As filed with the Securities and Exchange Commission on July 18, 2013
Registration No._______________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HINTO ENERGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 1311 84-1384961
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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7609 Ralston Road, Arvada, Colorado 80002/ Phone (303)647-4850
(Address and telephone number of principal executive offices)
George Harris, Chief Executive Officer and Chief Financial Officer
7609 Ralston Road, Arvada, Colorado 80002/ Phone (303)647-4850
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
Michael A. Littman, Attorney at Law
7609 Ralston Road, Arvada, CO, 80002 phone 303-422-8127 / fax 303-431-1567
Approximate date of commencement of proposed sale to the public: As soon as
possible after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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
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)
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER SHARE PRICE(1) FEE
---------------------------- ------------------ ------------------------- --------------------------- ----------------
Common Stock by Selling 4,803,884 $0.92 $4,419,573.28 $602.83(2)
Shareholders
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) The Registration Fee of $602.83 was estimated solely for the purpose of
calculating the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933 ("the Securities Act") based on the average of the
5-day average of the closing price of the common stock on July 15, 2013 as
reported on the OTC Bulletin Board.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
(SUBJECT TO COMPLETION)
PROSPECTUS
HINTO ENERGY, INC.
4,803,884 SHARES OF COMMON STOCK OF SELLING SHAREHOLDERS
We are registering:
(a) 4,803,884 shares listed for sale on behalf of selling shareholders;
We will NOT receive any proceeds from sales of shares by selling shareholders.
Our Selling Shareholders plan to sell common shares at such prices as the market
may dictate from time to time. There is a limited trading market for the common
stock and our pricing is based on a 5-day average of the closing bid on July 15,
2013 and has no relating to,liquidation value, earnings or dividends. We have
set the initial fixed prices as follows:
PER SHARE/
TITLE EXERCISE PRICE
------------------------------------------------------------- ------------------
4,803,884 shares of Common Stock previously registered $0.92
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK; SEE "RISK FACTORS" BEGINNING ON
PAGE 8 TO READ ABOUT FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF THE
COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") OR ANY STATE OR PROVINCIAL SECURITIES
COMMISSION, NOR HAS THE SEC OR ANY STATE OR PROVINCIAL SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Our common stock is presently quoted on the OTC Bulletin Board under the symbol
"HENI." On July 16, 2013, the last reported bid price of our common stock on the
OTC Bulletin Board was $0.92 per share (rounded to the nearest penny). Our
common stock having been recently listed has a limited trading history. See
"DESCRIPTION OF COMMON STOCK--Common Stock." These prices will fluctuate based
on the demand for the shares of our common stock and other factors.
This offering will be on a delayed and continuous basis only for sales of
selling shareholders shares. The selling shareholders are not paying any of the
offering expenses and we will not receive any of the proceeds from the sale of
the shares by the selling shareholders or from the shares underlying the
convertible promissory note. (See "Description of Securities - Shares").
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the date that the registration statement
relating to these securities, which has been filed with the Securities and
Exchange Commission, becomes effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
The date of this Prospectus is July 17, 2013.
TABLE OF CONTENTS
=========================================== ================================================================ =============
PART I - INFORMATION REQUIRED IN Page No.
PROSPECTUS
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ITEM 1. Front of Registration Statement and Outside Front Cover Page
of Prospectus
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ITEM 2. Prospectus Cover Page 1
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ITEM 3. Prospectus Summary Information, Risk Factors and Ratio of 4
Earnings to Fixed Charges
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ITEM 4. Use of Proceeds 15
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ITEM 5. Determination of Offering Price 15
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ITEM 6. Dilution 16
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ITEM 7. Selling Security Holders 16
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ITEM 8. Plan of Distribution 18
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ITEM 9. Description of Securities 18
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ITEM 10. Interest of Named Experts and Counsel 19
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ITEM 11. Information with Respect to the Registrant 19
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a. Description of Business 19
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b. Description of Property 30
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c. Legal Proceedings 35
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d. Market for Common Equity and Related Stockholder Matters 35
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e. Financial Statements 36
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f. Selected Financial Data 37
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g. Supplementary Financial Information 37
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h. Management's Discussion and Analysis of Financial Condition 37
and Results of Operations
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i. Changes In and Disagreements With Accountants on Accounting 42
and Financial Disclosure
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j. Quantitative and Qualitative Disclosures About Market Risk 42
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k. Directors and Executive Officers 43
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l. Executive and Directors Compensation 45
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m. Security Ownership of Certain Beneficial Owners and 50
Management
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n. Certain Relationships, Related Transactions, Promoters And 51
Control Persons
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ITEM 11 A. Material Changes 54
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ITEM 12. Incorporation of Certain Information by Reference 54
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ITEM 12 A. Disclosure of Commission Position on Indemnification for 56
Securities Act Liabilities
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PART II - INFORMATION NOT REQUIRED IN
PROSPECTUS
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ITEM 13. Other Expenses of Issuance and Distribution 57
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ITEM 14. Indemnification of Directors and Officers 57
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ITEM 15. Recent Sales of Unregistered Securities 58
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ITEM 16. Exhibits and Financial Statement Schedules 60
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ITEM 17. Undertakings 62
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Signatures 63
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-2-
ITEM 3. PROSPECTUS SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO
FIXED CHARGES
OUR COMPANY
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, 2011,
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 had agreed to return the remaining 2,700,000 shares of
common stock to the Company. We have retired such shares to treasury, concurrent
with the transaction.
SHARE ACQUISITION AND EXCHANGE AGREEMENT
On July 27, 2011, we entered into a Share Exchange and Acquisition Agreement
with South Uintah and the South Uintah shareholders. On January 23, 2012, we
entered into an Amended Share Exchange 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.
In addition to the exchange of common stock, we exchanged on a one for one basis
the following outstanding equity documents with those of our own. The table
below sets forth the equity that was exchanged.
Type of Equity South Uintah Balance To Be Issued By Hinto
------------------------ ------------------------ ---- -------------------------
Common Stock 11,446,931 shares 11,446,931 shares
Warrants (1) 6,700,000 6,700,000
Promissory Note (2) $375,000 $375,000
------------------------
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(1) The warrants have exercise prices ranging from $0.50 to $3.00 per share and
terms ranging from 2 to 5 years.
(2) The promissory note has a provision to convert into shares of common stock
at $0.20 per share. Such shares are not being registered in this
Registration Statement.
At the time of the acquisition, George Harris, Gary Herick, Max Sommer and Kevin
Blair, officers and directors of Hinto, were and are officers, directors and
shareholders of South Uintah. Mr. David Keller, a director of Hinto, was also a
shareholder of South Uintah.
-3-
The effective date of the acquisition is December 31, 2011, with Hinto being the
legal acquirer. However, since Hinto was a public company, which had nominal
activity, the acquisition has been treated as a recapitalization of South
Uintah. Though Hinto was the legal acquirer in the merger, South Uintah was the
accounting acquirer since its shareholders gained control of Hinto. Therefore at
the date of the merger the historical financial statements of South Uintah
became those of Hinto. As a result, the historical financial statements of South
Uintah supersede any prior financial statements of Hinto.
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. 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 (approx) are
precluded in the farmout and the overall targets will be zones from 9,800 feet
to 16,000 feet.
The Company intends to strive to be a low cost and effective producer of
hydrocarbons and intends to develop the business model and corporate strategy as
discussed herein.
The Company's approach to lease acquisition, development and production is
founded on the discipline of ONLY acquiring leases in areas of proven
production. In most cases the leases that are under consideration have at one
time contained producing oil or gas wells and currently have production or
shut-in wells that are viable for work over and or re-completion. This managed
risk approach greatly reduces the risk normally associated with oil and gas
development. There are hundreds of wells in our area of interest that meet these
criteria. In many instances, the wells were shut-in during a period of declining
oil and gas prices and in most cases are ideal for our business model. Our
business model is simple; strict adherence to lease acquisition surrounded by
proven production, offering well workovers, re-completion, and enhanced oil
recovery opportunities in the known producing formations, with long term
production potential at a low cost of development, maintenance, and operation.
The Company is NOT an exploration company, per se, rather it seeks leases with
discovered oil and gas with current or prior production.
One strategy that is quickly growing in prominence and application with respect
to petroleum is to use a development program approach. We describe our
development plan approach as a set of techniques utilizing the injection of
specific fluids such as: water, steam, natural gas, carbon dioxide, nitrogen,
and various chemicals and surfactants intended to increase the amount of oil
that can ultimately be extracted from any oil field. Many oil exploration and
production companies are using development program approaches to maximize the
potential of old oil fields.
Our business operations are in the development, production, and low risk
exploration of oil and gas including unconventional natural gas, in the Rocky
Mountain region of the continental United States; specifically, in the Rocky
Mountain area of Utah, Colorado, Montana and Wyoming.
RECENT PROPERTY ACQUISITIONS
PRIDE VENTURES, LLC AND JAMES WOOLSEY
On June 4, 2013, the Company and Pride Ventures, LLC ("Pride") and James Woolsey
("Woolsey") entered into a Purchase and Sale Agreement ("the Pride Purchase and
Sale Agreement."). As part of the Pride Purchase and Sale Agreement, 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.
-4-
In exchange for such mineral estates, the Company plans to pay a total of
$100,000 in a combination of cash and stock, as follows:
o $75,000.00 in cash; and
o $25,000.00 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.
S&L ENERGY, INC.
On June 14, 2013, the Company and S&L Energy, Inc. ("S&L") entered into a
Purchase and Sale Agreement ("S&L Purchase Agreement."). As part of the S&L
Purchase Agreement, the Company acquired all right and title to oil and gas
leases for a total of 722 gross acres in the Musselshell County, Montana.
The property includes 120 acres for all zones other than the 1st Cat Creek. The
1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil,
LLC.
In exchange for such oil and gas leases, the Company plans to pay $101,100 in a
combination of cash and stock, as follows:
o $65,000.00 in cash; and
o $36,100.00 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.
In addition, the Company has a thirty day option to purchase other oil and gas
leases in the Musselshell Field from S&L Energy for a price of $60 per acre.
The properties are located in the Mason Lake field in Central Montana in the
Amsden (Alaska Bench) Formation which is late Mississippian to Early
Pennsylvanian in age. The Amsden formation is a series of sandstone, shale and
limestone, which was deposited under marine conditions in the Paleozoic Era. The
Amsden Formation overlays the Tensleep Formation and is above the Heath
Formation, traditionally known as the Pennsylvanian Tyler Sand Play area.
JAKE OIL, LLC
On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase
and Sale Agreement ("the Jake Oil Agreement"). As part of the Jake Oil
Agreement, 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.
The property includes 6 wells in a field to be water flooded that needs the
wells to be re-worked. Additional drilling may be performed to maximize the oil
recovery from the formation. The Company plans to begin production in the third
quarter of 2013.
In exchange for such oil and gas leases, the Company plans to pay approximately
$25,000 in cash and a 5 percent working interest.
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 1st Cat Creek is at about 4,200 feet and is above the
Amsden formation.
-5-
Our Auditors have issued a going concern opinion and the reasons noted for
issuing the opinion are our lack of revenues and modest capital.
Factors that make this offering highly speculative or risky are:
o There is a limited market for any securities;
o We have minimal revenues or sales; and
o We are undercapitalized.
Our executive offices are located at 7609 Ralston Road, Arvada, Colorado 80002
and the telephone number is (303)647-4850.
SUMMARY OF FINANCIAL INFORMATION
The Summary Financial Information presented below is at March 31, 2013.
--------------------------- ----------------------------------------------------
As at March 31, 2013
--------------------------- ----------------------------------------------------
Total Assets $1,164,948
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Current Liabilities $1,162,182
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Shareholders' Equity
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For the Three Months Ended March 31, 2013
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Revenues $11,631
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Net Loss at March 31, 2013 ($180,164)
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As of March 31, 2013, the accumulated deficit was $(2,783,986). We anticipate
that we will operate in a deficit position and continue to sustain net losses
for the foreseeable future.
THE OFFERING
We are registering 4,803,884 shares listed for sale on behalf of selling
shareholders.
Our common stock, only, will be transferable immediately after the closing of
this offering. (See "Description of Securities")
================================================================================
Common shares outstanding before this offering 20,133,769
--------------------------------------------------------------------------------
Maximum common shares being offered by our existing
selling shareholders 4,803,884
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Maximum common shares outstanding after this offering (1) 20,133,769
--------------------------------------------------------------------------------
(1) Assuming exercise of all $0.50 warrants.
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We are authorized to issue 50,000,000 shares of common stock and 25,000,000
shares of preferred stock. Our current shareholders, officers and directors
collectively own 20,133,769 shares of restricted common stock. These shares were
issued at a price of $.01 per share for 1,580,000 shares, $0.001 for 11,446,931
shares and $0.50 for 5,106,838 shares and 2,000,000 shares were issued as part
of the exercise of our $0.50 Warrants.
The common stock is presently traded on the over-the-counter market on the OTC
Bulletin Board maintained by the Financial Industry Regulatory Authority (the
"FINRA"). The OTCBB symbol for the Common Stock is "HENI."
-6-
GLOSSARY
The following are definitions of terms used in this Memorandum:
BBL. An abbreviation for the term "barrel" which is a unit of measurement
of volume of oil or related petroleum products. One barrel (one bbl) is the
equivalent of 42 U.S. gallons or approximately 159 liters.
BONUS PAYMENT. Usually a one time payment made to a mineral owner as
consideration for the execution of an oil and gas lease.
CASING POINT. That point in time during the drilling of an oil well at
which a decision is made to install well casing and to attempt to complete the
well as an oil producer.
COMPLETION. The procedure used in finishing and equipping an oil or gas
well for production.
DELAY RENTAL. Payment made to the lessor under a nonproducing oil and gas
lease at the end of each year to continue the lease in force for another year
during its primary term.
DEVELOPMENT WELL. A well drilled to a known producing formation in a
previously discovered field, usually offsetting a producing well on the same or
an adjacent oil and gas lease.
EXPLORATORY WELL. A well drilled either (a) in search of a new and as yet
undiscovered pool of oil or gas or (b) with the hope of significantly extending
the limits of a pool already developed (also known as a "wildcat well").
FARMIN. An agreement which allows a party earn a full or partial working
interest (also known as an "earned working interest") in an oil and gas lease in
return for providing exploration or development funds.
FARMOUT. An agreement whereby the owner of the leasehold or working
interest agrees to assign a portion of his interest in certain acreage subject
to the drilling of one or more specific wells or other performance by the
assignee as a condition of the assignment. Under a farmout, the owner of the
leasehold or working interest may retain some interest such as an overriding
royalty interest, an oil and gas payment, offset acreage or other type of
interest.
GROSS ACRE. An acre in which a working interest is owned. The number of
gross acres is the total number of acres in which an interest is owned (see "Net
Acre" below).
GROSS WELL. A well in which a working interest is owned. The number of
gross wells is the total number of wells in which a working interest is owned.
LANDOWNER ROYALTY. That interest retained by the holder of a mineral
interest upon the execution of an oil and gas lease which usually ranges from
1/8 to 1/4 of all gross revenues from oil and gas production unencumbered with
an expenses of operation, development or maintenance.
LEASES. Full or partial interests in oil or gas properties authorizing the
owner of the lease to drill for, produce and sell oil and gas upon payment of
rental, bonus, royalty or any of them. Leases generally are acquired from
private landowners (fee leases) and from federal and state governments on
acreage held by them.
LEASE PLAY. A term used to describe lease acquisition activity in a
prospect or geologically defined area.
MCF. An abbreviation for "1,000 cubic feet," which is a unit of measurement
of volume for natural gas.
NET WELL OR ACRE. A net well or acre exists when the sum of the fractional
ownership working interests in gross wells or acres equals one. The number of
-7-
net wells or acres is the sum of the factional working interests owned in gross
wells or acres expressed as whole number and fractions thereof.
NET REVENUE INTEREST. The fractional undivided interest in the oil or gas
or in the revenues from the sale of oil or gas attributable to a particular
working interest after reduction for a proportionate share of landowner's
royalty interest and overriding royalty interest.
OVERRIDING ROYALTY. An interest in the gross revenues or production over
and above the landowner's royalty carved out of the working interest and also
unencumbered with any expenses of operation, development or maintenance.
PAYOUT. The point in time when the cumulative total of gross income from
the production of oil and gas from a given well (and any proceeds from the sale
of such well) equals the cumulative total cost and expenses of acquiring,
drilling, completing and operating such well, including tangible and intangible
drilling and completion costs.
PROSPECT. A geological area which is believed to have the potential for oil
or gas production.
PROVED DEVELOPED RESERVES. The reserves which can be expected to be
recovered through existing wells with existing equipment and operating methods.
Such reserves include the reserves which are expected to be produced from the
existing completion interval(s) now open for production in existing wells and in
addition to those reserves which exist behind the casing (pipe) of existing
wells, or at minor depths below the present bottom of such wells, which are
expected to be produced through these wells in the predictable future where the
cost of making such oil and gas available for production is relatively small
compared to the cost of drilling a new well.
PROVED UNDEVELOPED RESERVES. Proved reserves which are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for a recompletion. Reserves on
undrilled acreage are limited to those drilling tracts offsetting productive
units which are reasonable certain of production when drilled. Proved reserves
for other undrilled tracts are claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation.
REVERSIONARY INTEREST. The portion of the working interest in an oil and
gas lease which will be returned to its former owner when payout occurs or after
a predetermined amount of production and income has been produced.
UNDEVELOPED LEASEHOLD ACREAGE. Leased acreage on which wells have not been
drilled or completed to a point that would permit the production of commercial
quantities of oil and gas.
