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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the quarterly period ended October 31, 2014

or

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934: For the transition period from _______ to _________

Commission file number: 000-53313

(Exact name of registrant as specified in its charter)

NEVADA		30-0420930
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

800 Gessner, Suite 375

(Address of principal executive offices, including zip code)

(registrant’s principal executive office telephone number)

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x    No o

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 of Regulation S-T (Section 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 o    

No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer       o		Accelerated filer                        o
Non-accelerated filer         o		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 o   No x

As of December 15, 2014, 21,206,794 shares of common stock, $0.001 par value, were outstanding.

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Table of Contents

Part I. Financial Information

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
Part II. Other Information
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24

 

 

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Part I. Financial Information

 

Item 1.

Financial Statements

1.	Consolidated Balance Sheets (unaudited)	4
2..	Consolidated Statements of Operations (unaudited)	5
3.	Consolidated Statements of Cash Flows (unaudited)	6
4.	Notes to Consolidated Financial Statements (unaudited)	7

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HYDROCARB ENERGY CORP.

 Consolidated Balance Sheets

(Unaudited)

 

		October, 2014				July 31, 2014
ASSETS
Current assets:
Cash and cash equivalents		$	1,842,898			$	144,258
Oil and gas revenues receivable, net			239,213				372,120
Accounts receivable - related party			57				58,014
Other current assets			287,298				446,320
Other receivables			91,252				38,455
Total current assets			2,460,718				1,059,167
Oil and gas properties, accounted for using the full cost method of accounting
Evaluated property, net of accumulated depletion of $3,701,639 and $3,491,420, respectively; and accumulated impairment of $373,335 and $373,335, respectively			15,286,410				15,288,370
Unevaluated property			2,260,911				2,119,769
Restricted cash			6,877,944				6,877,944
Other assets			453,712				219,942
Property and equipment, net of accumulated depreciation of $145,644 and $135,590, respectively			156,035				166,963
TOTAL ASSETS		$	27,495,730			$	25,732,155
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	2,241,040			$	2,795,675
Current portion of notes payable			48,705				334,688
Asset retirement obligations – short term			60,000				1,133,690
Advances			226,613				195,904
Due to related parties			98,585				165,542
Total current liabilities			2,674,943				4,625,499
Notes payable, net of discount			3,643,380				-
Notes payable – related party			600,000				600,000
Asset retirement obligations – long term			11,906,007				10,582,540
Total liabilities			18,824,330				15,808,039
Stockholders' Deficit:
Series A 7% Convertible Preferred Stock, 10,000 shares authorized, $400 par, 8,188 shares issued and outstanding as of October 31, 2014 and July 31, 2014			3,275,200				3,275,200
Common stock: $001 par value; 333,333,333 shares authorized; 21,180,812 and 21,081,602 shares issued and outstanding as of October 31, 2014 and July 31, 2014, respectively			21,181				21,082
Receivable for common stock			(2,184,879	)			(2,184,879	)
Additional paid-in capital			79,481,630				78,953,599
Accumulated deficit			(71,885,874	)			(70,106,351	)
Total stockholders' equity			8,707,258				9,958,651
Noncontrolling interests			(35,858	)			(34,535	)
Total equity			8,671,400				9,924,116
TOTAL LIABILITIES AND EQUITY		$	27,495,730			$	25,732,155

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

 

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HYDROCARB ENERGY CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months Ended October 31,
		2014				2013
Revenues		$	1,205,429			$	1,840,211
Operating expenses
Lease operating expense			1,297,555				1,117,332
Depreciation, depletion, and amortization			224,256				301,915
Accretion			302,208				243,976
Consulting fees - related party			-				6,754
General and administrative expense			943,280				1,791,999
Total operating expenses			2,767,299				3,461,976
Loss from operations			(1,561,870	)			(1,621,765	)
Consulting and other income			4,042				(25,326	)
Interest income (expense), net			(227,777	)			58,192
Foreign currency transaction gain (loss)			4,759				(1,655	)
Net loss before income taxes			(1,780,846	)			(1,590,554	)
Income tax (provision) benefit			-				(4,599	)
Net loss			(1,780,846	)			(1,595,153	)
Less:  Net loss attributable to noncontrolling interests			(1,323	)			(1,472	)
Net loss attributable to Hydrocarb Energy Corp.			(1,779,523	)			(1,593,681	)
Dividend on preferred stock			-				(31,235	)
Net loss attributable to Hydrocarb Energy Corp. after dividends		$	(1,779,523	)		$	(1,624,916	)
Basic and diluted loss per common share:		$	(0.08	)		$	(0.37	)
Weighted average shares  outstanding  (basic and diluted)			21,151,819				4,427,001

 

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

 

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HYDROCARB ENERGY CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

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HYDROCARB ENERGY CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Description of business and basis of presentation

The unaudited consolidated financial statements of Hydrocarb Energy Corp. (“Hydrocarb”, “HEC”, the “Company”, “we”, “us”, and “our”) have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report filed with the SEC on Form 10-K for the year ended July 31, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended July 31, 2014, as reported in the Form 10-K, have been omitted.

