Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
NOTE 1 - BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Hinto Energy, Inc. ("the Company") was incorporated in February 13, 1997 in the
state of Wyoming. The Company and its wholly-owned subsidiary, South Uintah Gas
Properties, Inc. are involved in the acquisition and development of oil and gas
prospects in the rocky mountain region. The Company has oil and gas leases,
wells and new drilling prospects in both Utah and Montana.
The Company's fiscal year end is December 31st. The Company's financial
statements are presented on the accrual basis of accounting under GAAP
(Generally Accepted Accounting Principles).
BASIS OF PRESENTATION
CONSOLIDATION
The accompanying audited consolidated financial statements include the accounts
of Hinto Energy, Inc. and its wholly owned subsidiary, South Uintah Gas
Properties, Inc. (collectively the "Company"). All intercompany balances and
transactions have been eliminated in consolidation.
INTERIM PRESENTATION
In the opinion of the management of the Company, the accompanying unaudited
consolidated financial statements include all material adjustments, including
all normal and recurring adjustments, considered necessary to present fairly the
financial position and operating results of the Company for the periods
presented. The financial statements and notes do not contain certain information
included in the Company's financial statements for the year ended December 31,
2013. It is the Company's opinion that when the interim financial statements are
read in conjunction with the December 31, 2013 Audited Financial Statements, the
disclosures are adequate to make the information presented not misleading.
Interim results are not necessarily indicative of results for a full year or any
future period.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
-6-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed principally on the straight-line method
over the estimated useful life of each type of asset which ranges from five to
seven years. Maintenance and repairs are charged to expense as incurred;
improvements and betterments are capitalized. Upon retirement or disposition,
the related costs and accumulated depreciation are removed from the accounts,
and any resulting gains or losses are credited or charged to income.
Life in September 30, December 31,
Asset Type Years 2014 2013
------------------------------- ------------ --------------- ---------------
Machinery 5 - 7 $ 168,409 $ 59,067
------------ --------------- ---------------
Subtotal 168,409 59,067
Less Accumulated Depreciation (22,684) (7,754)
------------ --------------- ---------------
Net Book Value $ 145,725 $ 51,313
============ =============== ===============
|
OIL AND GAS PROPERTIES, FULL COST METHOD
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
The Company performs a quarterly "ceiling test" calculation to test its oil and
gas properties for possible impairment. The primary components impacting this
calculation are commodity prices, reserve quantities added and produced, overall
development costs, depletion expense, and tax effects. If the net capitalized
cost of the Company's oil and gas properties subject to amortization (the
carrying value) exceeds the ceiling limitation, the excess would be charged to
expense. The ceiling limitation is equal to the sum of the present value
discounted at 10% of estimated future net cash flows from proved reserves, the
cost of properties not being amortized, the lower of cost or estimated fair
value of unproved properties included in the costs being amortized, and all
related tax effects. At September 30, 2014, the calculated value of the ceiling
limitation exceeded the carrying value of the Company's oil and gas properties
subject to the test, and no impairment was necessary.
-7-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
IMPAIRMENT
The Company reviews long-lived assets held for use, principally oil and gas
leases, for impairment when events or circumstances indicate that their carrying
value may not be recoverable. Impairment exists if the carrying amount of the
long-lived asset is not recoverable from the undiscounted cash flows expected
from its use and eventual disposition. We determine the amount of the impairment
loss by comparing the carrying value of the long-lived asset to its estimated
fair value. In the absence of quoted market prices, we determine estimated fair
value generally based on the present value of future probability weighted cash
flows expected from the continued use and value at sale of the long-lived asset.
REVENUE AND ACCOUNTS RECEIVABLE
The Company recognizes revenue for its production when the quantities are
delivered to, or collected by, the purchaser. Prices for such production are
generally defined in sales contracts and are readily determinable based on
certain publicly available indices. All transportation costs are included in
lease operating expenses.
