Delaware
|
95-2841597
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
180
State Street, Suite 200
|
76092
|
Southlake,
Texas
|
(Zip
Code)
|
(Address
of principal executive offices)
|
Page
|
||
PART I. FINANCIAL
INFORMATION
|
||
Item
1.
|
Condensed
Financial Statements
|
|
Consolidated
Condensed Balance Sheets
|
4
|
|
Consolidated
Condensed Statements of Operations
|
5
|
|
Consolidated
Condensed Statement of Stockholders' Equity
|
6
|
|
Consolidated
Condensed Statements of Cash Flows
|
7
|
|
Notes
to Consolidated Condensed Financial Statements
|
8
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
25
|
Item
3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
43
|
Item
4.
|
Controls
and Procedures
|
43
|
PART
II. OTHER INFORMATION
|
||
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
44
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
44
|
Item
6.
|
Exhibits
|
45
|
SIGNATURES
|
47
|
|
HKN,
INC.
|
||||||||
CONSOLIDATED
CONDENSED BALANCE SHEETS
|
||||||||
(in
thousands, except for share amounts)
|
||||||||
Assets
|
September
30,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 11,291 | $ | 5,722 | ||||
Marketable
securities (Treasury bills)
|
- | 9,497 | ||||||
Accounts
receivable, net
|
2,090 | 3,778 | ||||||
Prepaid
expenses and other current assets
|
769 | 482 | ||||||
Total
Current Assets
|
14,150 | 19,479 | ||||||
Property
and equipment, net
|
42,594 | 35,358 | ||||||
Intangible
assets
|
1,946 | - | ||||||
Investment
in Global
|
13,066 | 11,824 | ||||||
Equity
investment in Spitfire
|
1,262 | 1,820 | ||||||
Other
assets, net
|
100 | 292 | ||||||
$ | 73,118 | $ | 68,773 | |||||
Liabilities and Stockholders'
Equity
|
||||||||
Current
Liabilities:
|
||||||||
Trade
payables
|
$ | 444 | $ | 639 | ||||
Accrued
liabilities and other
|
2,329 | 1,826 | ||||||
Income
tax contingency
|
225 | 225 | ||||||
Revenues
and royalties payable
|
617 | 687 | ||||||
Total
Current Liabilities
|
3,615 | 3,377 | ||||||
Asset
Retirement Obligation
|
5,750 | 5,472 | ||||||
Deferred
Income Taxes
|
748 | 20 | ||||||
Preferred
Stock Dividends
|
73 | - | ||||||
Total
Liabilities
|
10,186 | 8,869 | ||||||
Stockholders’
Equity:
|
||||||||
Series
G1 Preferred Stock, $1.00 par value; $160 thousand liquidation
value
|
||||||||
700,000
shares authorized; 1,600 shares outstanding
|
2 | 2 | ||||||
Series
G2 Preferred Stock, $1.00 par value; $100 thousand liquidation
value
|
||||||||
100,000
shares authorized; 1,000 shares outstanding
|
1 | 1 | ||||||
Series
M Preferred Stock, $1.00 par value; $3.4 million liquidation
value
|
||||||||
50,000
shares authorized; 34,000 shares outstanding
|
34 | 44 | ||||||
Common
stock, $0.01 par value; 24,000,000 shares authorized;
|
||||||||
9,633,267
and 9,268,253 shares issued, respectively
|
97 | 93 | ||||||
Additional
paid-in capital
|
441,511 | 442,642 | ||||||
Accumulated
deficit
|
(387,262 | ) | (385,171 | ) | ||||
Accumulated
other comprehensive income
|
3,232 | 2,312 | ||||||
Treasury
stock, at cost, 36,724 and 6,869 shares held,
respectively
|
(106 | ) | (19 | ) | ||||
Total
HKN, Inc. Stockholders' Equity
|
57,509 | 59,904 | ||||||
Noncontrolling
interest
|
5,423 | - | ||||||
Total
Stockholders’ Equity
|
62,932 | 59,904 | ||||||
$ | 73,118 | $ | 68,773 |
HKN,
INC.
|
||||||||||||||||
CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS
|
||||||||||||||||
(Unaudited,
in thousands except for share and per share amounts)
|
||||||||||||||||
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
and other:
|
||||||||||||||||
Oil
and gas operations
|
$ | 2,649 | $ | 5,952 | $ | 7,452 | $ | 19,205 | ||||||||
Trading
revenues, net
|
- | (849 | ) | - | (2,270 | ) | ||||||||||
Fees,
interest and other income
|
450 | 503 | 1,769 | 2,023 | ||||||||||||
Total
revenue
|
3,099 | 5,606 | 9,221 | 18,958 | ||||||||||||
Costs
and Expenses:
|
||||||||||||||||
Oil
and gas operating expenses
|
2,169 | 3,478 | 5,981 | 8,554 | ||||||||||||
General
and administrative expenses
|
834 | 1,245 | 2,023 | 3,491 | ||||||||||||
Provision
for doubtful accounts
|
(49 | ) | - | 222 | - | |||||||||||
Depreciation,
depletion, amortization and accretion
|
752 | 1,190 | 2,736 | 3,680 | ||||||||||||
Equity
in losses (earnings) of Spitfire
|
50 | (97 | ) | 173 | (68 | ) | ||||||||||
Impairment
of investment in Spitfire
|
- | 2,787 | - | 2,787 | ||||||||||||
Other
losses (gains)
|
(42 | ) | 5 | 17 | 50 | |||||||||||
Total
costs and expenses
|
3,714 | 8,608 | 11,152 | 18,494 | ||||||||||||
Income
(loss) before income taxes
|
$ | (615 | ) | $ | (3,002 | ) | $ | (1,931 | ) | $ | 464 | |||||
Income
tax expense (benefit)
|
- | 264 | (40 | ) | 271 | |||||||||||
Net
income (loss)
|
$ | (615 | ) | $ | (3,266 | ) | $ | (1,891 | ) | $ | 193 | |||||
Net
loss attributable to noncontrolling interest
|
160 | 62 | 160 | 75 | ||||||||||||
Net
income (loss) attributable to HKN, Inc.