While working towards plans and expectations of being listed on a major stock exchange, we currently trade on the OTCQB under the stock symbol “HECC”.

We are a natural resource exploration and production company engaged in the exploration, acquisition, development, and production of oil and gas properties in the United States and onshore in Namibia, Africa.  We maintain developed acreage offshore in Texas.  As part of our ongoing business strategy, we continue to review and evaluate acquisition opportunities in the continental United States and internationally.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current presentation.

Principles of consolidation

We own 100% of the issued and outstanding share capital of (i) Penasco Petroleum Inc. (“Penasco”), a Nevada corporation, (ii) Galveston Bay Energy, LLC (“GBE”), a Texas limited liability company, (iii) SPE Navigation I, LLC, a Nevada limited liability company (“SPE”), (iv) Namibia Exploration, Inc. (“NEI”), a Nevada corporation, (v) Hydrocarb Corporation, a Nevada corporation (“HCN”), (vi) Hydrocarb Texas Corporation, a Texas corporation, and (vii) Hydrocarb Namibia Energy (Pty) Limited (“Namibia”), a company chartered in the Republic of Namibia.  In addition, we own 95% of the issued and outstanding share capital of Otaiba Hydrocarb LLC (“Otaiba”), a UAE limited liability corporation. The accompanying consolidated financial statements include the accounts of the entities noted above.  All significant intercompany accounts and transactions have been eliminated in consolidation.

The acquisition of HCN, an entity under common control, on December 9, 2013 (See Note 2 – HCN Acquisition) has resulted in a change in the reporting entity. The consolidated financial statements presented for the periods subsequent to the acquisition include the accounts of HCN and its subsidiaries. As HEC and HCN are under the common control of the same shareholder group, the acquired assets and liabilities were recorded at the historical carrying value and the consolidated financial statements were retroactively restated to reflect the Company as if HCN had been owned since the beginning of the earliest period presented.

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 interest in subsidiaries held by third parties are presented in the consolidated balance sheet within equity, but separate from the parent’s equity, as noncontrolling interest.  All significant intercompany balances and transactions have been eliminated in consolidation.

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.

 

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Stock Split

On May 8, 2014, we effected a 1:3 reverse split of our authorized common stock and a corresponding 1:3 reverse split of our outstanding common stock.  All share and per share amounts in this report have been retroactively restated to reflect the reverse split.  This presentation is consistent with the guidance in ASC 260-10-55-12, Earnings per Share, which requires retroactive restatement of earnings per share if a capital structure change due to a stock dividend, stock split or reverse split occurs after the date of the latest balance sheet, but before the release of the financial statements.

Recent accounting pronouncements

 

Note 2 – HCN Acquisition

On December 9, 2013 (“Acquisition Date”), we acquired HCN pursuant to a Share Exchange Agreement (“Agreement”) dated November 27, 2013.  The purchase price was 8,396,667 shares of HEC’s common stock to HCN’s shareholders in exchange for 100% of the outstanding equity interest in HCN and 8,188 shares of HEC Series A Preferred Stock to a holder of convertible preferred stock in HCN in exchange of 100% of his preferred stock in HCN. At date of closing the 8,396,667 shares of common stock issued had a market valuation of $64,990,200 (based on market close of $7.74 on December 9, 2013) and the preferred stock issued had a value of $3,275,200 (8,188 shares at par value of $400).

In addition, the acquisition Agreement provided that HEC would issue 7,470,000 shares of its common stock to the holders of certain rights to acquire HEC stock.  These rights were previously issued by HEC as contingent consideration in connection with the acquisition of NEI.  The rights had been convertible into HEC common stock based upon HEC market capitalization milestones.  The rights were issued to entities deemed related parties to HEC.

In anticipation of the HCN acquisition, HEC issued 619,960 shares of its common stock to HCN as full payment for HEC’s indebtedness to HCN in the amount of $3,589,567.  A condition to the Agreement closing was that HCN would sell the 619,960 shares before closing of the acquisition, which it did (see Note 7 – Capital Stock – Receivables for Common Stock).

With HCN, we acquired its 100% owned subsidiaries: Hydrocarb Namibia Energy (Pty) Limited, a Namibia Company and Hydrocarb Texas Corporation, a Texas Corporation; and its 95% owned subsidiary Otaiba Hydrocarb LLC, a UAE Limited Liability Company.

Prior to the HCN acquisition, HCN was directly and indirectly majority-owned and controlled by HEC’s Chairman of the Board and entities related to him and his family.  Since HCN and HEC were under common control of a controlling party both before and after the completion of the share exchange, the transaction was accounted for as a business acquired from an entity under common control and the assets and liabilities acquired were recorded at HCN’s historical cost at Acquisition Date following ASC 805-50-30, Business Combinations.  Under this accounting treatment, the results of operations for the three months ended October 31, 2014 and assets and liabilities of HCN are included in these financial statements as if the transaction had occurred at the beginning of the period.  Prior reporting periods in these financial statements have been retroactively adjusted to include HCN and its subsidiaries.

According to ASC 805-50-30, the net assets of HCN are to be recorded at historical cost, therefore, the value of the 8,396,667 common shares and 8,188 preferred shares are deemed to be the same as the historical value of HCN net assets of $1,398,127 with excess of $599,409 recorded as additional paid in capital by HEC.