ACCOUNTS RECEIVABLE -- oil and natural gas sales consist of uncollateralized
accrued revenues due under normal trade terms, generally requiring payment
within 30 to 60 days of production. The Company reviews accounts receivable
periodically and reduces the carrying amount by a valuation allowance that
reflects its best estimate of the amount that may not be collectible. No
valuation allowance was recognized as of September 30, 2014 and December 31,
2013.
DEPENDENCE ON MAJOR CUSTOMERS
During the nine months ended September 30, 2014, the Company's revenues were
attributable to sales of oil to two customers. During the year ended December
31, 2013, the Company's revenues were attributable to sales of oil to one
customer. The Company believes that there are potential alternative purchasers
and that it may be necessary to establish relationships with new purchasers.
However, there can be no assurance that the Company can establish such
relationships and that those relationships will result in an increased number of
purchasers. Although the Company is exposed to a concentration of credit risk,
the Company believes that all of its purchasers are credit worthy. The Company
had no bad debt at September 30, 2014 and December 31, 2013.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations ("AROs") associated with the retirement of tangible
long-lived assets are recognized as liabilities with an increase to the carrying
amounts of the related long-lived assets in the period incurred. The cost of the
tangible asset, including the asset retirement cost, is depreciated over the
useful life of the asset. AROs are recorded at estimated fair value, measured by
reference to the expected future cash outflows required to satisfy the
retirement obligations discounted at the Company's credit-adjusted risk-free
interest rate. Accretion expense is recognized over time as the discounted
liabilities are accreted to their expected settlement value. If estimated future
costs of AROs change, an adjustment is recorded to both the ARO and the
long-lived asset. Revisions to estimated AROs can result from changes in
retirement cost estimates, revisions to estimated inflation rates and changes in
the estimated timing of abandonment.
-8-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the nine and three months
ended September 30, 2014 and 2013, there were no potential common equivalent
shares used in the calculation of weighted average common shares outstanding as
the effect would be anti-dilutive because of the net loss.
STOCK-BASED COMPENSATION
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable, and notes payable are carried at cost,
which approximates fair value due to the short-term maturity of these
instruments.
OTHER COMPREHENSIVE INCOME
The Company has no material components of other comprehensive income (loss) and
accordingly, net loss is equal to comprehensive loss in all periods.
INCOME TAXES
Provision for income taxes represents actual or estimated amounts payable on tax
return filings each year. Deferred tax assets and liabilities are recorded for
the estimated future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying balance
sheets, and for operating loss and tax credit carry forwards. The change in
deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes in enacted tax laws on
deferred tax assets and liabilities are reflected as adjustment to the tax
provision or benefit in the period of enactment.
RECENT ACCOUNTING PRONOUNCEMENTS
There were accounting standards and interpretations issued during the nine
months ended September 30, 2014, none of which are expected to have a material
impact on the Company's financial position, operations or cash flows.
-9-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
NOTE 3 - GOING CONCERN AND MANAGEMENTS' PLAN
The Company's unaudited consolidated financial statements for the nine months
ended September 30, 2014 and 2013 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 $1,334,580 for the nine months ended September 30, 2014 ($442,998 for
the three months ended September 30, 2014), and an accumulated deficit of
$5,270,714 as of September 30, 2014.
The future success of the Company is dependent on its ability to attract
additional capital, or to find an acquisition to add value to its present
shareholders and ultimately, upon its ability to develop future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern.
NOTE 4 - OIL AND GAS LEASES
Oil and gas properties consisted of the following as of:
September 30, December 31,
2014 2013
------------------- ------------------
Proved properties $ 1,231,255 $ 1,004,300
Unproved properties - -
------------------- ------------------
$ 1,231,255 $ 1,004,300
Accumulated depletion (19,246) (5,942)
------------------- ------------------
$ 1,212,009 $ 998,358
=================== ==================
|
During the nine months ended September 30, 2014 and 2013, the Company recognized
depletion expense of $13,304 and $5,019, respectively.