WORKING INTEREST. An interest in an oil and gas lease entitling the holder
at its expense to conduct drilling and production operations on the leased
property and to receive the net revenues attributable to such interest, after
deducting the landowner's royalty, any overriding royalties, production costs,
taxes and other costs.
RISK FACTORS RELATED TO OUR COMPANY
Our securities, as offered hereby, are highly speculative and should be
purchased only by persons who can afford to lose their entire investment in us.
Each prospective investor should carefully consider the following risk factors,
as well as all other information set forth elsewhere in this prospectus, before
purchasing any of the shares of our common stock.
-8-
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 INVESTORS CANNOT VIEW OUR PAST PERFORMANCE
SINCE WE ARE A START-UP COMPANY.
We were formed on February 13, 1997 for the purpose of engaging in any lawful
business and have adopted a plan to engage the acquisition, exploration, and if
warranted, development of natural resource properties. Prior to the year ended
December 31, 2012, we had no revenues in the last five years. During the year
ended December 31, 2012, we did recognize revenues of $29,908. We are not
profitable and the business effort is considered to be in an early development
stage. We must be regarded as a new or development venture with all of the
unforeseen costs, expenses, problems, risks and difficulties to which such
ventures are subject.
WE ARE NOT DIVERSIFIED AND WE WILL BE DEPENDENT ON ONLY ONE BUSINESS.
Because of the limited financial resources that we have, it is unlikely that we
will be able to diversify our operations. Our probable inability to diversify
our activities into more than one area will subject us to economic fluctuations
within the energy industry and therefore increase the risks associated with our
operations due to lack of diversification.
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, and we have cash of approximately $400,000 as of the date
of this Registration Statement on Form S-1.
We will not receive any proceeds from the sale of the common shares held by the
Selling Shareholders.
If we find oil and gas reserves to exist on a prospect, we will need substantial
additional financing to fund the necessary exploration and development work.
Furthermore, if the results of that exploration and development work are
successful, we will need substantial additional funds for continued development.
We will not receive proceeds from this offering to conduct such work and,
therefore, we will need to obtain the necessary funds either through debt or
equity financing, some form of cost-sharing arrangement with others, or the sale
of all or part of the property. There is no assurance that we will be successful
in obtaining any financing. These various financing alternatives may dilute the
interest of our shareholders and/or reduce our interest in the properties. (See
"Use of Proceeds" and "Our Business")
WE WILL NEED ADDITIONAL FINANCING FOR WHICH WE HAVE NO COMMITMENTS, AND THIS MAY
JEOPARDIZE EXECUTION OF OUR BUSINESS PLAN.
We have limited funds, and such funds may not be adequate to carryout 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
-9-
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 CONVERTIBLE DEBT WHICH IS CONVERTIBLE INTO SHARES OF OUR RESTRICTED
COMMON STOCK. A CONVERSION OF SUCH DEBT COULD HAVE A DILUTIVE EFFECT TO EXISTING
SHAREHOLDERS.
At July 1, 2013, we have outstanding convertible notes payable of $575,000. Such
notes are due one to three years from the date of issuance and are convertible
into shares of our restricted common stock in whole or in part at a conversion
price of $1.00 per share. In addition, $75,000 of our convertible promissory
notes provide that for every $5.00 principal converted, the holder will receive
a warrant to purchase 1 share of common stock at a price of $2.00 per share. The
conversion of the convertible promissory notes into shares of our common stock
could have a dilutive effect to the holdings of our existing shareholders.
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 July 16, 2013, we have warrants issued and outstanding exercisable into
5,500,000 shares of our common stock at ranges from $0.25 to $3.00 per share. We
are not registering 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.
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
"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.
-10-
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. (See "Conflicts of Interest" at page 44)
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
Any person or entity contemplating an investment in the securities offered
hereby should be aware of the high risks involved and the hazards inherent
therein. Specifically, the investor should consider, among others, the following
risks:
OUR BUSINESS, THE OIL AND GAS BUSINESS HAS NUMEROUS RISKS WHICH COULD RENDER US
UNSUCCESSFUL.
The search for new oil and gas reserves frequently results in unprofitable
efforts, not only from dry holes, but also from wells which, though productive,
will not produce oil or gas in sufficient quantities to return a profit on the
costs incurred. There is no assurance we will find or produce oil or gas from
any of the undeveloped acreage farmed out to us or which may be acquired by us,
nor are there any assurances that if we ever obtain any production it will be
profitable. (See "Business and Properties")
WE HAVE SUBSTANTIAL COMPETITORS WHO HAVE AN ADVANTAGE OVER US IN RESOURCES AND
MANAGEMENT.
We are and will continue to be an insignificant participant in the oil and gas
business. Most of our competitors have significantly greater financial
resources, technical expertise and managerial capabilities than us and,
consequently, we will be at a competitive disadvantage in identifying and
developing or exploring suitable prospects. Competitor's resources could
overwhelm our restricted efforts to acquire and explore oil and gas prospects
and cause failure of our business plan.
WE WILL BE SUBJECT TO ALL OF THE MARKET FORCES IN THE ENERGY BUSINESS, MANY OF
WHICH COULD POSE A SIGNIFICANT RISK TO OUR OPERATIONS.
The marketing of natural gas and oil which may be produced by our prospects will
be affected by a number of factors beyond our control. These factors include the
extent of the supply of oil or gas in the market, the availability of
competitive fuels, crude oil imports, the world-wide political situation, price
-11-
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. We intend
to obtain an oil and gas attorney's opinion of valid title before any
significant expenditure upon a lease.
GOVERNMENT REGULATIONS: The area of exploration of natural resources has
become significantly regulated by state and federal governmental agencies, and
such regulation could have an adverse effect on our operations. Compliance with
statutes and regulations governing the oil and gas industry could significantly
increase the capital expenditures necessary to develop our prospects.
NATURE OF OUR BUSINESS: Our business is highly speculative, involves the
commitment of high-risk capital, and exposes us to potentially substantial
losses. In addition, we will be in direct competition with other organizations
which are significantly better financed and staffed than we are.
GENERAL ECONOMIC AND OTHER CONDITIONS: Our business may be adversely
affected from time to time by such matters as changes in general economic,
industrial and international conditions; changes in taxes; oil and gas prices
and costs; excess supplies and other factors of a general nature.
OUR BUSINESS IS SUBJECT TO SIGNIFICANT WEATHER INTERRUPTIONS.
Our activities may be subject to periodic interruptions due to weather
conditions. Weather-imposed restrictions during certain times of the year on
roads accessing properties could adversely affect our ability to benefit from
production on such properties or could increase the costs of drilling new wells
because of delays.
WE ARE SUBJECT TO SIGNIFICANT OPERATING HAZARDS AND UNINSURED RISK IN THE ENERGY
INDUSTRY.
Our proposed operations will be subject to all of the operating hazards and
risks normally incident to exploring, drilling for and producing oil and gas,
such as encountering unusual or unexpected formations and pressures, blowouts,
environmental pollution and personal injury. We will maintain general liability
insurance but we have not obtained insurance against such things as blowouts and
pollution risks because of the prohibitive expense. Should we sustain an
uninsured loss or liability, or a loss in excess of policy limits, our ability
to operate may be materially adversely affected.
-12-
WE ARE SUBJECT TO FEDERAL INCOME TAX LAWS AND CHANGES THEREIN WHICH COULD
ADVERSELY IMPACT US.
Federal income tax laws are of particular significance to the oil and gas
industry in which we engage. Legislation has eroded various benefits of oil and
gas producers and subsequent legislation could continue this trend. Congress is
continually considering proposals with respect to Federal income taxation which
could have a material adverse effect on our future operations and on our ability
to obtain risk capital which our industry has traditionally attracted from
taxpayers in high tax brackets.
WE ARE SUBJECT TO SUBSTANTIAL GOVERNMENT REGULATION IN THE ENERGY INDUSTRY WHICH
COULD ADVERSELY IMPACT US.
The production and sale of oil and gas are subject to regulation by state and
federal authorities, the spacing of wells and the prevention of waste. There are
both federal and state laws regarding environmental controls which may
necessitate significant capital outlays, resulting in extended delays,
materially affect our earnings potential and cause material changes in the in
our proposed business. We cannot predict what legislation, if any, may be passed
by Congress or state legislatures in the future, or the effect of such
legislation, if any, on us. Such regulations may have a significant affect on
our operating results.
RISK FACTORS RELATED TO OUR STOCK
THE REGULATION OF PENNY STOCKS BY SEC AND FINRA MAY DISCOURAGE THE TRADABILITY
OF OUR SECURITIES.
We are a "penny stock" company. Our securities are subject to a Securities and
Exchange Commission rule that imposes special sales practice requirements upon
broker-dealers who sell such securities to persons other than established
customers or accredited investors. For purposes of the rule, the phrase
"accredited investors" means, in general terms, institutions with assets in
excess of $5,000,000, or individuals having a net worth in excess of $1,000,000
or having an annual income that exceeds $200,000 (or that, when combined with a
spouse's income, exceeds $300,000). For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written agreement to the transaction prior to the
sale. Effectively, this discourages broker-dealers from executing trades in
penny stocks. Consequently, the rule will affect the ability of purchasers in
this offering to sell their securities in any market that might develop
therefore because it imposes additional regulatory burdens on penny stock
transactions.
In addition, the Securities and Exchange Commission has adopted a number of
rules to regulate "penny stocks". Such rules include Rules 3a51-1, 15g-1, 15g-2,
15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
rules will further affect the ability of owners of shares to sell our securities
in any market that might develop for them because it imposes additional
regulatory burdens on penny stock transactions.
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.
-13-
RULE 144 SALES IN THE FUTURE MAY HAVE A DEPRESSIVE EFFECT ON OUR STOCK PRICE.
All of the outstanding shares of common stock held by our present officers,
directors, and affiliate stockholders are "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
Shares, these shares may be resold only pursuant to an effective registration
statement or under the requirements of Rule 144 or other applicable exemptions
from registration under the Act and as required under applicable state
securities laws. We are registering all of our outstanding shares so officers,
directors and affiliates will be able to sell their shares if this Registration
Statement becomes effective. Rule 144 provides in essence that a person who has
held restricted securities for six months, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
nonaffiliate after the owner has held the restricted securities for a period of
six month. A sale under Rule 144 or under any other exemption from the Act, if
available, or pursuant to subsequent registration of shares of common stock of
present stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
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 SALES OF OUR COMMON STOCK, IF IN SIGNIFICANT AMOUNTS, ARE LIKELY TO DEPRESS
THE MARKET PRICE OF OUR SECURITIES.
Assuming all of the shares of common stock, under this Registration Statement
are sold and all of the shares of common stock held by the selling security
holders registered hereby are sold, we would have 10,546,664 shares that are
freely tradable. Even an officer and director is registering a portion of his
shares for sale under this prospectus.
Unrestricted sales of 4,803,884 shares of stock by our selling stockholders
could have a huge negative impact on our share price, and the market for our
shares.
-14-
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.
THE OFFERING PRICE OF THE SHARES HAS BEEN DETERMINED BY OUR MARKET PRICE.
We have determined the offering price of the shares of common stock we are
offering on behalf of our Selling Shareholders based upon the market price of
such shares. Such price does not bear any relationship to our assets, income or
net worth.
The offering price should NOT be considered an indication of the actual value of
the shares or securities. Any market price is subject to change as a result of
market conditions and other factors, and no assurance can be given that the
shares can ever be resold at the offering price or any market price, if at all.
ITEM 4. USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares being registered on
behalf of our selling shareholders.
We may raise additional funds through a private placement of shares of our
common stock. At this time there is no committed source for such funds and we
cannot give any assurances of being able to raise such funds. We can assure that
we will require additional funds to carry out our business plan. The
availability and terms of any future financing will depend on market and other
conditions.
Our lack of funds could and would severely limit our operations, and might
render us unable to carry out our business plan.
The monies we have raised thus far from selling stock to our current
Shareholders is anticipated to be sufficient to pay all expenses of this
registration statement, which is estimated to be $25,000.
ITEM 5. DETERMINATION OF OFFERING PRICE
The Common Stock is presently thinly traded on the over-the-counter market on
the OTC Bulletin Board maintained by the Financial Industry Regulatory Authority
(the "FINRA"). The OTCBB symbol for the Common Stock is "HENI." The Company's
stock began trading on the OTC Bulletin Board on December 31, 2010.
The offering price of the Common Stock being registered on behalf of the
selling shareholders was determined using a 5-day average of the closing market
price at the time of this registration. We will not receive any proceeds from
the sale of our stock by our selling shareholders.
------------------------------------------ -------------------------------------
TITLE PER SECURITY
------------------------------------------ -------------------------------------
Common Stock $0.92
------------------------------------------ -------------------------------------
|
-15-
ITEM 6. DILUTION
----------------
The following table sets forth with respect to existing shareholders, the number
of our shares of common stock purchased the percentage ownership of such shares,
the total consideration paid, the percentage of total consideration paid and the
average price per share. All percentages are computed based upon cumulative
shares and consideration assuming sale of all shares in the line item as
compared to maximum in each previous line
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
NUMBER PERCENT (2) AMOUNT PERCENT PRICE/SHARE
(3)
------------------------------------------------------------
1) Existing Shareholders 15,329,885 76.14% $1,174,252 32.83% $0.08
2) Existing Shareholders being registered 4,803,884 23.86% $2,401,942 67.16% $0.50
------------ ------------
TOTAL 20,133,769 $3,576,194
|
"Net tangible book value" is the amount that results from subtracting the total
liabilities and intangible assets from the total assets of an entity. Dilution
occurs because we determined the offering price based on factors other than
those used in computing book value of our stock. Dilution exists because the
book value of shares held by existing stockholders is lower than the offering
price offered to new investors.
(1) Percentage relates to total percentage of shares sold up to such
increment.
(2) Percentage relates to total percentage of capital raised up to such
increment.
As at March 31, 2013, the net tangible book value of our stock was $0.0001 per
share.
ITEM 7. SELLING SECURITY HOLDERS
The selling shareholders, including an officer and director, obtained their
shares of our stock in the following transactions:
(a) A private placement from June 27, 2012 through April 1, 2013 for
2,937,266 shares at $0.50 per share;
(b) Pursuant to Amended Share Exchange Agreement, dated January 23, 2012,
the shareholders of South Uintah were issued 11,446,931 shares of
common stock on a one for one basis for their shares of South Uintah;
(c) Professionals have been issued 285,618 shares for services at $0.50
per share.
(d) Pursuant to a Purchase Agreement, 50,000 shares were issued at $0.50
per share;
(e) Pursuant to a Settlement Agreement 1,400,000 shares were issued at
$0.50 per share.
Other than the stock transactions discussed above, we have not entered into any
transaction nor are there any proposed transactions in which any founder,
director, executive officer, significant shareholder of our company or any
member of the immediate family of any of the foregoing had or is to have a
direct or indirect material interest.
No person who may, in the future, be considered a promoter of this offering,
will receive or expect to receive assets, services or other considerations from
us except those persons who are our salaried employees or directors. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the shareholders.
All of the securities listed below are being registered in this Registration
Statement, which include all of the securities outstanding as of date hereof.
-16-
------------------------------------------- ---------------- ------------ ------------ ---------- ----------- ----------
COMMON SHARES % SHARES %
HELD BY EACH COMMON TOTAL OWNED OWNED OWNED
SHAREHOLDER SHARES SHARES TO BEFORE AFTER AFTER
BEFORE TO BE BE OFFERING OFFERING OFFERING
NAME OFFERING REGISTERED REGISTERED (1) (2) (2)
------------------------------------------- ---------------- ------------ ------------ ---------- ----------- ----------
Arrowhead Consulting, LLC(3, 5) 660,000 200,000 200,000 3.28% 415,000 2.06%
Bridge Industries, LLC 1,400,000 1,400,000 1,400,000 6.95% - -
Lillian S. Bort Trust UA 2/15/1993,
Lillian Bort Trustee 10,000 10,000 10,000 0.05% - -
Allice Marie Churchill 50,000 50,000 50,000 0.25% - -
Paul Dickstein 374,600 269,600 269,600 1.86% - -
Bruce Dodge 50,000 50,000 50,000 0.25% - -
Barry Dorfman 100,000 100,000 100,000 0.50% - -
Kenneth & Cheryl Eigsti 30,000 30,000 30,000 0.15% - -
Terry Fox 10,000 10,000 10,000 0.05% - -
Gem & Eye GP 50,000 50,000 50,000 0.25% - -
Michael A. Littman (4) 216,618 216,618 216,618 1.08% - -
J. Malcolm Gray Trust UA (4,6) 325,000 100,000 100,000 1.61% - -
J Malcolm Gray (4,6) 750,000 750,000 750,000 3.73% - -
Midland Custodian, J Malcolm Gray IRA (4,6) 467,000 300,000 300,000 2.32% - -
Paul & Cindy Montanarella JT Ten 50,000 50,000 50,000 0.25% - -
Robert Nibbelink 60,000 60,000 60,000 0.30% - -
Barbara J Pergament 20,000 20,000 20,000 0.10% - -
Mike J. Rocks 220,000 200,000 200,000 1.09% - -
Andrew D. Ross 100,000 70,000 70,000 0.50% - -
Barbara Scrivens 806,266 492,666 492,666 4.00% - -
Joanna Shea 10,000 10,000 10,000 0.05% - -
William S. Vann 354,511 105,000 105,000 1.76% - -
Rick Wilber 506,115 200,000 200,000 2.51% - -
Jennifer & Mitchell Zatz 60,000 60,000 60,000 0.30% - -
------------------------------------------- ---------------- ------------ ------------ ---------- ----------- ----------
TOTAL 6,680,110 4,803,884 4,803,884 415,000 2.06%
|
*Less than 1%
MATERIAL RELATIONSHIPS
(1) Based upon 20,133,769 shares of common stock issued and outstanding.