Summary of the accounting entry to record this acquisition in 2013 is as follows.

Assets acquired		$	1,529,246
Liabilities assumed			(161,599	)
Noncontrolling interest in 95% owned HCN subsidiary			30,480
		$	1,398,127
Series A 7% Preferred Stock, par $400			3,275,200
Common stock, at par			8,397
Receivable for common stock			(2,484,879	)
Additional paid-in capital			599,409
		$	1,398,127

 

 

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HCN had 51% working-interest rights in and operated an unevaluated Namibian concession described in Note 3 – Oil and Gas Properties, below, and provided international oilfield consulting services.  Prior to this acquisition, HEC owned 39% working-interest right in this concession.  With the HCN acquisition, we now own 90% working interest (100% cost responsibility) in the concession.  This 5.3 million-acre concession is located in northern Namibia in Africa.  The concession specifies the following minimum cost responsibilities on an 8/8ths basis:

1)	Initial Exploration Period (expires September 2015): Perform a hydrocarbon potential study, gather and review existing technical data including reprocessing of available seismic lines, and acquire and process 750 kilometers of new 2D seismic data.  The minimum expenditure is $4,505,000.

2)

First Renewal Exploration Period (two years from end of the Initial Exploration Period):  Acquire 200 square kilometers of 3D seismic data, interpret and map the data, design a drilling program, drill one well, conduct an environmental study, and relinquish 25% of the exploration license area.  The minimum expenditure is $17,350,000.

3)	Second Renewal (Production License) Exploration Period (25 years):  Report on reserves and production and conduct an environmental study.  The minimum expenditure is $300,000.

In conjunction with the HCN acquisition, the HEC Board of Directors authorized the immediate issuance of 7,470,000 shares of our common stock to the former owners of NEI.  We previously acquired NEI on August 7, 2012 and these 7,470,000 shares had been contingently-issuable consideration for the acquisition of NEI. We issued these shares on December 9, 2013.  The original agreement contained market conditions for the issuance of this stock. 

Note 3 – Supplemental Cash Flow Information

 

		Three Months Ended
		October 31, 2014				October 31, 2013
NONCASH INVESTING AND FINANCING ACTIVITIES
Receipt of HEC common stock for notes receivable		$	-			$	1,000,000
Asset retirement obligation sold		$	-			$	4,381
Accounts payable for oil and gas properties		$	-			$	11,373
Asset retirement obligations – change in estimate		$	(52,431	)		$	-
Value of shares issued to lenders as part of debt financing		$	247,655			$	-

 

Note 4 – Oil and Gas Properties

Oil and natural gas properties as of October 31, 2014 and July 31, 2014 consisted of the following:

 

		October 31, 2014				July 31, 2014
Evaluated Properties
Costs subject to depletion		$	19,361,384			$	19,153,125
Accumulated impairment			(373,335	)			(373,335	)
Accumulated depletion			(3,701,639	)			(3,491,420	)
Total evaluated properties			15,286,410				15,288,370
Unevaluated properties			2,260,911				2,119,769
Net oil and gas properties		$	17,547,321			$	17,408,139

 

 

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Evaluated properties

Additions to evaluated oil and gas properties during the three months ended October 31, 2014 consisted mainly of exploration costs, specifically, geological and geophysical costs of approximately $261,000.

 

Unevaluated Properties

Namibia, Africa

We own 90% (100% cost responsibility) of our Namibia concession, as described above in Note 2 –Acquisitions.

Additions to unevaluated properties of approximately $141,000 during the three months ended October 31, 2014 consist primarily of:

·	Approximately $141,000 of leasehold costs, specifically payment of the annual concession fee to the Government of Namibia. As of October 31, 2014, approximately $2.2 million has been expended towards the initial exploration period.

Note 5 - Impairment

Oil and Gas Properties

We account for our oil and natural gas producing activities using the full cost method of accounting as prescribed by the United States Securities and Exchange Commission (“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.

We evaluated our capitalized costs using the full cost ceiling test as prescribed by the Securities and Exchange Commission at the end of each reporting period. As of October 31, 2014 and July 31, 2014, the net book value of oil and gas properties did not exceed the ceiling amount and thus, no impairment of the properties was required.  Changes in production rates, levels of reserves, future development costs, and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

Note 6 – Asset Retirement Obligations

The following is a reconciliation of our asset retirement obligation liability as of October 31, 2014 and July 31, 2014:

		October 31, 2014				July 31, 2014
Liability for asset retirement obligation, beginning of period		$	11,716,230			$	10,933,398
Asset retirement obligations sold			-				(33,195	)
Accretion			302,208				1,043,928
Revisions in estimated cash flows			(52,431	)			(104,237	)
Costs incurred			-				(123,664	)
Liability for asset retirement obligation, end of period		$	11,966,007			$	11,716,230
Current portion of asset retirement obligation		$	60,000			$	1,133,690
Noncurrent portion of asset retirement obligation			11,906,007				10,582,540
Total liability for asset retirement obligation		$	11,966,007			$	11,716,230

Note 7 – Notes Payable

Installment Notes Payable

In May 2012, we entered into a note payable of $18,375 to purchase a vehicle. The note is collateralized by the vehicle.  The note carries an interest rate of 6.93% and is payable beginning in June 2012, in 36 installments of $567 per month.  The principal balance owed on the note payable was approximately $4,000 and $7,100 as of October, 2014 and July 31, 2014, respectively.