|
(455 | ) | (3,204 | ) | (1,731 | ) | 268 | |||||||||
Dividends
related to preferred stock
|
(73 | ) | (72 | ) | (355 | ) | (235 | ) | ||||||||
Net
income (loss) attributed to common stock
|
$ | (528 | ) | $ | (3,276 | ) | $ | (2,086 | ) | $ | 33 | |||||
Basic
and diluted net income (loss) per common share:
|
||||||||||||||||
Net
income (loss) per common share
|
$ | (0.05 | ) | $ | (0.34 | ) | $ | (0.23 | ) | $ | 0.00 | |||||
Weighted
average common shares outstanding
|
9,639,077 | 9,638,039 | 9,165,322 | 9,684,609 |
HKN,
INC.
|
||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||||||
(Unaudited,
in thousands)
|
||||||||||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Additional |
Non
|
Other | ||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common | Paid-In | Treasury | controlling | Accumulated | Comprehensive | ||||||||||||||||||||||||||||||||||
G1 | G2 | M |
Stock
|
Capital
|
Stock
|
Interest
|
Deficit
|
Income
|
Total
|
|||||||||||||||||||||||||||||||
Balance, December
31, 2008
|
$ | 2 | $ | 1 | $ | 44 | $ | 93 | $ | 442,642 | $ | (19 | ) | $ | - | $ | (385,171 | ) | $ | 2,312 | $ | 59,904 | ||||||||||||||||||
Issuance
of restricted shares related to
|
||||||||||||||||||||||||||||||||||||||||
investment,
net of issuance cost
|
- | - | - | 10 | 1,307 | - | - | - | - | 1,317 | ||||||||||||||||||||||||||||||
Cumulative effect of Series M Preferred | ||||||||||||||||||||||||||||||||||||||||
conversion
feature
|
- | - | - | - | - | - | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||
Adjustment of Series M Preferred | ||||||||||||||||||||||||||||||||||||||||
conversion
price
|
- | - | - | - | 76 | - | - | (76 | ) | - | - | |||||||||||||||||||||||||||||
Accrual
of preferred stock dividends
|
- | - | - | - | - | - | - | (242 | ) | - | (242 | ) | ||||||||||||||||||||||||||||
Issuance
of preferred stock dividends
|
- | - | - | - | - | - | - | (38 | ) | - | (38 | ) | ||||||||||||||||||||||||||||
Preferred
stock redemption
|
- | - | (10 | ) | - | (990 | ) | - | - | - | - | (1,000 | ) | |||||||||||||||||||||||||||
Treasury
stock repurchase
|
- | - | - | - | - | (1,719 | ) | - | - | - | (1,719 | ) | ||||||||||||||||||||||||||||
Treasury
stock retirements
|
- | - | - | (6 | ) | (1,626 | ) | 1,632 | - | - | - | - | ||||||||||||||||||||||||||||
Equity
in stock repurchases by Spitfire
|
- | - | - | - | 102 | - | - | - | - | 102 | ||||||||||||||||||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||||||||||
Net
loss
|
(1,731 | ) | ||||||||||||||||||||||||||||||||||||||
Unrealized
holding gain on available for
|
||||||||||||||||||||||||||||||||||||||||
sale
investments
|
572 | |||||||||||||||||||||||||||||||||||||||
Unrealized
foreign currency gain
|
348 | |||||||||||||||||||||||||||||||||||||||
Total
comprehensive loss
|
(811 | ) | ||||||||||||||||||||||||||||||||||||||
Noncontrolling
interest in investment
|
- | - | - | - | - | - | 5,423 | - | - | 5,423 | ||||||||||||||||||||||||||||||
Balance, September
30, 2009
|
$ | 2 | $ | 1 | $ | 34 | $ | 97 | $ | 441,511 | $ | (106 | ) | $ | 5,423 | $ | (387,262 | ) | $ | 3,232 | $ | 62,932 |
HKN,
INC.
