Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2015
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to ___________
Commission file number: 000-26317
HINTO ENERGY, INC.
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(Exact name of registrant as specified in its charter)
WYOMING 84-1384961
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(State of Incorporation) (IRS Employer ID Number)
5350 SOUTH ROSLYN STREET, SUITE 400, GREENWOOD VILLAGE, CO 80111
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(Address of principal executive offices)
303-647-4850
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(Registrant's Telephone number)
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(Former Address and phone of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 for Regulation S-T (ss.232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated file, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 15, 2015 there were 21,859,994 shares of the registrant's common stock
issued and outstanding.
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited) 1
Balance Sheets - March 31, 2015 and December 31, 2014 2
Statements of Operations -
For Three Months Ended March 31, 2015 and 2014 3
Statements of Changes in Shareholders' (Deficit) Equity -
For the Three Months Ended March 31, 2015 4
Statements of Cash Flows -
For the Three Months Ended March 31, 2015 and 2014 5
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- NOT APPLICABLE 22
Item 4. Controls and Procedures 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - NOT APPLICABLE 23
Item 1A. Risk Factors - NOT APPLICABLE 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities - NOT APPLICABLE 24
Item 4. Mine Safety Disclosure - NOT APPLICABLE 24
Item 5. Other Information - NOT APPLICABLE 24
Item 6. Exhibits 24
SIGNATURES 25
PART I
ITEM 1. FINANCIAL STATEMENTS
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-1-
HINTO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2015 2014
--------------- ---------------
(Unaudited) (Audited)
Assets
Current Assets:
Cash $ 66,670 $ 356,506
Accounts Receivable 24,908 30,249
Deposits 10,864 17,963
--------------- ---------------
Total Current Assets 102,442 404,718
--------------- ---------------
Property and Equipment:
Machinery, net of accumulated depreciation
of $35,605 and $28,471, respectively 157,139 164,274
Development of Technological Process 265,043 258,223
--------------- ---------------
Total Property and Equipment 422,182 422,497
Oil and Natural Gas Properties:
Proved Properties 1,224,255 1,224,255
Unproved Properties - -
Other Property and Equipment 1,141,817 1,090,601
Less Accumulated Depreciation and Depletion (206,531) (165,544)
--------------- ---------------
Total Oil and Natural Gas Properties 2,159,541 2,149,312
--------------- ---------------
Other Assets:
Deposits 162,500 162,500
--------------- ---------------
Total Assets $ 2,846,665 $ 3,139,027
=============== ===============
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable $ 346,445 $ 389,682
Accrued liabilities 291,182 188,324
--------------- ---------------
Total Current Liabilities 637,627 578,006
Asset recovery obligations 168,714 168,714
Long term note payable 3,025,000 2,975,000
--------------- ---------------
Total liabilities $ 3,824,533 $ 3,721,720
--------------- ---------------
Stockholders' (Deficit) Equity
Preferred stock, $0.001 par value; 25,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $0.001 par value; 50,000,000 shares authorized,
21,859,994 shares issued and outstanding
at March 31, 2015 and December 31,2014, respectively 21,860 21,860
Additional paid-in capital 5,635,616 5,635,616
Accumulated deficit (6,642,152) (6,240,169)
--------------- ---------------
Total Stockholders' (Deficit) Equity (984,676) (582,693)
--------------- ---------------
Total liabilities and stockholders' equity $ 2,846,665 $ 3,139,027
=============== ===============
See the notes to these consolidated financial statements.
-2-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(UNAUDTED)
2015 2014
--------------- --------------
Revenue: $ 65,261 $ 28,000
Direct Cost of Revenue 92,095 124,231
Depreciation and depletion 40,987 12,690
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(67,821) (108,921)
Operational expenses:
Operating Lease expense 62,499 15,816
General and Administrative expense 87,088 108,937
Consulting fees 107,450 101,279
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Total operational expenses 257,037 226,032
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Other Income (Expenses)
Gain on write off of accrued debt - 50,000
Interest income - -
Interest expense (77,125) (49,211)
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Total other income (expense) (77,125) 789
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Net loss $ (401,983) $ (334,164)
=============== ==============
Per share information
Net loss per common share
Basic $ (0.01) $ (0.02)
Fully diluted * *
=============== ==============
Weighted average number of common
stock outstanding 21,859,995 20,627,629
=============== ==============
* Not provided as it is anti-dilutive
See the notes to these consolidated financial statements.
