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HECC > SEC Filings for HECC > Form 8-K/A on 24-Feb-2014All Recent SEC Filings

Show all filings for HYDROCARB ENERGY CORP

Form 8-K/A for HYDROCARB ENERGY CORP


24-Feb-2014

Financial Statements and Exhibits


Item 9.01 Financial Statements

(a) Audit of Hydrocarb Corporation

(b) Pro forma

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

HYDROCARB ENERGY CORP.

Date: February 24, 2014 /s/ Pasquale Scaturro Name: Pasquale Scaturro Title: Principal Accounting Officer and CEO


The Board of Directors
Hydrocarb Corporation
Houston, Texas

We have audited the accompanying consolidated balance sheets of Hydrocarb Corporation and its subsidiaries (collectively, the "Company") as of October 31, 2013 and December 31, 2012, and the related consolidated statements of operations and comprehensive loss, cash flows and changes in stockholders' equity for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hydrocarb Corporation and its subsidiaries as of October 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ MaloneBailey, LLP
www.malone-bailey.com
Houston, Texas
February 24, 2014


HYDROCARB CORPORATION
(an Exploration stage company)

CONSOLIDATED BALANCE SHEETS

                                                               October 31,       December 31,
                                                                   2013              2012
Assets
Current assets
Cash and cash equivalents                                      $     42,514     $       29,623
Accounts receivable                                                   6,103             43,170
Accounts receivable - related party                                  25,559            245,630
Prepaid expenses                                                     38,842             20,066
Total current assets                                                113,018            338,489

Available for sale securities                                     3,515,171          1,173,000
Note receivable - related party                                   1,000,000          2,400,000
Oil and gas properties, accounted for using the full cost
method of accounting - unevaluated property                         910,543            361,747
Property and equipment, net of accumulated depreciation of
$50,551 and $51,705, respectively                                    58,502             36,093

Total assets                                                   $  5,597,234     $    4,309,329

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable                                               $     48,117     $       15,672
Accounts payable - related party                                  1,338,658              9,408
  Deferred gain                                                     177,750                  -
Accrued interest payable                                             85,530             62,972
Total current liabilities                                         1,650,055             88,052

Total liabilities                                                 1,650,055             88,052

Commitments and contingencies                                             -                  -

Stockholders' equity:
Preferred stock, $400 par value, 10,000 shares authorized,
4,225 shares issued and outstanding at October 31, 2013 and
December 31, 2012                                                 1,690,000          1,690,000
Common stock, $0.001 par; 500,000,000 authorized shares;
68,881,807 and 62,322,550 shares issued and outstanding at
October 31, 2013 and December 31, 2012, respectively                 68,882             62,322
Additional paid-in capital                                          466,348            466,348
Stock subscription receivable                                             -            (24,511 )
Earnings accumulated during the exploration stage                 1,826,825          1,701,321
Accumulated other comprehensive income (loss)                       (74,396 )          350,750
Total stockholders' equity                                        3,977,659          4,246,230
Noncontrolling interests                                            (30,480 )          (24,953 )
Total equity                                                      3,947,179          4,221,277

Total liabilities and stockholders' equity                     $  5,597,234     $    4,309,329

The accompanying notes are an integral part of these consolidated financial statements


                             HYDROCARB CORPORATION
                         (an Exploration stage company)
          CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

                                                                Ten months
                                                                  ended           Year ended
                                                               October 31,       December 31,
                                                                   2013              2012

Operating expenses
General and administrative expense                             $    803,287     $      906,459
Depreciation and amortization                                         3,414             34,886
Loss on sale of assets                                                    -             14,053
Total operating expenses                                            806,701            955,398

Loss from operations                                               (806,701 )         (955,398 )

Other income (expense)
Consulting and other income                                         856,121          3,288,980
Interest income                                                      98,633                  -
Interest expense                                                    (22,558 )          (62,972 )
Foreign currency transaction gain (loss)                             (5,518 )           21,555
Other income (expense), net                                         926,678          3,247,563

