10-Q 1 hinto10qmarch2015vfinal.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ----------------- FORM 10Q ----------------- (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2015 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________ to ___________ Commission file number: 000-26317 HINTO ENERGY, INC. ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) WYOMING 84-1384961 ------------------------ ------------------------ (State of Incorporation) (IRS Employer ID Number) 5350 SOUTH ROSLYN STREET, SUITE 400, GREENWOOD VILLAGE, CO 80111 ------------------------------------------------------------------ (Address of principal executive offices) 303-647-4850 ------------------------------------------------------------------ (Registrant's Telephone number) ------------------------------------------------------------------ (Former Address and phone of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 for Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X ] No [ ] Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 15, 2015 there were 21,859,994 shares of the registrant's common stock issued and outstanding. PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements (Unaudited) 1 Balance Sheets - March 31, 2015 and December 31, 2014 2 Statements of Operations - For Three Months Ended March 31, 2015 and 2014 3 Statements of Changes in Shareholders' (Deficit) Equity - For the Three Months Ended March 31, 2015 4 Statements of Cash Flows - For the Three Months Ended March 31, 2015 and 2014 5 Notes to the Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk - NOT APPLICABLE 22 Item 4. Controls and Procedures 22 PART II - OTHER INFORMATION Item 1. Legal Proceedings - NOT APPLICABLE 23 Item 1A. Risk Factors - NOT APPLICABLE 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities - NOT APPLICABLE 24 Item 4. Mine Safety Disclosure - NOT APPLICABLE 24 Item 5. Other Information - NOT APPLICABLE 24 Item 6. Exhibits 24 SIGNATURES 25 PART I ITEM 1. FINANCIAL STATEMENTS ---------------------------- -1-

HINTO ENERGY, INC. CONSOLIDATED BALANCE SHEETS ~~September~~March 3031, December 31, 2015 2014 ~~2013~~ --------------- --------------- (Unaudited) (Audited) ~~ASSETS~~Assets Current Assets: Cash $ ~~473~~66,~~922~~670 $ 97356,~~716~~506 Accounts Receivable 5624,~~978~~908 2930,~~886~~249 Deposits 4310,~~568~~864 217,~~013~~963 --------------- --------------- Total Current Assets ~~574~~102,~~468~~442 ~~129~~404,~~615~~718 --------------- --------------- Property and Equipment: Machinery, net of accumulated depreciation of $2235,~~684~~605 and $728,~~754~~471, respectively ~~145~~157,~~725~~139 51164,~~313~~274 Development of Technological Process ~~149~~265,~~331~~043 74258,~~445~~223 --------------- --------------- Total Property and Equipment ~~295~~422,~~056~~182 ~~125~~422,~~758~~497 Oil and Natural Gas Properties: Proved Properties 1,~~231~~224,255 1,~~004~~224,~~300~~255 Unproved Properties - - Other Property and Equipment ~~767~~1,~~729~~141,817 ~~437~~1,~~109~~090,601 Less Accumulated Depreciation and Depletion (~~130~~206,~~199~~531) (58165,~~624~~544) --------------- --------------- Total Oil and Natural Gas Properties 12,~~868~~159,~~785~~541 12,~~382~~149,~~785~~312 --------------- --------------- Other Assets: Deposits 162,500 ~~135~~162,500 --------------- --------------- ~~TOTAL~~Total ~~ASSETS~~Assets $ 2,~~900~~846,~~809~~665 $ 13,~~773~~139,~~658~~027 =============== =============== ~~LIABILITIES~~Liabilities ~~AND~~and ~~STOCKHOLDERS~~Stockholders' (~~DEFICIT~~Deficit) ~~EQUITY~~Equity Current ~~Liabilities~~liabilities Accounts ~~Payable~~payable $ ~~205~~346,~~241~~445 $ ~~127~~389,~~602~~682 Accrued ~~Liabilities~~liabilities ~~163~~291,~~513~~182 44188,~~136~~324 ~~Subscriptions Received~~ - ~~425,000 Notes Payable, Other~~ - ~~115,000~~ --------------- --------------- Total Current Liabilities ~~368~~637,~~754~~627 ~~711~~578,~~738~~006 Asset ~~Recovery~~recovery ~~Obligations~~obligations 168,714 ~~110~~168,~~759~~714 Long ~~Term~~term ~~Note~~note ~~Payable~~payable 23,~~575~~025,000 ~~575~~2,975,000 --------------- --------------- ~~TOTAL~~Total ~~LIABILITIES~~liabilities $ 3,~~112~~824,~~468~~533 $ 13,~~397~~721,~~497~~720 --------------- --------------- ~~STOCKHOLDERS~~Stockholders' (~~DEFICIT~~Deficit) ~~EQUITY~~Equity Preferred ~~Stock~~stock, $0.001 par value; 25,000,000 shares authorized, no shares issued and outstanding - - Common ~~Stock~~stock, $0.001 par value; 50,000,000 shares authorized, 21,~~593~~859,~~761~~994 ~~and 20,151,769~~ shares issued and outstanding at ~~September~~March 3031, ~~2014~~2015 and December 31, ~~2013~~2014, respectively 21,~~594~~860 2021,~~152~~860 Additional ~~Paid~~paid-in ~~Capital~~capital 5,~~037~~635,~~461~~616 45,~~292~~635,~~143~~616 ~~Subscription Receivable - (30,000) Common Stock, subscribed - 30,000~~ Accumulated ~~Deficit~~deficit (56,~~270~~642,~~714~~152) (36,~~936~~240,~~134~~169) --------------- --------------- Total Stockholders' (Deficit) Equity (~~211~~984,~~659~~676) ~~376~~(582,~~161~~693) --------------- --------------- Total ~~Liabilities~~liabilities and ~~Stockholders~~stockholders' ~~(Deficit)~~equity ~~Equity~~ $ 2,~~900~~846,~~809~~665 $ 13,~~773~~139,~~658~~027 =============== ===============

See the notes to these consolidated financial statements. -2- HINTO ENERGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014 (UNAUDTED) 2015 2014 --------------- -------------- Revenue: $ 65,261 $ 28,000 Direct Cost of Revenue 92,095 124,231 Depreciation and depletion 40,987 12,690 --------------- -------------- (67,821) (108,921) Operational expenses: Operating Lease expense 62,499 15,816 General and Administrative expense 87,088 108,937 Consulting fees 107,450 101,279 --------------- -------------- Total operational expenses 257,037 226,032 --------------- -------------- Other Income (Expenses) Gain on write off of accrued debt - 50,000 Interest income - - Interest expense (77,125) (49,211) --------------- -------------- Total other income (expense) (77,125) 789 --------------- -------------- Net loss $ (401,983) $ (334,164) =============== ============== Per share information Net loss per common share Basic $ (0.01) $ (0.02) Fully diluted * * =============== ============== Weighted average number of common stock outstanding 21,859,995 20,627,629 =============== ============== * Not provided as it is anti-dilutive See the notes to these consolidated financial statements. -3-

HINTO ENERGY, INC. CONSOLIDATED ~~STATEMENTS~~STATEMENT OF ~~OPERATIONS~~STOCKHOLDER'S (DEFICIT) EQUITY FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2014~~2015 ~~AND 2013~~ (UNAUDITED) ~~Three~~Common ~~Months~~Stock ~~Ended~~Additional ~~Nine~~Total ~~Months Ended September 30, September 30, 2014 2013 2014 2013~~ ----------------- ---------------- paid-~~----------------~~in ~~-----------------~~Accumulated ~~Revenue:~~Stockholders' $Number ~~159,167 $ 21,107 $ 350,506 $ 42,829 Direct Cost~~ of ~~Revenue~~Shares ~~267,365~~Amount ~~99,973~~Capital ~~442,902~~Deficit ~~190,186~~Equity ~~Depreciation and Depletion 63,569 14,301 71,575 24,239~~ ----------------- ---------------- ----------------- --------------~~---~~ (171,767) (93,167) (163,971) (171,596) Operational Expenses: Operating Lease Expense 29,027 59,050 354,774 112,351 General and Administrative Expense 62,409 50,042 359,006 302,835 Consulting Fees 111,000 106,200 339,160 254,200 ----------------- ~~----------------~~Balance -~~----------------~~ ~~-----------------~~December ~~Total Operational Expenses 202~~31,~~436~~ ~~215,292~~2014 121,~~052~~859,~~940~~994 ~~669~~$ 21,~~386~~860 ~~-----------------~~$ ~~----------------~~5,636,616 ~~-----------------~~$ ~~----------------- Other Income~~ (~~Expenses~~6,240,169) ~~Gain~~$ ~~on Write Off of Accrued Debt - - 50,000 - Litigation Settlement Expense - - -~~ (~~570~~582,693) ~~Finance~~Net ~~Expense~~Loss - - - ~~- Interest expense~~ (68401,~~795~~983) (17401,~~392~~983) ~~(167,669) (55,948)~~ ----------------- --~~--------------~~ ------------~~-----~~ ----------------- ~~Total Other Income (Expense) (68,795) (17,392) (117,669) (56,518)~~ --------------~~---~~ ---------------- ~~-----------------~~Balance -~~----------------~~ ~~Net~~December ~~Loss~~31, $2014 ~~(442~~21,~~998)~~859,994 $ ~~(325~~21,~~851)~~860 $ (15,~~334~~636,~~580)~~616 $ (~~897~~6,~~500~~642,152) ~~================= ================ ================= ================= Per Share Information Net Loss per Common Share Basic~~ $ (~~0.02~~984,676) $ (0.02) $ (0.06) $ (0.05) Fully diluted * * * * ================= ==~~==============~~ ============~~=====~~ ================= ~~Weighted average number of common stock outstanding 21,487,016 17,751,667 21,099,461 18,098,869~~ ==============~~===~~ ===============~~= ================= ================= * Not provided as it is anti-dilutive~~