 

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In February 2014, we financed our commercial insurance program using a note payable for $403,104. Under the note, we are obligated to make nine payments of $45,718 per month, which include principal and interest, beginning in March 2014. As of October 31, 2014, the note payable balance was approximately $45,000.

Related Party Installment Note Payable

In November 2013, we issued a promissory note for funds received from Mr. Kent Watts, our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. Accrued interest is payable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any.  In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of October 31, 2014. As part of the financing agreement with Shadow Tree (described below), this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

Credit Agreement

The amount owed pursuant to the Notes (and any amount borrowed pursuant to the Additional Loan) is guaranteed by our wholly-owned subsidiary, Hydrocarb Corporation (“HC”) and its subsidiaries, and our other wholly-owned subsidiaries and is secured by a first priority security interest in substantially all of our assets (including, but not limited to the securities of our subsidiaries and HC and its subsidiaries) evidenced by a Guarantee and Collateral Agreement, various pledge agreements and a deed of trust providing the Agent, as agent for the Lenders, a security interest over our oil and gas assets and rights.

The Notes do not accrue any interest for the first nine months after their issuance date (August 15, 2014), provided thereafter they accrue interest at the rate of (a) 16% per annum where the average net monthly oil and gas production revenues of Galveston Bay Energy LLC, our wholly-owned subsidiary, for the trailing three month period (the “Trailing Three Month Revenues”) is less than $900,000; or (b) 14% per annum, where the Trailing Three Month Revenues are equal to or greater than $900,000, payable monthly in arrears through the maturity date of such Notes, August 15, 2016.  The Additional Loan, if any, will bear interest at the rate of 14% per annum, payable monthly in arrears, and will have the same maturity date as the Notes.  Upon the occurrence of an event of default, the Notes (and any amount outstanding under the Additional Loan) will bear interest at the rate of 24% per annum until paid in full.

Pursuant to the Credit Agreement, we agreed to issue the Lenders their pro rata share of (a) 60,000 restricted shares of common stock on the effective date of the Credit Agreement, August 15, 2014 (the “Effective Date”); (b) 32,500 restricted shares in the event any amount of the Loans (or other obligations outstanding under agreements entered into in connection with the Loans, the “Loan Documents”) are outstanding on the 12 month anniversary of the Effective Date; (c) 32,500 restricted shares in the event any amount is outstanding under the Loan Documents on the 18 month anniversary of the Effective Date; and (d) 25,000 restricted shares in the event any amount is outstanding under the Loan Documents on the 21 month anniversary of the Effective Date.  The shares are to be issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances.

The Credit Agreement contains customary representations, warranties, covenants and requirements for the Company to indemnify the Lenders, Agent and their affiliates.  The Credit Agreement also includes various covenants (positive and negative) binding upon the Company (and its subsidiaries), including but not limited to, requiring that the Company comply with certain reporting requirements, and provide notices of material corporate events and forecasts to Agent, and prohibiting us from (i) incurring any additional debt; (ii) creating any liens; (iii) making any investments; (iv) materially changing our business; (v) repaying outstanding debt; (vi) affecting a business combination, sale or transfer; (vii) undertaking transactions with affiliates; (viii) amending our organizational documents; (ix) forming subsidiaries; or (x) taking any action not in the usual course of business, in each case except as set forth in the Credit Agreement.

 

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Note 8 – Capital Stock

Series A Preferred Stock

On December 2, 2013, we filed a Certificate of Designation that created a new class of stock: Series A 7% Convertible Voting Preferred Stock (“Series A Preferred”).  Up to 10,000 shares of Series A Preferred are authorized. The stock has a stated value $400 per share, pays annual dividends at 7%, and is convertible into HEC common stock, at the holder’s option, at a conversion rate of $6.00 per share. The Series A Preferred is neither redeemable nor is it callable. Series A Preferred shareholders may vote their common stock equivalent voting power. We analyzed the Series A Preferred using the guidance contained in ASC 815-40, Derivatives and Hedging, and concluded that the instrument was indexed to our own stock and qualified to be included in stockholders’ equity.

In connection with the acquisition of HCN on December 9, 2013, HEC issued 8,188 shares of our Series A Preferred Stock to a former Preferred Stock shareholder of HCN, as described in Note 2 – Acquisitions.  Value of the preferred stock at issuance was $3,275,200 (8,188 shares at par value of $400).  These shares were recorded in equity at par of $3,275,200.  Because the Series A preferred stock is immediately convertible, the value of a beneficial conversion feature of $949,808 was immediately recognized as a dividend.

Common Stock Issuances

Pursuant our Credit Agreement, as noted in Note 7 – Notes Payable, during August 2014, we issued 60,000 shares of restricted common stock to the Lenders.  The shares were issued pursuant to the terms and conditions of a Stock Grant Agreement, pursuant to which each of the Lenders made certain representations to the Company regarding their financial condition and other items in order for the Company to confirm that an exemption from registration existed and will exist for such issuances. The value of the shares was recorded as a discount to the debt and is being amortized over the term of the note.