Net income                                                          119,977          2,292,165

Less: Net loss attributable to noncontrolling interests              (5,527 )          (14,024 )

Net income attributable to Hyrdrocarb Corporation                   125,504          2,306,189

Deemed dividends on preferred stock                                (108,441 )                -

Net income attributable to common shareholders of Hydrocarb
Corporation                                                    $     17,063     $    2,306,189

Other comprehensive loss, net of tax:
Change in market value of available for sale securities,
including unrealized loss and reclassification adjustments
to net income, net of  income tax of $0 and $0                     (425,146 )          350,750

Comprehensive Loss                                             $   (299,642 )   $    2,656,939

Basic and diluted loss per common share                        $       0.00     $         0.04

Weighted average shares outstanding (basic and diluted)          63,725,023         62,322,500

The accompanying notes are an integral part of these consolidated financial statements


                             HYDROCARB CORPORATION
                         (an Exploration stage company)
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                                                                                  Earnings
                                                                                                                                accumulated
                                                                                       Additional                                  during         Accumulated other
                               Preferred Stock                 Common Stock              Paid-in       Stock subscription       exploration         comprehensive
                           Shares         Amount           Shares         Amount         Capital           receivable              Stage               Income              Total

Balance at December 31,
2011                              -               -       62,322,550     $  62,322     $   768,645     $          (326,808 )   $     (604,868 )   $               -     $  (100,709 )

Preferred stock issued
for debt                      4,225       1,690,000                -             -               -                       -                  -                     -       1,690,000
Change in price of
common stock sold                 -               -                -             -        (302,297 )               302,297                  -                     -               -
Unrealized gain on
available for sale
securities                        -               -                -             -               -                       -                  -               350,750         350,750
Net income                        -               -                -             -               -                       -          2,306,189                     -       2,306,189

Balance at December 31,
2012                          4,225       1,690,000       62,322,550     $  62,322     $   466,348                 (24,511 )   $    1,701,321     $         350,750     $ 4,246,230

Common stock issued for
subscription receivable           -               -        6,559,257         6,560               -                       -                  -                     -           6,560
Cash received for stock
subscription                      -               -                -             -               -                  24,511                  -                     -          24,511
Realized gain on
available for sale
securities                        -               -                -             -               -                       -                  -              (350,750 )      (350,750 )
Unrealized loss on
available for sale
securities                        -               -                -             -               -                       -                  -               (74,396 )       (74,396 )
Net income                        -               -                -             -               -                       -            125,504                     -         125,504

Balance at October 31,
2013                          4,225       1,690,000       68,881,807     $  68,882     $   466,348                       -     $    1,826,825     $         (74,396 )   $ 3,927,659

The accompanying notes are an integral part of these consolidated financial statements


                             HYDROCARB CORPORATION
                         (an Exploration stage company)
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                Ten months
                                                                  ended           Year ended
                                                               October 31,       December 31,
                                                                   2013              2012
Cash Flows From Operating Activities
Net income                                                     $    119,977     $    2,292,165
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation amortization                                             3,414             34,886
Loss on theft of assets                                                   -             14,053
Changes in operating assets and liabilities:
Accounts receivable                                                (922,571 )       (3,511,050 )
Prepaid expenses and other current assets                           (18,776 )           37,080
Accounts payable                                                     32,445            (61,451 )
Accrued expenses                                                     12,700             62,970
Net cash used in operating activities                              (772,811 )       (1,131,347 )

Cash Flows From Investing Activities
Cash paid for purchase of oil and gas properties                   (548,796 )         (181,918 )
Cash paid for purchase of property and equipment                    (25,823 )          (14,538 )
Net cash used in investment activities                             (574,619 )         (196,456 )

Cash Flows From Financing Activities
Borrowings from related parties                                   1,329,250          1,217,421
Proceeds from sale of stock                                          31,071                  -
Net cash provided by financing activities                         1,360,321          1,217,421