(2) Assumes the sale of shares held by the selling shareholder which are
part of Registration Statement No. 333-182538.
(3) Officer/ Director
(4) Greater than 5% shareholder
(5) The manager of Arrowhead Consulting, LLC is Mr. Gary Herick, an
officer and director of the Company.
(6) Mr. Malcolm Gray directly holds 750,000 shares of common stock and
beneficially holds 325,000 shares through the J. Malcolm Trust UA and
467,000 shares through the J. Malcolm Gray IRA.
-17-
ITEM 8. PLAN OF DISTRIBUTION
Upon effectiveness of this amendment to the registration statement, of which
this prospectus is a part, our existing selling shareholders may sell their
securities at market prices or at any price in privately negotiated
transactions.
Our selling shareholders may be deemed underwriters in this offering.
The selling shareholders are not paying any of the offering expenses and we will
not receive any of the proceeds from the sale of the shares by the selling
shareholders.
ITEM 9. DESCRIPTION OF SECURITIES
The securities being registered and/or offered by this Prospectus are common
shares.
COMMON STOCK
We are presently authorized to issue fifty million (50,000,000) shares of our
common stock. A total of Twenty Million, One Hundred and Thirty-Three Thousand,
Seven Hundred and Sixty-Nine (20,133,769) common shares are issued and
outstanding.
COMMON SHARES
All shares are equal to each other with respect to voting, liquidation, and
dividend rights. Special shareholders' meetings may be called by the officers or
director, or upon the request of holders of at least one-tenth (1/10th) of the
outstanding shares. Holders of shares are entitled to one vote at any
shareholders' meeting for each share they own as of the record date fixed by the
board of directors. There is no quorum requirement for shareholders' meetings.
Therefore, a vote of the majority of the shares represented at a meeting will
govern even if this is substantially less than a majority of the shares
outstanding. Holders of shares are entitled to receive such dividends as may be
declared by the board of directors out of funds legally available therefore, and
upon liquidation are entitled to participate pro rata in a distribution of
assets available for such a distribution to shareholders. There are no
conversion, pre-emptive or other subscription rights or privileges with respect
to any shares. Reference is made to our Articles of Incorporation and our
By-Laws as well as to the applicable statutes of the State of Wyoming for a more
complete description of the rights and liabilities of holders of shares. It
should be noted that the board of directors without notice to the shareholders
may amend the By-Laws. Our shares do not have cumulative voting rights, which
means that the holders of more than fifty percent (50%) of the shares voting for
election of directors may elect all the directors if they choose to do so. In
such event, the holders of the remaining shares aggregating less than fifty
percent (50%) of the shares voting for election of directors may not be able to
elect any director.
PREFERRED SHARES
We are authorized to issue twenty-five million (25,000,000) shares of preferred
stock. At the time of this filing there are no classes of preferred stock
designated, nor are there any preferred shares issued and outstanding.
The Board of Directors will have complete discretion to authorize Series and
Classes, and to negotiate and set the rights, privileges, and preferences of the
classes and series. Management will have also the discretion, subject to Board
of Director approval of how, when, and for what consideration the Preferred
Shares may be issued.
WARRANTS
We have a total of 5,500,000 warrants issued and outstanding, which entitle the
holder to purchase one Share of Common Stock at an exercise prices ranging from
$0.25 to $3.00 per share.
Our officers and directors hold warrants exercisable for 2,700,000 shares with
exercise prices ranging from $1.00 to $3.00 per share, which we are not
registering as part of this Offering. Of which, warrants exercisable for
1,000,000 shares have an exercise price of $2.00 per share and will expire in
July 2016. Such warrants will vest at a rate of 1/3 per year throughout the term
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of the warrants and will expire 2 years after vesting. Warrants exercisable for
1,100,000 shares have an exercise price of $1.00 per share have a term of 3
years and will expire in July 2014 through November 2014. Warrants exercisable
for 600,000 shares have an exercise price of $3.00 per share and have a term of
3 years and will expire from July 2014 through September 2014.
Certain affiliates of the Company hold warrants exercisable of 2,000,000 shares
with an exercise price of $2.00 per share and will expire in July 2016, and have
a vesting rate of 1/3 per year throughout the term of the warrants and will
expire two years after vesting.
In December 2012, the Company issued warrants exercisable for 800,000 shares
with exercise prices ranging from $0.25 per share to $1.25 per share and
expiring on December 18, 2017.
CONVERTIBLE PROMISSORY NOTES
At July 1, 2013, we have outstanding convertible notes payable of $575,000. Such
notes are due three years from the date of issuance and are convertible into
shares of our common stock in whole or in part at a conversion price of $1.00
per share. In addition, $75,000 of our convertible notes payable provided that
for each $5 of principal converted the holder will receive a warrant to purchase
one (1) share of common stock at a price of $2.00 per share.
TRANSFER AGENT
The transfer agent for our securities is Continental Stock Transfer and Trust
Company, 17 Battery Place, New York, New York 10004 Phone: 212-509-4000.
ITEM 10. INTEREST OF NAMED EXPERTS AND COUNSEL
We have not hired or retained any experts or counsel on a contingent basis, who
would receive a direct or indirect interest in us, or who is, or was, our
promoter, underwriter, voting trustee, director, officer or employee.
ITEM 11. INFORMATION WITH RESPECT TO THE REGISTRANT
A. 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 has agreed to return the remaining 2,700,000 shares of
common stock to the Company. We have retired such shares to treasury, concurrent
with the transaction.
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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
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.
In addition to the exchange of common stock, we exchanged on a one for one basis
the following outstanding equity documents with those of our own. The table
below sets forth the equity that was exchanged.
Type of Equity South Uintah Balance Issued By Hinto
-------------------------- ------------------------ -------------------------
Common Stock 11,446,931 shares 11,446,931 shares
Warrants (1) 6,700,000 6,700,000
Promissory Note (2) $375,000 $375,000
--------------------------
|
(1) The warrants have exercise prices ranging from $0.50 to $3.00 per
share and terms ranging from 2 to 5 years.
(2) The promissory note has a provision to convert into shares of common
stock at $0.20 per share. Such shares are not being registered in this
Registration Statement.
At the time of the acquisition, George Harris, Gary Herick, Max Sommer and Kevin
Blair, officers and directors of Hinto, were and are officers, directors and
shareholders of South Uintah. Mr. David Keller, a director of Hinto, was also a
shareholder of South Uintah.
The effective date of the acquisition was December 31, 2011, with Hinto being
the legal acquirer. However, since Hinto is a public company, which had nominal
activity, the acquisition was treated as a recapitalization of South Uintah.
Though Hinto was the legal acquirer in the merger, South Uintah was the
accounting acquirer since its shareholders gained control of Hinto. Therefore at
the date of the merger the historical financial statements of South Uintah
became those of Hinto. As a result, the historical financial statements of South
Uintah supersede any prior financial statements of Hinto.
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. 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 (approx) are
precluded in the farmout and the overall targets will be zones from 9,800 feet
to 16,000 feet.
The Company intends to strive to be a low cost and effective producer of
hydrocarbons and intends to develop the business model and corporate strategy as
discussed herein.
The Company's approach to lease acquisition, development and production is
founded on the discipline of ONLY acquiring leases in areas of proven
production. In most cases the leases that are under consideration have at one
time contained producing oil or gas wells and currently have production or
shut-in wells that are viable for work over and or re-completion. This managed
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risk approach greatly reduces the risk normally associated with oil and gas
development. There are hundreds of wells in our area of interest that meet these
criteria. In many instances, the wells were shut-in during a period of declining
oil and gas prices and in most cases are ideal for our business model. Our
business model is simple; strict adherence to lease acquisition surrounded by
proven production, offering well workovers, re-completion, and enhanced oil
recovery opportunities in the known producing formations, with long term
production potential at a low cost of development, maintenance, and operation.
The Company is NOT an exploration company, per se, rather it seeks leases with
discovered oil and gas with current or prior production.
One strategy that is quickly growing in prominence and application with respect
to petroleum is to use a development program approach. We describe our
development plan approach as a set of techniques utilizing the injection of
specific fluids such as: water, steam, natural gas, carbon dioxide, nitrogen,
and various chemicals and surfactants intended to increase the amount of oil
that can ultimately be extracted from any oil field. Many oil exploration and
production companies are using development program approaches to maximize the
potential of old oil fields.
Our business operations are in the development, production, and low risk
exploration of oil and gas including unconventional natural gas, in the Rocky
Mountain region of the continental United States; specifically, in the Rocky
Mountain area of Utah, Colorado, Montana and Wyoming.
CORPORATE STRATEGY
Our corporate strategy in developing our operations and evaluating potential
acquisitions is as follows.
PURSUE CONCURRENT DEVELOPMENT OF OUR CORE AREA OF THE ROCKY MOUNTAINS.
We plan to spend up to $10,000,000 on acquisition, drilling, re-completion,
and development programs which were started in late 2011 and will continue
in 2013. We plan to raise these funds in Private Placements of Common
Stock, Preferred Stock and/or convertible debt. All drilling capital
expenditures in 2012 were incurred in Utah and we expect that to continue
throughout 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 four years
through a combination of acquisitions and drilling. In 2012, we focused our
efforts achieving production increases as a result of our re-work and
re-completion activities on our Natural Buttes project. In 2013, we intend
to continue to focus on our acquisition, drilling, re-completion and
development programs. We anticipate that the majority of future reserve and
production growth will come through the acquisition of production, the
execution of our drilling and re-completion program, and on development
activities on prospects of which we are aware, which include proved and
unproved locations. Our targets generally will consist of locations in
fields that demonstrate low variance in well performance, which leads to
predictable and repeatable field development.
Our reserve estimates, if any, may change continuously and we intend to
evaluate such reserve estimates internally on a frequent basis -- quarterly
if warranted -- with independent engineering evaluation on an annual basis.
Deviations in the market prices of both crude oil and natural gas and the
effects of acquisitions, dispositions, development and any successful
exploration activities may have a significant effect on the quantities and
future values of our reserves, if any.
MAINTAIN HIGH PERCENTAGE OWNERSHIP AND OPERATIONAL CONTROL OVER OUR ASSET BASE
We intend to retain a high degree of operational control over our asset
base, through a high average Working Interest or acting as the operator in
our areas of significant activity. This is designed to provide us with
controlling interests in a multi-year inventory of drilling locations,
positioning us for reserve and production growth through our drilling
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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.
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.
RECENT PROPERTY ACQUISITIONS
PRIDE VENTURES, LLC AND JAMES WOOLSEY
On June 4, 2013, the Company and Pride Ventures, LLC ("Pride") and James Woolsey
("Woolsey") entered into a Purchase and Sale Agreement ("the Pride Purchase and
Sale Agreement."). As part of the Pride Purchase and Sale Agreement, 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 plans to pay a total of
$100,000 in a combination of cash and stock, as follows:
o $75,000.00 in cash; and
o $25,000.00 in the form of 50,000 shares of the Company's restricted
common stock.
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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.
S&L ENERGY, INC.
On June 14, 2013, the Company and S&L Energy, Inc. ("S&L") entered into a
Purchase and Sale Agreement ("S&L Purchase Agreement."). As part of the S&L
Purchase Agreement, the Company acquired all right and title to oil and gas
leases for a total of 722 gross acres in the Musselshell County, Montana.
The property includes 120 acres for all zones other than the 1st Cat Creek. The
1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil,
LLC.
In exchange for such oil and gas leases, the Company plans to pay $101,100 in a
combination of cash and stock, as follows:
o $65,000.00 in cash; and
o $36,100.00 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.
In addition, the Company has a thirty day option to purchase other oil and gas
leases in the Musselshell Field from S&L Energy for a price of $60 per acre.
The properties are located in the Mason Lake field in Central Montana in the
Amsden (Alaska Bench) Formation which is late Mississippian to Early
Pennsylvanian in age. The Amsden formation is a series of sandstone, shale and
limestone, which was deposited under marine conditions in the Paleozoic Era. The
Amsden Formation overlays the Tensleep Formation and is above the Heath
Formation, traditionally known as the Pennsylvanian Tyler Sand Play area.
JAKE OIL, LLC
On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase
and Sale Agreement ("the Jake Oil Agreement"). As part of the Jake Oil
Agreement, 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.
The property includes 6 wells in a field to be water flooded that needs the
wells to be re-worked. Additional drilling may be performed to maximize the oil
recovery from the formation. The Company plans to begin production in the third
quarter of 2013.
In exchange for such oil and gas leases, the Company plans to pay approximately
$25,000 in cash and a 5 percent working interest.
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 1st Cat Creek is at about 4,200 feet and is above the
Amsden formation.
OIL AND GAS PROJECTS
Our initial projects are centered on the Uintah Basin of Utah. The Uintah Basin
has long been known to contain petroleum and natural gas and has established
itself as a petroleum production hub in the United States. The Utah Division of
Oil, Gas, and Mining have recently approved a significant density increase for
the Altamont Bluebell Cedar Rim Oil Field, opening up expanded opportunities for
development drilling. This recent increased density allotment, may allow
extended access to some of the richest petroleum reserves in the United States,
that until now have remained unavailable for drilling.
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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.
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
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
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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.
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 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 may be converted into
shares of the Company's restricted common stock. In May 2013, the note
was paid in full.
INDIAN NATIONS
In November 2011, the Company, Mr. Richard Gouin and Advanced Petroleum Lifting
Systems, LLC entered into a Purchase and Sale Agreement ("Indian Nations
Purchase Agreement"), which provides for the Company to acquire a 5% working
interest in certain wells in Pittsburgh County, Oklahoma, knows as the Indian
Nations Wells, subject to the resolution of litigation.
The Indian Nations Purchase Agreement was amended in April 2012, to provide for
the Company to assign the 5% working interests in Indian Nations Wells 2-30 and
3-30 to the Company's wholly-owned subsidiary, South Uintah in exchange for the
issuance of 30,000 shares of the Company's restricted common stock and the
continued payment of litigation expenses being incurred in connection with a
legal dispute with the operator of the wells.
At the time of this filing, the Company has not recognized any income from the
working interest and have assigned their rights to a third party.
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
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beyond our control. The market for natural gas is also unsettled, and gas prices
have increased dramatically in the past four years with substantial fluctuation,
seasonally and annually.
There generally are only a limited number of gas transmission companies with
existing pipelines in the vicinity of a gas well or wells. In the event that
producing gas properties are not subject to purchase contracts or that any such
contracts terminate and other parties do not purchase our gas production, there
is no assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There presently exists an oversupply of gas in the certain areas of
the marketplace due to pipeline capacity, the extent and duration of which is
not known. Such oversupply may result in restrictions of purchases by principal
gas pipeline purchasers.
EFFECT OF CHANGING INDUSTRY CONDITIONS ON DRILLING ACTIVITY.
Lower oil and gas prices have caused a decline in drilling activity in the U.S.
from time to time. However, such reduced activity has also resulted in a decline
in drilling costs, lease acquisition costs and equipment costs, and an
improvement in the terms under which drilling prospects are generally available.
We cannot predict what oil and gas prices will be in the future and what effect
those prices may have on drilling activity in general, or on our ability to
generate economic drilling prospects and to raise the necessary funds with which
to drill them.
FEDERAL REGULATIONS.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL CONSIDERATION.
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.
REGULATION AND PRICING OF NATURAL GAS.
Our operations may be subject to the jurisdiction of the Federal Energy
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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
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.
-27-
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 to remedy 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 July 1, 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.
PLAN OF OPERATIONS
We only began to recognize minimal revenues from our operations during the last
half of 2012. We have minimal capital, moderate cash. We are illiquid and need
cash infusions from investors or shareholders to provide capital, or loans from
any sources, none of which have been arranged nor assured.
During the first quarter of 2013, we continued our re-work efforts on our
properties in the Cisco Springs oil and gas field in the Uintah Basin of Grand
County, Utah; performance of geological analysis of existing properties and the
identification of potential properties for acquisition. Re-work efforts in the
Cisco Springs field focused on the Company's 5A well and the well is now being
tested and results of the testing are being evaluated.
During the first quarter of 2013, we raised $175,000 from the sale of 350,000
shares of our restricted common stock. We raised an additional $90,000 in
subscription receivables for 180,000 shares of our restricted common stock.
These shares were issued subsequent to March 31, 2013.
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 date here. No representation is
made that any funds will be available when needed. In the event funds cannot be
raised when needed, we may not be able to carry out our business plan, may never
achieve sales or royalty income, and could fail in business as a result of these
uncertainties.
-28-
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.
EXPECTED 2013 BUDGET - 12 MONTHS
Development of connection, rework, recompletion, $ 1,500,000
Working Capital $ 1,300,000
Acquisitions $ 1,000,000
Payment of Debt $ 375,000
General and Administrative Expenses:
Legal and Accounting/Auditing $ 157,000
Consulting $ 495,000
Filing Fees (State, SEC, etc.) $ 7,500
Travel $ 60,000
Interest $ 66,000
Miscellaneous $ 405,000
--------------
TOTAL $ 5,000,000
|
The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional capital to support its
budget. The Company has minimal revenues to date in the oil and gas exploration,
development and production business.