|
||||||||
CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS
|
||||||||
(Unaudited,
in thousands)
|
||||||||
Nine
Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income (loss)
|
$ | (1,891 | ) | $ | 193 | |||
Adjustments
to reconcile net income (loss) to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation,
depletion, amortization and accretion
|
2,736 | 3,680 | ||||||
Realized
loss on derivative instruments
|
- | (1,139 | ) | |||||
Realized
loss on available for sale investments
|
- | (434 | ) | |||||
Unrealized
gain on derivative instruments
|
- | (995 | ) | |||||
Impairment
recovery on land
|
- | (179 | ) | |||||
Equity
in losses (gains) of Spitfire
|
173 | (68 | ) | |||||
Impairment
of investment in Spitfire
|
- | 2,787 | ||||||
Realized
gain from sale of Spitfire shares
|
(23 | ) | - | |||||
Other,
net
|
- | (46 | ) | |||||
Change
in operating assets and liabilities:
|
||||||||
Increase
in prepaid assets and other
|
(33 | ) | (340 | ) | ||||
Decrease
in accounts receivable and other
|
1,688 | 194 | ||||||
Decrease
in marketable securities
|
9,497 | - | ||||||
Increase
in margin deposits posted with brokers
|
- | (1,321 | ) | |||||
Increase
in derivative liabilities
|
- | 3,588 | ||||||
Increase
(decrease) in trade payables and other
|
(1,457 | ) | 1,463 | |||||
Net
cash provided by operating activities
|
10,690 | 7,383 | ||||||
Cash
flows from investing activities:
|
||||||||
Net
proceeds from sales of assets
|
- | 333 | ||||||
Capital
expenditures
|
(2,382 | ) | (4,932 | ) | ||||
Acquisitions
|
- | (400 | ) | |||||
Purchase
of available for sale investments
|
- | (1,623 | ) | |||||
Proceeds
from available for sale investments
|
- | 435 | ||||||
Purchase
of Spitfire common shares
|
- | (65 | ) | |||||
Proceeds
from sale of Spitfire common shares
|
187 | - | ||||||
Net
cash used in investing activities
|
(2,195 | ) | (6,252 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Payment
of preferred stock dividends
|
(207 | ) | (173 | ) | ||||
Redemption
of preferred stock
|
(1,000 | ) | - | |||||
Proceeds
from capital contributions to Canergy Growth Fund
|
- | 400 | ||||||
Proceeds
from capital contributions to Canergy Management Company
|
- | 100 | ||||||
Purchases
of treasury shares
|
(1,719 | ) | (3,841 | ) | ||||
Net
cash used in financing activities
|
(2,926 | ) | (3,514 | ) | ||||
Net
increase (decrease) in cash and temporary investments
|
5,569 | (2,383 | ) | |||||
Cash
and cash equivalents at beginning of period
|
5,722 | 25,581 | ||||||
Cash
and cash equivalents at end of period
|
$ | 11,291 | $ | 23,198 |
(1)
|
BASIS
OF PRESENTATION
|
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
income (loss) attributable to HKN
|
$ | (455 | ) | $ | (3,204 | ) | $ | (1,731 | ) | $ | 268 | |||||
Foreign
currency translation adjustment on investment
|
(562 | ) | (2,733 | ) | 348 | (2,858 | ) | |||||||||
Unrealized
(loss) gain on investments
|
1,236 | (5,671 | ) | 572 | 3,313 | |||||||||||
Total
comprehensive income (loss)
|
$ | 219 | $ | (11,608 | ) | $ | (811 | ) | $ | 723 |
(2)
|
INVESTMENT
IN OHSOL TECHNOLOGY (UniPure)
|
●
|
Execution
by UniPure of a material contract regarding any of the UniPure patented
technologies
|
●
|
UniPure
achieves positive Operating Margins during two consecutive
quarters
|
●
|
UniPure
achieves positive Net Income during two consecutive
quarters
|
●
|
UniPure
receives a qualified offer to sell substantially all of its assets or to
merge with another entity and UniPure declines such
offer
|
●
|
A
Change of Control occurs at UniPure
|
●
|
The
average closing price of HKN common stock is above $3.50 for any
consecutive 30 day trading period
|
●
|
Any
UniPure transaction that dilutes HKN’s ownership of UniPure by more than
10%
|
●
|
UniPure
consummates a securities offering under the 1933 Act that results in
aggregate net cash proceeds to UniPure of at least $10
million
|
●
|
UniPure
incurs net losses for any four consecutive
quarters
|
●
|
A
Change of Control occurs at HKN
|
●
|
The
average closing price of HKN common stock is below $1.50 per share or
above $4.00 per share for any consecutive 30 day trading
period
|
(in
thousands, except share amounts)
|
||||
Consideration
issued to UniPure:
|
||||
1.0
million shares of restricted common stock
|
$ | 1,352 | ||
Fair
value of total consideration transferred for 19.5%
ownership
|
$ | 1,352 | ||
Recognized
amounts of identifiable assets aquired and liabilities assumed, at
estimated fair values
|
||||
Cash
and cash equivalents
|
$ | 7 | ||
Equipment
|
7,000 | |||
Intangible
assets
|
1,946 | |||
Accounts
payable
|
(380 | ) | ||
Deferred
income taxes
|
(729 | ) | ||
Contingent
liability
|
(910 | ) | ||
Total
identifiable net assets
|
$ | 6,934 | ||
Noncontrolling
interest (80.5 %)
|
(5,582 | ) | ||
Fair
value of our interest in net assets aquired (19.5 %)
|
$ | 1,352 |
(3)
|
OTHER
INVESTMENTS
|
September
30,
2009
|
December
31,
2008
|
|||||||
Shares
of Global Stock held by HKN
|
11,893,463 | 11,893,463 | ||||||
Closing
price of Global Stock
|
£ | 0.68 | £ | 0.68 | ||||
Foreign
Currency Exchange Rate
|
1.6104 | 1.4619 | ||||||
Market
Value of Investment in Global
|
$ | 13,066 | $ | 11,824 |
(4)
|
EQUITY
INVESTMENT IN SPITFIRE ENERGY
|
(5)
|
DERIVATIVE
INSTRUMENTS
|
Amount
of Loss or (Gain) Recognized
|
||||||||||
Derivatives
|
Location
of Loss or
(Gain)
Recognized in
Income
on Derivatives
|
Three
Months Ended September 30, 2009
|
Nine
Months Ended September 30, 2009
|
|||||||
Spitfire
warrants
|
Other
losses
|
$ | 2 | $ | 16 | |||||
Series
M Preferred conversion feature
|
Other
gains
|
(50 | ) | (5 | ) | |||||
$ | (48 | ) | $ | 11 |
(6)
|
FAIR
VALUE MEASUREMENTS
|
·
|
Level
1 – Valuation inputs are unadjusted quoted market prices for identical
assets or liabilities in active
markets.