Net increase (decrease) in cash                                      12,891           (110,382 )
Cash at beginning of period                                          29,623            140,005
Cash at end of period                                          $     42,514     $       29,623

Supplemental Disclosures:
Interest paid in cash                                          $          -     $            -
Income taxes paid in cash                                      $          -     $            -

Non-cash investing and financing
Settlement of debt with preferred stock                        $          -     $    1,690,000
Unrealized gain (loss) on marketable securities                      74,396            350,750
Settlement of receivables in shares                               3,589,567                  -
Sale of shares for note receivable                                1,000,000            822,250

The accompanying notes are an integral part of these consolidated financial statements


HYDROCARB CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of Business and Summary of Significant Accounting Policies

Description of business and basis of presentation

Hydrocarb Corporation ("we", "us", "Hydrocarb", the "Company") was incorporated in the state of Nevada in December 2009 for the purpose of oil and gas exploration, development, and production onshore the Republic of Namibia. We own 100% of Hydrocarb Texas Corporation, a Texas corporation ("HCT"), Hydrocarb Namibia Energy (Proprietary) Limited, a Namibia corporation ("HNA"), and Hydrocarb Guinea SARL, a Republic of Guinea Corporation ("HG"). In addition, we own 95% of Otaiba Hydrocarb LLC, domiciled in Abu Dhabi, United Arab Emirates ("Otaiba"). The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and the rules of the Securities and Exchange Commission ("SEC").

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Hydrocarb; our wholly owned subsidiaries, HCT, HNA and HG; and our majority owned subsidiary, Otaiba Hydrocarb. All significant intercompany accounts and transactions have been eliminated in consolidation.

Noncontrolling interests

Our consolidated financial statements include the accounts of all subsidiaries where we hold a controlling financial interest. We have a controlling financial interest if we own a majority of the outstanding voting common stock and minority shareholders do not have substantive participating rights, we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary or we have the power to direct the activities that most significantly impact the entity's economic performance. The ownership interests in subsidiaries held by third parties are presented in the consolidated balance sheet within equity, but separate from the parent's equity, as noncontrolling interests. All significant intercompany balances and transactions have been eliminated in consolidation.

Exploration Stage Company

The Company's financial statements are prepared in accordance with the provisions of ASC 915 Development Stage Enterprises, as it devotes substantially all of its efforts to acquiring and exploring oil and gas interests that management believes should eventually provide sufficient net profits to sustain the Company's existence. Until such interests are engaged in commercial production, the Company will continue to prepare its consolidated financial statements and related disclosures in accordance with this standard.

Use of estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. We base our estimates and judgments on historical experience and on various other assumptions and information that we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes.

Significant areas requiring management's estimates and assumptions include the determination of the fair value of transactions involving stock-based compensation and financial instruments.

Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents are all highly liquid investments with an original maturity of three months or less at the time of purchase and are recorded at cost, which approximates fair value.

Our functional currency is the United States dollars. Transactions denominated in foreign currencies are translated into their United States dollar equivalents using current exchange rates. Monetary assets and liabilities are translated using exchange rates that prevailed as of the balance sheet date. Non-monetary assets and liabilities are translated using exchange rates that prevailed as of the transaction date. Revenue, if applicable and expenses are translated using average exchange rates over the accounting period. We have had no revenue denominated in foreign currencies. Gains or losses resulting from foreign currency transactions are included in results of operations.


Receivables and allowance for doubtful accounts

Accounts receivable are recorded at the invoiced amount and do not bear any interest. We regularly review collectability and establish or adjust an allowance for uncollectible amounts as necessary using the specific identification method. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that a reserve for uncollectible amounts was not required in the periods presented.

Accounts receivable - related party includes amounts owed to the Company from employees and other related parties.

Available for sale securities

We invest in marketable equity securities which are classified as available for sale. The first in first out method is used to determine the cost basis of our equity securities sold. Available-for-sale securities are marked to market based on the fair values of the securities determined in accordance with ASC Section
820 (Fair Value Measurement), with the unrealized gains and losses, net of tax, reported as a component of Accumulated other comprehensive income (loss).

