decrease (increase) in deposits and advances (141,987) 29,474
Increase in accounts payable 98,628 (42,529)
Increase in accrued liabilities (34,089) 23,886
-------------------- -------------------
Net Cash Used by Operating Activities (1,270,927) (522,242)
-------------------- -------------------
Cash Flows from Investing Activities
Purchase of leases (140,000) (175,000)
Purchase of machinery and equipment (42,567) (16,500)
Development of technological process (74,445) -
Well rework (223,554) (213,550)
-------------------- -------------------
Net Cash Used in Investing Activities (480,566) (405,050)
-------------------- -------------------
Cash Flows from Financing Activities:
Proceeds from convertible promissory notes 75,000 25,000
Payments on other notes payable (290,000) (195,000)
Proceeds from sale of common stock 581,500 457,500
Increase in stock subscriptions payable 425,000 210,000
Proceeds from exercise of warrants 1,000,000 -
-------------------- -------------------
Net Cash Provided by Financing Activities 1,791,500 497,500
-------------------- -------------------
Net Increase (decrease) in Cash 40,007 (429,792)
Cash and Cash Equivalents - Beginning of Period 57,709 487,501
-------------------- -------------------
Cash and Cash Equivalents - End of Period $ 97,716 $ 57,709
==================== ===================
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 $ -
==================== ===================
Subscription Receivable $ 30,000 $ -
==================== ===================
See the notes to these consolidated financial statements.
-58-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
-------------------------------------------
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. ("South Uintah") 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.
BASIS OF PRESENTATION
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).
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.
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.
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.
-59-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
Life in December 31, December 31,
Asset Type Years 2013 2012
------------------------------- ------------ -------------- ---------------
Machinery 5 - 7 $ 59,067 $ 16,500
------------ -------------- ---------------
Subtotal 59,067 16,500
Less Accumulated Depreciation (7,754) -
------------ -------------- ---------------
Net Book Value $ 51,313 $ 16,500
============ ============== ===============
In the latter half of the year ended December 31, 2013, the Company
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.
The Company performs a quarterly "ceiling test" calculation to test its oil and
gas properties for possible impairment. The primary components impacting this
calculation are commodity prices, reserve quantities added and produced, overall
development costs, depletion expense, and tax effects. If the net capitalized
cost of the Company's oil and gas properties subject to amortization (the
carrying value) exceeds the ceiling limitation, the excess would be charged to
expense. The ceiling limitation is equal to the sum of the present value
discounted at 10% of estimated future net cash flows from proved reserves, the
cost of properties not being amortized, the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, and all
related tax effects. At December 31, 2013, the calculated value of the ceiling
limitation exceeded the carrying value of the Company's oil and gas properties
subject to the test, and no impairment was necessary.
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
-60-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
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 AND ACCOUNTS RECEIVABLE
The Company recognizes revenue for its production when the quantities are
delivered to, or collected by, the purchaser. Prices for such production are
generally defined in sales contracts and are readily determinable based on
certain publicly available indices. All transportation costs are included in
lease operating expenses.
Accounts receivable -- oil and natural gas sales consist of uncollateralized
accrued revenues due under normal trade terms, generally requiring payment
within 30 to 60 days of production. The Company reviews accounts receivable
periodically and reduces the carrying amount by a valuation allowance that
reflects its best estimate of the amount that may not be collectible. No
valuation allowance was recognized as of December 31, 2013 and 2012.
DEPENDENCE ON MAJOR CUSTOMERS
For the fiscal year ended December 31, 2013, the Company's revenues were
attributable to sales of oil to two customers. For the fiscal year ended
December 31, 2012, the Company's revenues were attributable to sales of oil to
one customer. The Company believes that there are potential alternative
purchasers and that it may be necessary to establish relationships with new
purchasers. However, there can be no assurance that the Company can establish
such relationships and that those relationships will result in an increased
number of purchasers. Although the Company is exposed to a concentration of
credit risk, the Company believes that all of its purchasers are credit worthy.
