UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q /A



(Mark One)



For the Quarterly Period Ended September 30, 2016March  31, 2017



or





for the transition period from _____ to _____



Commission File No. 1-10762



Harvest Natural Resources, Inc.

(Exact Name of Registrant as Specified in Its Charter)





(281) 899-5700

(Registrant's Telephone Number, Including Area Code) 



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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  ☒  No   ☐



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  ☒  No   ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company or Emerging Growth Company. See the definition of “large accelerated filer,” “accelerated filer,”  “emerging growth company” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐  No   ☒

At November 4, 2016,May 11, 2017,  the Registrant had 11,042,804 11,520,293shares of its common stock, par value $0.01 per share, outstanding.







EXPLANATORY NOTE :

This Amendment No. 1 (this “Amendment”) amends the Quarterly Report on Form 10-Q for the period ended September 30, 2016 (the “Form 10-Q”) that was filed by Harvest Natural Resources, Inc. (the “Company”) on November 9, 2016.  Due to an inadvertent, technical error, Exhibit 32.2 was filed in place of the Form 10-Q itself on November 9, 2016.  This Amendment provides a complete, replacement Form 10-Q, dated November 10, 2016, as well as updated Exhibits 31.1., 31.2, 32.1 and 32.2.

HARVEST NATURAL RESOURCES, INC.

FORM 10-Q

TABLE OF CONTENTS











HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF NET ASSETS

(LIQUIDATION BASIS)

(in thousands)

See accompanying notes to consolidated  condensed financial statements.



HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETSSHEET 

(GOING CONCERN BASIS)

(in thousands, except per share data)



See accompanying notes to consolidated  condensed financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN NET ASSETS

(LIQUIDATION BASIS)

(in thousands)



See accompanying notes to consolidated  condensed financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)LOSS

(GOING CONCERN BASIS)

(in thousands, except per share data)

(Unaudited)



See accompanying notes to consolidated condensed financial statements.



HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTSSTATEMENT OF CASH FLOWS

(GOING CONCERN BASIS)

(in thousands)

(Unaudited)











See accompanying notes to consolidated condensed financial statements.





Supplemental Schedule of Noncash Investing and Financing Activities: 





See accompanying notes to consolidated condensed financial statements.



Supplemental Schedule of Noncash Investing and Financing Activities:

See accompanying notes to consolidated condensed  financial statements.

HARVEST NATURAL RESOURCES, INC. AND SUBSIDIARIES

Notes to Unaudited Consolidated Condensed Financial Statements

Note 1 – Organization



Organization



Prior to the sale of our oil and gas interests in Gabon, Harvest Natural Resources, Inc. (“Harvest” or the “Company”) iswas a petroleum exploration and production company incorporated under Delaware law in 1988.

We holdheld exploration acreage offshore of the RepublicGabon and operated from our Houston, Texas headquarters.  See Sale of Gabon (“Gabon”) through the Dussafu Marin Permit (“Dussafu PSC”).  See InterestsNote 7 – Gabon.  We currently are evaluating the continued development or possible sale of our Gabon interests.

We previously owned significant interests in the Bolivarian Republic of Venezuela (“Venezuela”). We sold these interests in a transaction that closed on October 7, 2016.  See Share Purchase Agreement, below for morefurther information.

Interim Reporting

In our opinion,accordance with the accompanying unaudited consolidated condensed financial statements contain all adjustments,Company’s Plan of Complete Liquidation, Dissolution, Winding Up and Distribution (the “Plan of Dissolution”), the Company filed a certificate of dissolution with the Delaware Secretary of State on May 4, 2017, which are of a normal recurring nature, necessary to present fairlydissolved the financial positionCompany as of September 30, 2016, results8:00 p.m. on May 4, 2017.  In accordance with the General Corporation Law of operations for the three and nine months ended September 30, 2016 and 2015, andState of Delaware, the cash flows forCompany’s sole purpose is winding up the nine months ended September 30, 2016 and 2015.  The December 31, 2015 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by United Statesbusiness affairs of America generally accepted accounting principles (“U.S. GAAP”).  The unaudited consolidated condensed financial statements are presentedthe Company in accordance with the requirementsPlan of Form 10-Q and do not include all disclosures normally required by U.S. GAAP. The consolidated condensed financial statements included in this report should be read with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015, which include certain definitions and a summary of significant accounting policies. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.

Securities Purchase Agreement

On June 19, 2015, the Company and certain of its domestic subsidiaries entered into a securities purchase agreement (the “Securities Purchase Agreement”) with CT Energy Holding SRL (“CT Energy”), a private investment firm organized as a Barbados Society with Restricted Liability, under which CT Energy purchased certain securities of the Company and acquired certain governance rights.  Harvest immediately received gross proceeds of $32.2 million from the sale of the securities, as described below.   Key terms of the transaction include:

The securities sold to CT Energy under the Securities Purchase Agreement, as well as CT Energy’s governance rights, the Management Agreement and the Company’s relationship with CT Energy generally, were terminated on October 7, 2016 upon the

closing of the sale of all of the Company’s Venezuelan interests to an affiliate of CT Energy.  See Share Purchase AgreementPlan of Dissolution and Liquidation, below for morefurther information.