-3-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(UNAUDITED)
Common Stock Additional Total
--------------------------------- paid-in Accumulated Stockholders'
Number of Shares Amount Capital Deficit Equity
--------------------------------- --------------- -------------- ---------------
Balance - December 31, 2014 21,859,994 $ 21,860 $ 5,636,616 $ (6,240,169) $ (582,693)
Net Loss - - - (401,983) (401,983)
------------------- ------------ --------------- -------------- ---------------
Balance - December 31, 2014 21,859,994 $ 21,860 $ 5,636,616 $ (6,642,152) $ (984,676)
=================== ============ =============== ============== ===============
See the notes to these consolidated financial statements.
-4-
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(UNAUDITED)
2015 2014
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Cash Flows from Operating Activities:
Net Loss $ (401,983) $ (334,164)
Adjustments to net loss for non-cash items:
Accrued interest converted to stock - 26,562
Stock issued for services - 2,500
Amortization, Depreciation and Depletion 48,122 15,671
Asset remediation expenses - -
Gain on discount of promissory note - (50,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Decrease in accounts receivable 5,341 8,560
Decrease in deposits and advances 7,099 (33,752)
Increase in accounts payable (43,237) (35,075)
Increase in accrued liabilities 102,858 38,898
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Net Cash Used by Operating Activities (281,800) (360,800)
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Cash Flows from Investing Activities
Purchase of leases - (4,000)
New well development - -
Purchase of machinery and equipment - (19,500)
Development of technological process (6,820) (3,154)
Well rework (51,216) (52,976)
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Net Cash Used in Investing Activities (58,036) (79,630)
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Cash Flows from Financing Activities:
Proceeds from convertible promissory notes 50,000 2,000,000
Payments on other notes payable - (60,000)
Increase in stock subscriptions payable - 30,000
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Net Cash Provided by Financing Activities 50,000 1,970,000
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Net (Decrease) Increase in Cash (289,836) 1,529,570
Cash and Cash Equivalents - Beginning of Period 356,506 97,716
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Cash and Cash Equivalents - End of Period $ 66,670 $ 1,627,286
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ - $ -
============== =============
Cash paid for income taxes $ - $ -
============== =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Subscription Receivable $ - $ (30,000)
============== =============
Amortization of Warrant issued for services $ - $ -
============== =============
See the notes to these consolidated financial statements.
-5-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
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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. The Company has oil and gas leases, wells
and new drilling prospects in Ohio, 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.
-6-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
LIFE IN
ASSET TYPE YEARS MARCH 31, 2015 DECEMBER 31, 2014
-------------------------------- ---------- ----------------- -----------------
Machinery 5 - 7 $ 192,745 $ 192,745
---------- ----------------- -----------------
Subtotal 192,745 192,745
Less Accumulated Depreciation (35,606) (28,471)
---------- ----------------- -----------------
Net Book Value $ 157,139 $ 164,274
========== ================= =================
During the three months ended March 31, 2015 and the year ended December 31,
2014, the Company has been working to develop its own proprietary technological
process for re-energizing wells, that focuses on the use of the water jetting to
expand production of wells. At this time the Company, is capitalizing those
costs incurred in the design and building of the prototypes for the process used
in testing and as the process is still in the testing stage, has not depreciated
the values. At March 31, 2015 and December 31, 2024, the Company has booked
$265,043 and $258,223, respectively to the process.
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, 2014, 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.
-7-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
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 discounted 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 March 31, 2015 and December 31, 2014.
DEPENDENCE ON MAJOR CUSTOMERS
During the three months ended March 31, 2015 and 2014, the Company's revenues
were attributable to sales of oil to two customers. 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 three months
ended March 31, 2015 and the year ended December 31, 2014.
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 three months ended
-8-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
March 31, 2015, there were no potential common equivalent shares used in the
calculation of weighted average common shares outstanding as the effect would be
anti-dilutive because of the net loss.
STOCK-BASED COMPENSATION
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and notes payable are carried at cost,
which approximates fair value due to the short-term maturity of these
instruments.
OTHER COMPREHENSIVE INCOME
The Company has no material components of other comprehensive income (loss) and
accordingly, net loss is equal to comprehensive loss in all periods.