|
·
|
Level
2 – Valuation inputs are quoted prices for identical assets or liabilities
in markets that are not active, quoted market prices for similar assets
and liabilities in active markets and other observable inputs directly or
indirectly related to the asset or liability being
measured.
|
·
|
Level
3 – Valuation inputs are unobservable and significant to the fair value
measurement.
|
Level
1
|
Level
2
|
Level
3
|
||||||||||
Investment
in Global (cost method)
|
$ | 13,066 | $ | - | $ | - | ||||||
Total
assets at fair value
|
$ | 13,066 | $ | - | $ | - | ||||||
Level
1
|
Level
2
|
Level
3
|
||||||||||
Asset
retirement obligation
|
$ | - | $ | - | $ | 5,750 | ||||||
Total
liabilities at fair value
|
$ | - | $ | - | $ | 5,750 |
Nine
Months Ended September 30, 2009
|
||||||||
Level
3 Asset
|
Level
3 Liability
|
|||||||
Spitfire
Warrants
|
Series
M Preferred Conversion Feature
|
|||||||
Beginning
balance
|
$ | 16 | $ | 5 | ||||
Total
realized and unrealized losses included in earnings
|
(16 | ) | (5 | ) | ||||
Net
purchases and sales
|
- | - | ||||||
Ending
balance
|
$ | - | $ | - |
(7)
|
PROPERTY
AND EQUIPMENT
|
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Unevaluated
properties:
|
||||||||
Unevaluated
coalbed methane prospects
|
$ | 5,074 | $ | 4,874 | ||||
Evaluated
oil and gas properties
|
199,863 | 197,534 | ||||||
OHSOL
equipment
|
7,120 | - | ||||||
Facilities
and other property
|
1,632 | 1,626 | ||||||
Less
accumulated depreciation, depletion, and amortization
|
(171,095 | ) | (168,676 | ) | ||||
$ | 42,594 | $ | 35,358 |
(8)
|
ASSET
RETIREMENT OBLIGATION
|
Asset
Retirement
|
|||||
Asset
Category
|
Obligation
Liability
|
Estimated
Life
|
|||
Oil
and gas producing properties
|
$ | 4,131 |
0-19
years
|
||
Facilities
and other property
|
1,619 |
2-26
years
|
|||
$ | 5,750 |
Asset
retirement obligation at beginning of year
|
$ | 5,472 | ||
Additions
during the year
|
- | |||
Disposals
during the year
|
(9 | ) | ||
Revisions
of estimates
|
- | |||
Accretion
expense
|
287 | |||
Asset
retirement obligation at September 30, 2009
|
$ | 5,750 |
(9)
|
SEGMENT
INFORMATION
|
|
||||||||||||||||||||||||
For the Three Months Ended September 30,
2009
|
||||||||||||||||||||||||
Canergy
|
Canergy
|
OHSOL
|
||||||||||||||||||||||
HKN
|
Fund
|
Management
|
Investment
|
Eliminations
|
Consolidated
|
|||||||||||||||||||
Oil
and gas revenues
|
$ | 2,649 | $ | - | $ | - | $ | - | $ | - | $ | 2,649 | ||||||||||||
Interest
and other income
|
459 | - | - | - | (9 | ) | 450 | |||||||||||||||||
Oil
and gas operating expenses
|
2,169 | - | - | - | - | 2,169 | ||||||||||||||||||
General
and administrative expenses
|
636 | - | - | 198 | - | 834 | ||||||||||||||||||
Provision
for doubtful accounts
|
(49 | ) | - | - | - | - | (49 | ) | ||||||||||||||||
Depreciation,
depletion, amortization and accretion
|
752 | - | - | - | - | 752 | ||||||||||||||||||
Other
losses (gains)
|
(42 | ) | - | - | 9 | (9 | ) | (42 | ) | |||||||||||||||
Equity
in losses of Spitfire
|
50 | - | - | - | - | 50 | ||||||||||||||||||
Income
tax expense
|
- | - | - | - | - | - | ||||||||||||||||||
Net
Loss
|
$ | (408 | ) | $ | - | $ | - | $ | (207 | ) | $ | - | $ | (615 | ) | |||||||||
Capital
Expenditures
|
$ | 582 | $ | - | $ | - | $ | 111 | $ | - | $ | 693 | ||||||||||||
Total
Assets
|
$ | 64,733 | $ | - | $ | - | $ | 9,106 | $ | (721 | ) | $ | 73,118 |
|
||||||||||||||||||||||||
For the Three Months Ended September 30,
2008
|
||||||||||||||||||||||||
Canergy
|
Canergy
|
OHSOL
|
||||||||||||||||||||||
HKN
|
Fund
|
Management
|
Investment
|
Eliminations
|
Consolidated
|
|||||||||||||||||||
Oil
and gas revenues
|
$ | 5,952 | $ | - | $ | - | $ | - | $ | - | $ | 5,952 | ||||||||||||
Trading
losses
|
(659 | ) | (190 | ) | - | - | - | (849 | ) | |||||||||||||||
Interest
and other income
|