The Company had no bad debt for the fiscal years ended December 31, 2013 and
2012.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations ("AROs") associated with the retirement of tangible
long-lived assets are recognized as liabilities with an increase to the carrying
amounts of the related long-lived assets in the period incurred. The cost of the
tangible asset, including the asset retirement cost, is depreciated over the
useful life of the asset. AROs are recorded at estimated fair value, measured by
reference to the expected future cash outflows required to satisfy the
retirement obligations discounted at the Company's credit-adjusted risk-free
interest rate. Accretion expense is recognized over time as the discounted
liabilities are accreted to their expected settlement value. If estimated future
costs of AROs change, an adjustment is recorded to both the ARO and the
long-lived asset. Revisions to estimated AROs can result from changes in
retirement cost estimates, revisions to estimated inflation rates and changes in
the estimated timing of abandonment.
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the years ended December
31, 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.
-61-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
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.
INCOME TAXES
Provision for income taxes represents actual or estimated amounts payable on tax
return filings each year. Deferred tax assets and liabilities are recorded for
the estimated future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying balance
sheets, and for operating loss and tax credit carry forwards. The change in
deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustment to the tax
provision or benefit in the period of enactment.
RECENT ACCOUNTING PRONOUNCEMENTS
There were accounting standards and interpretations issued during the year ended
December 31, 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 consolidated financial statements for the years ended December 31,
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 $1,332,312 and
$1,776,527 for the years ended December 31, 2013 and 2012, respectively, and an
accumulated deficit of $3,936,134 as of December 31, 2013. At December 31, 2013,
the Company had a working capital deficit of $582,123.
-62-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
The future success of the Company is dependent on its ability to attract
additional capital 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 December 31, 2013 and
2012:
December 31, December 31,
2013 2012
------------------- -----------------
Proved properties $ 1,004,300 $ 803,200
Unproved properties - -
------------------- -----------------
$ 1,004,300 $ 803,200
Accumulated depletion 5,942 2,047
------------------- -----------------
$ 998,358 $ 801,153
=================== =================
During the years ended December 31, 2013 and 2012, the Company recognized a
depletion expense of $5,942 and $2,047, respectively.
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 year ended December 31, 2013, the Company did not expend any
development costs in connection with the re-working of this well. The Company
has not abandoned the well, rather management refocused it re-work efforts on
those properties that are oil producing and closer to revenue production. The
well is connected to a pipeline and produces gas, thereby holding the lease by
production. The Company intends to focus efforts on the well during 2014. 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.
-63-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
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 year ended December 31, 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.
During the six months ended December 31, 2013, the Company spent $6,863
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 Musselshell County, Montana. In exchange for such oil and gas
leases, the Company paid $25,000 in cash and a 5% carried working interest.
The property includes 6 wells in a field to be water flooded, with 2 wells
placed on production. With an additional 2 wells that 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.
-64-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
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 combination 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 six months ended December 31, 2103, the Company spent $116,447 for
development costs in connection with the re-working of this field.
NOTE 5 - CONVERTIBLE PROMISSORY NOTE, SHORT TERM
------------------------------------------------
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, 2013, the Company had outstanding
subscriptions receivable of $425,000 to purchase 850,000 shares of the Company's
restricted common stock at $0.50 per share. The Company issued the 850,000
shares in February 2014.
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.
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 were non-interesting bearing.
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 December 31,
2013, the Company owed $100,000 under the note. In January 2014, the Company
negotiated a discharge of the $100,000 note for $50,000.
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 December 31,
-65-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
2013, the Company had made total principal payments of $55,000 leaving a
principal balance of $15,000 on the note. The Holder of the note has verbally
agreed to the extension of the term of the note and final payment was made in
March 2014.
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. In June 2013, the amount was
paid in full.
NOTE 8 - LONG TERM NOTE PAYABLES, CONVERTIBLE
---------------------------------------------
During the year ended December 31, 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 year ended
December 31, 2013, the Company paid accrued interest through the issuance of
80,000 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, plus 100,000 warrants to purchase common shares 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.