RAGGED POINT, MONTANA
On August 13, 2014, the Company and Ragged Point Partners, LLC, entered into a
Purchase and Sale Agreement, in which the Company acquired all right and title
to oil and gas leases for a total of 640 gross acres in the Ragged Point Oil
Field in Musselshell County, Montana. In exchange for the leases, Company paid
$150,000 in cash and has a100% working interest.
The leases consist of 8 oil wells and 1 water supply well. The Company has begun
the early analysis of the field and wells and is developing a re-work plan for
the wells. The Company has initially placed 2 wells on production.
MASON LAKE, MONTANA
On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase
and Sale Agreement, whereby, the Company acquired all right and title to oil and
gas leases for a total of 559 gross acres in the Unit for the 1st Cat Creek
formation in Musselshell County, Montana. In exchange for such oil and gas
leases, the Company paid $25,000 in cash and a 5% carried working interest.
-10-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
The property includes 6 wells in a field to be water flooded, with 5 wells being
placed on production during 2014. With an additional 2 wells that need to be
re-worked. Additional drilling may be performed to maximize the oil recovery
from the formation.
In addition, the Company and S&L Energy, Inc. ("S&L") entered into a Purchase
and Sale Agreement, whereby the Company acquired all right and title to oil and
gas leases for a total of 722 gross acres in the Musselshell County, Montana.
The property includes 120 acres for all zones other than the 1st Cat Creek. The
1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil
LLC.
In exchange for such oil and gas leases, the Company paid $101,100 in a
combination of cash and stock, as follows: $65,000 in cash; and $36,100 payable
in restricted common stock valued at $0.58 per share (2/3 of the June 4, 2013
closing price of $0.87) for a total of 62,242 shares.
The properties are located in the Mason Lake field in Central Montana in the
Amsden (Alaska Bench) Formation which is late Mississippian to Early
Pennsylvanian in age. The Amsden formation is a combination of sandstone, shale
and limestone, which was deposited under marine conditions in the Paleozoic Era.
The Amsden Formation overlays the Tensleep Formation and is above the Heath
Formation, traditionally known as the Pennsylvanian Tyler Sand Play area. The
1st Cat Creek is at a depth of approximately 4,200 feet and is above the Amsden
formation.
During the nine months ended September 30, 2014, the Company spent $203,709 in
connection with the re-working of this field. During the six months ended
December 31, 2013, the Company spent $116,447 for development costs in
connection with the re-working of this field.
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 was paid in full on May 20, 2013.
On June 4, 2013, the Company and Pride Ventures, LLC and James Woolsey entered
into a Purchase and Sale Agreement, whereby, the Company acquired all right and
title to certain mineral estates in Grand County, Utah. The transaction had a
closing date of June 17, 2013.
The mineral estates include 4,435 acres, 9 well bores and space to drill
additional wells. In addition, the Company acquired Pride's natural gas
gathering system, which interconnects with the Company's existing gathering
system, thereby reducing new pipe gathering system construction by several
miles. The Company has acquired 100% of the working interests in the estates.
-11-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
In exchange for such mineral estates, the Company paid a total of $100,000 in a
combination of cash and stock, $75,000 in cash; and $25,000 in the form of
50,000 shares of the Company's restricted common stock.
The properties are located in Grand County, Utah in the Greater Cisco area of
the Uintah Basin and are located in the vicinity of the Company's existing
properties in the Greater Cisco area.
During the nine months ended September 30, 2014, the Company expended $33,190 in
connection with the re-work on the wells of this property. During the year ended
December 31, 2013, the Company expended $100,243 in connection with the re-work
of the wells on this property.
NATURAL BUTTES
The Company purchased a farmout of deep right interests in approximately 5,366
gross and 4,887 net acres in the central part of the Uintah Basin at Natural
Buttes in Utah during July 2011 such purchase agreement was amended in December
2011. The final purchase price of the farmout interest was $478,200, made up of
$303,000 in cash, $175,000 in notes payable and $200 in common stock (2,000,000
shares.) The upper zones above approximately 9,800 feet are precluded in the
farmout and the overall targets will be zones from 9,800 feet to 16,000 feet.