514 | (11 | ) | - | - | - | 503 | |||||||||||||||||
Oil
and gas operating expenses
|
3,478 | - | - | - | - | 3,478 | ||||||||||||||||||
General
and administrative expenses
|
1,152 | - | 93 | - | - | 1,245 | ||||||||||||||||||
Depreciation,
depletion, amortization and accretion
|
1,190 | - | - | - | - | 1,190 | ||||||||||||||||||
Other
losses, net
|
5 | - | - | - | - | 5 | ||||||||||||||||||
Impairment
of investment in Spitfire
|
2,787 | - | - | - | - | 2,787 | ||||||||||||||||||
Equity
in earnings of Spitfire
|
(97 | ) | - | - | - | - | (97 | ) | ||||||||||||||||
Income
tax expense
|
264 | - | - | - | - | 264 | ||||||||||||||||||
Net
Loss
|
$ | (2,972 | ) | $ | (201 | ) | $ | (93 | ) | $ | - | $ | - | $ | (3,266 | ) | ||||||||
Capital
Expenditures
|
$ | 3,898 | $ | - | $ | - | $ | - | $ | - | $ | 3,898 | ||||||||||||
Total
Assets
|
$ | 9,075 | $ | 623 | $ | 93 | $ | - | $ | - | $ | 9,791 | ||||||||||||
|
||||||||||||||||||||||||
For the Nine Months Ended September 30,
2009
|
||||||||||||||||||||||||
Canergy
|
Canergy
|
OHSOL
|
||||||||||||||||||||||
HKN
|
Fund
|
Management
|
Investment
|
Eliminations
|
Consolidated
|
|||||||||||||||||||
Oil
and gas revenues
|
$ | 7,452 | $ | - | $ | - | $ | - | $ | - | $ | 7,452 | ||||||||||||
Interest
and other income
|
1,778 | - | - | - | (9 | ) | 1,769 | |||||||||||||||||
Oil
and gas operating expenses
|
5,981 | - | - | - | - | 5,981 | ||||||||||||||||||
General
and administrative expenses
|
1,825 | - | - | 198 | - | 2,023 | ||||||||||||||||||
Provision
for doubtful accounts
|
222 | - | - | - | - | 222 | ||||||||||||||||||
Depreciation,
depletion, amortization and accretion
|
2,736 | - | - | - | - | 2,736 | ||||||||||||||||||
Other
losses, net
|
17 | - | - | 9 | (9 | ) | 17 | |||||||||||||||||
Equity
in losses of Spitfire
|
173 | - | - | - | - | 173 | ||||||||||||||||||
Income
tax benefit
|
(40 | ) | - | - | - | - | (40 | ) | ||||||||||||||||
Net
Loss
|
$ | (1,684 | ) | $ | - | $ | - | $ | (207 | ) | $ | - | $ | (1,891 | ) | |||||||||
Capital
Expenditures
|
$ | 2,271 | $ | - | $ | - | $ | 111 | $ | - | $ | 2,382 | ||||||||||||
Total
Assets
|
$ | 64,733 | $ | - | $ | - | $ | 9,106 | $ | (721 | ) | $ | 73,118 | |||||||||||
|
||||||||||||||||||||||||
For the Nine Months Ended September 30,
2008
|
||||||||||||||||||||||||
Canergy
|
Canergy
|
OHSOL
|
||||||||||||||||||||||
HKN
|
Fund
|
Management
|
Investment
|
Eliminations
|
Consolidated
|
|||||||||||||||||||
Oil
and gas revenues
|
$ | 19,205 | $ | - | $ | - | $ | - | $ | - | $ | 19,205 | ||||||||||||
Trading
losses
|
(2,078 | ) | (192 | ) | - | - | - | (2,270 | ) | |||||||||||||||
Interest
and other income
|
2,033 | (10 | ) | - | - | - | 2,023 | |||||||||||||||||
Oil
and gas operating expenses
|
8,554 | - | - | - | - | 8,554 | ||||||||||||||||||
General
and administrative expenses
|
3,371 | 1 | 119 | - | - | 3,491 | ||||||||||||||||||
Depreciation,
depletion, amortization and accretion
|
3,680 | - | - | - | - | 3,680 | ||||||||||||||||||
Other
losses, net
|
50 | - | - | - | - | 50 | ||||||||||||||||||
Impairment
of investment in Spitfire
|
2,787 | - | - | - | - | 2,787 | ||||||||||||||||||
Equity
in earnings of Spitfire
|
(68 | ) | - | - | - | - | (68 | ) | ||||||||||||||||
Income
tax expense
|
271 | - | - | - | - | 271 | ||||||||||||||||||
Net
Income (Loss)
|
$ | 515 | $ | (203 | ) | $ | (119 | ) | $ | - | $ | - | $ | 193 | ||||||||||
Capital
Expenditures
|
$ | 4,932 | $ | - | $ | - | $ | - | $ | - | $ | 4,932 | ||||||||||||
Total
Assets
|
$ | 109,863 | $ | 1,795 | $ | 91 | $ | - | $ | - | $ | 111,749 |
(10)
|
STOCKHOLDERS’
EQUITY
|
Number
of Shares
|
||||||||||||||||||||
Description
|
Preferred
G1
|
Preferred
G2
|
Preferred
M
|
Common
|
Treasury
|
|||||||||||||||
Balance
as of December 31, 2008
|
1,600 | 1,000 | 44,000 | 9,268,253 | 6,869 | |||||||||||||||
Issuances
of preferred stock dividends
|