At December 31, 2013, the Company had $575,000 in outstanding Class A Promissory
Notes and has accrued $39,963 in interest in connection with the Class A
Promissory Notes.
NOTE 9 - COMMITMENTS & CONTINGENCIES
------------------------------------
LEASES
The Company sub-lets furnished office space from a third party on a month to
month basis. The Company has approximately 400 square feet and pays $1,000 per
month for the space.
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
-66-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
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.
NOTE 10 - STOCKHOLDERS' EQUITY
------------------------------
PREFERRED STOCK
The authorized preferred stock of the Company is 25,000,000 shares. Preferred
stock can 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 December 31, 2013, the Company has not designated any
series of preferred stock or issued any shares of preferred stock.
-67-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
COMMON STOCK
The authorized common stock of the Company is 50,000,000 shares of common stock
with a $0.001 par value. At December 31, 2013, the Company had 20,151,769shares
of its common stock issued and outstanding.
During the year ended December 31, 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 year ended December 31, 2013, the Company issued 500,000 shares of
its restricted common stock as payment for an outstanding subscription agreement
of $250,000.
During the year ended December 31, 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 year ended December 31, 2013, the Company issued 60,000 shares of its
restricted common stock for investor relation services valued at $30,000.
During the year ended December 31, 2013, the Company issued 80,000 shares of its
restricted stock as a payment of $40,123 in interest on its outstanding long
term $500,000 convertible note payable.
During the year ended December 31, 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 year ended December 31, 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.
Issuances - 2012
During the year ended December 31, 2012, the Company issued 1,400,000 shares of
its restricted common stock with a value of $0.50 per share, or $700,000 in
connection with the settlement of the litigation with Bridge Industries, LLC as
further described in Note 11.
During the year ended December 31, 2012, the Company issued 915,000 shares of
its common stock to investors that purchased $457,500 of securities at a price
of $0.50 per common share and 348,868 shares for services valued at $243,435.
This included issuance of 191,618 shares of common stock as a payment for
outstanding accounts payable of $95,809 owed for legal services to an affiliate
of the Company.
During the year ended December 31, 2012, the Company issued 75,000 shares of its
common stock to pay accrued interest of $37,500.
During the year ended December 31, 2012, the Company issued 50,728 shares of its
common stock upon the conversion of an outstanding convertible promissory note
with a principal value of $25,000 and accrued interest of $364.
-68-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
During the year ended December 31, 2012, the Company also issued 11,375,000 of
its restricted common shares as part of the one for one share exchange with the
shareholders of South Uintah as part of the acquisition of South Uintah by the
Company.
SUBSCRIPTION RECEIVABLE
In December 2013, the Company received a subscription for 110,000 shares of its
restricted common stock for $55,000. Prior to December 31, 2013, the Company
received $25,000 of the funds and is owed the remaining $30,000. During March
2013, the Company received the remaining $30,000 and has issued the shares of
common stock.
STOCK OPTION PLAN
On August 17, 2011, the Company's shareholders approved the 2011 Hinto Energy,
Inc. Stock Option and Award Incentive Plan ("Plan"). The Plan provides for the
grant of stock options to directors, officers, employees, consultants, and
advisors of the Company. The Plan is administered by a committee consisting of
members of the Board of Directors (the "Stock Option Committee"), or in its
absence, the Board of Directors.
The Plan provides for a total of 2,000,000 shares of common stock to be reserved
for issuance subject to options. During the years ended December 31, 2013 and
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
Issuances
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 year ended
December 31, 2013, the Company paid accrued interest through the issuance of
80,000 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, plus 100,000 warrants to purchase common shares 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.