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
In August 2014, the FASB issued ASU 2014-15, PRESENTATION OF FINANCIAL
STATEMENTS - GOING CONCERN: DISCLOSURE OF UNCERTAINTIES ABOUT AN ENTITY'S
ABILITY TO CONTINUE AS A GOING CONCERN. This update requires an entity's
management to evaluate for each annual and interim reporting period whether
there are conditions or events, considered in the aggregate, that raise
substantial doubt about the entity's ability to continue as a going concern
within one year after the date that the financial statements are issued or
available to be issued. The update further requires certain disclosures when
substantial doubt is alleviated as a result of consideration of management's
plans, and requires an express statement and other disclosures when substantial
doubt is not alleviated. This amendment is effective for the annual period
ending after December 15, 2016, and for annual periods and interim periods
thereafter. Early application is permitted. The Company is currently evaluating
the impact of this ASU on its consolidated financial statements and financial
statement disclosures.
-9-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
There were accounting standards and interpretations issued during the three
months ended March 31, 2015, none of which are expected to have a material
impact on the Company's financial position, operations or cash flows.
NOTE 3 - GOING CONCERN AND MANAGEMENTS' PLAN
--------------------------------------------
The Company's unaudited consolidated financial statements for the three months
ended March 31, 2015 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
$401,983 for the three months ended March 31, 2015, and an accumulated deficit
of $6,642,152 as of March 31, 2015. At March 31, 2015, the Company had a working
capital deficit of $(535,185).
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 March 31, 2015 and
December 31, 2014:
MARCH 31, DECEMBER 31,
2015 2014
------------------- ------------------
Proved properties $ 1,224,255 $ 1,224,255
Unproved properties - -
------------------- ------------------
$ 1,224,255 $ 1,224,255
Accumulated depletion 39,388 32.820
------------------- ------------------
$ 1,184,867 $ 1,191,435
=================== ==================
During the three months ended March 31, 2015, the Company recognized a depletion
expense of $39,388 and $32,820, during the year ended December 31, 2014.
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 being water flooded, with 4 oil wells
placed on production, a water source well and an injection well. 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.
-10-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
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.
RAGGED POINT, MONTANA
On August 13, 2014, the Company and Ragged Point Partners, LLC, entered into a
Purchase and Sale Agreement, in which the Company acquired all right and title
to oil and gas leases for a total of 640 gross acres in the Ragged Point Oil
Field in Musselshell County, Montana. In exchange for the leases, Company paid
$150,000 in cash and has a 100% working interest.
The leases consist of 8 oil wells and 1 water supply well. The Company has begun
the early analysis of the field and wells and is developing a re-work plan for
the wells. The Company has initially placed 2 wells on production.
CISCO, UTAH
On May 9, 2012, the Company and Pacific Energy and Mining Company ("Pacific")
entered into an Asset Purchase and Sale Agreement ("The Pacific Agreement"). On
May 30, 2012, the Company closed the transaction. As part of the Pacific
Agreement, the Company acquired certain oil and gas wells and related assets in
the Greater Cisco area of the Uintah Basin in Grand County, Utah.
The assets acquired include 4,783 gross acres in the Cisco Fields with an 80%
Net Revenue Interest (NRI) and approximately 3,827 net acres. The property
includes 27 wells that need to be re-worked, connected to a gas pipeline, or
offset drilled.
In exchange for such oil and gas wells and related assets, the Company paid
$325,000 in a combination of cash and a convertible promissory note, as follows:
$175,000 cash; and a $150,000 convertible promissory note. The convertible
promissory note had an interest rate of 8% and was paid in full on May 20, 2013.
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.
-11-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
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.
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, 2014 and the quarter ended March 31, 2015,
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.
MEDINA COUNTY, OHIO
In October 2014, the Company acquired a 75% non-operated interest in an
exploratory well in Medina County, Ohio in exchange for an investment of
$150,000. The Company will retain a 75% non-operated interest in this initial
well and any future wells developed on this property. Hinto has also established
a 36 square mile AMI (area of mutual interest) with the operator, which could
provide for additional drilling opportunities. At March 31, 2015, the Company
had provided $176,927.
The Operator drilled and completed the well during December 2014 - January 2015.
In mid-January, the state of Ohio approved the well for production.