Prepaid expenses

Prepaid expenses consist primarily of prepaid rent and insurance.

Concentrations

We place cash with high quality financial institutions and at times may exceed the federally insured limits. We have not experienced a loss in such accounts nor do we expect any related losses in the near term.

Oil and natural gas properties

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the SEC. Under this method, subject to a limitation based on estimated value, all costs incurred in the acquisition, exploration, and development of proved oil and natural gas properties, including internal costs directly associated with acquisition, exploration, and development activities, the costs of abandoned properties, dry holes, geophysical costs, and annual lease rentals are capitalized within a cost center. Costs of production and general and administrative corporate costs unrelated to acquisition, exploration, and development activities are expensed as incurred.

Costs associated with unevaluated properties are capitalized as oil and natural gas properties but are excluded from the amortization base during the evaluation period. When we determine whether the property has proved recoverable reserves or not, or if there is an impairment, the costs are transferred into the amortization base and thereby become subject to amortization.

We assess all items classified as unevaluated property on at least an annual basis for inclusion in the amortization base. We assess properties on an individual basis or as a group if properties are individually insignificant. The assessment includes consideration of the following factors, among others: intent to drill; remaining lease term; geological and geophysical evaluations; drilling results and activity; the assignment of proved reserves; and the economic viability of development if proved reserves are assigned. During any period in which these factors indicate that there would be impairment, or if proved reserves are assigned to a property, the cumulative costs incurred to date for such property are transferred to the amortizable base and are then subject to amortization.

Capitalized costs included in the amortization base are depleted using the unit of production method based on proved reserves. Depletion is calculated using the capitalized costs included in the amortization base, including estimated asset retirement costs, plus the estimated future expenditures to be incurred in developing proved reserves, net of estimated salvage values.

Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to proved reserves would significantly change.

Impairment

The net book value of all capitalized oil and natural gas properties within a cost center, less related deferred income taxes, is subject to a full cost ceiling limitation which is calculated quarterly. Under the ceiling limitation, costs may not exceed an aggregate of the present value of future net revenues attributable to proved oil and natural gas reserves discounted at 10 percent using current prices, plus the lower of cost or market value of unproved properties included in the amortization base, plus the cost of unevaluated properties, less any associated tax effects. Any excess of the net book value, less related deferred tax benefits, over the ceiling is written off as expense. Impairment expense recorded in one period may not be reversed in a subsequent period even though higher oil and gas prices may have increased the ceiling applicable to the subsequent period. We had no proved reserves as of October 31, 2013 and December 31, 2012; therefore, no impairment test was performed.


Property and equipment, other than oil and gas

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related asset, generally three to five years. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. We perform ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes. Maintenance and repairs are expensed as incurred.

Property and equipment consist primarily of vehicles, office equipment and leasehold. We recognized depreciation expense of $3,414 and $34,886 for the ten months ended October 31, 2013 and the year ended December 31, 2012, respectively.

Impairment of long-lived assets

We periodically review our long-lived assets, other than oil and gas property, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset's estimated fair value and its book value. We recorded no impairment on our non-oil and gas long-lived assets during the ten months ended October 31, 2013 and the year ended December 31, 2012, respectively.

Revenue recognition

We recognize revenue when persuasive evidence of an arrangement exists, services have been rendered, the sales price is fixed or determinable, and collectability is reasonably assured. Operating costs and taxes are recognized in the same period in which revenue is earned.

Other income (expense)

We earned net consulting income of $856,121 and $3,288,980 for the ten months ended October 31, 2013 and the year ended December 31, 2012, respectively. This amount includes $531,625 and $3,192,677, respectively, earned from Hydrocarb Energy Corporation (See Note 4.). Consulting income represents income earned for geological consulting services and asset acquisition consulting. It is included in other income (expense) on the statement of operations as it does not . . .

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