Additionally, during the three months ended October 31, 2014, we issued 10,000 shares of restricted common stock to certain vendors for services rendered during the period for professional services, and 30,000 shares of unrestricted common stock were issued for legal services.

Receivables for Common Stock

On September 6, 2013, HCN sold 191,667 shares of HEC common stock to an employee of HCN in exchange for a note receivable in the amount of $1,000,000. This HCN employee is the nephew of our current CEO. HEC acquired this receivable upon its acquisition of HCN.  The note is non-interest bearing and is payable only upon the sale of the common stock to a third party or HEC stock being listed on either the NASDAQ or NYSE stock exchanges. We will receive 95% of the proceeds up to $1,000,000 if the underlying stock is sold to a third party. Within 90 days of HEC stock being listed on a major stock exchange, we will receive up to $1,000,000, or the note can be paid earlier at the discretion of the other party. We have collected $675,000 in cash on this note receivable through October 31, 2014. At July 31, 2013, these shares were classified as treasury stock within equity at the cost HCN obtained them from outside entities for services performed following the consolidation of comparative periods for acquired entities under common control (See Note 2 – HCN Acquisition).  These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

On December 4, 2013 HCN sold 619,960 shares of unregistered and restricted HEC common stock in return for a $1,859,879 non-interest bearing note receivable from an unrelated entity in which Michael Watts has a minority interest.  HEC acquired this receivable upon its acquisition of HCN.  The 619,960 HEC common stock shares were previously issued by HEC to HCN to settle liabilities due by HEC related to the consulting services agreement described in Note 7 – Notes Payable.  The receivable from the individual is due to HEC upon the following conditions: 1) 100% of the proceeds payable from the sale of all or part of the shares by the owner of the shares to a third party; 2) within sixty days of the six month anniversary of the December 4, 2013 stock sale  or within sixty days from the date that the shares become unrestricted (whichever is first); or 3) 100% of any remaining balance due within 90 days of HEC being listed on a major stock exchange and whereby the share price is above $6.00 per share.  As with the above receivable for common stock, this receivable for the sale of HEC common stock is classified as a receivable for common stock within equity.  These shares of common stock are held in the name of the investors and are beneficially owned by the investors and the shares are not retrievable by the Company.

 

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This note receivable was extended on August 4, 2014, for an extension fee of $50,000, payable in the future, with $750,000 due to be repaid by December 31, 2014, with the remaining balance to be repaid by March 31, 2015.  These repayment terms may be changed if the Company is successful in being up-listed to either the NYSE or NASDAQ.  If this occurs, the entire balance is due within 60 days after an up-listing occurs.

Stock Options and Warrants

As of October 31, 2014, HEC could grant up to 515,136 shares of common stock under the 2013 Stock Incentive Plan (“2013 Plan”). The Plan is administered by the Compensation Committee of the Board of Directors, or in the absence of a Compensation Committee, the full Board of Directors, which has substantial discretion to determine persons, amounts, time, price, exercise terms, and restrictions of the grants, if any.

Options granted to non-employees

We account for options granted to non-employees under the provisions of ASC 505-50, Equity-Based Payments to Non-employees, and record the associated expense at fair value on the final measurement date.  Because there is no disincentive for nonperformance for these awards, the final measurement date occurs when the services are complete, which is the vesting date. For the options granted to non-employees on a graded vesting schedule, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date.  When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.  There were 25,000 options granted to non-employees during the three months ended October 31, 2014.  Compensation expense of $112,500 was recognized during the three months ended October 31, 2014.  No options have been exercised, and 92,000 expired during the three months ended October 31, 2014.

Options granted to employees

The following table provides information about options granted to employees under our stock incentive plans during the three months ended October 31, 2014 and 2013:

 

		2014				2013
Number of options granted			25,000				-
Compensation expense recognized		$	112,500			$	-
Weighted average exercise price of options  granted		$	4.50			$	N/	A

Summary information regarding stock options issued and outstanding as of October 31, 2014 is as follows:

 

		Options				Weighted Average Share Price				Aggregate intrinsic value				Weighted average remaining contractual life (years)
Outstanding at  July 31,2014			265,333			$	6.81			$	-				7.95
Granted			25,000				4.50								5.00
Exercised			-				-
Expired			(92,000	)			6.85
Outstanding at October 31, 2014			198,333			$	6.52			$	-				7.51

No non-vested stock options existed as of October 31, 2014.