See the notes to these consolidated financial statements. -4-

HINTO ENERGY, INC. CONSOLIDATED STATEMENT OF ~~STOCKHOLDER'S~~CASH ~~(DEFICIT)~~FLOWS ~~EQUITY~~ FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2014~~2015 (UNAUDITED) ~~Common~~2015 ~~Stock~~2014 ~~Common Additional Total~~ -------------- ------------- Cash Flows from Operating Activities: Net Loss $ (401,983) $ (334,164) Adjustments to net loss for non-cash ~~Subscription~~items: Accrued interest converted to stock - 26,562 Stock ~~paid~~issued for services -in ~~Accumulated~~2,500 ~~Stockholders'~~Amortization, ~~Number~~Depreciation and Depletion 48,122 15,671 Asset remediation expenses - - Gain on discount of ~~Shares~~promissory ~~Amount~~note ~~Receivable~~- ~~Subscribed~~(50,000) ~~For~~Adjustments ~~Capital~~to ~~Deficit~~reconcile net loss to net cash used in operating activities: Decrease in accounts receivable 5,341 8,560 Decrease in deposits and advances 7,099 (~~Deficit~~33,752) ~~Equity~~Increase in accounts payable (43,237) (35,075) Increase in accrued liabilities 102,858 38,898 -------------- -------------- ~~------------~~Net ~~---------------~~Cash Used by Operating Activities (281,800) (360,800) ----------- ---~~---------~~ -------------~~---~~ ~~Balance~~Cash -Flows ~~January~~from 1,Investing ~~2014~~Activities ~~20,151,769~~Purchase $of ~~20,152~~leases $- (304,000) $New ~~30,000~~well $development ~~4,292,143~~- ~~$(3,936,134)~~- $Purchase ~~376,161 Issuance~~ of ~~shares~~machinery ~~for~~and ~~cash~~equipment ~~910,000 910~~ - ~~- 454~~(19,~~090~~500) -Development ~~455,000 Issuance~~ of ~~shares~~technological ~~for~~process ~~services~~(6,820) ~~160~~(3,~~000~~154) ~~160~~Well -rework ~~- 79~~(51,~~840~~216) ~~- 80~~(52,~~000~~976) ~~Issuance of shares for interest 251,992 252~~ - ------------- ~~125,708~~ ------------- ~~125,960~~Net ~~Common~~Cash ~~stock~~Used ~~subscribed~~in ~~for~~Investing -Activities ~~- 30~~(58,~~000~~036) (3079,~~000~~630) - ------------- ------------- ~~Common~~Cash ~~stock~~Flows ~~issued~~from inFinancing ~~exchange~~Activities: ~~for~~Proceeds ~~bond~~from ~~cash~~convertible ~~120,000~~promissory ~~120~~notes ~~- - 59~~50,~~880~~000 ~~- 60~~2,000,000 ~~Warrant~~Payments ~~issued~~on ~~for~~other ~~services~~notes -payable - ~~- - 25~~(60,~~800~~000) -Increase ~~25,800~~in ~~Net~~stock ~~Loss~~subscriptions -payable - ~~- - - (1~~30,~~334,580)~~000 ~~(1,334,580)~~ -------------- ---- --------- Net Cash Provided by Financing Activities 50,000 1,970,000 ------------ -- ------------- Net (Decrease) Increase in Cash (289,836) 1,529,570 Cash and Cash Equivalents - Beginning of Period 356,506 97,716 ---------- ----~~--------~~ --------------- ~~Balance~~Cash and Cash Equivalents - ~~September~~End ~~30,~~of ~~2014~~Period 21$ 66,~~593,761~~670 $ 211,~~594~~627,286 $============== -============= $SUPPLEMENTAL -DISCLOSURE $OF ~~5,037,461~~CASH FLOW INFORMATION: Cash paid for interest expense $~~(5,270,714)~~ - $ ~~(211,659)~~- ============== ==== ========= Cash paid for income taxes $ - $ - ============ == ============= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Subscription Receivable $ - $ (30,000) ============== ============= Amortization of Warrant issued for services $ - $ - ============== =============

See the notes to these consolidated financial statements. -5- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) NOTE 1 - BUSINESS AND BASIS OF PRESENTATION ------------------------------------------- BUSINESS Hinto Energy, Inc. ("the Company") was incorporated in February 13, 1997 in the state of Wyoming. The Company and its wholly-owned subsidiary, South Uintah Gas Properties, Inc. ("South Uintah") are involved in the acquisition and development of oil and gas prospects. The Company has oil and gas leases, wells and new drilling prospects in Ohio, Utah and Montana. BASIS OF PRESENTATION The Company's fiscal year end is December 31st. The Company's financial statements are presented on the accrual basis of accounting under GAAP (Generally Accepted Accounting Principles). CONSOLIDATION The accompanying audited consolidated financial statements include the accounts of Hinto Energy, Inc. and its wholly owned subsidiary, South Uintah Gas Properties, Inc. (collectively the "Company"). All intercompany balances and transactions have been eliminated in consolidation. NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES ---------------------------------------- USE OF ESTIMATES The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less and money market instruments to be cash equivalents. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally on the straight-line method over the estimated useful life of each type of asset which ranges from five to seven years. Maintenance and repairs are charged to expense as incurred; improvements and betterments are capitalized. Upon retirement or disposition, the related costs and accumulated depreciation are removed from the accounts, and any resulting gains or losses are credited or charged to income. -6- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) LIFE IN ASSET TYPE YEARS MARCH 31, 2015 DECEMBER 31, 2014 -------------------------------- ---------- ----------------- ----------------- Machinery 5 - 7 $ 192,745 $ 192,745 ---------- ----------------- ----------------- Subtotal 192,745 192,745 Less Accumulated Depreciation (35,606) (28,471) ---------- ----------------- ----------------- Net Book Value $ 157,139 $ 164,274 ========== ================= ================= During the three months ended March 31, 2015 and the year ended December 31, 2014, the Company has been working to develop its own proprietary technological process for re-energizing wells, that focuses on the use of the water jetting to expand production of wells. At this time the Company, is capitalizing those costs incurred in the design and building of the prototypes for the process used in testing and as the process is still in the testing stage, has not depreciated the values. At March 31, 2015 and December 31, 2024, the Company has booked $265,043 and $258,223, respectively to the process. OIL AND GAS PROPERTIES, FULL COST METHOD The Company uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized. Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. The Company assesses the realization of unproved properties, taken as a whole, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Costs of oil and gas properties will be amortized using the units of production method. The Company performs a quarterly "ceiling test" calculation to test its oil and gas properties for possible impairment. The primary components impacting this calculation are commodity prices, reserve quantities added and produced, overall development costs, depletion expense, and tax effects. If the net capitalized cost of the Company's oil and gas properties subject to amortization (the carrying value) exceeds the ceiling limitation, the excess would be charged to expense. The ceiling limitation is equal to the sum of the present value discounted at 10% of estimated future net cash flows from proved reserves, the cost of properties not being amortized, the lower of cost or estimated fair value of unproved properties included in the costs being amortized, and all related tax effects. At December 31, 2014, the calculated value of the ceiling limitation exceeded the carrying value of the Company's oil and gas properties subject to the test, and no impairment was necessary. -7- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) IMPAIRMENT The Company reviews long-lived assets held for use, principally oil and gas leases, for impairment when events or circumstances indicate that their carrying value may not be recoverable. Impairment exists if the carrying amount of the long-lived asset is not recoverable from the discounted cash flows expected from its use and eventual disposition. We determine the amount of the impairment loss by comparing the carrying value of the long-lived asset to its estimated fair value. In the absence of quoted market prices, we determine estimated fair value generally based on the present value of future probability weighted cash flows expected from the continued use and value at sale of the long-lived asset. REVENUE AND ACCOUNTS RECEIVABLE The Company recognizes revenue for its production when the quantities are delivered to, or collected by, the purchaser. Prices for such production are generally defined in sales contracts and are readily determinable based on certain publicly available indices. All transportation costs are included in lease operating expenses. Accounts receivable -- oil and natural gas sales consist of uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 to 60 days of production. The Company reviews accounts receivable periodically and reduces the carrying amount by a valuation allowance that reflects its best estimate of the amount that may not be collectible. No valuation allowance was recognized as of March 31, 2015 and December 31, 2014. DEPENDENCE ON MAJOR CUSTOMERS During the three months ended March 31, 2015 and 2014, the Company's revenues were attributable to sales of oil to two customers. The Company believes that there are potential alternative purchasers and that it may be necessary to establish relationships with new purchasers. However, there can be no assurance that the Company can establish such relationships and that those relationships will result in an increased number of purchasers. Although the Company is exposed to a concentration of credit risk, the Company believes that all of its purchasers are credit worthy. The Company had no bad debt for the three months ended March 31, 2015 and the year ended December 31, 2014. ASSET RETIREMENT OBLIGATIONS Asset retirement obligations ("AROs") associated with the retirement of tangible long-lived assets are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets in the period incurred. The cost of the tangible asset, including the asset retirement cost, is depreciated over the useful life of the asset. AROs are recorded at estimated fair value, measured by reference to the expected future cash outflows required to satisfy the retirement obligations discounted at the Company's credit-adjusted risk-free interest rate. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value. If estimated future costs of AROs change, an adjustment is recorded to both the ARO and the long-lived asset. Revisions to estimated AROs can result from changes in retirement cost estimates, revisions to estimated inflation rates and changes in the estimated timing of abandonment. NET LOSS PER SHARE Basic net loss per common share is calculated by dividing the net loss applicable to common shares by the weighted average number of common and common equivalent shares outstanding during the period. For the three months ended -8- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) March 31, 2015, there were no potential common equivalent shares used in the calculation of weighted average common shares outstanding as the effect would be anti-dilutive because of the net loss. STOCK-BASED COMPENSATION The Company adopted the provisions of and accounts for stock-based compensation using an estimate of value in accordance with the fair value method. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which generally is the vesting period. The Company elected the modified-prospective method, under which prior periods are not revised for comparative purposes. The valuation method applies to new grants and to grants that were outstanding as of the effective date and are subsequently modified. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and notes payable are carried at cost, which approximates fair value due to the short-term maturity of these instruments. OTHER COMPREHENSIVE INCOME The Company has no material components of other comprehensive income (loss) and accordingly, net loss is equal to comprehensive loss in all periods. INCOME TAXES Provision for income taxes represents actual or estimated amounts payable on tax return filings each year. Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets, and for operating loss and tax credit carry forwards. The change in deferred tax assets and liabilities for the period measures the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustment to the tax provision or benefit in the period of enactment. RECENT ACCOUNTING PRONOUNCEMENTS In August 2014, the FASB issued ASU 2014-15, PRESENTATION OF FINANCIAL STATEMENTS - GOING CONCERN: DISCLOSURE OF UNCERTAINTIES ABOUT AN ENTITY'S ABILITY TO CONTINUE AS A GOING CONCERN. This update requires an entity's management to evaluate for each annual and interim reporting period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued. The update further requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans, and requires an express statement and other disclosures when substantial doubt is not alleviated. This amendment is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and financial statement disclosures. -9- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) There were accounting standards and interpretations issued during the three months ended March 31, 2015, none of which are expected to have a material impact on the Company's financial position, operations or cash flows. NOTE 3 - GOING CONCERN AND MANAGEMENTS' PLAN -------------------------------------------- The Company's unaudited consolidated financial statements for the three months ended March 31, 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $401,983 for the three months ended March 31, 2015, and an accumulated deficit of $6,642,152 as of March 31, 2015. At March 31, 2015, the Company had a working capital deficit of $(535,185). The future success of the Company is dependent on its ability to attract additional capital and ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations. Management believes that actions presently being taken to revise the Company's operating and financial requirements provide the opportunity for the Company to continue as a going concern. NOTE 4 - OIL AND GAS LEASES --------------------------- Oil and gas properties consisted of the following as of March 31, 2015 and December 31, 2014: MARCH 31, DECEMBER 31, 2015 2014 ------------------- ------------------ Proved properties $ 1,224,255 $ 1,224,255 Unproved properties - - ------------------- ------------------ $ 1,224,255 $ 1,224,255 Accumulated depletion 39,388 32.820 ------------------- ------------------ $ 1,184,867 $ 1,191,435 =================== ================== During the three months ended March 31, 2015, the Company recognized a depletion expense of $39,388 and $32,820, during the year ended December 31, 2014. MUSSELSHELL COUNTY, MONTANA On June 14, 2013, the Company and Jake Oil, LLC ("Jake") entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to oil and gas leases for a total of 559 gross acres in the Unit for the 1st Cat Creek formation in Musselshell County, Montana. In exchange for such oil and gas leases, the Company paid $25,000 in cash and a 5% carried working interest. The