NOTE 5 - LONG TERM NOTE PAYABLES, CONVERTIBLE
On January 20, 2015, the Company in exchange for $50,000 issued a $50,000
unsecured convertible promissory note. The unsecured convertible promissory note
has a term of 3 years, an annual interest rate of 10% and an exercisable into
shares of the Company's common stock at $1.00 per share. At March 31, 2015, the
note had accrued interest of $917.
$2 MILLION CONVERTIBLE PROMISSORY NOTE
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.
-12-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
The Secured Convertible Promissory Note has a term of 3 years and accrues
interest at 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. Since the stock price was below this at the time of
signing the note was issued at a premium so no value is apportioned to the
conversion feature when recording the issuance per ASC 470-20-05. The debt and
its interest are reported as if it were a nonconvertible debt. Upon Conversion,
the stock may be valued at either the book value or the market value. 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 Note holder 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 the Mason Lake Field in Musselshell County, Montana.
At March 31, 2015, the note has accrued interest of $99,726.
On December 31, 2014, the Company issued a Secured Convertible Promissory Note
in exchange for cash of $400,000 in order to support continuing operations. The
funds were received from the holder of the $2,000,000 secured convertible
promissory note disclosed above. As a result of the $400,000 investment certain
terms of the $2,000,000 convertible promissory note were amended. The term of
the $2,000,000 Convertible Promissory Note was extended for an additional year
and the exercise price lowered to $1.00. In addition the terms of the $500,000
Convertible Promissory Note, discussed below, were extended a year and its
exercise price lowered to $1.00.
The $400,000 Secured Convertible Promissory Note has a term of 3 years and
accrues interest at a rate of 10% per annum with quarterly interest payments.
The Note is convertible into shares of the Company's common stock at a rate of
$1.00 per share. Since the stock price was below $1.00 at the time of signing
the note was issued at a premium so no value is apportioned to the conversion
feature when recording the issuance per ASC 470-20-05. The debt and its interest
are reported as if it were a nonconvertible debt. Upon Conversion, the stock may
be valued at either the book value or the market value.
At March 31, 2015, the $400,000 Secured Convertible Promissory Note has accrued
interest of $9,863.
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 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. In December 2014, the note terms were revised to the extend
payment to December 31, 2017. 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 year ended
December 31, 2014, the Company paid accrued interest through the issuance of
160,416 shares of its restricted common stock valued at prices from $0.40 to
$0.50.
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.
-13-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
At March 31, 2015, the Company had $575,000 in outstanding Class A Promissory
Notes and has accrued $33,649 in interest in connection with the Class A
Promissory Notes.
In July 2011, as part of the purchase of the Natural Buttes properties, the
Company entered into a promissory for $250,000 with a due date of July 5, 2013
and a conversion rate of $5 per share and non-interest bearing. In December
2011, the terms of the note were modified. The amount was reduced to $100,000
and the conversion rate was removed. In January 2014, the Company negotiated a
discharge of the $100,000 note for $50,000 cash.
NOTE 6 - 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
develop commercially feasible oil and gas production.
Federal, state and local authorities regulate the oil and gas industry. In
particular, gas and oil production operations and economics are affected by
environmental protection statutes, tax statutes and other laws and regulations
relating to the petroleum industry, as well as changes in such laws, changing
administrative regulations and the interpretations and application of such laws,
rules and regulations. The Company believes it is in compliance with all
federal, state and local laws, regulations, and orders applicable to the Company
and its properties and operations, the violation of which would have a material
adverse effect on the Company or its financial condition.
OPERATING HAZARDS AND INSURANCE
The gas and oil business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formation, and environmental hazards such as oil spills, gas leaks, ruptures or
discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, cleanup responsibilities, regulatory investigation
and penalties and suspension of operations.
The Company to date has acquired its own insurance coverage for its interests in
the 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.
-14-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
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 7 - STOCKHOLDERS' DEFICIT
------------------------------
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 March 31, 2015, the Company has not designated any series
of preferred stock or issued any shares of preferred stock.
COMMON STOCK
The authorized common stock of the Company is 50,000,000 shares of common stock
with a $0.001 par value. At March 31, 2015, the Company had 21,859,994 shares of
its common stock issued and outstanding.
During the three months ended March 31, 2015, the Company did not issue any
shares of its common stock.
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
2014, the Company received the remaining $30,000 and 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 three months ended March 31, 2015,
the Board did not approve the grant of any options to purchase shares of common
stock, nor the conditions, performance or vesting requirements.