We have conducted a Private Offering of shares of our restricted Common Stock
for capital. We intend to raise up to $5,000,000 in the next twelve months with
a structure not yet determined in debt or equity. We cannot give any assurances
that we will be able to raise the full $5,000,000 to fund the budget. Further,
we will need to raise additional funds to support not only our expected budget,
but our continued operations. We cannot make any assurances that we will be able
to raise such funds or whether we would be able to raise such funds with terms
that are favorable to us.
Our plan of operations is as follows:
MILESTONES
---------------------------------------- -- ------------------------------------
3rd Quarter 2013 Continuation of Recompletion Operations;
and Oversee operations of Montana oil
and gas prospects.
---------------------------------------- -- ------------------------------------
4th Quarter 2013 Continuation of Recompletion Operations
and production operations and
development of any new oil and gas
prospects
---------------------------------------- -- ------------------------------------
|
We will need substantial additional capital to support our proposed future
energy operations. We have MINIMAL revenues. We have NO committed source for any
funds as of date here. No representation is made that any funds will be
available when needed. In the event funds cannot be raised when needed, we may
not be able to carry out our business plan, may never achieve sales or royalty
income, and could fail in business as a result of these uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
-29-
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
B. DESCRIPTION OF PROPERTY
DESCRIPTION OF PROPERTIES/ASSETS/OIL AND GAS PROSPECTS
------- ------------------------- ------------------------------
(a) Real Estate. None.
------- ------------------------- ------------------------------
(b) Title to properties. None.
------- ------------------------- ------------------------------
|
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 area.
PROVED RESERVES
The following table sets forth our estimated net proved reserves as of December
31, 2012.
RESERVES
--------------------------------
ESTIMATED PROVED RESERVES DATA: OIL NATURAL GAS
(MBBLS) (MMSCF)
-------------- -----------------
Proved developed reserves 24 -0-
Proved undeveloped reserves 243 147
-------------- -----------------
Total proved reserves 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, 2012 were 267 MBbls of oil and
147 MMScf of natural gas.
QUALIFICATIONS OF TECHNICAL PERSONS AND INTERNAL CONTROLS OVER RESERVES
ESTIMATION PROCESS
Our reserve report was prepared by Tariq Ahmed, PE, 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
-30-
established by the SEC, 100% of the proved reserve information for our onshore
properties as of December 31, 2012.
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.
We have an 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. Our technical
team consults regularly with Mr. Ahmed. 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 Ahmed reserve report is reviewed with representatives of Ahmed 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 13
-- 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.
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,
Garb and Lee Engineering employ 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, 2012, the Company
did not have any activities that resulted in production or sales during the year
ended December 31, 2011. During the year ended December 31, 2012, the Company
did not have any
-31-
production of or sales of natural gas.
Revenue
Oil sales $ 29,208
Net production sold
Oil (Bbl) 468
Average sales prices
Oil ($/Bbl) $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, 2012:
Developed Acres Undeveloped Acres
----------------------------- -----------------------------
Gross (1) Net(2) Gross Net
--------------- ------------- --------------- -------------
Natural Buttes 80 64 5,575 5,079
Cisco Pacific 270 216 4,783 3,827
--------------- ------------- --------------- -------------
Total 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.
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, 2012:
Oil Wells Natural Gas Wells
------------------------------ -------------------------------
Gross (1) Net(2) Gross(1) Net(2)
---------------- ------------- ----------------- -------------
Natural Buttes - - 1 0.08
Cisco Pacific(3) 27 21 - -
---------------- ------------- ----------------- -------------
Total 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 not become done minimal rework on the 27 wells and as
it begins a more intensive rework effort, such work 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. The 22-1 Well is currently holding approximately 3,000 PSI in a 9"
casing.
At December 31, 2012, the Company had no wells being drilled and re-work was
only in process on the well discussed above.
-32-
------- ------------------------- ------------------------------
(c) Oil and Gas Properties.
------- ------------------------- ------------------------------
|
Our oil and natural gas properties are located in the Uintah Basin of Grand
County, Utah in two fields, the Natural Buttes Field and the Greater Cisco
Springs Field and 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.
During the year ended December 31, 2012, the Company has 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.
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 may be converted into shares of
the Company's restricted common stock at $1.00 per share.
During the year ended December 31, 2012, the Company did not expend any
development costs in connection with the re-working of these wells.
RECENT PROPERTY ACQUISITIONS
PRIDE VENTURES, LLC AND JAMES WOOLSEY
On June 4, 2013, the Company and Pride Ventures, LLC ("Pride") and James Woolsey
("Woolsey") entered into a Purchase and Sale Agreement ("the Pride Purchase and
Sale Agreement."). As part of the Pride Purchase and Sale Agreement, 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 plans to pay a total of
$100,000 in a combination of cash and stock, as follows:
-33-
o $75,000.00 in cash; and
o $25,000.00 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.
S&L ENERGY, INC.
On June 14, 2013, the Company and S&L Energy, Inc. ("S&L") entered into a
Purchase and Sale Agreement ("S&L Purchase Agreement."). As part of the S&L
Purchase Agreement, the Company acquired all right and title to oil and gas
leases for a total of 722 gross acres in the Musselshell County, Montana.
The property includes 120 acres for all zones other than the 1st Cat Creek. The
1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil,
LLC.
In exchange for such oil and gas leases, the Company plans to pay $101,100 in a
combination of cash and stock, as follows:
o $65,000.00 in cash; and
o $36,100.00 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.
In addition, the Company has a thirty day option to purchase other oil and gas
leases in the Musselshell Field from S&L Energy for a price of $60 per acre.
The properties are located in the Mason Lake field in Central Montana in the
Amsden (Alaska Bench) Formation which is late Mississippian to Early
Pennsylvanian in age. The Amsden formation is a series of sandstone, shale and
limestone, which was deposited under marine conditions in the Paleozoic Era. The
Amsden Formation overlays the Tensleep Formation and is above the Heath
Formation, traditionally known as the Pennsylvanian Tyler Sand Play area.
JAKE OIL, LLC
On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase
and Sale Agreement ("the Jake Oil Agreement"). As part of the Jake Oil
Agreement, 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.
The property includes 6 wells in a field to be water flooded that needs the
wells to be re-worked. Additional drilling may be performed to maximize the oil
recovery from the formation. The Company plans to begin production in the third
quarter of 2013.
In exchange for such oil and gas leases, the Company plans to pay approximately
$25,000 in cash and a 5 percent working interest.
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 1st Cat Creek is at about 4,200 feet and is above the
Amsden formation.
------- ------------------------- ------------------------------
(d) Patents. None.
------- ------------------------- ------------------------------
|
-34-
C. LEGAL PROCEEDINGS
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
value of 1,000,000 shares of the Company's common stock and other equity
appreciation, and compensation for services and costs.
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 1,000,000 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 has agreed to the following:
1. A $100,000 cash payment to Bridge in two traunches of $50,000 to be
paid on or before March 31, 2013 and June 30, 2013.
2. The issuance of 1,400,000 shares of the Company's common stock, which
are to be 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.
Other than the above listed matter, we are not a party to any pending legal
proceedings, nor are we aware of any civil proceeding or government authority
contemplating any legal proceeding.
D. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock is presently traded on the over-the-counter market on the OTC
Bulletin Board maintained by the Financial Industry Regulatory Authority
("FINRA"). On December 31, 2010, we began trading on the OTC Bulletin Board
under the symbol "HENI", prior to the Company's name change in August 2011, the
Company's trading symbol was "GVTS."
The offering of the shares registered hereby could have a material negative
effect on the market price for the stock.
RULES GOVERNING LOW-PRICE STOCKS THAT MAY AFFECT OUR SHAREHOLDERS' ABILITY TO
RESELL SHARES OF OUR COMMON STOCK
Our stock is currently traded on the OTC Bulletin Board.
Quotations on the OTC/BB reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not reflect actual transactions. Our common stock
will be subject to certain rules adopted by the SEC that regulate broker-dealer
practices in connection with transactions in "penny stocks." Penny stocks
generally are securities with a price of less than $5.00, other than securities
registered on certain national exchanges or quoted on the Nasdaq system,
provided that the exchange or system provides current price and volume
information with respect to transaction in such securities. The additional sales
practice and disclosure requirements imposed upon broker-dealers are and may
discourage broker-dealers from effecting transactions in our shares which could
severely limit the market liquidity of the shares and impede the sale of shares
in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
-35-
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
HOLDERS
As of the filing of this prospectus, we have 137 shareholders of record of our
common stock. Sales under Rule 144 are also subject to manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who has not been one of our affiliates at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least 6 months, is entitled to sell
shares without complying with the manner of sale, volume limitation or notice
provisions of Rule 144.
As of the date of this prospectus, our selling shareholders hold 4,803,884
Shares, all of which may be sold pursuant to this Registration Statement,
including those of affiliates who own 1,366,618 and officers/directors who own
200,000 in the aggregate.
DIVIDENDS
As of the filing of this prospectus, we have not paid any dividends to
shareholders. There are no restrictions which would limit our ability to pay
dividends on common equity or that are likely to do so in the future. The
Wyoming Revised Statutes, however, do prohibit us from declaring dividends
where, after giving effect to the distribution of the dividend; we would not be
able to pay our debts as they become due in the usual course of business; or our
total assets would be less than the sum of the total liabilities plus the amount
that would be needed to satisfy the rights of shareholders who have preferential
rights superior to those receiving the distribution.
E. FINANCIAL STATEMENTS
The following is a complete list of the financial statements filed as a part of
this Report.
o Audited consolidated financial statements of Hinto Energy, Inc. for
the year ended December 31, 2012 and for the period of March 8, 2011
(inception) through December 31, 2011
o Unaudited consolidated financial statements for the three months ended
March 31, 2013 and 2012
-36-
HINTO ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2012
AND
MARCH 8, 2011 (INCEPTION) THROUGH DECEMBER 31, 2011
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, 2012 and 2011, and the related statement of
operations, stockholders' equity (deficit) and cash flow for the year then
ended. 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, 2012 and 2011, and the results of its operations and its cash flow
for the year 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
June 21, 2013
|
F-1
HINTO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2012 2011
----------------- -----------------
Assets
Current Assets:
Cash $ 57,709 $ 487,501
Accounts Receivable - -
Deposits (4,474) 25,000
----------------- -----------------
Total Current Assets 53,235 512,501
----------------- -----------------
Property and Equipment:
Machinery 16,500 -
----------------- -----------------
Oil and Natural Gas Properties:
Proved Properties 803,200 478,200
Unproved Properties - -
Other Property and Equipment 213,555 -
Less Accumulated Depreciation and Depletion (24,283) -
----------------- -----------------
Total Other Assets 992,472 478,200
----------------- -----------------
Total Assets $ 1,062,207 $ 990,701
================= =================
Liabilities and Stockholders' (Deficit) Equity
Current liabilities
Accounts payable $ 28,887 $ 71,315
Accrued liabilities 78,268 47,510
Convertible notes payable - 500,000
Subscription received 250,000 40,000
Notes payable, other 405,000 375,000
----------------- -----------------
Total Current Liabilities 762,155 1,033,825
Asset recovery obligations 72,122 -
Long term note payable 500,000 500,000
----------------- -----------------
Total liabilities $ 1,334,277 $ 1,533,825
----------------- -----------------
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,
16,236,527 and 11,375,000 shares issued and outstanding
at December 31, 2012 and 2011, respectively 16,237 11,375
Additional paid-in capital 2,315,515 272,796
Deficit accumulated during the development stage (2,603,822) (827,295)
----------------- -----------------
Total Stockholders' (Deficit) Equity (272,070) (543,124)
----------------- -----------------
Total liabilities and stockholders' (deficit) equity $ 1,062,207 $ 990,701
================= =================
|
See the notes to these consolidated financial statements.
F-2
HINTO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 AND
FOR THE PERIOD OF MARCH 8, 2011 (INCEPTION) THROUGH DECEMBER 31, 2011
For The Year From March 8,
Ended 2011 (Inception)
December 31, Through
2012 December 31, 2011
--------------- -------------------
Revenue: $ 29,908 $ -
Direct Cost of Revenue 107,982 -
Accretion of asset recovery obligation 72,122 -
Depreciation and Depletion 24,283 -
--------------- -------------------
(174,479)
Operational expenses:
Office expenses 446,231 245,322
Goodwill write off - 339,195
Consulting fees 364,605 209,203
--------------- -------------------
Total operational expenses 810,836 793,720
--------------- -------------------
Other Income (Expenses)
Litigation settelement expense (704,247) -
Interest expense (86,965) (33,575)
--------------- -------------------
Total other income (expense) (791,212) (33,575)
--------------- -------------------
Net loss $ (1,776,527) $ (827,295)
=============== ===================
Less:
Loss attributable to non-controlling
interest 31,422
-------------------
Net loss attributable to South Uintah Gas
Properties, Inc. $ (795,873)
===================
Per share information
Net loss per common share
Basic $ (0.12) $ (0.14)
Fully diluted * *
=============== ===================
Weighted average number of common
stock outstanding 14,270,997 5,824,666
=============== ===================
* Not provided as it is anti-dilutive
|
See the notes to these consolidated financial statements.
F-3
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
FOR THE PERIOD FROM MARCH 8, 2011 (Inception) THROUGH DECEMBER 31, 2012
Stock-
holders'
Deficit Equity
Common Stock Accumulated South Total
--------------------- Additional During Uintah Gas Non- Stock-
Number paid-in Development Properties Controlling holders'
of Shares Amount Capital Stage Inc. Interest Equity
----------- -------- ------------ ------------- ------------ ----------- ------------
Issuance of Founder Shares for cash 1,000,000 $ 1,000 $ (900) $ - $ 100 - $ 100
Issuance of Founder Shares for cash 1,000,000 1,000 (900) - 100 - 100
Issuance of Founder Shares for services 5,500,000 5,500 (4,950) - 550 - 550
Issuance of Common Stock
for oil and gas leases 2,000,000 2,000 (1,800) - 200 - 200
Shares cancelled in exchange for Hinto
shares held by South Uintah (300,000) (300) 300 - - - -
Issuance of shares for consulting 175,000 175 (157) - 18 - 18
Issuance of stock for cash by Hinto - - 147,000 - 147,000 63,000 210,000
Shareholder capital contribution - - 63,000 - 63,000 27,000 90,000
Minority interest at purchase
of majority interest in subsidiary - - - - - (16,797) (16,797)
Net Loss - - - (795,873) (795,873) (31,422) (827,295)
Recapitalization, due to reverse merger 2,000,000 2,000 71,203 (31,422) 41,781 (41,781) -
----------- -------- ------------ ------------- ------------ ----------- ------------
Balance - December 31, 2011 11,375,000 11,375 272,796 (827,295) (543,124) - (543,124)
----------- -------- ------------ ------------- ------------ ----------- ------------
Issuance of Shares for cash 915,000 915 456,585 - 457,500 - 457,500
Conversion of notes to common stock 2,121,931 2,122 540,910 - 543,032 - 543,032
Issuance of shares for services 348,868 349 174,086 - 174,435 - 174,435
Issuance of shares for interest 75,728 76 37,738 - 37,814 - 37,814
Issuance of shares for litigation
settlement 1,400,000 1,400 698,600 - 700,000 - 700,000
Issuance of warrants for litigation
settelement - - 134,800 - 134,800 - 134,800
Net Loss - - - (1,776,527) (1,776,527) - (1,776,527)
----------- -------- ------------ ------------- ------------ ----------- ------------
Balance - December 31, 2012 16,236,527 $16,237 $ 2,315,515 $ (2,603,822) $ (272,070) $ - $ (272,070)
=========== ======== ============ ============= ============ =========== ============
|
See the notes to these consolidated financial statements.
F-4
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2012
AND FOR THE PERIOD FROM MARCH 8, 2011 (INCEPTION) THROUGH DECEMBER 31, 2011
For the Year From March 8,
Ended 2011 (Inception)
December 31, Through
2012 December 31, 2011
--------------- -------------------
Cash Flows from Operating Activities:
Net Loss $ (1,776,527) $ (827,295)
Adjustments to net loss for non-cash items:
Accrued interest converted to stock 37,814 -
Stock issued for services 174,435 550
Litigation settlement expense 934,800 -
Write down of goodwill in subsidiary - 339,195
Depreciation & Depletion Expense 24,283 -
Asset Recovery Expense 72,122 -
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in accounts receivable - -
Decrease (increase) in deposits and advances 29,474 (25,000)
(Decrease) increase in accounts payable (42,529) 15,441
Increase in accrued liabilities 23,886 47,510
--------------- -------------------
Net Cash Used by Operating Activities (522,242) (449,599)
--------------- -------------------
Cash Flows from Investing Activities
Investment to acquire 70% interest in subsidiary - (300,000)
Purchase of Machinery (16,500) -
Investment in well (213,550) -
Purchase of Oil and Gas leases (175,000) (303,000)
--------------- -------------------
Net Cash Used in Investing Activities (405,050) (603,000)
--------------- -------------------
Cash Flows from Financing Activities:
Proceeds from convertible promissory notes 25,000 1,000,000
Increase in stock subscriptions payable 210,000 40,000
Proceeds from other notes payable - 400,000
Payments on other notes payable (195,000) (200,000)
Proceeds from shareholder contribution - 90,000
Proceeds from stock sales 457,500 210,100
--------------- -------------------
Net Cash Provided by Financing Activities 497,500 1,540,100
--------------- -------------------
Net Increase (decrease) in Cash (429,792) 487,501
Cash and Cash Equivalents - Beginning of Period 487,501 -
--------------- -------------------
Cash and Cash Equivalents - End of Period $ 57,709 $ 487,501
=============== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ - $ -
=============== ===================
Cash paid for income taxes $ - $ -
=============== ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Net deficit of subsidiary on purchase $ - $ (55,992)
=============== ===================
Issuance of notes payable for assets $ 150,000 $ 175,000
=============== ===================
Issuance of common stock for deposits and
accounts payable $ 199,309 $ 100
=============== ===================
Issuance of common stock for oil leases $ - $ 200
=============== ===================
|
See the notes to these consolidated financial statements.