property includes 6 wells in a field being water flooded, with 4 oil wells placed on production, a water source well and an injection well. Additional drilling may be performed to maximize the oil recovery from the formation. In addition, the Company and S&L Energy, Inc. ("S&L") entered into a Purchase and Sale Agreement, whereby the Company acquired all right and title to oil and gas leases for a total of 722 gross acres in the Musselshell County, Montana. -10- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) The property includes 120 acres for all zones other than the 1st Cat Creek. The 1st Cat Creek formation on the 120 acres was previously acquired from Jake Oil LLC. In exchange for such oil and gas leases, the Company paid $101,100 in a combination of cash and stock, as follows: $65,000 in cash; and $36,100 payable in restricted common stock valued at $0.58 per share (2/3 of the June 4, 2013 closing price of $0.87) for a total of 62,242 shares. The properties are located in the Mason Lake field in Central Montana in the Amsden (Alaska Bench) Formation which is late Mississippian to Early Pennsylvanian in age. The Amsden formation is a combination of sandstone, shale and limestone, which was deposited under marine conditions in the Paleozoic Era. The Amsden Formation overlays the Tensleep Formation and is above the Heath Formation, traditionally known as the Pennsylvanian Tyler Sand Play area. The 1st Cat Creek is at a depth of approximately 4,200 feet and is above the Amsden formation. RAGGED POINT, MONTANA On August 13, 2014, the Company and Ragged Point Partners, LLC, entered into a Purchase and Sale Agreement, in which the Company acquired all right and title to oil and gas leases for a total of 640 gross acres in the Ragged Point Oil Field in Musselshell County, Montana. In exchange for the leases, Company paid $150,000 in cash and has a 100% working interest. The leases consist of 8 oil wells and 1 water supply well. The Company has begun the early analysis of the field and wells and is developing a re-work plan for the wells. The Company has initially placed 2 wells on production. CISCO, UTAH On May 9, 2012, the Company and Pacific Energy and Mining Company ("Pacific") entered into an Asset Purchase and Sale Agreement ("The Pacific Agreement"). On May 30, 2012, the Company closed the transaction. As part of the Pacific Agreement, the Company acquired certain oil and gas wells and related assets in the Greater Cisco area of the Uintah Basin in Grand County, Utah. The assets acquired include 4,783 gross acres in the Cisco Fields with an 80% Net Revenue Interest (NRI) and approximately 3,827 net acres. The property includes 27 wells that need to be re-worked, connected to a gas pipeline, or offset drilled. In exchange for such oil and gas wells and related assets, the Company paid $325,000 in a combination of cash and a convertible promissory note, as follows: $175,000 cash; and a $150,000 convertible promissory note. The convertible promissory note had an interest rate of 8% and was paid in full on May 20, 2013. On June 4, 2013, the Company and Pride Ventures, LLC and James Woolsey entered into a Purchase and Sale Agreement, whereby, the Company acquired all right and title to certain mineral estates in Grand County, Utah. The transaction had a closing date of June 17, 2013. The mineral estates include 4,435 acres, 9 well bores and space to drill additional wells. In addition, the Company acquired Pride's natural gas gathering system, which interconnects with the Company's existing gathering system, thereby reducing new pipe gathering system construction by several miles. The Company has acquired 100% of the working interests in the estates. -11- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) In exchange for such mineral estates, the Company paid a total of $100,000 in a combination of cash and stock, as follows: (a) $75,000 in cash; and $25,000 in the form of 50,000 shares of the Company's restricted common stock. The properties are located in Grand County, Utah in the Greater Cisco area of the Uintah Basin and are located in the vicinity of the Company's existing properties in the Greater Cisco area. NATURAL BUTTES The Company purchased a farmout of deep right interests in approximately 5,366 gross and 4,887 net acres in the central part of the Uintah Basin at Natural Buttes in Utah during July 2011 such purchase agreement was amended in December 2011. The final purchase price of the farmout interest was $478,200, made up of $303,000 in cash, $175,000 in notes payable and $200 in common stock (2,000,000 shares.) The upper zones above approximately 9,800 feet are precluded in the farmout and the overall targets will be zones from 9,800 feet to 16,000 feet. During the year ended December 31, 2014 and the quarter ended March 31, 2015, the Company did not expend any development costs in connection with the re-working of this well. The Company has not abandoned the well, rather management refocused it re-work efforts on those properties that are oil producing and closer to revenue production. The well is connected to a pipeline and produces gas, thereby holding the lease by production. MEDINA COUNTY, OHIO In October 2014, the Company acquired a 75% non-operated interest in an exploratory well in Medina County, Ohio in exchange for an investment of $150,000. The Company will retain a 75% non-operated interest in this initial well and any future wells developed on this property. Hinto has also established a 36 square mile AMI (area of mutual interest) with the operator, which could provide for additional drilling opportunities. At March 31, 2015, the Company had provided $176,927. The Operator drilled and completed the well during December 2014 - January 2015. In mid-January, the state of Ohio approved the well for production. NOTE 5 - LONG TERM NOTE PAYABLES, CONVERTIBLE On January 20, 2015, the Company in exchange for $50,000 issued a $50,000 unsecured convertible promissory note. The unsecured convertible promissory note has a term of 3 years, an annual interest rate of 10% and an exercisable into shares of the Company's common stock at $1.00 per share. At March 31, 2015, the note had accrued interest of $917. $2 MILLION CONVERTIBLE PROMISSORY NOTE On January 22, 2014, the Company issued a Secured Convertible Promissory Note in exchange for cash of $2,000,000 in order to support continuing operations and the Company's re-completion and drilling plans in its oil and gas fields in Utah and Montana. -12- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) The Secured Convertible Promissory Note has a term of 3 years and accrues interest at a rate of 10% per annum with quarterly interest payments starting in July 2014. The Note is convertible into shares of the Company's common stock at a rate of $1.25 per share. Since the stock price was below this at the time of signing the note was issued at a premium so no value is apportioned to the conversion feature when recording the issuance per ASC 470-20-05. The debt and its interest are reported as if it were a nonconvertible debt. Upon Conversion, the stock may be valued at either the book value or the market value. The Note has provisions for issuance of up to 480,000 warrants exercisable for shares of the Company's common stock, such warrants to be issued to the Note holder based on the amount of note principal converted into common stock, if any. The warrants, if issued, would have a term of 3 years from the issuance of the promissory note and an exercise price of $2.00 per share. The Note is secured by the assets consisting of the Company's leases and wells in the Mason Lake Field in Musselshell County, Montana. At March 31, 2015, the note has accrued interest of $99,726. On December 31, 2014, the Company issued a Secured Convertible Promissory Note in exchange for cash of $400,000 in order to support continuing operations. The funds were received from the holder of the $2,000,000 secured convertible promissory note disclosed