- | - | - | 83 | - | |||||||||||||||
Preferred
stock redemption
|
- | - | (10,000 | ) | - | - | ||||||||||||||
Issuance
of restricted shares for investment
|
- | - | - | 1,000,000 | - | |||||||||||||||
Treasury
Stock repurchase
|
- | - | - | - | 664,924 | |||||||||||||||
Treasury
Stock cancellation
|
- | - | - | (635,069 | ) | (635,069 | ) | |||||||||||||
Balance
as of September 30, 2009
|
1,600 | 1,000 | 34,000 | 9,633,267 | 36,724 |
(11)
|
EARNINGS
PER SHARE
|
Three
months ended September 30, 2009
|
Three
months ended September 30, 2008
|
|||||||||||||||||||||||
Net
Loss
Attributed
to
Common
Stock
|
Weighted-
Average
Shares
|
Per
Share
Loss
|
Net
Loss
Attributed
to
Common
Stock
|
Weighted-
Average
Shares
|
Per
Share
Loss
|
|||||||||||||||||||
Basic
EPS:
|
||||||||||||||||||||||||
Net
loss
|
$ | (528 | ) | 9,639 | $ | (0.05 | ) | $ | (3,276 | ) | 9,638 | $ | (0.34 | ) | ||||||||||
Effect
of dilutive securities
|
||||||||||||||||||||||||
Preferred
stock (A)
|
- | - | - | - | - | - | ||||||||||||||||||
Diluted
loss per share
|
$ | (528 | ) | 9,639 | $ | (0.05 | ) | $ | (3,276 | ) | 9,638 | $ | (0.34 | ) | ||||||||||
Nine
months ended September 30, 2009
|
Nine
months ended September 30, 2008
|
|||||||||||||||||||||||
Net
Loss
Attributed
to
Common
Stock
|
Weighted-
Average
Shares
|
Per
Share
Loss
|
Net
Income
Attributed
to
Common
Stock
|
Weighted-
Average
Shares
|
Per
Share
Income
|
|||||||||||||||||||
Basic
EPS:
|
||||||||||||||||||||||||
Net
income (loss)
|
$ | (2,086 | ) | 9,165 | $ | (0.23 | ) | $ | 33 | 9,685 | $ | 0.00 | ||||||||||||
Effect
of dilutive securities
|
||||||||||||||||||||||||
Preferred
stock (A)
|
- | - | - | - | - | - | ||||||||||||||||||
Diluted
earnings (loss) per share
|
$ | (2,086 | ) | 9,165 | $ | (0.23 | ) | $ | 33 | 9,685 | $ | 0.00 |
(12)
|
CONTINGENCIES
|
(13)
|
RELATED
PARTY TRANSACTIONS
|
(14)
|
SUBSEQUENT
EVENTS
|
|
September
30, 2009
|
December 31,
2008
|
|
|||||
Shares
of Global Stock held by HKN
|
11,893,463 | 11,893,463 | ||||||
Closing price of Global Stock | £ | 0.68 | £ | 0.68 | ||||
Foreign Currency Exchange Rate | 1.6104 | 1.4619 | ||||||
Market Value of Investment in Global | $ | 13,066 | $ | 11,824 |
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
|||||||||||||||||||||
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||||||||||||
Oil
and gas operating profit (1)
|
$ | 480 | $ | 2,474 | (81 | %) | $ | 1,471 | $ | 10,651 | (86 | %) | ||||||||||
Gas
sales revenues
|
$ | 280 | $ | 1,839 | (85 | %) | $ | 1,344 | $ | 5,967 | (77 | %) | ||||||||||
Gas
production (mcf)
|
67,145 | 170,520 | (61 | %) | 334,589 | 551,672 | (39 | %) | ||||||||||||||
Gas
price per mcf
|
$ | 4.18 | $ | 10.79 | (61 | %) | $ | 4.02 | $ | 10.82 | (63 | %) | ||||||||||
Oil
sales revenues
|
$ | 2,369 | $ | 4,113 | (42 | %) | $ | 6,108 | $ | 13,238 | (54 | %) | ||||||||||
Oil
production (bbls)
|
35,385 | 34,186 | 4 | % | 113,702 | 115,634 | (2 | %) | ||||||||||||||
Oil
price per bbl
|
$ | 66.94 | $ | 120.31 | (44 | %) | $ | 53.72 | $ | 114.48 | (53 | %) | ||||||||||
Trading
losses
|
$ | - | $ | (849 | ) | 100 | % | $ | - | $ | (2,270 | ) | 100 | % | ||||||||
Other
revenues, net
|
$ | 450 | $ | 503 | (11 | %) | $ | 1,769 | $ | 2,023 | (13 | %) | ||||||||||
General
and administrative expenses, net
|
$ | 834 | $ | 1,245 | (33 | %) | $ | 2,023 | $ | 3,491 | (42 | %) | ||||||||||
Provision
for doubtful accounts
|
$ | (49 | ) | $ | - | 100 | % | $ | 222 | $ | - | 100 | % | |||||||||
Depreciation,
depletion, amortization and accretion
|
$ | 752 | $ | 1,190 | (37 | %) | $ | 2,736 | $ | 3,680 | (26 | %) | ||||||||||
Other
losses (gains)
|
$ | (42 | ) | $ | 5 | (940 | %) | $ | 17 | $ | 50 | (66 | %) | |||||||||
Impairment
of investment in Spitfire
|
$ | - | $ | 2,787 | (100 | %) | $ | - | $ | 2,787 | (100 | %) | ||||||||||
Equity
in losses (earnings) in Spitfire