Warrants

Summary information regarding common stock warrants issued and outstanding as of October 31, 2014, is as follows:

 

		Warrants				Weighted Average Share Price				Aggregate intrinsic value				Weighted average remaining contractual life (years)
Outstanding at year ended July 31,2014			1,084,584			$	7.50			$	-				1.04
Granted			-				-
Exercised			-				-
Expired			(346,450	)			7.50
Outstanding at quarter ended October 31, 2014			738,134			$	7.50			$	-				1.17

 

 

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Warrants granted to related party

During the year ended July 31, 2011, we entered into a consulting agreement with Geoserve Marketing, LLC (“Geoserve”), a company controlled by Michael Watts, who is a related party as described below under Note 9 – Related Party Transactions. Under the terms of the agreement, we granted warrants to purchase 400,000 shares of common stock that have a market condition.  If our common stock attains a five day average closing price of $22.50 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant B”). If our common stock attains a five day average closing price of $45.00 per share, 200,000 warrants with an exercise price of $7.50 and an expiration date of February 15, 2016 shall be exercisable (“Warrant C”). The fair value of warrants that vest upon the attainment of a market condition must be estimated and amortized over the lower of the implicit or derived service period of the warrants. Previously recognized expense is not reversed in the event of a subsequent decline in the fair value of market condition equity based compensation.  The fair value of the warrants and the derived service period were valued using a lattice model that values the liability of the warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. Warrant B and Warrant C were amortized over the derived service periods of 2.08 years and 2.49 years, respectively.  No expense related to these warrants was recognized during the three months ended October 31, 2014, as the expense for the warrants was fully amortized in previously reported periods.

The following reflects the fair value at the end of the derived service for each of the warrants:

 

		Warrant B				Warrant C
Fair value		$	266,017			$	206,245

The following table reflects information regarding Warrant B and Warrant C during the nine months ended October 31, 2014 and 2013:

 

		2014				2013
Compensation expense recognized		$	-			$	6,754

 

Note 9 – Related Party Transactions

We have previously had transactions as described below with entities controlled by Michael Watts. Michael Watts is the father-in-law of Jeremy Driver, who served as a director and Chief Executive Officer through November, 2013. Additionally, Michael Watts is the brother of Kent Watts, who became the Company’s Chairman of the Board of Directors in October 2013. Michael Watts is a related party to the Company by virtue of his relationships with Mr. Driver and with Mr. Watts. Further, one of Michael Watts’ adult children is a significant shareholder of HEC’s common stock. Between them, they are beneficial owners of approximately 60% of the outstanding common stock.

A company controlled by Michael Watts purchased a 5% working interest in one of our wells in Galveston Bay.  As of October 31, 2014 and July 31, 2014, this company owed us $57 and $80,468, respectively, in joint interest billings.

During 2011, we entered into a consulting contract with a company controlled by Michael Watts, as detailed in Note 7 – Capital Stock - Warrants.  The contract permits us to terminate the agreement after the first year with thirty days notice.  We recognized expense of $0 and $6,754 from this contract during the three months ended October 31, 2014 and 2013, respectively.

 

During the three months ended October 31, 2013, a company controlled by one of our former officers, Carter E & P, LLC (“Carter”) operated several properties onshore in South Texas, including our producing properties located near the Victoria Barge Canal in Calhoun County, Texas. Although he was not a related party after September 1, 2013, he was a related party during certain of the periods covered by this report. As of October 31, 2014 and July 31, 2014, there were no outstanding related party receivable from Carter.  Revenues generated, lease operating costs, and contractual overhead charges incurred during the time Carter was a related party were as follows:

 

		Three Months ended
		October 31,
		2014				2013
Revenues		$	-			$	39,274
Lease operating costs		$	-			$	23,259
Overhead costs incurred		$	-			$	4,687

 

 

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In November 2013, we issued a promissory note for funds received from Mr. Kent Watts, Our Chairman, of $100,000. Under the terms of the note, principal on the note was due after one year and incurred interest at 5% per annum payable on a monthly basis. In April 2014, the Company entered into a new debt agreement whereby Mr. Watts agreed to loan the Company up to $600,000 at an interest rate of 6.25%. The previous debt of $100,000 was rolled into this new note. Additionally, we borrowed $200,000 from Mr. Watts during April 2014 and $300,000 from Mr. Watts in May 2014. The total balance on the note was $600,000 as of October 31, 2014. Accrued interest is pavable monthly beginning in May 2014, and beginning in August 2014 the principal is due in 36 monthly payments through July 2017. The note is secured by the Company’s assets owned by GBE, subject to any other lien holder's superior rights, if any. As part of the financing agreement with Shadow Tree, this note has been subordinated, and no payments will be made until the Shadow Tree debt has been repaid.

Kent Watts advanced HCN (prior to its acquisition by HEC) funds for working capital purposes to the Company.  On December 3, 2013, HCN issued 3,963 shares of its Series A Preferred Stock to Kent Watts in order to cancel the majority of the outstanding balance HCN owed to Kent Watts at that time.  (See Note 8 – Capital Stock – HCN Series A Preferred Stock).  During the three months ended October 31, 2014, the Company repaid approximately $125,000 on amounts due to Mr. Watts and as of October 31, 2014, had current liabilities to Mr. Watts of $98,600.

During the three months ended October 31, 2014, the Company received approximately $58,000 from Mr. Michael Watts for a related party receivable previously outstanding as of July 31, 2014.

Note 10 – Commitments and Contingencies

Legal

Environmental

We accrue for losses associated with environmental remediation obligations when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded at their undiscounted value as assets when their receipt is deemed probable.