above. As a result of the $400,000 investment certain terms of the $2,000,000 convertible promissory note were amended. The term of the $2,000,000 Convertible Promissory Note was extended for an additional year and the exercise price lowered to $1.00. In addition the terms of the $500,000 Convertible Promissory Note, discussed below, were extended a year and its exercise price lowered to $1.00. The $400,000 Secured Convertible Promissory Note has a term of 3 years and accrues interest at a rate of 10% per annum with quarterly interest payments. The Note is convertible into shares of the Company's common stock at a rate of $1.00 per share. Since the stock price was below $1.00 at the time of signing the note was issued at a premium so no value is apportioned to the conversion feature when recording the issuance per ASC 470-20-05. The debt and its interest are reported as if it were a nonconvertible debt. Upon Conversion, the stock may be valued at either the book value or the market value. At March 31, 2015, the $400,000 Secured Convertible Promissory Note has accrued interest of $9,863. In December 2011, the Company, in exchange for cash, issued a $500,000, secured three-year note payable, convertible at a $1 per share and bearing interest at 10% per annum, with interest payable quarterly. The note is secured by a well bore held by South Uintah in the Natural Buttes area. During the quarter ended June 30, 2013, the Company issued the holder a Class A Promissory Note, as a replacement of the original note, with the terms described above, plus 100,000 warrants to purchase common shares with a purchase price of $2.00 per share. The Warrant would have a term of 3 years from the issuance date of the Class A Promissory Note. In December 2014, the note terms were revised to the extend payment to December 31, 2017. During the year ended December 31, 2013, the Company paid accrued interest through the issuance of 80,000 shares of its restricted common stock valued at $0.50 per share. During the year ended December 31, 2014, the Company paid accrued interest through the issuance of 160,416 shares of its restricted common stock valued at prices from $0.40 to $0.50. During the year ended December 31, 2013, the Company issued its Class A Secured Convertible Promissory Notes ("Class A Promissory Notes") in exchange for $75,000, used to support ongoing operations. The Class A Promissory Notes have a term of 3 years an accrue interest at a rate of 12% per annum. The Class A Promissory Notes are convertible into shares of the Company's common stock at a rate of $1.00 per share. In addition, for every $5.00 in principal converted, the note holder will receive a warrant to purchase one (1) common share with a purchase price of $2.00 per share. The Warrant would have a term of 3 years from the issuance date of the Class A Promissory Note. -13- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) At March 31, 2015, the Company had $575,000 in outstanding Class A Promissory Notes and has accrued $33,649 in interest in connection with the Class A Promissory Notes. In July 2011, as part of the purchase of the Natural Buttes properties, the Company entered into a promissory for $250,000 with a due date of July 5, 2013 and a conversion rate of $5 per share and non-interest bearing. In December 2011, the terms of the note were modified. The amount was reduced to $100,000 and the conversion rate was removed. In January 2014, the Company negotiated a discharge of the $100,000 note for $50,000 cash. NOTE 6 - COMMITMENTS & CONTINGENCIES ------------------------------------ LEASES The Company sub-lets furnished office space from a third party on a month to month basis. The Company has approximately 400 square feet and pays $1,000 per month for the space. GENERAL There have been significant changes in the U.S. economy, oil and gas prices and the finance industry which have adversely affected and may continue to adversely affect the Company in its attempt to obtain financing or in its process to develop commercially feasible oil and gas production. Federal, state and local authorities regulate the oil and gas industry. In particular, gas and oil production operations and economics are affected by environmental protection statutes, tax statutes and other laws and regulations relating to the petroleum industry, as well as changes in such laws, changing administrative regulations and the interpretations and application of such laws, rules and regulations. The Company believes it is in compliance with all federal, state and local laws, regulations, and orders applicable to the Company and its properties and operations, the violation of which would have a material adverse effect on the Company or its financial condition. OPERATING HAZARDS AND INSURANCE The gas and oil business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formation, and environmental hazards such as oil spills, gas leaks, ruptures or discharges of toxic gases, the occurrence of any of which could result in substantial losses to the Company due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. The Company to date has acquired its own insurance coverage for its interests in the properties to maintain insurance to cover its operations; however, the Company may purchase additional insurance coverage when necessary. There can be no assurance that insurance, if any, will be adequate to cover any losses or exposure to liability. Although the Company believes that the policies obtained by the third party operators provide coverage in scope and in amounts customary in the industry, they do not provide complete coverage against all operating risks. An uninsured or partially insured claim, if successful and of significant magnitude, could have a material adverse effect on the Company and its financial condition via its contractual liability to the prospect. -14- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) TITLE TO PROPERTIES The Company's practice has been to acquire ownership or leasehold rights to oil and natural gas properties from third parties. Most of the Company's current operations are conducted on properties acquired from third parties. Our existing rights are dependent on those previous third parties having obtained valid title to the properties. Prior to the commencement of gas drilling operations on those properties, the third parties customarily conduct a title examination. The Company generally does not conduct examinations of title prior to obtaining its interests in its operations, but rely on representations from the third parties that they have good, valid and enforceable title to the oil and gas properties. Based upon the foregoing, we believe that we have satisfactory title to our producing properties in accordance with customary practices in the gas industry. The Company is not aware of any title deficiencies as of the date of these financial statements. NOTE 7 - STOCKHOLDERS' DEFICIT ------------------------------ PREFERRED STOCK The authorized preferred stock of the Company is 25,000,000 shares. Preferred stock can be designated in any series or classes and with those rights, privileges and preferences to be determined at the discretion of the Company's Board of Directors. At March 31, 2015, the Company has not designated any series of preferred stock or issued any shares of preferred stock. COMMON STOCK The authorized common stock of the Company is 50,000,000 shares of common stock with a $0.001 par value. At March 31, 2015, the Company had 21,859,994 shares of its common stock issued and outstanding. During the three months ended March 31, 2015, the Company did not issue any shares of its common stock. SUBSCRIPTION RECEIVABLE In December 2013, the Company received a subscription for 110,000 shares of its restricted common stock for $55,000. Prior to December 31, 2013, the Company received $25,000 of the funds and is owed the remaining $30,000. During March 2014, the Company received the remaining $30,000 and issued the