During the nine months ended September30, 2014, the Company did not expend any
development costs in connection with the re-working of this well. The Company
has not abandoned the well, rather management refocused it re-work efforts on
those properties that are oil producing and closer to revenue production. The
well is connected to a pipeline and produces gas, thereby holding the lease by
production.
NOTE 5 - SUBSCRIPTIONS RECEIVED
During the three months ended March 31, 2014, the Company had outstanding
subscriptions receivable of $30,000 to purchase 60,000 shares of the Company's
restricted common stock at $0.50 per share. The funds for such shares was
received and the shares were issued during the six months ended June 30, 2014.
During the year ended December 31, 2013, the Company had outstanding
subscriptions receivable of $425,000 to purchase 850,000 shares of the Company's
restricted common stock at $0.50 per share. The Company issued the 850,000
shares in February 2014.
NOTE 6 - NOTES PAYABLES, OTHER
On July 15, 2011, as part of the purchase of the Natural Buttes properties,
South Uintah entered into two promissory notes. The first was for $100,000 had a
term of the earlier of July 5, 2013 or the completion of a $2 Million stock
offering. The second note was for $250,000, had a due date of July 5, 2013 and a
conversion rate of $5 per share. Both notes were non-interesting bearing.
In December 2011, as part of the amendment of the purchase agreement for the
Natural Buttes, the terms and the amounts of the notes were modified. The amount
of the $100,000 note was reduced to $75,000 and the due date changed to July 5,
2013. The $250,000 note was reduced to $100,000, the conversion rate of $5
removed and the due date of the note remained at July 5, 2013. At December 31,
2013, the Company owed $100,000 under the note. In January 2014, the Company
negotiated a discharge of the $100,000 note for $50,000 and paid the note in
full.
-12-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
In July 2012, the Company re-negotiated the terms of the original $75,000 note
in exchange for $5,000 principal payment on the note. As a result, the Company
re-issued the note for a principal of $70,000, a new due date of July 5, 2013
and for payments of $5,000 to be made on a monthly basis. As of December 31,
2013, the Company had made total principal payments of $55,000 leaving a
principal balance of $15,000 on the note. The Holder of the note has verbally
agreed to the extension of the term of the note and final payment was made in
May 2014.
NOTE 7 - LONG TERM NOTE PAYABLES, CONVERTIBLE
$2 MILLION CONVERTIBLE PROMISSORY NOTE
On January 22, 2014, the Company issued a Secured Convertible Promissory Note in
exchange for cash of $2,000,000 in order to support continuing operations and
the Company's re-completion and drilling plans in its oil and gas fields in Utah
and Montana.
The Secured Convertible Promissory Note has a term of 3 years and accrues
interest at a rate of 10% per annum with quarterly interest payments starting in
July 2014. The Note is convertible into shares of the Company's common stock at
a rate of $1.25 per share. Since the stock price was below this at the time of
signing the note was issued at a premium so no value is apportioned to the
conversion feature when recording the issuance per ASC 470-20-05. The debt and
its interest are reported as if it were a nonconvertible debt. Upon Conversion,
the stock may be valued at either the book value or the market value. The Note
has provisions for issuance of up to 480,000 warrants exercisable for shares of
the Company's common stock, such warrants to be issued to the Note holder based
on the amount of note principal converted into common stock, if any. The
warrants, if issued, would have a term of 3 years from the issuance of the
promissory note and an exercise price of $2.00 per share.
The Note is secured by the assets consisting of the Company's leases and wells
in the Mason Lake Filed in Musselshell County, Montana.
During the nine months ended September 30, 2014, the Company paid accrued
interest of $64,658 through the issuance of 129,315 shares of its restricted
common stock. At September 30, 2014, the note has accrued interest of $67,397.