There is soil contamination at a tank facility owned by GBE. Depending on the technique used to perform the remediation, we estimate the cost range to be between $150,000 and $900,000. We cannot determine a most likely scenario, thus we have recognized the lower end of the range. We have submitted a remediation plan to the appropriate authorities and have not yet received a response. As of October 31, 2014, $150,000 has been recognized and is included in the balance sheet caption “Accounts payable and accrued expenses.”

Letters of Credit

Oil and gas operators in the State of Texas are required to obtain a letter of credit in favor of the Railroad Commission of Texas as security that they will meet their obligations to plug and abandon the wells they operate.  We have two letters of credit in the amount of $6,610,000 and $120,000 issued by Green Bank.  These letters of credit are collateralized by a certificate of deposit held with the bank for the same amount. We pay a 1.5% per annum fee in conjunction with these letters of credit.

In June 2014, when we renewed the letters of credit, we prepaid the entire years’ interest upfront. We amortize these fees on a straight-line basis. The following table reflects the prepaid balances as of:

 

		October 31, 2014
Prepaid letter of credit fees		$	101,250
Amortization			(33,950	)
Net prepaid letter of credit fees		$	67,300

 

 

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CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

As used in this quarterly report: (i) the terms “we”, “us”, “our”, “HEC”, “Hydrocarb” and the “Company” mean Hydrocarb Energy Corp.; (ii) “SEC” refers to the Securities and Exchange Commission; (iii) “Securities Act” refers to the United States Securities Act of 1933, as amended; (iv) “Exchange Act” refers to the United States Securities Exchange Act of 1934, as amended; and (v) all dollar amounts refer to United States dollars unless otherwise indicated.

The following discussion of our plan of operations, results of operations and financial condition as at and for the three months ended October 31, 2014 should be read in conjunction with our unaudited consolidated interim financial statements and related notes for the three months ended October 31, 2014 included in this Quarterly Report, as well as our Annual Report on Form 10-K for the year ended July 31, 2014, as filed with the Securities and Exchange commission on November 13, 2014.

 

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We recorded net loss of $1,779,523, or ($0.08) per basic and diluted common share, during the three months ended October 31, 2014, as compared to a net loss of $1,624,916, or ($0.37) per basic and diluted common share, during the three months ended October 31, 2013.

The changes in results were predominantly due to the factors below:

·	Revenues decreased due to decreased oil production volume in fiscal 2015 and lower sales prices.  Production was lower as  producing wells were required to shutdown during the period in order to perform required workovers and recompletions.

·	Lease operating expenses decreased due to lower production levels period over period.

·	Depreciation, depletion, and amortization decreased because of lower production in the current year versus production in the same quarter of the comparable period prior year.

·	General and administrative expenses decreased primarily as a result of decreased compensation expense related to stock options.

·

Consulting and other income for the three months ended October 31, 2014 primarily represents income earned for production handling.  Expenses incurred in the comparable prior period included write-offs of previously recognized consulting income.  No such write-offs existed during the current reporting period.

We continue to evaluate areas where we can reduce costs in lease operating expense and to increase production, which would increase revenues.

Liquidity and Capital Resources

The following table sets forth our cash and working capital as of October 31, 2014 and July 31, 2013, respectively:

 

		October 31, 2014				July 31, 2013
Cash and cash equivalents		$	1,842,898			$	144,258
Working capital (deficit)		$	(214,225	)		$	(3,566,332	)

 

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Operation Plans and Focus

In Galveston Bay, Texas we plan to continue enhancing the production from our four productive fields. Our development program includes primarily reworking, infrastructure improvements, and recompletions, as well as drilling, as to exploit the known reserves in at least 18 wells. Internal estimates show the projects, if successful, can almost quadruple current production enhancing cash flow significantly. Due to the fact that a large proportion of current operating costs in Galveston Bay are fixed it is expected that as production grows an increasing percentage of the revenue will contribute to positive cash flow. We plan to fund these projects as long as working capital and cash-flow permits and pending success of previous projects. If we are able to secure either bank or equity financing in the near future, this development plan can be accelerated.

In Namibia, Africa, we plan to interpret the newly acquired aerial gravity magnetic survey data and develop the acquisition plan for new 2D seismic data over the concession. This will include seeking a new partner that will, at least partially, carry us through the seismic acquisition program. 3D seismic will later be utilized for those identified structures which appear most prospective. Drilling of the first well is several years away. In the meanwhile, our goals are to increase the value and decrease the risk profile of our concession acreage in Namibia.

In Abu Dhabi, United Arab Emirates (“U.A.E”) our subsidiary Otaiba Hydrocarb LLC, is continuing the registration process with several of the National Oil Companies ADNOC, ADCO, and ADMA-OPCO. We have a comprehensive oil and gas field services license  granted by the Supreme Petroleum Council of the U.A.E to perform all  upstream and downstream technical and support services.  We are uniquely positioned to take advantage of any future expansion of exploration or development in the oil and gas sector in the U.A.E.