shares of common stock. STOCK OPTION PLAN On August 17, 2011, the Company's shareholders approved the 2011 Hinto Energy, Inc. Stock Option and Award Incentive Plan ("Plan"). The Plan provides for the grant of stock options to directors, officers, employees, consultants, and advisors of the Company. The Plan is administered by a committee consisting of members of the Board of Directors (the "Stock Option Committee"), or in its absence, the Board of Directors. The Plan provides for a total of 2,000,000 shares of common stock to be reserved for issuance subject to options. During the three months ended March 31, 2015, the Board did not approve the grant of any options to purchase shares of common stock, nor the conditions, performance or vesting requirements. -15- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) A summary of option activity for the three months ended March 31, 2015 is presented below: WEIGHTED AVERAGE AGGREGATE WEIGHTED NUMBER EXERCISE EXERCISE INTRINSIC AVERAGE OF OPTIONS PRICE PRICE VALUE (1) LIFE ------------ -------- ---------- ----------- --------- Balance, January 1, 2015 1,700,000 $0.50 $0.50 - 3 years Granted - - - - - Exercised - - - - - Expired - - - - - ------------ -------- ---------- ----------- --------- Balance, March 31, 2015 1,700,000 $0.50 $0.50 3 years ============ (1) The aggregate value of the options is less than zero, as the market price of the shares on March 31, 2015 was less than the exercise price of the option shares. WARRANTS During the three months ended March 31, 2015, the Company did not issue any warrants, nor did any warrants expire or were exercised. A summary of warrant activity for the three months ended March 31, 2015 is presented below: WEIGHTED AVERAGE ----------------------------- REMAINING SHARES UNDER CONTRACTUAL WARRANT EXERCISE PRICE LIFE ------------------ --------------- ------------- Balance at January 1, 2015 1,160,000 $0.81 2.65 Granted - - - Exercised - - - Expired - - - ------------------ --------------- ------------- Balance at March 31, 2015 1,1600,000 $0.81 2.38 ================== NOTE 11 - INCOME TAXES ---------------------- The Company is subject to domestic income taxes. The Company has recognized minimal income during the three months ended March 31, 2015 and the year ended December 31, 2014, and therefore has paid no income tax. Deferred income taxes arise from temporary timing differences in the recognition of income and expenses for financial reporting and tax purposes. The Company's deferred tax assets consist entirely of the benefit from net operating loss (NOL) carry-forwards. The NOL carry forwards expire in various years through 2035. The Company's deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the NOL carry-forwards. NOL carry-forwards may be further limited by a change in company ownership and other provisions of the tax laws. -16- HINTO ENERGY, INC. Notes to the Consolidated Financial Statements For the Three Months Ended March 31, 2015 and 2014 (Unaudited) The Company's deferred tax assets, valuation allowance, and change in valuation allowance are as follows: ESTIMATED NOL VALUATION NET TAX CARRY-FORWARD BENEFIT ALLOWANCE BENEFIT ====================================================== March 31, 2015 $1,324,222 $(1,324,222) - December 31, 2014 $1,245,187 $(1,245,1877) - NOTE 12 - SUBSEQUENT EVENTS --------------------------- The Company has evaluated it activities subsequent to March 31, 2015 and through the issuance of the financial statements and found no other reportable subsequent events. -17- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN. IN CONNECTION WITH, AND BECAUSE WE DESIRE TO TAKE ADVANTAGE OF, THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WE CAUTION READERS REGARDING CERTAIN FORWARD LOOKING STATEMENTS IN THE FOLLOWING DISCUSSION AND ELSEWHERE IN THIS REPORT AND IN ANY OTHER STATEMENT MADE BY, OR ON OUR BEHALF, WHETHER OR NOT IN FUTURE FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. FORWARD-LOOKING STATEMENTS ARE STATEMENTS NOT BASED ON HISTORICAL INFORMATION AND WHICH RELATE TO FUTURE OPERATIONS, STRATEGIES, FINANCIAL RESULTS OR OTHER DEVELOPMENTS. FORWARD LOOKING STATEMENTS ARE NECESSARILY BASED UPON ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND OUR CONTROL AND MANY OF WHICH, WITH RESPECT TO FUTURE BUSINESS DECISIONS, ARE SUBJECT TO CHANGE. THESE UNCERTAINTIES AND CONTINGENCIES CAN AFFECT ACTUAL RESULTS AND COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD LOOKING STATEMENTS MADE BY, OR ON OUR BEHALF. WE DISCLAIM ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS. THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S REPORT ON THE COMPANY'S FINANCIAL STATEMENTS AS OF DECEMBER 31, 2014, AND FOR EACH OF THE YEARS IN THE TWO-YEAR PERIOD THEN ENDED, INCLUDES A "GOING CONCERN" EXPLANATORY PARAGRAPH, THAT DESCRIBES SUBSTANTIAL DOUBT ABOUT THE COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN. PLAN OF OPERATIONS While we have generated increased revenues from our operational activities, these revenues are not sufficient to support our operational activities, which are focused on re-working our existing properties and seeking attractive property acquisitions in order to reach production goals. We have minimal capital cash. We will continue to need cash infusions from investors or shareholders to provide capital, or loans from any sources, none of which have been arranged nor assured. During the three months ended March 31, 2015, we continued our re-work efforts on our Cisco, Utah properties and at the end of the quarter saw our first gas production from the wells. FINANCING EFFORTS On January 20, 2015, the Company in exchange for $50,000 issued a $50,000 unsecured convertible promissory note. The unsecured convertible promissory note has a term of 3 years, an annual interest rate of 10% and an exercisable into shares of the Company's common stock at $1.00 per share. At March 31, 2015, the note had accrued interest of $917.81 We will require substantial additional capital to support our existing and proposed future energy operations. We have ONLY DURING THE LATTER HALF OF 2014, STARTED REALIZING REOCCURRING AND CONSISTENT REVENUE, ALTHOUGH INSUFFICIENT TO FULLY SUPPORT CURRENT OPERATIONS. We have NO committed source for any additional funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales or royalty income, and could fail in business as a result of these uncertainties. Decisions regarding future prospect acquisitions or other participation activities will be made on a case-by-case basis. We may, in any particular case, decide to participate or decline participation. If participating, we may pay our proportionate share of costs to maintain our proportionate interest through cash -18- flow or debt or equity financing. If participation is declined, we may elect to farmout, non-consent, sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2015 COMPARED TO THE THREE MONTHS ENDED MARCH 31,2014 During the three months ended March 31, 2015, the Company recognized revenues of $65,261 from its operational activities compared to $28,000 during the three months ended March 31, 2014. Revenues increased by $37,261, as result of increased production due primarily to re-work efforts at our Mason Lakes Field in Montana. Management expects that production in 2015 to continue to increase, as the field in Montana continues to produce on a consistent basis, continued rework efforts in the Cisco and Medina fields and as it looks to grow its production through acquisitions, though given current oil industry conditions, management expects average sales prices to be lower than in 2014. Although management expects to increase production in 2015, management does not expect revenues to be sufficient to cover the near term costs of operations and administrative expenses without additional drilling or acquisitions. During the Three Months Ended March 31, 2015 2014 ------------------ ------------------ Revenues $65,261 $28,000 Number of Barrels 1,757.26 bbls 