F-5
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
NOTE 1 - BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Hinto Energy, Inc. ("the Company") was incorporated in February 13, 1997 in the
state of Wyoming. The Company was originally incorporated for the purpose of
general investing. Due to an inability to raise adequate financing, the Company
was forced to cease operations in 2001.
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).
SHARE EXCHANGE AGREEMENT
On July 27, 2011, the Company entered into a Share Exchange and Acquisition
Agreement with South Uintah Gas Properties, Inc. ("South Uintah") and the South
Uintah shareholders. Pursuant to the Share Exchange and Acquisition Agreement
("the Agreement"), the Company agreed to issue shares of its restricted common
stock for 100% of the issued and outstanding common stock of South Uintah. The
shares were exchanged on a one for one basis.
Prior to the signing of the Agreement, South Uintah had purchased 3,000,000
shares of the Company's common stock from its then majority shareholder, Ms.
Sharon Fowler. After such purchase, South Uintah held approximately 70% of the
issued and outstanding common stock of the Company. As part of the Agreement,
South Uintah agreed to return the 3,000,000 shares of common stock to the
Company. On December 22, 2011 the Company and South Uintah modified the purchase
agreement and reduced the number of shares to be returned by South Uintah by
300,000 shares to 2,700,000 shares.
On January 23, 2012, the Company completed the Share Exchange and Acquisition
Agreement ("the Agreement") and the shareholders of South Uintah became the
majority shareholders of Hinto Energy, Inc. Hinto issued 11,446,931 shares of
its common stock in a one for one share exchange, assumed $175,000 in notes
payable and issued 6,700,000 warrants in a one for one warrant exchange with
South Uintah warrant holders. South Uintah returned 2,700,000 shares of Hinto
common stock to the Company and such stock was cancelled. The Company accounted
for the Share Exchange and Acquisition as a reverse capitalization, with South
Uintah being the accounting acquirer. As a result, the historical comparison
information presented is that of South Uintah as the accounting acquirer.
BASIS OF PRESENTATION
CONSOLIDATION
The accompanying audited consolidated financial statements include the accounts
of Hinto Energy, Inc. and its wholly owned subsidiary, South Uintah Gas
Properties, Inc. (collectively the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
F-6
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
DEVELOPMENT STAGE
During the 4th quarter of the year ended December 31, 2012, we emerged from the
Development Stage, due to returning to operations and realizing revenue.
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.
Life in
Asset Type Years December 31, 2012 December 31, 2011
------------------------------ ------------ ------------------ -----------------
Machinery 5 - 7 $ 16,500 $ -
------------ ------------------ -----------------
Subtotal 16,500 -
Less Accumulated Depreciation - -
------------ ------------------ -----------------
Net Book Value $ 16,500 $ -
============ ================== =================
|
In November 2012, the Company purchased a used backhoe, the Company has not
accumulated any depreciation on this piece of machinery during the year ended
December 31, 2012, due to the fact the machinery was not put into service until
the very end of the year due to weather conditions.
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.
F-7
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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.
IMPAIRMENT
The Company reviews long-lived assets held for use, principally oil and gas
leases, for impairment when events or circumstances indicate that their carrying
value may not be recoverable. Impairment exists if the carrying amount of the
long-lived asset is not recoverable from the undiscounted cash flows expected
from its use and eventual disposition. We determine the amount of the impairment
loss by comparing the carrying value of the long-lived asset to its estimated
fair value. In the absence of quoted market prices, we determine estimated fair
value generally based on the present value of future probability weighted cash
flows expected from the continued use and value at sale of the long-lived asset.
REVENUE RECOGNITION
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the years ended December
31, 2012 and December 31, 2011, 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.
F-8
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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, 2012, 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 financial statements for the year ended December 31, 2012, the
period of March 3, 2011 through December 31, 2011 and the period of March 3,
2011 through December 31, 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 $1,776,527 for the year ended December 31, 2012, and an accumulated
deficit of $2,603,822 as of December 31, 2012. At December 31, 2012, the Company
had a working capital deficit of $1,281,043.
F-9
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
The future success of the Company is dependent on its ability to attract
additional capital, or to find an acquisition to add value to its present
shareholders and ultimately, upon its ability to develop future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern.
NOTE 4 - OIL AND GAS LEASES
Oil and gas properties consisted of the following as of December 31, 2012:
Proved properties $ 803,200
Unproved properties -
-------------------
$ 803,200
Accumulated depletion 2,407
-------------------
$ 800,793
===================
|
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, 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, 2012, the Company has 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.
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 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 at $1.00 per share.
F-10
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
During the year ended December 31, 2012, the Company did not expend any
development costs in connection with the re-working of these wells.
NOTE 5 - CONVERTIBLE PROMISSORY NOTES
During June 2012, the Company, in exchange for cash of $25,000, issued a
convertible promissory note for $25,000. The note was convertible into shares of
the Company's restricted common stock at $0.50 per share and has a term of 12
months. In September 2012, the holder of the note converted the $25,000
principal of the note into50,000 shares of the Company's common stock and the
accrued interest of $364 into 728 shares of the Company's restricted common
stock.
In May 2012, the Company, as part of the purchase of Cisco Pacific, issued the
seller 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 at $1.00 per share. At December 31, 2012, the note had
accrued interest of $7,082. Subsequent to the year ended December 31, 2012, the
outstanding principal and accrued interest was paid in full for cash of
$162,000. Consequently, no amortization of the note is necessary based on
current stock values as the stock was subsequently settled in cash.
During the period of March 8, 2011 (Inception) through December 31, 2011, South
Uintah, in exchange for cash, issued $500,000 of convertible promissory notes.
The notes were convertible into shares of South Uintah's common stock at $0.25
per shares. The convertible notes earned interest at 6% and had a term of 1
year. In connection with the offering, the convertible notes holders were issued
warrants exercisable for 2,000,000 shares of stock. The Warrants had a term of 2
years and an exercise price of $0.50 per share. At December 31, 2011, the notes
had accrued interest of $16,401.
In January 2012, prior to the closing of the acquisition with Hinto, the
principal ($500,000) and accrued interest ($17,983) were converted into a total
of 2,071,931 shares of common stock, which were then exchanged for shares of
Hinto's common stock as part of the acquisition.
NOTE 6 - SUBSCRIPTIONS RECEIVED
During the year ended December 31, 2012, the Company had outstanding
subscription receivables 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 subsequent to the year ended December 31, 2012.
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 which
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, which had a due date of July
5, 2013 and a conversion rate of $5 per share. Both notes did not accrue
interest.
F-11
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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,
2012. 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,
2012, the Company owed $75,000 under the note.
In July 2012, the Company re-negotiated the terms of the original $100,000 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,
2012, the Company had made total payments principal payments of $15,000 and
still owed $55,000 on the note.
As part of the Settlement with Bridge Industries, discussed in Note 11, the
Company has 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.
NOTE 8 - LONG TERM NOTE PAYABLE
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 oil and
gas leases held by South Uintah in the Natural Buttes area. In June 2012 an
interest payment of $12,500 was made in cash. At December 31, 2012 and 2011, the
note had accrued interest of $2,049 and $14,554, respectively. At December 31,
2012, the note was still outstanding.
NOTE 9 - COMMITMENTS & CONTINGENCIES
GENERAL
There have been significant changes in the U.S. economy, oil and gas prices and
the finance industry which have adversely affected and may continue to adversely
affect the Company in its attempt to obtain financing or in its process to
produce commercially feasible oil and gas production.
Federal, state and local authorities regulate the oil and gas industry. In
particular, gas and oil production operations and economics are affected by
environmental protection statutes, tax statutes and other laws and regulations
relating to the petroleum industry, as well as changes in such laws, changing
administrative regulations and the interpretations and application of such laws,
rules and regulations. The Company believes it is in compliance with all
federal, state and local laws, regulations, and orders applicable to the Company
and its properties and operations, the violation of which would have a material
adverse effect on the Company or its financial condition.
F-12
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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
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, 2012, the Company had 16,236,527 shares
of its common stock issued and outstanding.
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.
F-13
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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.
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 Share Exchange Agreement, discussed
in Note 1.
PREFERRED STOCK
On August 18, 2011, the Company filed an amendment to the Articles of
Incorporation with the Secretary of State of Wyoming to authorize 25,000,000
shares of Preferred Shares to be designated in any series or classes and with
those rights, privileges and preferences to be determined at the discretion of
the Company's Board of Directors. At this time, the Company has not designated
any series of preferred stock or issued any shares of preferred stock.
STOCK OPTION PLAN
On August 17, 2011, the Company's shareholders approved the 2011 Hinto Energy,
Inc. Stock Option and Award Incentive Plan ("Plan"). The Plan provides for the
grant of stock options to directors, officers, employees, consultants, and
advisors of the Company. The Plan is administered by a committee consisting of
members of the Board of Directors (the "Stock Option Committee"), or in its
absence, the Board of Directors.
The Plan provides for a total of 2,000,000 shares of common stock to be reserved
for issuance subject to options. During the years ended December 31, 2012 and
2011, the Board did not approve the grant of any options to purchase shares of
common stock, nor the conditions, performance or vesting requirements.
WARRANTS
LITIGATION SETTLEMENT WARRANTS
During the year ended December 31, 2012, as part of the settlement of litigation
with Bridge Industries, LLC (See Note 11), 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:
F-14
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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.
WARRANT ISSUANCE - YEAR ENDED DECEMBER 31, 2011
During the year ended December 31, 2011, the Company issued 3,000,000 warrants,
in connection with consulting services of officers and directors, vest at
various dates from July 2012 through July 2014 and expires at various dates from
June 2014 through June 2016. In addition, these individuals were issued
1,700,000 warrants, issued in connection with consulting services of the
Company, are fully vested and expire at various dates from June 2014 through
November 2014, with 1,100,000 warrants being exercisable at $1 and 600,000 being
exercisable at $3.
During the year ended December 31, 2011, the Company issued 2,000,000 warrants
to the shareholders of South Uintah in exchange for warrants issued to them in
connection with convertible notes payable. The warrants expire in July 2013.
These 2,000,000 warrants are callable at the option of the Company in the first
year from the grant dates of May through July 2011 at the exercise price under
various conditions, generally if the Company completes a $4,500,000 private
placement of common stock.
No expense was recorded by the Company on the issuance of any of the 6,700,000
warrants issued during the year ended December 31, 2012 and 2011, as the
Company's common stock did not have a trading market at the time of issuance and
no material common stock cash sales had been made, and thus none of the warrants
were in the money.
F-15
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
A summary of warrant activity for year ended December 31, 2012 and the period of
March 8, 2011 (Inception) through December 31, 2011 is presented below:
Weighted Average
-------------------------------
Shares Under Exercise Price Remaining
Warrant Contractual Life
------------- -------------- ----------------
Outstanding at March 8, 2011 - $ - -
Granted 6,700,000 1.31 1.71
Exercised - - -
Expired - - -
------------- -------------- ----------------
Outstanding at December 31, 2011 6,700,000 $ 1.31 1.71
Granted 800,000 0.75 4.96
Exercised - - -
Expired - - -
------------- -------------- ----------------
Outstanding at December 31, 2012 7,500,000 $ 1.25 2.44
============= ============== ================
|
NOTE 11 - LEGAL MATTERS
In March 2012, a note holder of South Uintah Gas Properties, Inc. ("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 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 Hinto Energy, Inc. ("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 has agreed to the following:
1. A $100,000 cash payment to Bridge in two traunches of $50,000 to be
paid on or before March 31, 2013 and June 30, 2013.
2. The issuance of 1,400,000 shares of the Company's common stock, which
are to be 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.
F-16
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
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
10. 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 13 - INCOME TAXES
The Company is subject to domestic income taxes. The Company has recognized
minimal income during the year ended December 31, 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:
Estimated NOL Valuation Net Tax
Carry-forward benefit Allowance Benefit
=================================================
From March 8, 2011 (Inception)
through December 31, 2011 $307,038 $(307,038) -
December 31, 2012 $520,764 $(520,764) -
|
NOTE 14 - SUBSEQUENT EVENTS
On June 14, 2013, 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. The property includes 6 wells in a field to be
water flooded that needs the wells to be re-worked. The Company acquires such
leases in exchange for $25,000 cash and a 5% working interest.
On June 14, 2013, the Company acquired all right and title to oil and gas leases
for a total of 722 gross acres in the Musselshell County, Montana. In exchange
for such oil and gas leases, the Company paid $101,100 in a combination of cash
and stock, as follows: (a) $65,000 in cash; and (b) $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.
F-17
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
In addition, the Company has a thirty day option to purchase other oil and gas
leases in the Musselshell Field from S & L Energy for a price of $60 per acre.
On June 17, 2012, the Company closed on the acquisition of all right and title
to certain mineral estates in Grand County, Utah. The mineral estates include
4,435 acres, 9 well bores and space to drill additional wells. In addition, the
Company acquired the owner'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, (a) $75,000 in cash; and (b) $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.
The Company has evaluated it activities subsequent to the year ended December
31, 2012, through the issuance of financial statements and found no other
reportable subsequent events.
NOTE 15 - 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.
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, 2012.
F-18
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES - (IN MILLIONS OF BARRELS "MBBLS")
OF OIL:
2012
---------------
(unaudited)
January 1, 2012 -
Purchase of properties 267
Revisions of previous estimates -
Extension, discoveries, other estimates -
Production -
Disposition of properties -
---------------
December 31, 2012 267
===============
|
NET PROVED DEVELOPED AND UNDEVELOPED RESERVES - (IN MILLIONS OF STANDARD CUBIC
FEET "MMSCF") OF NATURAL GAS:
2012
----------------
(unaudited)
January 1, 2012 -
Purchase of properties 147
Revisions of previous estimates -
Extension, discoveries, other estimates -
Production -
Disposition of properties -
----------------
December 31, 2012 147
================
|
NET PROVED OIL AND GAS RESERVES CONSISTED OF THE FOLLOWING AT DECEMBER 31, 2012:
Oil Natural Gas
Reserves Reserves
Gross Gross
MBbls MMScf
-------------- --------------
(unaudited) (unaudited)
Proved developed producing 24 -
Proved undeveloped 243 147
-------------- --------------
Total proven 267 147
============== ==============
|
F-19
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Year Ended December 31, 2012 and
The Period from March 8, 2011 (Inception) through December 31, 2011
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES FOR THE YEAR ENDED
DECEMBER 31, 2012
The Year Ended December 31, 2012 (unaudited)
Revenue $ 29,908
Operating expenses (re-working costs) 107,982
Depletion 2,407
-----------------
Operating loss (80,481)
Income tax provision -
-----------------
Results of operations for oil and gas properties $ (80,481)
=================
|
COST INCURRED FOR OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
(unaudited)
Property acquisition
Unproved $ -
Proved 803,200
Exploration -
Development 213,555
-----------------
Total costs incurred $ 1,016,755
=================
|
AGGREGATE CAPITALIZED COSTS
Capitalized costs relating to oil and gas activities are as follows:
December 31, 2012 (unaudited)
Proved $ 1,016,755
Unproved -
-----------------
Total capitalized costs $ 1,016,755
Accumulated depreciation and depletion (24,283)
-----------------
Net capitalized costs $ 992,742
=================
|
F-20
HINTO ENERGY, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE-MONTHS ENDED MARCH 31, 2013 AND 2012
(UNAUDITED)
HINTO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2013 2012
--------------- ---------------
Assets
Current Assets:
Cash $ 128,061 $ 57,709
Accounts Receivable - -
Deposits (12,843) (4,473)
--------------- ---------------
Total Current Assets 115,218 53,236
--------------- ---------------
Property and Equipment:
Machinery, net of accumulated depreciation
of $825 and $0, respectively 15,675 16,500
--------------- ---------------
Oil and Natural Gas Properties:
Proved Properties 803,200 803,200
Unproved Properties - -
Other Property and Equipment 263,555 213,555
Less Accumulated Depreciation and Depletion (32,700) (24,283)
--------------- ---------------
Total Other Assets 1,034,055 992,472
--------------- ---------------
Total Assets $ 1,164,948 $ 1,062,208
=============== ===============
Liabilities and Stockholders' Euiqty (Deficit)
Current liabilities
Accounts payable $ 21,546 $ 28,888
Accrued liabilities 117,014 78,268
Subscription received 90,000 250,000
Stock owed for services 7,500 -
Notes payable, other 354,000 405,000
--------------- ---------------
Total Current Liabilities 590,060 762,156
Asset recovery obligations 72,122 72,122
Long term note payable 500,000 500,000
--------------- ---------------
Total liabilities $ 1,162,182 $ 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,
17,146,527 and 16,236,527 shares issued and outstanding
at March 31, 2013 and December 31, 2012, respectively 17,147 16,237
Additional paid-in capital 2,769,605 2,315,515
Accumulated deficit (2,783,986) (2,603,822)
--------------- ---------------
Total Stockholders' Equity(Deficit) 2,766 (272,070)
--------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 1,164,948 $ 1,062,208
=============== ===============
|
See the notes to these consoldiated financial statements.