|
$ | 50 | $ | (97 | ) | 152 | % | $ | 173 | $ | (68 | ) | 354 | % | ||||||||
Income
tax expense (benefit)
|
$ | - | $ | 264 | (100 | %) | $ | (40 | ) | $ | 271 | (115 | %) | |||||||||
Net
income (loss)
|
$ | (615 | ) | $ | (3,266 | ) | 81 | % | $ | (1,891 | ) | $ | 193 | (1080 | %) | |||||||
Net
loss attributed to noncontrolling interests
|
$ | 160 | $ | 62 | 158 | % | $ | 160 | $ | 75 | 113 | % | ||||||||||
Net
income (loss) attributed to HKN
|
$ | (455 | ) | $ | (3,204 | ) | 86 | % | $ | (1,731 | ) | $ | 268 | (746 | %) | |||||||
Net
income (loss) attributed to common stock
|
$ | (528 | ) | $ | (3,276 | ) | 84 | % | $ | (2,086 | ) | $ | 33 | (6421 | %) | |||||||
Net
income (loss) per common share:
|
||||||||||||||||||||||
Basic
and diluted
|
$ | (0.05 | ) | $ | (0.34 | ) | 84 | % | $ | (0.23 | ) | $ | 0.00 | (6780 | %) |
|
(1)
|
Oil
and gas operating profit is calculated as oil and gas revenues less oil
and gas operating expenses
|
September
30,
|
December
31,
|
|||||||
(Thousands
of dollars)
|
2009
|
2008
|
||||||
Current
ratio
|
3.91
to 1
|
5.77
to 1
|
||||||
Working
capital (1)
|
$ | 10,535 | $ | 16,102 | ||||
Total
debt
|
$ | - | $ | - | ||||
Total
cash and marketable securities less debt
|
$ | 11,291 | $ | 15,219 | ||||
Total
stockholders' equity
|
$ | 62,932 | $ | 59,904 | ||||
Total
liabilities to equity
|
0.16
to 1
|
0.15
to 1
|
||||||
Shares
of Common
|
||||
Stock
Issuable at
|
||||
Instrument
|
Conversion
Price (a)
|
September
30, 2009
|
||
Series
M Preferred (b)
|
$11.85
|
286,920
|
||
Series
G1 Preferred
|
$280.00
|
571
|
||
Series
G2 Preferred
|
$67.20
|
1,488
|
||
UniPure
Put / Call Option (c)
|
n/a
|
725,000
|
||
Common
Stock Potentially Issued Upon Conversion
|
1,013,979
|
(a)
Certain conversion prices are subject to adjustment under certain
circumstances.
|
(b)
As of November 5, 2009, all remaining Series M Preferred shares have been
fully redeemed.
|
(c)
See Note 2 - Investment in OHSOL Technology for additional information on
put/call option.
|
|
●
|
Execution
by UniPure of a material contract regarding any of the UniPure patented
technologies
|
|
●
|
UniPure
achieves positive Operating Margins during two consecutive
quarters
|
|
●
|
UniPure
achieves positive Net Income during two consecutive
quarters
|
|
●
|
UniPure
receives a qualified offer to sell substantially all of its assets or to
merge with another entity and UniPure declines such
offer
|
|
●
|
A
Change of Control occurs at UniPure
|
|
●
|
The
average closing price of HKN common stock is above $3.50 for any
consecutive 30 day trading period
|
|
●
|
Any
UniPure transaction that dilutes HKN’s ownership of UniPure by more than
10%
|
|
●
|
UniPure
consummates a securities offering under the 1933 Act that results in
aggregate net cash proceeds to UniPure of at least $10
million
|
|
●
|
UniPure
incurs net losses for any four consecutive
quarters
|
|
●
|
A
Change of Control occurs at HKN
|
|
●
|
The
average closing price of HKN common stock is below $1.50 per share or
above $4.00 per share for any consecutive 30 day trading
period
|
(a)
|
(b)
|
(c)
|
(d)
|
|||||||||||||
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as part of Publicly Announced
Program
|
Maximum
Number of Shares that May Yet Be Purchased Under the Plans or
Programs
|
||||||||||||
July
1, 2009 through July 31, 2009
|
31,454 | $ | 2.38 | 618,411 | 618,869 | |||||||||||
August
1, 2009 through August 31, 2009
|
200 | $ | 2.47 | 618,611 | 618,669 | |||||||||||
September
1, 2009 through September 30, 2009
|
46,313 | $ | 2.77 | 664,924 | 572,356 | |||||||||||
Total
|
77,967 | $ | 2.61 | 664,924 | 572,356 | |||||||||||
3.1
|
Restated
Certificate of Incorporation of Harken Energy Corporation (filed as
Exhibit 3.1 to Harken’s Form 10-K dated February 28, 2006, File
No. 1-10262, and incorporated herein by reference).