236.99 bbls Average Price Per Barrel $37.13 $87.25 During the three months ended March 31, 2015 and 2014, the Company recognized a direct cost of revenue of $133,082 and $136,921, respectively. A decrease of $3,839, caused by a decrease of $32,136 in direct costs of revenue offset by an increase of $28,297 in amortization and depletion expense. During the three months ended March 31, 2015, we recognized total operational expenses of $257,037 compared to $226,032 during the three months ended March 31, 2014, an increase of $31,005. The increase was primarily the result of decreases of $21,849 in general and administrative expenses, offset by a $46,683 increase in operating lease expenses and a $6,171 increase in consulting fees. During the three months ended March 31, 2015, we recognized a net loss of $401,983 compared to $334,164 during the three months ended March 31, 2014. The increase of $67,819 was primarily a result of the $37,261 increase in revenue offset by the increase of $27,914 increase in interest expense combined with an increase of $24,197 in operational expenses. LIQUIDITY At March 31, 2015, the Company had total current assets of $102,442, consisting of cash of $66,670, accounts receivable of $24,908 and deposits of $10,864. At March 31, 2015, the Company had total current liabilities of $637,627, consisting of, accounts payable of $346,445 and accrued liabilities of $291,182. At March 31, 2015, we have a working capital deficit of $535,185. During the three months ended March 31, 2015, we used cash of $281,800 in operations. During the three months ended March 31, 2015, we recognized a net loss of $401,983, which was adjusted for the non-cash item of depletion and depreciation of $48,122. -19- During the three months ended March 31, 2014, we used cash of $360,800 in operations. During the three months ended March 31, 2014, the Company recognized a net loss of $334,164, which was adjusted for the non-cash items of $26,562 in interest paid using stock, $2,500 in services paid for with stock, $15,671 in depletion and depreciation and $50,000 gain on the discount of a promissory note. During the three months ended March 31, 2015, we used $58,036 in our investing activities, $51,216 in the re-work efforts of our wells and $6,820 in connection with the development of a technological process. During the three months ended March 31, 2014, we used $79,630 in our investing activities including $52,976 in re-work efforts on our wells, $4,000 in the acquisition of oil and gas leases, $19,500 in equipment and $3,154 in development of a technological process. During the three months ended March 31, 2015, we received $50,000 from our financing activities compared to $1,970,000 during the three months ended March 31, 2014. On January 20, 2015, the Company in exchange for $50,000 issued a $50,000 unsecured convertible promissory note. The unsecured convertible promissory note has a term of 3 years, an annual interest rate of 10% and an exercisable into shares of the Company's common stock at $1.00 per share. At March 31, 2015, the note had accrued interest of $917. SHORT TERM. On a short-term basis, we do not generate revenue sufficient to cover operations. Based on prior history, we will continue to have insufficient revenue to satisfy current and recurring expenses and liabilities. For short term needs we will be dependent on receipt, if any, of offering proceeds. CAPITAL RESOURCES We have only common and preferred stock as our capital resources. We have no material commitments for capital expenditures within the next year, however if operations are commenced, substantial capital will be needed to pay for participation, investigation, exploration, acquisition and working capital. NEED FOR ADDITIONAL FINANCING We do not have capital sufficient to meet our cash needs. We will have to seek loans or equity placements to cover such cash needs. Once exploration commences, our needs for additional financing is likely to increase substantially. No commitments to provide additional funds have been made by our management or other stockholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow it to cover our expenses as they may be incurred. CRITICAL ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with an original maturity of three months or less and money market instruments to be cash equivalents. -20- OIL AND GAS PROPERTIES, FULL COST METHOD The Company uses the full cost method of accounting for oil and gas producing activities. Costs to acquire mineral interests in oil and gas properties, to drill and equip exploratory wells used to find proved reserves, and to drill and equip development wells including directly related overhead costs and related asset retirement costs are capitalized. Under this method, all costs, including internal costs directly related to acquisition, exploration and development activities are capitalized as oil and gas property costs. Properties not subject to amortization consist of exploration and development costs which are evaluated on a property-by-property basis. Amortization of these unproved property costs begins when the properties become proved or their values become impaired. The Company assesses the realization of unproved properties, taken as a whole, if any, on at least an annual basis or when there has been an indication that impairment in value may have occurred. Impairment of unproved properties is assessed based on management's intention with regard to future exploration and development of individually significant properties and the ability of the Company to obtain funds to finance such exploration and development. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Costs of oil and gas properties will be amortized using the units of production method. In applying the full cost method, the Company will perform an impairment test (ceiling test) at each reporting date, whereby the carrying value of property and equipment is compared to the "estimated present value," of its proved reserves discounted at a 10-percent interest rate of future net revenues, based on current economic and operating conditions, plus the cost of properties not being amortized, plus the lower of cost or fair market value of unproved properties included in costs being amortized, less the income tax effects related to book and tax basis differences of the properties. If capitalized costs exceed this limit, the excess is charged as an impairment expense. REVENUE AND ACCOUNTS RECEIVABLE The Company recognizes revenue for its production when the quantities are delivered to, or collected by, the purchaser. Prices for such production are generally defined in sales contracts and are readily determinable based on certain publicly available indices. All transportation costs are included in lease operating expenses. Accounts receivable -- oil and natural gas sales consist of uncollateralized accrued revenues due under normal trade terms, generally requiring payment within 30 to 60 days of production. The Company reviews accounts receivable periodically and reduces the carrying amount by a valuation allowance that reflects its best estimate of the amount that may not be collectible. No valuation allowance was recognized as of March 31, 2015 and December 31, 2014. DEPENDENCE ON MAJOR CUSTOMERS During the three months ended March 31, 2015 and 2014, the Company's revenues were attributable to sales of oil to two customers. The Company believes that there are potential alternative purchasers and that it may be necessary to establish relationships with new purchasers. However, there can be no assurance that the Company can establish such relationships and that those relationships will result in an increased number of purchasers. Although the Company is exposed to a concentration of credit risk, the Company believes that all of its purchasers are credit worthy. The Company had no bad debt at March 31, 2015 and December 31, 2014. -21- ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ------------------------------------------------------------------ Not Applicable ITEM 4. CONTROLS AND PROCEDURES -------------------------------- DISCLOSURES CONTROLS AND PROCEDURES We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a 15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our Chief Financial Officer (Principal Executive Officer and Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. As required by SEC Rule 15d-15(b), our Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation and the evaluation conducted at March 31, 2015, our Chief Financial Officer has concluded that our disclosure controls and procedures are not effective in timely alerting management them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Financial Officer, to allow timely decisions regarding required disclosure. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING. Hinto's management is responsible for establishing and maintaining adequate internal control over financial reporting for the company in accordance with as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Company's receipts and expenditures are being made only in accordance with authorizations of Hinto's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on Hinto's financial statements. We have identified certain material weaknesses in internal control over financial reporting relating to a shortage of accounting and reporting personnel due to limited financial resources and the size of our Company, as detailed below: -22- (1) The Company currently does not have, but is in the process of developing formally documented accounting policies and procedures, which includes establishing a well-defined process for financial reporting. (2) Due to the limited size of our accounting department, we currently lack the resources to handle complex accounting transactions. We believe this deficiency could lead to errors in the presentation and disclosure of financial information in our annual, quarterly, and other filings. (3) As is the case with many companies of similar size, we currently lack segregation of duties in the accounting department. Until our operations expand and additional cash flow is generated from operations, a complete segregation of duties within our accounting function will not be possible. Considering the nature and extent of our current operations and any risks or errors in financial reporting under current operations and the fact that we have been a small business with limited employees, such items caused a weakness in internal controls involving the areas disclosed above. We have concluded that our internal controls over financial reporting were ineffective as of June 30, 2014, due to the existence of the material weaknesses noted above that we have yet to fully remediate. There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS -------------------------- None. ITEM 1A. RISK FACTORS ---------------------- Not Applicable to Smaller Reporting Companies. ITEM 2. CHANGES IN SECURITIES ------------------------------ During the period of January 1, 2015 through March 31, 2015, the Company has made the following unregistered issuances of its securities. DATE OF TITLE OF NO. OF CLASS OF ISSUANCE SECURITIES SHARES CONSIDERATION PURCHASER -------------- ---------------- --------- --------------- --------------------- January 2015 Convertible - $50,000 Business Associates Promissory Note EXEMPTION FROM REGISTRATION CLAIMED All of the above sales by the Company of its unregistered securities were made by the Company in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). All of the individuals and/or entities that purchased the unregistered securities were primarily existing shareholders, known to the Company and its management, through pre-existing business relationships, as long standing business associates and -23- employees. All purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and were afforded access to management of the Company in connection with their purchases. All purchasers of the unregistered securities acquired such securities for investment and not with a view toward distribution, acknowledging such intent to the Company. All certificates or agreements representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration in any further resale or disposition. ITEM 3. DEFAULTS UPON SENIOR SECURITIES ---------------------------------------- None. ITEM 4. MINE SAFETY DISCLOSURE. ------------------------------- Not Applicable. ITEM 5. OTHER INFORMATION -------------------------- None. ITEM 6. EXHIBITS ----------------- EXHIBITS. The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K. Exhibit 31.1 Certification of Chief Financial Officer and Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act Exhibit 32.1 Certification of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act 101.INS XBRL Instance Document (1) 101.SCH XBRL Taxonomy Extension Schema Document (1) 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (1) 101.DEF XBRL Taxonomy Extension Definition Linkbase Document (1) 101.LAB XBRL Taxonomy Extension Label Linkbase Document (1) 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (1) ---------------- (1) Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections. -24- SIGNATURES Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HINTO ENERGY, INC. ------------------------------- (REGISTRANT) Dated: May 27, 2015 By:/s/ George Harris ------------------------------------------ George Harris (Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer) -25-

HINTO ENERGY, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013 (UNAUDITED) Nine Months Ended September 30, 2014 2013 ------------------------------------------- Cash Flows from Operating Activities: Net Loss $ (1,334,580) $ (897,500) Adjustments to net loss for non-cash items: Accrued interest converted to stock 125,960 25,000 Stock issued for services 80,000 30,000 Amortization, depreciation and depletion 86,506 29,008 Asset remediation expenses - 38,637 Gain on discount of promissory note (50,000) - Adjustments to reconcile net loss to net cash used in operating activities: (Increase) in accounts receivable (27,092) (20,656) (Increase) in deposits and advances (42,755) (44,606) Increase in accounts payable 77,369 69,478 Increase (decrease) in accrued liabilities 119,646 (17,260) --------------------- ------------------ Net Cash Used by Operating Activities (964,946) (787,899) --------------------- ------------------ Cash Flows from Investing Activities: Purchase of leases (169,000) (140,000) Purchase of machinery and equipment (109,343) (42,567) Development of technological process (74,886) - Well rework (330,619) (154,798) --------------------- ------------------ Net Cash Used in Investing Activities (683,848) (337,365) --------------------- ------------------ Cash Flows from Financing Activities: Proceeds from convertible promissory notes 2,000,000 75,000 Payments on other notes payable (65,000) (280,000) Proceeds from sale of common stock 90,000 581,500 Proceeds from the exercise of warrants - 1,000,000 --------------------- ------------------ Net Cash Provided by Financing Activities 2,025,000 1,376,500 --------------------- ------------------ Net Increase in Cash 376,206 251,236 Cash and Cash Equivalents - Beginning of Period 97,716 57,709 --------------------- ------------------ Cash and Cash Equivalents - End of Period $ 473,922 $ 308,945 ===================== ================== 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 promissory note for services $ - $ 10,000 ===================== ================== Issuance of common stock for deposits and accounts payable $ - $ 199,309 ===================== ================== Subscription Receivable $ (90,000) $ - ===================== ================== Warrant issued for services $ 28,500 $ - ===================== ================== Amortization of Warrant issued for services $ 3,182 $ - ===================== ==================

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