F-1
HINTO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS END MARCH 31, 2013 AND 2012
(UNAUDITED)
Three Months Ended
March 31, March 31,
2013 2012
----------------- ------------------
Revenue: $ 11,631 $ -
Direct Cost of Revenue 39,112 -
Depreciation and Depletion 8,416 -
----------------- ------------------
(35,897) -
Operational expenses:
Office expenses 62,899 156,570
Consulting fees 65,500 63,230
----------------- ------------------
Total operational expenses 128,399 219,800
----------------- ------------------
Other Income (Expenses)
Litigation Settelment Expense (570) -
Interest expense (15,298) (17,859)
----------------- ------------------
Total other income (expense) (15,868) (17,859)
----------------- ------------------
Net loss $ (180,164) $ (237,659)
================= ==================
Per share information
Net loss per common share
Basic $ (0.02) $ (0.02)
Fully diluted * *
================= ==================
Weighted average number of common
stock outstanding 16,513,305 11,773,206
================= ==================
* Not provided as it is anti-dilutive
|
See the notes to these consolidated financial statements.
F-2
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2013
(UNAUDITED)
Common Stock Additional Total
---------------------------------- paid-in Accumulated Stockholders'
Number of Shares Amount Capital Deficit Equity
------------------- ------------- ---------------- ---------------- -----------------
Balance - January 1, 2013 16,236,527 $ 16,237 $ 2,315,515 $ (2,603,822) $ (272,070)
Issuance of Shares for cash 850,000 850 424,150 - 425,000
Issuance of shares for services 10,000 10 4,990 - 5,000
Issuance of shares for interest 50,000 50 24,950 - 25,000
Net Loss - - - (180,164) (180,164)
------------------- ------------- ---------------- ---------------- -----------------
Balance - March 31, 2013 17,146,527 $ 17,147 $ 2,769,605 $ (2,783,986) $ 2,766
=================== ============= ================ ================ =================
|
See the notes to these consolidated financial statements.
F-3
HINTO ENERGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
(UNAUDITED)
For the Three Months Ended
March 31, March 31,
2013 2012
----------------------- --------------------
Cash Flows from Operating Activities:
Net Loss $ (180,164) $ (237,659)
Adjustments to net loss for non-cash items:
Accrued interest converted to stock 25,000 17,982
Stock issued for services 5,000 17,250
Amortization, Depreciation and Depletion 9,242 -
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease (increase) in deposits and advances 5,370 -
Increase in accounts payable (5,841) 35,088
Increase in accrued liabilities 41,745 (17)
----------------------- --------------------
Net Cash Used by Operating Activities (99,648) (167,356)
----------------------- --------------------
Cash Flows from Investing Activities
Well rework (50,000) (198,500)
----------------------- --------------------
Net Cash Used in Investing Activities (50,000) (198,500)
----------------------- --------------------
Cash Flows from Financing Activities:
Payments on other notes payable (52,500) -
Stock to be issued for services 7,500 -
Proceeds from sale of common stock 175,000 165,000
Proceeds from subscription receivable 90,000 -
----------------------- --------------------
Net Cash Provided by Financing Activities 220,000 165,000
----------------------- --------------------
Net Increase (decrease) in Cash 70,352 (200,856)
Cash and Cash Equivalents - Beginning of Period 57,709 487,501
----------------------- --------------------
Cash and Cash Equivalents - End of Period $ 128,061 $ 286,645
======================= ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $ - $ -
======================= ====================
Cash paid for income taxes $ - $ -
======================= ====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Issuance of common stock for deposits and
accounts payable $ 199,309 $ 17,250
======================= ====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
ACTIVITIES:
Issuance of promissory note for services $ 10,000 $ -
======================= ====================
|
See the notes to these consolidated financial statements.
F-4
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
NOTE 1 - BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Hinto Energy, Inc. ("the Company") was incorporated in February 13, 1997 in the
state of Wyoming. The Company and its wholly-owned subsidiary, South Uintah Gas
Properties, Inc. are involved in the acquisition and development of oil and gas
prospects in the rocky mountain region. The Company has oil and gas leases,
wells and new drilling prospects in both Utah and Montana.
The Company's fiscal year end is December 31st. The Company's financial
statements are presented on the accrual basis of accounting under GAAP
(Generally Accepted Accounting Principles).
BASIS OF PRESENTATION
CONSOLIDATION
The accompanying audited consolidated financial statements include the accounts
of Hinto Energy, Inc. and its wholly owned subsidiary, South Uintah Gas
Properties, Inc. (collectively the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
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.
F-5
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
Life in
Asset Type Years March 31, 2013 December 31, 2012
--------------------------------- ------------ -------------- -----------------
Machinery 5 - 7 $ 16,500 $ 16,500
------------ -------------- -----------------
Subtotal 16,500 16,500
Less Accumulated Depreciation (825) -
------------ -------------- -----------------
Net Book Value $ 15,675 $ 16,500
============ ============== =================
|
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present value," of its proved
reserves discounted at a 10-percent interest rate of future net revenues, based
on current economic and operating conditions, plus the cost of properties not
being amortized, plus the lower of cost or fair market value of unproved
properties included in costs being amortized, less the income tax effects
related to book and tax basis differences of the properties. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
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
F-6
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
value generally based on the present value of future probability weighted cash
flows expected from the continued use and value at sale of the long-lived asset.
REVENUE RECOGNITION
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the three months ended
March 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.
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.
F-7
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
RECENT ACCOUNTING PRONOUNCEMENTS
There were accounting standards and interpretations issued during the three
months ended March 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 financial statements for the three months ended March 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 $180,164 for the
three months ended March 31, 2013, and an accumulated deficit of $2,783,986 as
of March 31, 2013. At March 31, 2013, the Company had a working capital deficit
of $474,482.
The future success of the Company is dependent on its ability to attract
additional capital, or to find an acquisition to add value to its present
shareholders and ultimately, upon its ability to develop future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern.
NOTE 4 - OIL AND GAS LEASES
Oil and gas properties consisted of the following as of March 31, 2013:
March 31, December 31,
2013 2012
------------------- ------------------
Proved properties $ 803,200 $ 803,200
Unproved properties - -
------------------- ------------------
$ 803,200 $ 803,200
Accumulated depletion 2,873 2,047
------------------- ------------------
$ 800,327 $ 801,153
=================== ==================
|
During the months ended March 31, 2013 and 2012, the Company recognized a
depletion expense of $827 and $-0-, 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 in 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 three months ended March 31, 2013, the Company did not expend any
development costs in connection with the re-working of this well. During the
year ended December 31, 2012, the Company expended $198,500 in cash for the
F-8
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
completion of a gas pipeline connection, surface equipment and initial well
rework on the 22-1 Well.
CISCO, UTAH
On May 9, 2012, the Company and Pacific Energy and Mining Company ("Pacific")
entered into an Asset Purchase and Sale Agreement ("The Pacific Agreement"). On
May 30, 2012, the Company closed the transaction. As part of the Pacific
Agreement, the Company acquired certain oil and gas wells and related assets in
the Greater Cisco area of the Uintah Basin in Grand County, Utah.
The assets acquired include 4,783 gross acres in the Cisco Fields with an 80%
Net Revenue Interest (NRI) and approximately 3,827 net acres. The property
includes 27 wells that need to be re-worked, connected to a gas pipeline, or
offset drilled.
In exchange for such oil and gas wells and related assets, the Company paid
$325,000 in a combination of cash and a convertible promissory note, as follows:
$175,000 cash; and a $150,000 convertible promissory note. The convertible
promissory note 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 at $1.00 per share.
During the three months ended March 31, 2013, the Company expended $50,000 in
connection with the re-work of the wells on this property.
NOTE 5 - CONVERTIBLE PROMISSORY NOTE
In May 2012, the Company, as part of the purchase of Cisco Pacific, issued the
seller a $150,000 convertible promissory note. 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 at $1.00 per share. At March 31, 2013, the note had
accrued interest of $10,041. Subsequent to the three months ended March 31,
2013, the outstanding principal and accrued interest was paid in full for cash
of $162,000.
NOTE 6 - SUBSCRIPTIONS RECEIVED
During the three months ended March 31, 2013, the Company had outstanding
subscriptions receivables of $90,000 to purchase 180,000 shares of the Company's
restricted common stock at $0.50 per share. The Company issued the shares in
April 2013.
During the year ended December 31, 2012, the Company had outstanding
subscription receivables 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 did not accrue interest.
F-9
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
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 March 31,
2013, the Company owed $100,000 under the note.
In July 2012, the Company re-negotiated the terms of the original $75,000 note
in exchange for $5,000 principal payment on the note. As a result, the Company
re-issued the note for a principal of $70,000, a new due date of July 5, 2013
and for payments of $5,000 to be made on a monthly basis. As of March 31, 2013,
the Company had made total payments principal payments of $25,000 and still owed
$45,000 on the note.
As part of the Settlement with Bridge Industries, discussed in Note 11, the
Company has 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. On March 31, 2013, the
Company made a payment of $50,000.
NOTE 8 - LONG TERM NOTE PAYABLE
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 oil and
gas leases held by South Uintah in the Natural Buttes area. In June 2012 an
interest payment of $12,500 was made in cash. At March 31, 2012, the note had
accrued interest of $0. During the three months ended March 31, 2013, the
Company paid accrued interest through the issuance of 50,000 shares of its
restricted common stock valued at $0.50 per share. At March 31, 2013, the note
was still outstanding.
NOTE 9 - COMMITMENTS & CONTINGENCIES
GENERAL
There have been significant changes in the U.S. economy, oil and gas prices and
the finance industry which have adversely affected and may continue to adversely
affect the Company in its attempt to obtain financing or in its process to
produce commercially feasible oil and gas production.
Federal, state and local authorities regulate the oil and gas industry. In
particular, gas and oil production operations and economics are affected by
environmental protection statutes, tax statutes and other laws and regulations
relating to the petroleum industry, as well as changes in such laws, changing
administrative regulations and the interpretations and application of such laws,
rules and regulations. The Company believes it is in compliance with all
federal, state and local laws, regulations, and orders applicable to the Company
and its properties and operations, the violation of which would have a material
adverse effect on the Company or its financial condition.
OPERATING HAZARDS AND INSURANCE
The gas and oil business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formation, and environmental hazards such as oil spills, gas leaks, ruptures or
discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, cleanup responsibilities, regulatory investigation
and penalties and suspension of operations.
F-10
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
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
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, 2013, the Company had 17,146,527 shares of
its common stock issued and outstanding.
During the three months ended March 31, 2013, the Company issued 350,000 shares
of its restricted common stock for $175,000 at a price of $0.50 per share.
During the three months ended March 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 three months ended March 31, 2013, the Company issued 10,000 shares
of its restricted common stock for investor relation services valued at $5,000.
During the three months ended March 31, 2013, the Company issued 50,000 shares
of its restricted stock as a payment of $25,000 in interest on its outstanding
long term $500,000 note payable.
PREFERRED STOCK
On August 18, 2011, the Company filed an amendment to the Articles of
Incorporation with the Secretary of State of Wyoming to authorize 25,000,000
shares of Preferred Shares to be designated in any series or classes and with
those rights, privileges and preferences to be determined at the discretion of
F-11
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(Unaudited)
the Company's Board of Directors. At this time, the Company has not designated
any series of preferred stock or issued any shares of preferred stock.
STOCK OPTION PLAN
On August 17, 2011, the Company's shareholders approved the 2011 Hinto Energy,
Inc. Stock Option and Award Incentive Plan ("Plan"). The Plan provides for the
grant of stock options to directors, officers, employees, consultants, and
advisors of the Company. The Plan is administered by a committee consisting of
members of the Board of Directors (the "Stock Option Committee"), or in its
absence, the Board of Directors.
The Plan provides for a total of 2,000,000 shares of common stock to be reserved
for issuance subject to options. During the years ended December 31, 2012 and
2011, the Board did not approve the grant of any options to purchase shares of
common stock, nor the conditions, performance or vesting requirements.
WARRANTS
During the three months ended March 31, 2013, the Company did not issue any
warrants for its common stock.
A summary of warrant activity for the three months ended March 31, 2013 is
presented below:
Weighted Average
-------------------------------
Shares Under Remaining
Warrant Exercise Price Contractual Life
------------- -------------- ----------------
Outstanding at December 31, 2012 7,500,000 $ 1.25 2.44
Granted - - -
Exercised - - -
Expired - - -
------------- -------------- ----------------
Outstanding at March 31, 2013 7,500,000 $ 1.25 2.23
============= ============== ================
|
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, 2013, and therefore has
paid no income tax.
Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carry-forwards. The NOL carry forwards expire in various years through
2031. The Company's deferred tax assets are offset by a valuation allowance due
to the uncertainty of the realization of the NOL carry-forwards. NOL
carry-forwards may be further limited by a change in company ownership and other
provisions of the tax laws.
F-12
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Three Months Ended March 31, 2013 and 2012
(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, 2013 $556,797 $(556,797) -
December 31, 2012 $520,764 $(520,764) -
|
NOTE 12 - SUBSEQUENT EVENTS
On June 14, 2013, 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. The property includes 6 wells in a field to be
water flooded that needs the wells to be re-worked. The Company acquires such
leases in exchange for $25,000 cash and a 5% working interest.
On June 14, 2013, the Company acquired all right and title to oil and gas leases
for a total of 722 gross acres in the Musselshell County, Montana. In exchange
for such oil and gas leases, the Company paid $101,100 in a combination of cash
and stock, as follows: (a) $65,000 in cash; and (b) $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.
In addition, the Company has a thirty day option to purchase other oil and gas
leases in the Musselshell Field from S & L Energy for a price of $60 per acre.
On June 17, 2012, the Company closed on the acquisition of all right and title
to certain mineral estates in Grand County, Utah. The mineral estates include
4,435 acres, 9 well bores and space to drill additional wells. In addition, the
Company acquired the owner'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, (a) $75,000 in cash; and (b) $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.
The Company has evaluated it activities subsequent to March 31, 2013 and through
the issuance of the financial statements and found no other reportable
subsequent events.
F-13
F. SELECTED FINANCIAL INFORMATION
Not applicable.
G. SUPPLEMENTARY FINANCIAL INFORMATION
Not applicable.
H. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED
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.
PLAN OF OPERATIONS
We only began to recognize minimal revenues from our operations during the last
half of 2012. We have minimal capital, moderate cash. We are illiquid and need
cash infusions from investors or shareholders to provide capital, or loans from
any sources, none of which have been arranged nor assured.
During the first quarter of 2013, we continued our re-work efforts on our
properties in the Cisco Springs oil and gas field in the Uintah Basin of Grand
County, Utah; performance of geological analysis of existing properties and the
identification of potential properties for acquisition. Re-work efforts in the
Cisco Springs field focused on the Company's 5A well and the well is now being
tested and results of the testing are being evaluated.
During the first quarter of 2013, we raised $175,000 from the sale of 350,000
shares of our restricted common stock. We raised an additional $90,000 in
subscription receivables for 180,000 shares of our restricted common stock.
These shares were issued subsequent to March 31, 2013.
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 date here. No representation is
made that any funds will be available when needed. In the event funds cannot be
raised when needed, we may not be able to carry out our business plan, may never
achieve sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
-37-
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 COMPARED TO THE PERIOD OF INCEPTION (MARCH
8, 2011) THROUGH DECEMBER 31, 2011
During the period of inception (March 8, 2011) through December 31, 2011, the
Company did not recognize any revenues from its operating activities.
During the year ended December 31, 2012, the Company recognized revenues of
$29,208 from its operational activities and cost of revenue $174,479, including
$107,982 in direct costs of revenue, $24,283 in depreciation and depletion and
$72,122 in asset recovery obligation expense. The Company expects to continue to
recognize revenues from its operational activities, but does not expect such
revenues to be adequate to support its current operations in the near term.
During the year ended December 31, 2012, we incurred total operational expenses
of $810,836 compared to $793,720 during the period of inception (March 8, 2011)
through December 31, 2011. The increase of $17,116 was a result of an increase
of $200,909 in general and administrative expense combined with a $155,402
increase in consulting expenses offset by the decrease in the one-time write off
of $339,195 in goodwill in 2011. We expect operational expenses to increase as
we continue to pursue our operational plan.
During the year ended December 31, 2012, we recognized a net loss of $1,776,527
compared to $827,295 during the period of inception (March 8, 2011) through
December 31, 2011. The increase of $949,232 was a result of the $17,173 increase
in operational expenses, an increase of $174,479 in costs of revenue and a
litigation settlement expense of $704,247, offset by a $29,208 increase in
revenues.
LIQUIDITY
At December 31, 2012, the Company had total current assets of $53,235,
consisting of $57,709 in cash and $(4,474) in deposits. At December 31, 2012,
the Company had total current liabilities of $762,155, consisting of accounts
payable of $28,888, accrued liabilities of $78,268, a stock subscription payable
of $250,000 and notes payable of $405,000. At December 31, 2012, the Company had
working capital deficit of $1,281,042.
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 recovery
expense.
During the period of Inception (March 8, 2011) through December 31, 2011, the
Company used $409,599 in its operations. During the period of Inception (March
8, 2011) through December 31, 2011, we recognized a net loss of $827,295, which
was reconciled for the non-cash items consisting of a $550 in common stock
issued for services and a write down of $339,195 in goodwill.
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 period of inception (March 8, 2011) through December 31, 2011, the
Company used $603,000 in our investing activities, $300,000 to acquire a 70%
interest in Hinto Energy, Inc., which we eventually merged with and $303,000 to
purchase oil and gas leases.
During the year ended December 31, 2012, we received $287,500 from our financing
activities compared to $1,500,100 during the period of inception (March 8, 2011)
through December 31, 2011.