Our plan of operations over the next nine months is to increase cash flow upon one or more of the following occurring:

1.	Continue to receive payments on the two receivables for HEC common stock;

2.	Raise capital by farming down a portion of our Owambo Basin concession in Namibia to an industry partner;

3.	Release restricted cash from the State Bonding requirement, as shut-in wells are brought back into production and/or as wells are plugged;

4.	Continue to enhance production from our four production oil and gas fields in Galveston Bay.

5.	Raise capital through the issuance of additional equity.

Our plan of operations over the next nine months will always be subject to available capital which will be determined by the success of projects that are currently in progress or will begin soon. It is even possible that if we were to have a high degree of success in recently initiated projects and upcoming projects we could actually exceed our planned operations and have more internally-derived funds available for capital expenditures for the next nine months. Our management will determine the best use of our capital given the circumstances at the time.

Various conditions outside of our control may detract from our ability to raise the capital needed to execute our plan of operations, including the price of oil as well as the overall market conditions in the international and domestic economies. Any of these factors could have a material adverse impact upon our ability to raise capital or obtain financing and, as a result, upon our short-term or long-term liquidity.

 

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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 United States Securities and Exchange Commission (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 units 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.

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.

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.

Asset Retirement Obligations

We record the fair value of an asset retirement cost, and corresponding liability as part of the cost of the related long-lived asset and the cost is subsequently allocated to expense using a systematic and rational method. We record an asset retirement obligation to reflect our legal obligations related to future plugging and abandonment of our oil and natural gas wells and gas gathering systems. We estimate the expected cash flow associated with the obligation and discount the amount using a credit-adjusted, risk-free interest rate. At least annually, we reassess the obligation to determine whether a change in the estimated obligation is necessary. We evaluate whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should those indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), we will accordingly update our assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells and gas gathering systems as these obligations are incurred.

Stock-Based Compensation

ASC 718, Compensation-Stock Compensation, requires recognition in the financial statements of the cost of employee services received in exchange for an award of equity instruments over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). We measure the cost of employee services received in exchange for an award based on the grant-date fair value of the award.

 

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We account for non-employee share-based awards based upon ASC 505-50, Equity-Based Payments to Non-Employees. ASC 505-50 requires the costs of goods and services received in exchange for an award of equity instruments to be recognized using the fair value of the goods and services or the fair value of the equity award, whichever is more reliably measurable. The fair value of the equity award is determined on the measurement date, which is the earlier of the date that a performance commitment is reached or the date that performance is complete. Generally, our awards do not entail performance commitments. When an award vests over time such that performance occurs over multiple reporting periods, we estimate the fair value of the award as of the end of each reporting period and recognize an appropriate portion of the cost based on the fair value on that date. When the award vests, we adjust the cost previously recognized so that the cost ultimately recognized is equivalent to the fair value on the date the performance is complete.

 

We recognize the cost associated with share-based awards that have a graded vesting schedule on a straight-line basis over the requisite service period of the entire award.

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes of financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective to ensure the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed and reported within the time periods specified in the SEC’s rules and forms, due to the deficiencies in our internal control over financial reporting as described in our Annual Report on Form 10-K for our fiscal year ended July 31, 2014, which deficiencies have not yet been remedied .

Internal Control over Financial Reporting

During the three months ended October 31, 2014, we continued to implement and document entity-level controls, formalize risk assessment processes and adopt additional policies and procedures to improve our internal control over financial reporting.

 

Part II Other Information

Item 1.

Legal Proceedings

As of June 13, 2014, we were a party to the following legal proceedings:

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A state regulator has requested that we renew certain pipeline easements located in Galveston Bay. The easements in question were originally obtained by another company whose successor filed for bankruptcy protection. Our subsidiary, Galveston Bay Energy, LLC purchased certain assets from the bankruptcy estate; however, based on the bankruptcy court’s order and the purchase and sale agreement, we believe the pipelines and easements in question were not included in the assets purchased. The easements in question were scheduled to renew at various dates between 2012 and 2021. Based on current posted rates, the cost of renewal of all of the easements would be approximately $400,000. We have engaged legal counsel to dispute the regulator’s claim. If we are obligated to renew these easements, they would be part of the asset retirement obligation that was acquired with our subsidiary, Galveston Bay Energy, LLC. As such, the potential liability for these easements is factored into the computation of the asset retirement obligation (See Note 6 – Asset Retirement Obligation) that is estimated using the guidance in ASC 410-20, Asset Retirement and Environmental Obligations. On August 29, 2014, we filed a lawsuit in the state district court in Chambers County, Texas asking the Court to reform an assignment and assumption agreement in the property records of Chambers County. The General Land Office has asserted claims against us under various miscellaneous easements, claiming we are obligated to either renew the easement or remove any pipeline laid in the easement. We have disclaimed any obligations under these easements.

 

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

 

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Item 6.

Exhibits

Exhibit No.	Description of Exhibit
31.1*	Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Principal Executive and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63.
101.INS#	XBRL INSTANCE DOCUMENT
101.SCH#	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL#	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF#	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB#	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE#	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

*	Filed herewith.

 

Signatures

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 thereunto duly authorized.

HYDROCARB ENERGY CORP.

/s/ Kent P Watts
Kent P Watts
Chief Executive Officer, Executive Chairman  and Director
(Principal Executive Officer)
Date: December 15, 2014

 

 

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