CLASS A CONVERTIBLE PROMISSORY NOTES
During the year ended December 31, 2013, the Company issued its Class A Secured
Convertible Promissory Notes ("Class A Promissory Notes") in exchange for
$75,000, used to support ongoing operations. The Class A Promissory Notes have a
term of 3 years an accrue interest at a rate of 12% per annum. The Class A
Promissory Notes are convertible into shares of the Company's common stock at a
rate of $1.00 per share. In addition, for every $5.00 in principal converted,
the note holder will receive a warrant to purchase one (1) common share with a
purchase price of $2.00 per share. The Warrant would have a term of 3 years from
the issuance date of the Class A Promissory Note.
In December 2011, the Company, in exchange for cash, issued a $500,000, secured
three-year note payable, convertible at a $1 per share and bearing interest at
10% per annum, with interest payable quarterly. The note is secured by a well
bore held by South Uintah in the Natural Buttes area. During the quarter ended
June 30, 2013, the Company issued the holder a Class A Promissory Note, as a
replacement of the original note, with the terms described above, plus 100,000
-13-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
warrants to purchase common shares with a purchase price of $2.00 per share. The
Warrant would have a term of 3 years from the issuance date of the Class A
Promissory Note.
At September 30, 2014, the Company had $575,000 in outstanding Class A
Promissory Notes and has accrued $17,391 in interest in connection with the
Class A Promissory Notes. It has issued a total of 122,607 shares of its
restricted common stock as payment of interest of $58,563 during the nine months
ended September 30, 2014.
NOTE 8 - COMMITMENTS & CONTINGENCIES
LEASES
The Company sub-lets furnished office space from a third party on a month to
month basis. The Company has approximately 400 square feet and pays $1,000 per
month for the space.
GENERAL
There have been significant changes in the U.S. economy, oil and gas prices and
the finance industry which have adversely affected and may continue to adversely
affect the Company in its attempt to obtain financing or in its process to
produce commercially feasible oil and gas production.
Federal, state and local authorities regulate the oil and gas industry. In
particular, gas and oil production operations and economics are affected by
environmental protection statutes, tax statutes and other laws and regulations
relating to the petroleum industry, as well as changes in such laws, changing
administrative regulations and the interpretations and application of such laws,
rules and regulations. The Company believes it is in compliance with all
federal, state and local laws, regulations, and orders applicable to the Company
and its properties and operations, the violation of which would have a material
adverse effect on the Company or its financial condition.
OPERATING HAZARDS AND INSURANCE
The gas and oil business involves a variety of operating risks, including the
risk of fire, explosions, blow-outs, pipe failure, abnormally pressured
formation, and environmental hazards such as oil spills, gas leaks, ruptures or
discharges of toxic gases, the occurrence of any of which could result in
substantial losses to the Company due to injury or loss of life, severe damage
to or destruction of property, natural resources and equipment, pollution or
other environmental damage, cleanup responsibilities, regulatory investigation
and penalties and suspension of operations.
The Company to date has not acquired its own insurance coverage over its
interests in the properties, instead the Company has relied on the third party
operators for its properties to maintain insurance to cover its operations;
however, the Company may purchase additional insurance coverage when necessary.
There can be no assurance that insurance, if any, will be adequate to cover any
losses or exposure to liability. Although the Company believes that the policies
obtained by the third party operators provide coverage in scope and in amounts
customary in the industry, they do not provide complete coverage against all
operating risks. An uninsured or partially insured claim, if successful and of
significant magnitude, could have a material adverse effect on the Company and
its financial condition via its contractual liability to the prospect.
-14-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
TITLE TO PROPERTIES
The Company's practice has been to acquire ownership or leasehold rights to oil
and natural gas properties from third parties. Most of the Company's current
operations are conducted on properties acquired from third parties. Our existing
rights are dependent on those previous third parties having obtained valid title
to the properties. Prior to the commencement of gas drilling operations on those
properties, the third parties customarily conduct a title examination. The
Company generally does not conduct examinations of title prior to obtaining its
interests in its operations, but rely on representations from the third parties
that they have good, valid and enforceable title to the oil and gas properties.