-38-
During May 2012, the Company in exchange for cash of $25,000 issued a
convertible promissory note for $25,000. The note is convertible in shares of
the Company's restricted common stock at $0.50 per share and a term of 12
months. In September 2012, the holder of the convertible promissory note
converted the principal of $25,000 and the accrued interest of $364 for 50,724
shares of common stock.
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 $.50 per common share and 348,868 shares for services valued at $243,435.
During the year ended December 31, 2012, the Company issued 191,618 shares of
its 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 as interest of $37,500.
The Company also issued 11,375,000 of its restricted common shares to acquire
South Uintah Gas Properties, Inc. in January 2012.
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 1,000,000 shares of South Uintah's common stock.
In March 2012 a note holder of South Uintah, 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 value of 1,000,000 shares of
the Company's common stock and other equity appreciation, and compensation for
services and costs.
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 has agreed to the following:
1. A $100,000 cash payment to Bridge in two traunches of $50,000 to be
paid on or before March 31, 2013 and June 30, 2013.
2. The issuance of 1,400,000 shares of the Company's common stock, which
are to be 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.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2012
During the three months ended March 31, 2013, the Company recognized revenues of
$11,631 from its operational activities, specifically the sale of 186.38 barrels
at an average price of $77.20 per barrel. During the three months ended March
31, 2013, the Company recognized a direct cost of revenue of $39,112. During the
three months ended March 31, 2013, the Company recognized depletion and
depreciation expenses of $8,416. This resulted in a negative gross profit of
($35,897). The Company did not recognize any revenues during the three months
ended March 31, 2012.
-39-
During the three months ended March 31, 2013, we incurred total operational
expenses of $128,399 compared to $219,800 during the three months ended March
31, 2012. The decrease of $91,401 was a result of the $93,671 decrease in office
expenses offset by the $2,270 increase in consulting expenses. The $93,671
decrease in office expenses was a result of a $33,297 decrease in legal
expenses, a $32,101 decrease in investor relation expenses and $35,000 decrease
in consulting expenses.
During the three months ended March 31, 2013, we recognized a net loss of
$180,164 compared to a net loss of $237,659 during the three months ended March
31, 2012. The decrease of $57,495 was a result of the $11,631 increase in
revenues, offset by a $47,528 increase in cost of revenues and a $91,401
decrease in operational expenses.
LIQUIDITY
At March 31, 2012, the Company had total current assets of $115,218, consisting
of cash of $128,061 and prepaid expenses of ($12,843). At March 31, 2013, the
Company had total current liabilities of $590,060, consisting of, accounts
payable of $21,546, accrued liabilities of $117,014, subscription payable of
$90,000 and stock owed for services of $7,500 and notes payables of $354,000. At
March 31, 2013, we have a working capital deficit of $474,482.
During the three months ended March 31, 2013, we used cash of $99,648 in
operations. During the three months ended March 31, 2013, we recognized a net
loss of $180,164, which was adjusted for the non-cash items of accrued interest
of $25,000, services of $5,000 paid in common stock and depletion and
depreciation of $9,242.
During the three months ended March 31, 2012, we used cash of $167,356 in
operations. During the three months ended March 31, 2013, the Company recognized
a net loss of $237,659, which was adjusted for the non-cash items of $17,982 in
interest paid for using stock and $17,250 in services paid for with stock.
During the three months ended March 31, 2013, we used $50,000 in our investing
activities, in the re-work efforts of our wells in the Cisco Springs Field.
During the three months ended March 31, 2012, we used $198,500 in our investing
activities, solely in the development of our 22-1 well..
During the three months ended March 31, 2013, we received $220,000 from our
financing activities compared to $165,000 during the three months ended March
31, 2012.
During the three months ended March 31, 2013, the Company issued 350,000 shares
of its restricted common stock for $175,000 at a price of $0.50 per share.
During the three months ended March 31, 2013, the Company had outstanding
subscription agreements of $90,000 to purchase 180,000 shares of the Company's
restricted common stock at $0.50 per share. The Company issued these shares in
April 2013.
During the three months ended March 31, 2013, the Company made payments of
$52,500 on outstanding notes payable.
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.
-40-
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 MINIMAL revenues. The Company has NO committed
source for any funds as of the date hereof. No representation is made that any
funds will be available when needed. In the event funds cannot be raised when
needed, we may not be able to carry out our business plan, may never achieve
sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. The Company
may, in any particular case, decide to participate or decline participation. If
participating, we may pay its proportionate share of costs to maintain the
Company's proportionate interest through cash flow or debt or equity financing.
If participation is declined, the Company may elect to farmout, non-consent,
sell or otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
CRITICAL ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present value," of its proved
reserves discounted at a 10-percent interest rate of future net revenues, based
on current economic and operating conditions, plus the cost of properties not
being amortized, plus the lower of cost or fair market value of unproved
properties included in costs being amortized, less the income tax effects
related to book and tax basis differences of the properties. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
-41-
REVENUE RECOGNITION
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
I. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
Ronald Chadwick, PC, formerly the independent registered public accountant for
Hinto Energy, Inc. ("the Company") was dismissed as the Company's independent
registered public accountant on April 15, 2013.
On April 15, 2013, the Board of Directors of the Company approved the engagement
of new auditors, Borgers & Cutler, CPA, PC, of Colorado to be the Company's
independent registered public accountant. No audit committee exists, other than
the members of the Board of Directors.
Borgers & Cutler, CPA, PC resigned on June 3, 2013, as reported in the Company's
Current Report on Form 8-K filed on June 4, 2013.
The Company's Board of Directors appointed BF Borgers, CPA PC as the Company's
independent registered public accountant on June 5, 2013.
The action to engage new auditors was approved by the Board of Directors. No
audit committee exists, other than the members of the Board of Directors.
The audits for the fiscal years ended December 31, 2011 and 2010 and the
cumulative period of January 1, 2012 through September 30, 2012, were handled by
Ronald Chadwick, PC and through the date of termination, April 15, 2013, no
disagreements exist with the former independent registered public accountant on
any matter of accounting principles or practices, financial statement
disclosure, internal control assessment, or auditing scope of procedure, which
disagreements if not resolved to the satisfaction of the former accountant would
have caused them to make reference in connection with their report to the
subject of the disagreement(s).
The Independent Auditor Report by Ronald Chadwick, PC for the fiscal years ended
December 31, 2010 and 2011, contained an opinion which included a paragraph
discussing uncertainties related to continuation of the Company as a going
concern.
Prior to engaging BF Borgers, CPA, PC, the Company had not consulted BF Borgers,
CPA, PC regarding the application of accounting principles to a specified
transaction, completed or proposed, the type of audit opinion that might be
rendered on the Company's financial statements or a reportable event, nor did
the Company consult with BF Borgers, CPA, regarding any disagreements with its
prior auditor on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the prior auditor, would have caused it to
make a reference to the subject matter of the disagreements in connection with
its reports.
J. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-42-
K. DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION TERM
---------------- -------- -------------------------------------------- ---------
George Harris 63 Chief Executive Officer and Chief Financial
Officer and Director Annual
Gary Herick 47 Vice President of Finance,
Secretary and Director Annual
J. David Keller 58 Vice President of Exploration and
Development and Director Annual
Max Sommer 81 Director Annual
Kevin Blair 50 Director Annual
|
All current directors of the Company were elected by the shareholders on August
18, 2011. The Company's officers, with the exception of the Chief Executive
Officer, were appointed by the Board of Directors on August 18, 2011. Mr. Harris
was appointed the Chief Executive Officer on June 28, 2012. With the exception
of Mr. Keller, the above officers and directors hold the same positions with
South Uintah, Hinto's wholly-owned subsidiary.
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.
GARY HERICK, VICE PRESIDENT OF FINANCE, SECRETARY & DIRECTOR
Mr. Herick has been a licensed Securities Representative since 1985, involved in
different aspects of the business including: IPO's, Retail Accounts, Investment
Advisory Accounts, Commodities, Alternative Investments and Venture Capital
Funding. From 2001 to 2005, he handled accounts as a Registered Investment
Advisor specializing in Alternative Investments and Stock Analysis for managed
accounts with Herick Asset Management.
Mr. Herick is currently licensed with Capwest Securities, a FINRA member firm
and resides in Edwards, Colorado. He holds a Series 7 and 63 Licenses and is
also a Registered Investment Advisor Representative.
He attended the University of Florida from 1981-1985 and holds a Bachelor of
Science in marketing.
J. DAVID KELLER, VICE PRESIDENT OF EXPLORATION & DEVELOPMENT & DIRECTOR
Mr. Keller has been the Managing Partner and Exploration and Development Manager
of Powderhorn Energy of Boulder, Colorado. Mr. Keller founded Powderhorn Energy
in 2009. Powderhorn Energy focuses on oil and gas opportunities in the Rocky
Mountain Basins. Mr. Keller is responsible for structuring projects to achieve
and surpass industry average profitability, cash flow and, especially, upside
potential. From 2006 through May 2009, Mr. Keller was the Chief Geophysicist for
TTI Exploration in Boulder, Colorado. While there he was responsible for all
geoscience technology for project evaluation, exploration, development and
exploitation.
-43-
Mr. Keller received his Bachelor of Science in Geoscience from the University of
Texas, Dallas in 1980 and his Master of Science in Geophysics from the Colorado
School of Mines in 1987.
MAX P. SOMMER, DIRECTOR
Since 1997, Mr. Sommer has served as the President, Rose Run Energy Company,
Inc., providing Consulting and Oil and Gas Production activities mostly in the
Appalachian Region. Mr. Sommer provided prospects to Oil and Gas Partnership
which drilled and participated in 140 wells. Rose Run Energy sold its production
in 2009. Mr. Sommer served as a director of Intercontinental Energy Corporation
from 1976-1977 and as a director of Gerber Energy Corporation from 1977-1980,
both public reporting companies.
Mr. Sommer's received his doctorate degree in Geology-Paleontology in 1955 from
the University of Basel, Switzerland.
Mr. Sommer's brings to the Board of Directors fifty-five years of experience in
operations and management of geological and geophysical exploration activities
for oil, gas and minerals in various countries.
KEVIN BLAIR, DIRECTOR
Mr. Blair has been the Principal and Attorney for General Capital Partners, LLC
of Denver, Colorado, since January 2010. There he has complete business
development responsibilities including strategic planning, negotiation of
agreements, acquisition of properties, supervision of subcontractors,
supervision of personnel, and financial reporting. He was a Private Equity
Broker at Capwest Securities, Inc. (Denver, Colorado, from January 2007 to
2010), a federally licensed broker dealer specializing in syndications of
private debt and equity securities marketed exclusively to high net worth
clients for the purpose of acquiring real estate and energy properties. He 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,
July 2013, 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.
Our officers and directors are spending up to 25 hours per week on our business
at this time. 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 - 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.
-44-
CONFLICTS OF INTEREST - CORPORATE OPPORTUNITIES
Presently no requirement contained in the Company's Articles of Incorporation,
Bylaws, or minutes which requires officers and directors of the Company's
business to disclose to Hinto business opportunities which come to their
attention. The Company's officers and directors do, however, have a fiduciary
duty of loyalty to Hinto to disclose to it any business opportunities which come
to their attention, in their capacity as an officer and/or director or
otherwise. Excluded from this duty would be opportunities which the person
learns about through his involvement as an officer and director of another
company. The Company has no intention of merging with or acquiring an affiliate,
associate person or business opportunity from any affiliate or any client of any
such person.
PROJECTED STAFF
STAFFING
Currently, we have no employees aside from the Chief Executive Officer/Chief
Financial Officer, George Harris. This lean staffing is possible in this phase
because of our determination to outsource all operating functions. Our staff
positions will be filled as budget allows and business demands require, and the
positions may be altered in response to business needs.
L. EXECUTIVE AND DIRECTORS COMPENSATION
COMPENSATION
The following table sets forth the compensation paid to officers and board
members during the fiscal years ended December 31, 2012, 2011 and 2010. 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 Messrs. Harris, Herick and Keller was paid by South
Uintah, the Company's majority shareholder, at the time.
(REMAINDER OF PAGE LEFT BLANK INTENTIONALLY)
-45-
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 2012 127,000 0 0 0 0 0 0 127,000
& CFO (1) 2011 60,000 0 55 0 0 0 0 60,055
Gary Herick, VP of 2012 140,000 0 0 0 0 0 0 140,000
Finance & Secretary 2011 85,000 0 200 0 0 0 0 85,200
(2)
J. David Keller, VP of 2012 77,613 0 0 0 0 0 0 77,613
Exploration & 2011 55,000 0 52 0 0 0 0 55,052
Development (3)
Roy C. Smith, 2011 0 0 0 0 0 0 0 0
President (4) 2010 0 0 0 0 0 0 0 0
-------------------------
|
(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
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
-46-
years. Warrants for 325,000 shares have an exercise price of $1.00 per
share and warrants for 200,000 shares have an exercise price of $3.00
per share.
(4) Mr. Smith resigned as an officer of the Company on August 18, 2011.
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
In August, 2011, the Board of Directors and the stockholders of Hinto approved
the 2011 Hinto Energy, Inc.'s Stock Option Award and Incentive Plan ("the 2011
Plan.") There are 2,000,000 shares of the Company's common stock reserved under
the 2011 Plan. During the years ended December 31, 2012 and 2011, no options
were issued under the 2011 Plan.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth certain information concerning outstanding equity
awards held by the Chief Executive Officer, Chief Financial and the Company's
most highly compensated executive officers for the fiscal year ended December
31, 2012 (the "Named Executive Officers"):
Option Awards Stock awards
--------------------------------------------------------- ---------------------------------------------
Equity
incentive
Equity plan
incentive awards:
plan Market
awards: or
Equity Number payout
incentive of value of
plan unearned unearned
awards: Market shares, shares,
Number of Number of Number of value of units or units or
securities Number of securities shares or shares of other others
underlying securities underlying units of units of rights rights
unexercised underlying unexercised Option Option stock stock that that
options unexercised unearned exercise expira- that have that have have not have not
(#) options (#) options price tion not vested not vested vested vested
Name exercisable unexercisable (#) ($) date (#) ($) (#) ($)
--------------- ------------ ------------- ------------ -------- -------- ----------- ----------- ---------- ----------
George 0 0 0 0 0 0 0 0 0
Harris, CEO
& CFO (1)
Gary Herick,
VP of Finance
(2) 0 0 0 0 0 666,667 200,000 0 0
J. David
Keller, VP of
Exploration &
Development 0 0 0 0 0 0 0 0 0
(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, 2012, all of the shares underlying
the warrants have vested.
(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, 2012, 333,333 shares under the warrant were vested.
The market value of the shares underlying the warrant is based upon a
closing market price of $0.30 per share.
-47-
(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 $3.00 per share. During the year ended December 31, 2012, the
warrants vested in full.
DIRECTOR COMPENSATION
All of the Company's officers and/or directors will continue to be active in
other companies. All officers and directors have retained the right to conduct
their own independent business interests.
The Company does not pay any Directors fees for meeting attendance.
The following table sets forth certain information concerning compensation paid
to the Company's directors during the year ended December 31, 2012:
Fees Non-qualified
earned or deferred
paid in Non-equity compensation
cash Stock Option incentive plan earnings All other Total
Name ($) awards ($) awards ($) compensation ($) ($) compensation ($) ($)
---------------- ------------ ------------ ------------- ----------------- ------------------ ----------------- ------------
George $127,000 $ -0- $ -0- $ -0- $ -0- $ -0- $127,000
Harris (1)
Gary $140,000 $ -0- $ -0- $ -0- $ -0- $ -0- $140,000
Herick (1)
J. David $77,613 $ -0- $ -0- $ -0- $ -0- $ -0- $77,613
Keller (1)
Kevin $2,000 $ -0- $ -0- $ -0- $ -0- $ -0- $2,032
Blair (1)
Max $27,500 $ -0- $ -0- $ -0- $ -0- $ -0- $27,500
Sommer (1)
----------------
|
(1) Messrs. 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.
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
-48-
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. 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. 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
300,000 shares of South Uintah common stock for such services, which pursuant to
the Amended Share Exchange Agreement were exchanged for shares and warrants of
Hinto. Mr. Keller became an employee of South Uintah on December 16, 2011, with
a monthly base salary of $10,000.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 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.
-49-
M. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AS OF JULY 15,
2013
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 Executive Officer and 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 July 15,
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, 550,000 550,000 1,100,000 2.73%
Chief Financial Officer and Director (2)
Gary Herick, VP of Finance, 1,210,000 333,333 1,543,333 6.00%
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%
Michael A. Littman (7) 1,616,618 333,333 1,949,951 8.02%
----------------------------------------------- --------------- ---------------- --------------- ----------------
All Directors and Executive Officers as 2,810,000 1,933,333 4,743,333 13.95%
a Group (5 persons) --------------- ---------------- --------------- ----------------
|
* The Address for the above individuals and entities is c/o 7609 Ralston
Road, Arvada, Colorado 80002.
(1) Based upon 20,133,769 shares of issued and outstanding common stock.
(2) Mr. Harris holds 550,000 shares of common stock and warrants to
purchase an additional 550,000 shares of common stock. The warrants
are subject to vesting terms and have a term of 3 years, 350,000
shares have an exercise price of $1.00 per share and the remaining
200,000 shares have an exercise price of $3.00 per share.
-50-
(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) Mr. Littman holds 216,618 shares of common stock directly and 500,000
shares of common stock indirectly through his wife. Mr. Littman holds
a warrant exercisable for 1,000,000 shares of common stock. The
warrant is subject to vesting terms. Mr. Littman has the ability to
vote the 900,000 shares held by the M.A. Littman Pension Plan.