-15-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
A summary of option activity for the three months ended March 31, 2015 is
presented below:
WEIGHTED
AVERAGE AGGREGATE WEIGHTED
NUMBER EXERCISE EXERCISE INTRINSIC AVERAGE
OF OPTIONS PRICE PRICE VALUE (1) LIFE
------------ -------- ---------- ----------- ---------
Balance, January 1, 2015 1,700,000 $0.50 $0.50 - 3 years
Granted - - - - -
Exercised - - - - -
Expired - - - - -
------------ -------- ---------- ----------- ---------
Balance, March 31, 2015 1,700,000 $0.50 $0.50 3 years
============
(1) The aggregate value of the options is less than zero, as the market price of
the shares on March 31, 2015 was less than the exercise price of the option
shares.
WARRANTS
During the three months ended March 31, 2015, the Company did not issue any
warrants, nor did any warrants expire or were exercised.
A summary of warrant activity for the three months ended March 31, 2015 is
presented below:
WEIGHTED AVERAGE
-----------------------------
REMAINING
SHARES UNDER CONTRACTUAL
WARRANT EXERCISE PRICE LIFE
------------------ --------------- -------------
Balance at January 1, 2015 1,160,000 $0.81 2.65
Granted - - -
Exercised - - -
Expired - - -
------------------ --------------- -------------
Balance at March 31, 2015 1,1600,000 $0.81 2.38
==================
NOTE 11 - INCOME TAXES
----------------------
The Company is subject to domestic income taxes. The Company has recognized
minimal income during the three months ended March 31, 2015 and the year ended
December 31, 2014, 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
2035. 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.
-16-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2015 and 2014
(Unaudited)
The Company's deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
ESTIMATED NOL VALUATION NET TAX
CARRY-FORWARD BENEFIT ALLOWANCE BENEFIT
======================================================
March 31, 2015 $1,324,222 $(1,324,222) -
December 31, 2014 $1,245,187 $(1,245,1877) -
NOTE 12 - SUBSEQUENT EVENTS
---------------------------
The Company has evaluated it activities subsequent to March 31, 2015 and through
the issuance of the financial statements and found no other reportable
subsequent events.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND
BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING
CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN
THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT
IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING
STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE
TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS.
FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY
OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE.
THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING
STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE
FORWARD-LOOKING STATEMENTS.
THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON THE COMPANY'S
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014, 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
While we have generated increased revenues from our operational activities,
these revenues are not sufficient to support our operational activities, which
are focused on re-working our existing properties and seeking attractive
property acquisitions in order to reach production goals. We have minimal
capital cash. We will continue to 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 three months ended March 31, 2015, we continued our re-work efforts
on our Cisco, Utah properties and at the end of the quarter saw our first gas
production from the wells.
FINANCING EFFORTS
On January 20, 2015, the Company in exchange for $50,000 issued a $50,000
unsecured convertible promissory note. The unsecured convertible promissory note
has a term of 3 years, an annual interest rate of 10% and an exercisable into
shares of the Company's common stock at $1.00 per share. At March 31, 2015, the
note had accrued interest of $917.81
We will require substantial additional capital to support our existing and
proposed future energy operations. We have ONLY DURING THE LATTER HALF OF 2014,
STARTED REALIZING REOCCURRING AND CONSISTENT REVENUE, ALTHOUGH INSUFFICIENT TO
FULLY SUPPORT CURRENT OPERATIONS. We have NO committed source for any additional
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 prospect acquisitions or other participation
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
-18-
flow or debt or equity financing. If participation is declined, we may elect to
farmout, non-consent, sell or otherwise negotiate a method of cost sharing in
order to maintain some continuing interest in the prospect.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 COMPARED TO THE THREE MONTHS ENDED
MARCH 31,2014
During the three months ended March 31, 2015, the Company recognized revenues of
$65,261 from its operational activities compared to $28,000 during the three
months ended March 31, 2014. Revenues increased by $37,261, as result of
increased production due primarily to re-work efforts at our Mason Lakes Field
in Montana. Management expects that production in 2015 to continue to increase,
as the field in Montana continues to produce on a consistent basis, continued
rework efforts in the Cisco and Medina fields and as it looks to grow its
production through acquisitions, though given current oil industry conditions,
management expects average sales prices to be lower than in 2014. Although
management expects to increase production in 2015, management does not expect
revenues to be sufficient to cover the near term costs of operations and
administrative expenses without additional drilling or acquisitions.