The total fair value of the warrant at the date of grant was $17,815 and was
recorded as a finance cost. The Company used the following assumptions to
determine the fair value of warrant grant:
Expected life 3 years
Volatility 103%
Risk-free interest rate 0.13%
Dividend yield 0
During the year ended December 31, 2012, as part of the settlement of litigation
with Bridge Industries, LLC (See Note 12), the Company issued warrants
exercisable for a total of 800,000 shares of its common stock. The warrants have
a term of 5 years and expire on December 18, 2017. The warrants have exercise
prices as set forth below:
-69-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
200,000 $0.25
200,000 $0.50
200,000 $1.00
200,000 $1.50
The total fair value of the options at the date of grant was $134,800 and was
recorded as a litigation settlement expense. The Company used the following
assumptions to determine the fair value of warrant grant on December 17, 2012:
Expected life 1 year
Volatility 103%
Risk-free interest rate 3.125%
Dividend yield 0
The expected term of the warrants represents the period of time that the stock
options granted are expected to be outstanding based on historical exercise
trends. The expected volatility is based on the historical price volatility of
the Company's common stock. The risk-free interest rate represents the U.S.
Treasury bill rate for the expected life of the related warrants. The dividend
yield represents our anticipated cash dividend over the expected life of the
warrants.
Exercises
During the year ended December 31, 2013, the Company received exercise notices
and funds of $1,000,000 for the exercise of 2,000,000 shares.
A summary of warrant activity for the years ended December 31, 2013 and 2012 is
presented below:
Weighted Average
---------------------------
Remaining
Shares Under Exercise Contractual
Warrant Price Life
------------------ ----------- ---------------
Balance at January 1, 2012 6,700,000 $1.31 1.71
Granted 800,000 0.75 4.96
Exercised - - -
Expired - - -
------------------ ----------- ---------------
Balance at December 31, 2012 7,500,000 $1.25 2.44
------------------ ----------- ---------------
Granted 100,000 2.00 -
Exercised (2,000,000) $0.50 -
Expired - - -
------------------ ----------- ---------------
Balance at December 31, 2013 5,600,000 $1.54 2.29
==================
NOTE 11 - LITIGATION SETTLEMENT
-------------------------------
In March 2012, a note holder of South Uintah, Bridge Industries, LLC ("Bridge")
filed a complaint against the Company in the Circuit Court of the Eighteenth
Judicial Circuit, Seminole County, Florida, alleging in general breach of
contract and seeking return of all monies lent to South Uintah of $400,000, the
-70-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
value of 1,000,000 shares of the Company's common stock and other equity
appreciation, and compensation for services and costs. The Company had return
$200,000 of the $400,000 lent in 2011, leaving a balance of $200,000 as of
December 31, 2011.
In June 2011, Bridge entered into a subscription agreement with South Uintah,
the now wholly-owned subsidiary of the Company. The Subscription Agreement
provided for the purchase of a Secured Convertible Promissory Note in the amount
of $500,000, 1,000,000 shares of South Uintah's restricted common stock and
warrants exercisable for 2,000,000 shares of South Uintah's common stock.
On December 18, 2012, the Company entered into a Settlement Agreement with
Bridge that provided for the dismissal of the lawsuit and terms of final payment
of the outstanding amounts owed to Bridge. Pursuant to the Settlement Agreement,
the Company agreed to the following:
1. A $100,000 cash payment to Bridge in two tranches of $50,000, which
were paid in March and June 2013.
2. The issuance of 1,400,000 shares of the Company's common stock, which
were registered in a Registration Statement on Form S-1.
3. The issuance of warrants exercisable for a total of 800,000 shares of
the Company's common stock. The warrants have a term of 5 years from
December 18, 2012 and have a callable provision.
As a result of the settlement, the Company has recognized a one-time litigation
settlement expense of $704,247 in connection with the settlement of the
litigation. The 1,400,000 shares of common stock were assigned a value of
$700,000 and the warrants were determined to have a value of $134,800, see Note
11. Of the $704,247 of settlement expense, $634,800 was the result of the change
in value of the Company's stock from the date of the original Bridge Industries
investment of June 2011 and December 18, 2012. The Company issued the same
number of common shares and warrants as would have been issued if the original
Bridge Industries investment had gone forward on a pro-rata basis of $200,000
versus $500,000, plus an additional $100,000 cash payment from the Company to
Bridge Industries, less accrued interest owed on funds loaned by Bridge
Industries of $30,447.