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.
N. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, PROMOTERS AND CONTROL PERSONS
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.
CHANGE OF CONTROL
On July 11, 2011, prior to entering into the Share Exchange Agreement, South
Uintah had purchased 3,000,000 shares of the Company from its then majority
shareholder Ms. Sharon Fowler. After such purchase, South Uintah held
approximately 70% of the issued and outstanding common stock of the Company.
Prior to closing of the acquisition of South Uintah, South Uintah transferred
300,000 shares to an unrelated third party as partial consideration for the
acquisition of the gas prospect in Utah. As part of the Share Exchange
Agreement, South Uintah has agreed to return the remaining 2,700,000 shares of
common stock to the Company. We have retired such shares to treasury, concurrent
with the transaction.
SHARE ACQUISITION AND EXCHANGE AGREEMENT
On July 27, 2011, we entered into a Share Exchange and Acquisition Agreement
with South Uintah and the South Uintah shareholders. On January 23, 2012, we
entered into an Amended Share Exchange Agreement. Pursuant to the Amended Share
Exchange Agreement, we agreed to issue shares of its restricted common stock for
100% of the issued and outstanding common stock of South Uintah. The shares are
-51-
to be exchanged on a one for one basis. As a result, South Uintah became a
wholly-owned subsidiary of the Company.
At the time of the acquisition, Mr. George Harris, Gary Herick, Max Sommer and
Kevin Blair, officers and directors of Hinto, were and are officers, directors
and shareholders of South Uintah. Mr. David Keller, a director of Hinto was also
a shareholder of South Uintah. As such, they were issued shares of the Company's
common stock under the Amended Share Exchange Agreement.
CONSULTING AGREEMENTS WITH OFFICERS AND DIRECTORS
Messrs. George Harris, Gary Herick, Kevin Blair, David Keller and Max Sommer
have entered into Consulting Agreements with South Uintah for their services.
Mr. Herick has entered into a Consulting Agreement on April 15, 2011 with South
Uintah to provide services to South Uintah as a director and secretary. The
Consulting Agreement has a term of 1 year unless terminated with 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. 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 a30 days notice by either party. The Agreement
provides for a cash retainer of $5,000 for the month of July 2011 and then
$10,000 for each month thereafter. The Agreement provides for Mr. Keller to be
issued 300,000 shares of South Uintah common stock and a warrant exercisable for
300,000 shares of South Uintah common stock for such services, which pursuant to
the Amended Share Exchange Agreement were exchanged for shares and warrants of
Hinto. Mr. Keller became an employee of the Company on December 16, 2011 with a
monthly base salary of $10,000.
Mr. Max Sommer has entered into a Corporate Advisor/Director Agreement on July
12, 2011 with South Uintah to provide services as a director to South Uintah.
The Agreement has a term of 1 year unless terminated with 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
-52-
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.
The tables below show the number of common shares and/or warrants issued by the
companies to these individuals.
COMMON STOCK
-------------------------------------------------------------------------------------------
Number of South Uintah Shares Issued Number of Shares of 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 Warrants Issued Number of Warrants of 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. The Agreement was entered
into on May 1, 2011 and has a term of 1 year unless terminated prior to that
date. The Engagement Agreement provides for Mr. Littman to receive a monthly
-53-
retainer of $10,000 and the issuance of a warrant exercisable for 1,000,000
shares. The warrant was issued in December 31, 2011. 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. The Agreement continues on a month to month basis.
There are no promoters being used in relation to this offering. No person who
may, in the future, be considered a promoter of this offering, will receive or
expect to receive assets, services or other considerations from us. No assets
will be, nor expected to be, acquired from any promoter on behalf of us. We have
not entered into any agreements that require disclosure to the shareholders.
ITEM 11A. MATERIAL CHANGES
None.
ITEM 12. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
----------------------------------------------------------
--------- --------------------------------------------------------- ---------------------
NUMBER DESCRIPTION
3.1 Articles of Incorporation of Hinto Energy, Inc. (1)
3.2 Bylaws of Garner Investments, Inc. now known as Hinto (1)
Energy, Inc.
3.3 Amendment to Articles of Incorporation of Hinto Energy, (7)
Inc.
3.4 Articles of Incorporation of South Uintah Gas (8)
Properties, Inc.
3.5 Amendment to Articles of Incorporation of South Uintah (8)
Gas Properties, Inc.
3.6 Bylaws of South Uintah Gas Properties, Inc. (8)
4.1 Form of Vesting Warrants (11)
4.2 Form of $0.50 Warrants (11)
5.1 Opinion re: Legality Filed Herewith
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 Sale and Purchase Agreement, dated November 2, 2011 (11)
10.9 Amendment to Sale and Purchase Agreement, dated April (9)
19, 2012
10.10 Asset and Purchase Agreement, dated May 9, 2012 (10)
10.11 Consulting Agreement with George Harris (11)
Acquisition and Purchase Agreement with Pride Ventures,
(12) LLC and James Woolsey, dated June 4, 2013
10.12 Sale and Purchase Agreement with S & L Energy, Inc., (13)
dated June 14, 2013
10.13 Sale and Purchase Agreement with Jake Oil, LLC, dated (14)
June 14, 2013
23.1 Consent of Attorney Filed Herewith
23.2 Consent of Accountant Filed Herewith
101.INS XBRL Instance Document Filed Herewith (15)
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith (15)
-54-
|
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith (15)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith (15)
101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith (15)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith (15)
--------- --------------------------------------------------------- ---------------------
|
(1)Incorporated by reference from the exhibits included in the Company's SB-2
Registration Statement filed with the Securities and Exchange Commission
(www.sec.gov), dated November 13, 2007.
(2)Incorporated by reference from the exhibits included in the Company's second
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 23, 2008.
(3)Incorporated by reference from the exhibits included in the Company's fifth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated December 2, 2009.
(4)Incorporated by reference from the exhibits included in the Company's sixth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 27, 2011.
(5)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated July 12,
2011.
(6)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August 5,
2011.
(7)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated August
17, 2011.
(8)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated January
23, 2012.
(9)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated May 3,
2012.
(10)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.
(11)Incorporated by reference from the exhibits included in the Company's Form
S-1 filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated July
3, 2012.
(12)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
20, 2013.
(13)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
19, 2013.
(14)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
18, 2013.
(15)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
-55-
purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is
not subject to liability under these sections.
ITEM 12A. DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
The Wyoming Business Corporation Act requires us to indemnify officers and
directors for any expenses incurred by any officer or director in connection
with any actions or proceedings, whether civil, criminal, administrative, or
investigative, brought against such officer or director because of his or her
status as an officer or director, to the extent that the director or officer has
been successful on the merits or otherwise in defense of the action or
proceeding. The Wyoming Business Corporation Act permits a corporation to
indemnify an officer or director, even in the absence of an agreement to do so,
for expenses incurred in connection with any action or proceeding if such
officer or director acted in good faith and in a manner in which he or she
reasonably believed to be in or not opposed to the best interests of us and such
indemnification is authorized by the stockholders, by a quorum of disinterested
directors, by independent legal counsel in a written opinion authorized by a
majority vote of a quorum of directors consisting of disinterested directors, or
by independent legal counsel in a written opinion if a quorum of disinterested
directors cannot be obtained.
The Wyoming Business Corporation Act prohibits indemnification of a director or
officer if a final adjudication establishes that the officer's or director's
acts or omissions involved intentional misconduct, fraud, or a knowing violation
of the law and were material to the cause of action. Despite the foregoing
limitations on indemnification, the Wyoming Business Corporation Act may permit
an officer or director to apply to the court for approval of indemnification
even if the officer or director is adjudged to have committed intentional
misconduct, fraud, or a knowing violation of the law.
The Wyoming Business Corporation Act also provides that indemnification of
directors is not permitted for the unlawful payment of distributions, except for
those directors registering their dissent to the payment of the distribution.
According to our bylaws, we are authorized to indemnify our directors to the
fullest extent authorized under Wyoming Law subject to certain specified
limitations.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and persons controlling
us pursuant to the foregoing provisions or otherwise, we are advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
-56-
[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
DEALER PROSPECTUS DELIVERY REQUIREMENTS
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We have expended, or will expend fees in relation to this registration statement
as detailed below:
================================================================= =============
EXPENDITURE ITEM AMOUNT
----------------------------------------------------------------- -------------
Attorney Fees $13,000
----------------------------------------------------------------- -------------
Audit Fees $7,500
----------------------------------------------------------------- -------------
Transfer Agent Fees $2,000
----------------------------------------------------------------- -------------
SEC Registration and Blue Sky Registration fees (estimated) $1,000
----------------------------------------------------------------- -------------
Printing Costs and Miscellaneous Expenses (estimated) $1,500
------
----------------------------------------------------------------- -------------
TOTAL $25,000
================================================================= =============
|
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our 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. Our
Articles of Incorporation do not specifically limit the directors' immunity.
Excepted from that immunity are: (a) a willful failure to deal fairly with us or
our 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.
Our bylaws provide that it will indemnify the directors to the fullest extent
not prohibited by Wyoming law; provided, however, that we may modify the extent
of such indemnification by individual contracts with the directors and officers;
and, provided, further, that we 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
us, in sole discretion, pursuant to the powers vested under Wyoming law or (d)
is required to be made pursuant to the bylaws.
Our 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 us, or is or was
serving at the request of us 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.
Our bylaws provide that no advance shall be made by us to an officer except by
reason of the fact that such officer is or was our 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 us.
-57-
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
------------------------------------------------
During the period of October 1, 2011 through July 15, 2013, we have made the
following unregistered sales or issuances of securities.
DATE OF SALE TITLE OF SECURITIES NO. OF SHARES CONSIDERATION CLASS OF PURCHASER
------------------ ------------------------ ---------------- ------------------------------- ---------------------
10/1/2011 Common Shares 420,000 $210,000 Business Associates
through
12/31/2011
Shares of South Uintah
pursuant to the Amended Share Shareholders of
1/23/12 Common Shares 11,446,931 Exchange and Acquisition South Uintah Gas
Agreement Properties
Warrants of South Uintah
pursuant to the Amended Share Warrant holders of
1/23/12 Warrants 2,000,000 Exchange and Acquisition South Uintah Gas
Agreement Properties
Warrant holders of
Warrants of South Uintah South Uintah Gas
1/23/12 Warrants 4,700,000 pursuant to the Amended Share Properties
Exchange and Acquisition (Directors and
Agreement Officers)
2/29/12 Common Shares 69,000 Services Business Associate
3/31/12 Common Shares 410,000 $205,000 Business Associate
April 2012 - May Common Shares 55,000 Services Business Associate
2012
May 2012 Common Shares 205,000 $102,500 Business Associate
May 2012 Common Shares 25,000 Interest Business Associate
May 2012 Convertible Promissory - $25,000 Business Associate
Note
June 2012 Common Shares 191,618 Outstanding Invoices Business
Associate/Affiliate
10/1/2011 Common Shares 1,035,000 $517,500 Business Associates
through 6/27/12
September 2012 Common Shares 50,724 Conversion of Convertible Business Associate
Promissory Note
September 2012 Common Shares 100,000 $50,000 Business Associate
-58-
|
September 2012 Common Shares 23,250 Consulting Services Business Associate
December 2012 Common Shares 200,000 $100,000 Business Associate
December 2012 Common Shares 10,000 Consulting Services Business Associate
December 2012 Common Shares 50,000 Interest Business Associate
December 2012 Common Shares 1,400,000 Litigation Settlement Business Associate
December 2012 Warrants 800,000 Litigation Settlement Business Associate
December 2012 Subscription Agreement 500,000 $250,000 Business Associate
January 2013 Common Shares 850,000 $425,000 Business Associate
through February
2013
February 2013 Common Shares 10,000 Services Business Associate
March 2013 Common Shares 50,000 Interest Business Associate
April 2013 Common Shares 790,000 $395,000 Business Associate
April 2013 Common Shares 60,000 Warrant Exercise Warrant Holder
April 2013 Common Shares 25,000 Investor Services Business Associate
April 2013 Convertible Promissory -- $75,000 Business Associates
Notes
May 2013 Common Shares 336,000 Warrant Exercise Warrant Holders
June 2013 Common Shares 50,000 Oil and Gas Prospects Business Associate
June 2013 Common Shares 62,242 Oil and Gas Prospects Business Associate
July 2013 Common Shares 1,604,000 Warrant Exercise Warrant Holders
|
-59-
EXEMPTION FROM REGISTRATION CLAIMED
All of the above sales by the Company of its unregistered securities were made
by the Company in reliance upon Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). All of the individuals
and/or entities that purchased the unregistered securities were primarily
existing shareholders, known to the Company and its management, through
pre-existing business relationships, as long standing business associates and
employees. All purchasers were provided access to all material information,
which they requested, and all information necessary to verify such information
and were afforded access to management of the Company in connection with their
purchases. All purchasers of the unregistered securities acquired such
securities for investment and not with a view toward distribution, acknowledging
such intent to the Company. All certificates or agreements representing such
securities that were issued contained restrictive legends, prohibiting further
transfer of the certificates or agreements representing such securities, without
such securities either being first registered or otherwise exempt from
registration in any further resale or disposition.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
--------- --------------------------------------------------------- ---------------------
NUMBER DESCRIPTION
3.1 Articles of Incorporation of Hinto Energy, Inc. (1)
3.2 Bylaws of Garner Investments, Inc. now known as Hinto (1)
Energy, Inc.
3.3 Amendment to Articles of Incorporation of Hinto Energy, (7)
Inc.
3.4 Articles of Incorporation of South Uintah Gas (8)
Properties, Inc.
3.5 Amendment to Articles of Incorporation of South Uintah (8)
Gas Properties, Inc.
3.6 Bylaws of South Uintah Gas Properties, Inc. (8)
4.1 Form of Vesting Warrants (11)
4.2 Form of $0.50 Warrants (11)
5.1 Opinion re: Legality Filed Herewith
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 Sale and Purchase Agreement, dated November 2, 2011 (11)
10.9 Amendment to Sale and Purchase Agreement, dated April (9)
19, 2012
10.10 Asset and Purchase Agreement, dated May 9, 2012 (10)
10.11 Consulting Agreement with George Harris (11)
Acquisition and Purchase Agreement with Pride Ventures,
(12) LLC and James Woolsey, dated June 4, 2013
10.12 Sale and Purchase Agreement with S & L Energy, Inc., (13)
dated June 14, 2013
10.13 Sale and Purchase Agreement with Jake Oil, LLC, dated (14)
June 14, 2013
23.1 Consent of Attorney Filed Herewith
23.2 Consent of Accountant Filed Herewith
101.INS XBRL Instance Document Filed Herewith (15)
101.SCH XBRL Taxonomy Extension Schema Document Filed Herewith (15)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document Filed Herewith (15)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document Filed Herewith (15)
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101.LAB XBRL Taxonomy Extension Label Linkbase Document Filed Herewith (15)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document Filed Herewith (15)
--------- --------------------------------------------------------- ---------------------
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(1)Incorporated by reference from the exhibits included in the Company's SB-2
Registration Statement filed with the Securities and Exchange Commission
(www.sec.gov), dated November 13, 2007.
(2)Incorporated by reference from the exhibits included in the Company's second
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 23, 2008.
(3)Incorporated by reference from the exhibits included in the Company's fifth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated December 2, 2009.
(4)Incorporated by reference from the exhibits included in the Company's sixth
Amended Registration Statement filed on Form S-1/A with the Securities and
Exchange Commission (www.sec.gov), dated April 27, 2011.
(5)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated July 12,
2011.
(6)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (www.sec.gov), dated August 5,
2011.
(7)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated August
17, 2011.
(8)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated January
23, 2012.
(9)Incorporated by reference from the exhibits included in the Company's Form 8K
filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated May 3,
2012.
(10)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.
(11)Incorporated by reference from the exhibits included in the Company's Form
S-1 filed with the Securities and Exchange Commission (WWW.SEC.GOV), dated July
3, 2012.
(12)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
20, 2013.
(13)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
19, 2013.
(14)Incorporated by reference from the exhibits included in the Company's Form
8K filed with the Securities and Exchange Commission (WWW.SEC.GOV), filed June
18, 2013.
(15)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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ITEM 17. UNDERTAKINGS
We hereby undertake the following:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement, or most recent
post-effective amendment, which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
To remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
Offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to the directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of the directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of the directors, officers, or controlling
persons in connection with the securities being registered, we will unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
For determining liability under the Securities Act, to treat the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant under Rule 424(b) (1) or (4) or 497(h) under the Securities Act as
part of this Registration Statement as of the time the Commission declared it
effective.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and authorized this Registration
Statement to be signed on our behalf by the undersigned, thereunto duly
authorized, in the City of Arvada, State of Colorado, on July 17, 2013.
HINTO ENERGY, INC.
/s/ George Harris July 17, 2013
-------------------------------------------------------------
George Harris
(Chief Executive Officer and Chief Financial
Officer/Principal Accounting Officer and Principal
Executive Officer)
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In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ George Harris July 17, 2013
------------------------------------------------------------
George Harris, Director
/s/ Gary Herick July 17, 2013
------------------------------------------------------------
Gary Herick, Director
/s/ J. David Keller July 17, 2013
------------------------------------------------------------
J. David Keller, Director
/s/ Kevin Blair July 17, 2013
------------------------------------------------------------
Kevin Blair, Director
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Hinto Energy (PK) (USOTC:HENI)
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De May 2024 a Jun 2024
Hinto Energy (PK) (USOTC:HENI)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024