|
3.2
|
Certificate
of Amendment to Restated Certificate of Incorporation of Harken Energy
Corporation dated June 4, 2007 (filed as Exhibit 3.2 to HKN’s Form 10-Q
dated August 7, 2007, File No. 1-10262, and incorporated by
reference herein).
|
3.3
|
Certificate
of Amendment to Restated Certificate of Incorporation of HKN, Inc. dated
June 24, 2008 and effective June 26, 2008. (filed as Exhibit 3.2 to HKN’s
Form 10-Q dated August 7, 2008, File No. 001-10262, and incorporated by
reference herein).
|
3.4
|
Amended
and Restated Bylaws of Harken Energy Corporation (filed as Exhibit 3.7 to
Harken’s Annual Report on Form 10-K for fiscal year ended December 31,
2002, File No. 1-10262, and incorporated by reference
herein).
|
4.1
|
Form
of certificate representing shares of HKN, Inc. common stock, par value
$.01 per share (filed as Exhibit 4.1 to HKN’s Form 10-Q dated August 7,
2007, File No. 1-10262, and incorporated by reference
herein).
|
4.2
|
Rights
Agreement, dated as of April 6, 1998, by and between Harken Energy
Corporation and ChaseMellon Shareholder Services L.L.C., as Rights Agent
(filed as Exhibit 4 to Harken’s Current Report on Form 8-K dated April 7,
1998, file No. 1-10262, and incorporated by reference
herein).
|
4.3
|
Amendment
to Rights Agreement by and between Harken Energy Corporation and American
Stock Transfer and Trust Company (successor to Mellon Investor Services
LLC, (formerly known as ChaseMellon Shareholder Services L.L.C.), as
Rights Agent, dated June 18, 2002 (filed as Exhibit 4.11 to Harken’s
Quarterly Report on Form 10-Q for the period ended September 30, 2002,
File No. 1-10262, and incorporated by reference
herein).
|
4.4
|
Amendment
to Rights Agreement by and between Harken Energy Corporation and American
Stock Transfer and Trust Company (successor to Mellon Investor Services
LLC, (formerly known as ChaseMellon Shareholder Services L.L.C.), as
Rights Agent, dated August 27, 2002 (filed as Exhibit 4.12 to Harken’s
Quarterly Report on Form 10-Q for the period ended September 30, 2002,
File No. 1-10262, and incorporated by reference
herein).
|
4.5
|
Certificate
of Designations of Series E Junior Participating Preferred Stock (filed as
Exhibit A to Exhibit 4 to Harken’s Current Report on Form 8-K dated April
7, 1998, file No. 1-10262, and incorporated by reference
herein).
|
4.6
|
Certificate
of Increase of Series E Junior Participating Preferred Stock of Harken
Energy Corporation (filed as Exhibit 4.6 to Harken’s Annual Report on Form
10-K for the fiscal year ended December 31, 2002, File No. 1-10262, and
incorporated by reference herein).
|
4.7
|
Certificate
of Designations of Series G1 Convertible Preferred Stock (filed as Exhibit
3.7 to Harken’s Current Report on Form 8-K dated February 13, 2003, File
No. 1-10262, and incorporated by reference herein).
|
4.8
|
Certificate
of Increase of Series G1 Convertible Preferred Stock
of Harken Energy Corporation (filed as Exhibit 3.8
to Harken’s Current Report on Form 8-K dated February 13, 2003, File No.
1-10262, and incorporated by reference herein).
|
4.9
|
Certificate
of Designations of Series G2 Convertible Preferred Stock (filed as Exhibit
4.10 to Harken’s Annual Report on Form 10-K, as amended, for the fiscal
year ended December 31, 2001, File No. 1-10262, and incorporated by
reference herein).
|
4.15
|
Certificate
of Designations of Series M Cumulative Convertible Preferred Stock (filed
as Exhibit 4.1 to Harken’s Current Report on Form 8-K dated October 8,
2004, File No. 1-10262, and incorporated by reference
herein).
|
4.17
|
Amendment
to Rights Agreement by and between HKN, Inc. and American Stock Transfer
and Trust Company, as Rights Agent, dated April 4, 2008 (filed as Exhibit
4.1 to HKN’s current report on Form 8-K dated April 4, 2008, file No.
1-10262, and incorporated by reference herein).
|
10.1
|
Form
of Executive Retention Agreement (filed as Exhibit 10.1 to HKN’s Current
Report on Form 8-K dated July 2, 2008, File No. 001-10262, and
incorporated by reference herein).
|
*31.1
|
Certificate
of the Chief Executive Officer of HKN, Inc. pursuant to section 302 of the
Sarbanes-Oxley Act of 2002 (“S.O. Act”)
|
*31.2
|
Certificate
of the Chief Financial Officer of HKN, Inc. pursuant to section 302 of the
S.O. Act
|
*32.1
|
Certificate
of the Chief Executive Officer of HKN, Inc. pursuant to section 906 of the
S.O. Act
|
*32.2
|
Certificate
of the Chief Financial Officer of HKN, Inc. pursuant to section 906 of the
S.O. Act
|
|
HKN,
Inc.
|
||
(Registrant)
|
|||
|
|||
Date:
November 5, 2009
|
By:
|
/s/ Anna M. Williams | |
Senior Vice President and | |||
Chief Financial Officer | |||