NOTE 12 - INCOME TAXES
----------------------
The Company is subject to domestic income taxes. The Company has recognized
minimal income during the years ended December 31, 2013 and 2012, 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:
-71-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
Estimated NOL Valuation Net Tax
Carry-forward benefit Allowance Benefit
======================================================
December 31, 2013 $784,380 $(700,264) -
December 31, 2012 $520,764 $(520,764) -
NOTE 13 - SUBSEQUENT EVENTS
---------------------------
CONVERTIBLE PROMISSORY NOTE FINANCING
On January 22, 2014, the Company issued a Secured Convertible Promissory Note in
exchange for cash of $2,000,000 in order to support continuing operations and
the Company's re-completion and drilling plans in its oil and gas fields in Utah
and Montana.
The Secured Convertible Promissory Note has a term of 3 years and accrues
interest at a rate of a rate of 10% per annum with quarterly interest payments
starting in July 2014. The Note is convertible into shares of the Company's
common stock at a rate of $1.25 per share. The Note has provisions for issuance
of up to 480,000 warrants exercisable for shares of the Company's common stock,
such warrants to be issued to the Noteholder based on the amount of note
principal converted into common stock, if any. The warrants, if issued, would
have a term of 3 years from the issuance of the promissory note and an exercise
price of $2.00 per share.
The Note is secured by the assets consisting of the Company's leases and wells
in Musselshell County, Montana.
The Company has evaluated it activities subsequent to December 31, 2013 and
through the issuance of the financial statements and found no other reportable
subsequent events.
NOTE 14 - SUPPLEMENTAL OIL AND GAS DISCLOSURE (UNAUDITED)
---------------------------------------------------------
ESTIMATED NET QUANTITIES OF OIL AND GAS RESERVES (UNAUDITED)
Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir. The
data for a given reservoir may also change substantially over time as a result
of numerous factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statements.
Proved reserves are estimated quantities of natural gas, crude oil and
condensate that geological and engineering data demonstrate, with reasonable
certainty, to be recovered in future years from known reservoirs with existing
equipment under existing economic and operating conditions.
-72-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
Proved developed reserves are proved reserves that can be expected to be
recovered through existing wells with existing equipment and under existing
economic and operating conditions.
OIL AND GAS RESERVES
The following tables set forth our net proved oil and gas reserves, including
the changes therein, and net proved developed reserves at December 31, 2013 and
2012.
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES - (IN THOUSANDS OF BARRELS
"MBBLS") OF OIL:
December 31,
2013 2012
--------------- --------------
(unaudited) (unaudited)
Balance January 1st 267 -
Purchase of properties 69 267
Revisions of previous estimates - -
Extension, discoveries, other estimates - -
Production (1) - -
Disposition of properties - -
--------------- --------------
Balance, December 31st 336 267
=============== ==============
----------------------------------------
(1) During the year ended December 31, 2013, the Company produced 878
barrels, which is the equivalent of .878 MBbls.