During the Three Months Ended
March 31,
2015 2014
------------------ ------------------
Revenues $65,261 $28,000
Number of Barrels 1,757.26 bbls 236.99 bbls
Average Price Per Barrel $37.13 $87.25
During the three months ended March 31, 2015 and 2014, the Company recognized a
direct cost of revenue of $133,082 and $136,921, respectively. A decrease of
$3,839, caused by a decrease of $32,136 in direct costs of revenue offset by an
increase of $28,297 in amortization and depletion expense.
During the three months ended March 31, 2015, we recognized total
operational expenses of $257,037 compared to $226,032 during the three months
ended March 31, 2014, an increase of $31,005. The increase was primarily the
result of decreases of $21,849 in general and administrative expenses, offset by
a $46,683 increase in operating lease expenses and a $6,171 increase in
consulting fees.
During the three months ended March 31, 2015, we recognized a net loss of
$401,983 compared to $334,164 during the three months ended March 31, 2014. The
increase of $67,819 was primarily a result of the $37,261 increase in revenue
offset by the increase of $27,914 increase in interest expense combined with an
increase of $24,197 in operational expenses.
LIQUIDITY
At March 31, 2015, the Company had total current assets of $102,442, consisting
of cash of $66,670, accounts receivable of $24,908 and deposits of $10,864. At
March 31, 2015, the Company had total current liabilities of $637,627,
consisting of, accounts payable of $346,445 and accrued liabilities of $291,182.
At March 31, 2015, we have a working capital deficit of $535,185.
During the three months ended March 31, 2015, we used cash of $281,800 in
operations. During the three months ended March 31, 2015, we recognized a net
loss of $401,983, which was adjusted for the non-cash item of depletion and
depreciation of $48,122.
-19-
During the three months ended March 31, 2014, we used cash of $360,800 in
operations. During the three months ended March 31, 2014, the Company recognized
a net loss of $334,164, which was adjusted for the non-cash items of $26,562 in
interest paid using stock, $2,500 in services paid for with stock, $15,671 in
depletion and depreciation and $50,000 gain on the discount of a promissory
note.
During the three months ended March 31, 2015, we used $58,036 in our investing
activities, $51,216 in the re-work efforts of our wells and $6,820 in connection
with the development of a technological process. During the three months ended
March 31, 2014, we used $79,630 in our investing activities including $52,976 in
re-work efforts on our wells, $4,000 in the acquisition of oil and gas leases,
$19,500 in equipment and $3,154 in development of a technological process.
During the three months ended March 31, 2015, we received $50,000 from our
financing activities compared to $1,970,000 during the three months ended March
31, 2014.
On January 20, 2015, the Company in exchange for $50,000 issued a $50,000
unsecured convertible promissory note. The unsecured convertible promissory note
has a term of 3 years, an annual interest rate of 10% and an exercisable into
shares of the Company's common stock at $1.00 per share. At March 31, 2015, the
note had accrued interest of $917.
SHORT TERM.
On a short-term basis, we do not generate revenue sufficient to cover
operations. Based on prior history, we will continue to have insufficient
revenue to satisfy current and recurring expenses and liabilities. For short
term needs we will be dependent on receipt, if any, of offering proceeds.
CAPITAL RESOURCES
We have only common and preferred stock as our capital resources.
We have no material commitments for capital expenditures within the next year,
however if operations are commenced, substantial capital will be needed to pay
for participation, investigation, exploration, acquisition and working capital.
NEED FOR ADDITIONAL FINANCING
We do not have capital sufficient to meet our cash needs. We will have to seek
loans or equity placements to cover such cash needs. Once exploration commences,
our needs for additional financing is likely to increase substantially.
No commitments to provide additional funds have been made by our management or
other stockholders. Accordingly, there can be no assurance that any additional
funds will be available to us to allow it to cover our expenses as they may be
incurred.
CRITICAL ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
-20-
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present value," of its proved
reserves discounted at a 10-percent interest rate of future net revenues, based
on current economic and operating conditions, plus the cost of properties not
being amortized, plus the lower of cost or fair market value of unproved
properties included in costs being amortized, less the income tax effects
related to book and tax basis differences of the properties. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
REVENUE 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 March 31, 2015 and December 31, 2014.