Based upon the foregoing, we believe that we have satisfactory title to our
producing properties in accordance with customary practices in the gas industry.
The Company is not aware of any title deficiencies as of the date of these
financial statements.
NOTE 9 - STOCKHOLDERS' EQUITY
COMMON STOCK
The authorized common stock of the Company is 50,000,000 shares of common stock
with a $0.001 par value. At September 30, 2014, the Company had 21,593,761
shares of its common stock issued and outstanding.
During the nine months ended September 30, 2014, the Company issued 910,000
shares of its restricted common stock as payment for an outstanding subscription
agreement of $455,000.
During the nine months ended September 30, 2014, the Company issued 160,000
shares of its restricted common stock for services valued at $80,000.
During the nine months ended September 30, 2014, the Company issued 251,192
shares of its restricted stock as a payment of $125,961 in interest on its
outstanding long term $500,000 convertible 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
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 nine months ended September 30, 2014
and the year ended December 31, 2013, the Board did not approve the grant of any
options to purchase shares of common stock, nor the conditions, performance or
vesting requirements.
-15-
HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
WARRANTS
A summary of warrant activity for the nine months ended September 30, 2014 is
presented below:
Weighted Average
---------------------------
Remaining
Shares Under Exercise Contractual
Warrant Price Life
---------------- -------------- ------------
Outstanding at December 31, 2013 5,600,000 $1.54 2.29
Granted 60,000 0.65 2.62
Exercised - - -
Expired (4,125,000) - -
---------------- -------------- ------------
Outstanding at September 30, 2014 1,535,000 $0.55 2.44
================ ============== ============
|
ISSUANCE
In May 2014, as part of a Consulting Agreement for one-year, the Company issued
a warrant exercisable for 60,000 shares of the Company's restricted common
stock. The warrant has a term of 3 years and an exercise price of $0.65 per
share. The Warrant has a vesting rate of 5,000 shares per month. Using
Black-Scholes, the Company valued the warrant at $25,800 and is amortizing the
value of the warrant over the year period of the Consulting Agreement.
The fair value of the warrant granted was estimated as of the grant date using
the Black-Scholes option pricing model with the following assumptions:
Volatility 156%
Expected Warrant Term 1.5 years
Risk-free interest rate 0.09%
Expected dividend yield 0.00%
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The expected term of the options and warrants granted and sold were estimated to
be the contractual term. The expected volatility was based on an average of the
volatility disclosed based upon comparable companies who had similar expected
option terms. The risk-free rate was based on the one-year U.S. Treasury bond
rate.
EXPIRATION
During the nine months ended September 30, 2014 warrants exercisable for a total
of 4,125,000 shares at prices ranging from $1.00 to $3.00 and held by officers
and directors of the Company expired.
NOTE 10 - INCOME TAXES
The Company is subject to domestic income taxes. The Company has recognized
minimal income during the nine months ended September 30, 2014, and therefore
has paid no income tax.
Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carry-forwards. The NOL carry forwards expire in various years through
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HINTO ENERGY, INC.
Notes to the Consolidated Financial Statements
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited)
2034. The Company's deferred tax assets are offset by a valuation allowance due
to the uncertainty of the realization of the NOL carry-forwards. NOL
carry-forwards may be further limited by a change in company ownership and other
provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
Estimated NOL Valuation Net Tax
Carry-forward benefit Allowance Benefit
=====================================================
September 30, 2014 $1,051,296 $(1,051,296) -
December 31, 2013 $784,380 $(784,380) -
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NOTE 11 - SUBSEQUENT EVENTS
The Company has evaluated it activities subsequent to September 30, 2014 and
through the issuance of the financial statements and found no other reportable
subsequent events.
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