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES OF NATURAL GAS - (IN MILLIONS OF
STANDARD CUBIC FEET "MMCF"):
2013 2012
-------------- ---------------
(unaudited) (unaudited)
January 1st 147 -
Purchase of properties 135 147
Revisions of previous estimates - -
Extension, discoveries, other estimates - -
Production - -
Disposition of properties - -
-------------- ---------------
December 31st 282 147
============== ===============
-73-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
NET PROVED OIL AND GAS RESERVES CONSISTED OF THE FOLLOWING AT DECEMBER 31, 2013
AND 2012:
Oil Reserves Gross Natural Gas Reserves
MBbls MMcf
2013 2012 2013 2012
-------------- -------------- -------------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Proved developed
producing 23 24 21 -
Proved undeveloped 313 243 282 147
-------------- -------------- -------------- ------------
Total proven 336 267 303 147
============== ============== ============== ============
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES FOR THE YEAR ENDED
DECEMBER 31, 2013 AND 2012
Year Ended
December 31,
2013 2012
---------------- ----------------
(unaudited) (unaudited)
Revenue $ 65,615 $ 29,908
Operating expenses (re-working costs) 316,888 107,982
Amortization & depreciation 28,357 -
Depletion 3,896 2,407
---------------- ----------------
Operating loss (283,526) (80,481)
Income tax provision - -
---------------- ----------------
Results of operations for oil and
gas properties $ (283,526) $ (80,481)
================ ================
-73-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
COST INCURRED FOR OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
For the Years Ended
December 31,
2013 2012
---------------- -----------------
(unaudited) (unaudited)
Property acquisition
Unproved $ 226,100 $ -
Proved - 803,200
Exploration - -
Development 118,620 213,555
---------------- -----------------
Total costs incurred $ 344,720 $ 1,016,755
================ =================
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES FOR THE YEAR ENDED
DECEMBER 31, 2013 AND 2012
Year Ended
December 31,
2013 2012
-------------- --------------
(unaudited) (unaudited)
Revenue $ 65,615 $ 29,908
Operating expenses (re-working costs) 316,888 107,982
Amortization & depreciation 28,357 -
Depletion 3,896 2,407
-------------- --------------
Operating loss (283,526) (80,481)
Income tax provision - -
-------------- --------------
Results of operations for oil and gas properties $ (283,526) $ (80,481)
============== ==============
-74-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
COST INCURRED FOR OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
For the Years Ended
December 31,
2013 2012
---------------- -----------------
(unaudited) (unaudited)
Property acquisition
Unproved $ 226,100 $ -
Proved - 803,200
Exploration - -
Development 118,620 213,555
---------------- -----------------
Total costs incurred $ 344,720 $ 1,016,755
================ =================
AGGREGATE CAPITALIZED COSTS
Capitalized costs relating to oil and gas activities for the years ended
December 31, 2013 and 2012 are as follows:
December 31,
2013 2012
----------------- -----------------
(unaudited) (unaudited)
Proved $ 1,004,300 $ 803,200
Unproved - -
Other Property and Equipment 437,109 213,555
----------------- -----------------
Total capitalized costs $ 1,441,409 $ 1,016,755
Accumulated depreciation and depletion (58,624) (24,283)
----------------- -----------------
Net capitalized costs $ 1,382,785 $ 992,472
================= =================
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
Information with respect to the standardized measure of discounted future net
cash flows relating to proved reserves is summarized below. The price used to
estimate the reserves is held constant over the life of the reserve. Future
production and development costs are derived based on current costs assuming
continuation of existing economic conditions.
-75-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
The discounted future net cash flows related to proved oil and gas reserves at
December 31, 2013 and 2012 (in thousands):
December 31,
2013 2012
------------- ----------------
Future cash inflows $ 2,039 $ 17,068
Less future costs:
Operational 898 221
Development 0.00 540
Taxes 196
------------- ----------------
Future net cash flows 945 16,307
10% discount factor (411) (9,760)
============= ================
Standarized measure of discounted costs
future net cash flows $ 534 $ 6,547
CHANGES IN DISCOUNTED FUTURE NET CASH FLOWS
The following summarizes the principal sources of change in the standardized
measure of discounted future net cash flows during the years ended December 31,
2013 and 2012 (in thousands):
December 31,
2013 2012
------------ ----------------
Beginning of the period $ 6,547 $ -
Purchase of proved reserves 204 6,547
Changes in costs
Changes in prices (15,029) -
Extension and discoveries - -
Sales of oil and natural gas produced during
the period, net of production costs (65) -
------------ ----------------
End of period $ 534 $ 6,547
-76-
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HINTO ENERGY, INC.
Dated: January 23, 2015
By: /s/ George Harris
--------------------------------------------
George Harris, Chief Financial Officer
(Principal Executive Officer & Principal
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: January 23, 2015
HINTO ENERGY, INC.
/s/ George Harris
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George Harris, Director
/s/ Gary Herick
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Gary Herick, Director
/s/ Kevin Blair
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Kevin Blair, Director
-77