DEPENDENCE ON MAJOR CUSTOMERS
During the three months ended March 31, 2015 and 2014, the Company's revenues
were attributable to sales of oil to two customers. 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 at March 31, 2015 and
December 31, 2014.
-21-
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
------------------------------------------------------------------
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
--------------------------------
DISCLOSURES CONTROLS AND PROCEDURES
We have adopted and maintain disclosure controls and procedures (as such term is
defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) and that are designed to ensure that
information required to be disclosed in our reports under the Exchange Act, is
recorded, processed, summarized and reported within the time periods required
under the SEC's rules and forms and that the information is gathered and
communicated to our management, including our Chief Financial Officer (Principal
Executive Officer and Principal Financial Officer), as appropriate, to allow for
timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Financial Officer carried out an
evaluation under the supervision and with the participation of our management,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period
covered by this report. Based on the foregoing evaluation and the evaluation
conducted at March 31, 2015, our Chief Financial Officer has concluded that our
disclosure controls and procedures are not effective in timely alerting
management them to material information required to be included in our periodic
SEC filings and to ensure that information required to be disclosed in our
periodic SEC filings is accumulated and communicated to our management,
including our Chief Financial Officer, to allow timely decisions regarding
required disclosure.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING.
Hinto's management is responsible for establishing and maintaining adequate
internal control over financial reporting for the company in accordance with as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. The Company's internal control over financial
reporting includes those policies and procedures that:
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
Company's assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that the Company's
receipts and expenditures are being made only in accordance with
authorizations of Hinto's management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on Hinto's financial
statements.
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:
-22-
(1) The Company currently does not have, but is in the process of
developing formally documented accounting policies and procedures,
which includes establishing a well-defined process for financial
reporting.
(2) Due to the limited size of our accounting department, we currently
lack the resources to handle complex accounting transactions. We
believe this deficiency could lead to errors in the presentation and
disclosure of financial information in our annual, quarterly, and
other filings.
(3) As is the case with many companies of similar size, we currently lack
segregation of duties in the accounting department. Until our
operations expand and additional cash flow is generated from
operations, a complete segregation of duties within our accounting
function will not be possible.
Considering the nature and extent of our current operations and any risks or
errors in financial reporting under current operations and the fact that we have
been a small business with limited employees, such items caused a weakness in
internal controls involving the areas disclosed above.
We have concluded that our internal controls over financial reporting were
ineffective as of June 30, 2014, due to the existence of the material weaknesses
noted above that we have yet to fully remediate.
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended March 31, 2015, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 1A. RISK FACTORS
----------------------
Not Applicable to Smaller Reporting Companies.
ITEM 2. CHANGES IN SECURITIES
------------------------------
During the period of January 1, 2015 through March 31, 2015, the Company has
made the following unregistered issuances of its securities.
DATE OF TITLE OF NO. OF CLASS OF
ISSUANCE SECURITIES SHARES CONSIDERATION PURCHASER
-------------- ---------------- --------- --------------- ---------------------
January 2015 Convertible - $50,000 Business Associates
Promissory Note
EXEMPTION FROM REGISTRATION CLAIMED
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). All of the individuals
and/or entities that purchased the unregistered securities were primarily
existing shareholders, known to the Company and its management, through
pre-existing business relationships, as long standing business associates and
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employees. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
----------------------------------------
None.
ITEM 4. MINE SAFETY DISCLOSURE.
-------------------------------
Not Applicable.
ITEM 5. OTHER INFORMATION
--------------------------
None.
ITEM 6. EXHIBITS
-----------------
EXHIBITS. The following is a complete list of exhibits filed as part of this
Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit 31.1 Certification of Chief Financial Officer and Principal
Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act
Exhibit 32.1 Certification of Principal Executive and Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act
101.INS XBRL Instance Document (1)
101.SCH XBRL Taxonomy Extension Schema Document (1)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1)
----------------
(1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is
deemed not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed
not filed for purposes of Section 18 of the Securities Exchange Act of
1934, and otherwise is not subject to liability under these sections.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HINTO ENERGY, INC.
-------------------------------
(REGISTRANT)
Dated: May 27, 2015 By:/s/ George Harris
------------------------------------------
George Harris
(Chief Executive Officer, Chief Financial
Officer and Principal Accounting Officer)
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