Sale of Gabon Interests

Share Purchase Agreement

On October 7,December 21, 2016, the Company and its wholly owned subsidiary, HNR Energia BVB.V., a Curacao company (“HNR Energia”), completed the sale ofentered into a Sale and Purchase Agreement (the “Sale and Purchase Agreement”) with BW Energy Gabon Pte. Ltd., a private Singapore company (“BW Energy”), to sell all of HNR Energia’s 51% interest in Harvest-Vinccler Dutch Holding B.V., a Netherlands company (“Harvest Holding”), to Delta Petroleum N.V., a limited liability company organized under the laws of Curacao (“Delta Petroleum”), pursuant to a share purchase agreement, dated June 29, 2016 (the “Share Purchase Agreement”).  Harvest Holding owns, indirectly through wholly owned subsidiaries, a 40% interest in Petrodelta, S.A., a mixed company organized under Venezuelan law (“Petrodelta”), through which all of the Company’s interests in Venezuela were owned.  Thus, under the Share Purchase Agreement, the Company sold all of its interests in Venezuela to Delta Petroleum.

Delta Petroleum is an affiliate of CT Energy, which assigned all of its rights and obligations under the Share Purchase Agreement to Delta Petroleum on September 26, 2016.  For more information about CT Energy, see Securities Purchase Agreement, above.

At the closing, the Company received consideration consisting of:

At the closing, the outstanding principal and accrued interest totaling $38.9 million and $1.4 million, respectively, under both the 15% Note and the Additional Draw Note, were repaid, net of withholding tax, as a closing adjustment to cash, and the 15% Note and Additional Draw Note were terminated.  (The $69.4 million in cash referenced above takes these adjustments into account.)  To fund Harvest’s transaction expenses and operations until the closing under the Share Purchase Agreement, CT Energy had loaned Harvest $2.0 million on each of June 21, 2016, July 20, 2016, August 24, 2016 and September 21, 2016 under the Additional Draw Note.

The relationship between the Company and CT Energy effectively terminated upon the closing under the Share Purchase Agreement.  In addition to the termination or relinquishment of all Company securities held by CT Energy, Oswaldo Cisneros and Alberto Sosa resigned as CT Energy’s non-independent designees to the Company’s board of directors.  Additionally, the Securities Purchase Agreement and certain agreements related to the Securities Purchase Agreement, including the Management Agreement, terminated.  Finally, all liens securing Company debt formerly owed to CT Energy were released at the closing.  Upon the closing, the Company’s primary assets were cash from the proceeds of the transaction and the Company’s oil and gas interests in Gabon.  Harvest’s stockholders approved the proposed sale at a special meeting on February 23, 2017.  The sale was subject to additional conditions before it could close such as approval from the Gabonese government.  We received the Gabonese government’s approval on April 5, 2017 and we completed the sale on April 10, 2017.  See Note 6 – Assets and Liabilities Held for Sale and Discontinued Operations for more information.

Long-Term Receivable – CTUnder the terms of the Sale and Purchase Agreement, BW Energy acquired HNR Energia's 100 percent interest in Harvest Dussafu B.V. (“Harvest Dussafu”), which owns a 66.667 percent interest in the Dussafu production sharing contract located offshore Gabon, for $32.0 million in cash, subject to certain adjustments, including reimbursement for approximately $2.3 million of expenditures in respect of the interest since September 30, 2016.  At the closing of the transaction, $2.5 million of the $32.0 million purchase price was retained in an escrow account at Citibank to satisfy any post-closing claims the purchaser may have against Harvest and HNR Energia under the Sale and Purchase Agreement.  The $2.5 million (less the amount of any claims) will be released to HNR Energia from the escrow account on July 10, 2017.  After taking into consideration taxes and transaction related costs, the net proceeds of the transaction are approximately $29.4 million, less any successful claims made against the $2.5 million escrow. 

Plan of Dissolution and Liquidation

On October 7, 2016, following the sale of our Venezuelan interests, we announced that we were evaluating a possible dissolution of Harvest. On December 30, 2016, the Board of Directors of Harvest (the “Board”) unanimously determined that a proposed dissolution was advisable and in the best interests of Harvest and our stockholders, adopted an initial plan of dissolution and liquidation, authorized the proposed dissolution, recommended that our stockholders authorize the proposed dissolution in accordance with the Plan of Dissolution, and generally authorized our officers to take all necessary actions to affect our dissolution. At its meeting held on January 12, 2017, our Board further discussed the proposed dissolution and liquidation, rescinded its adoption of the initial plan of dissolution and liquidation and adopted the Plan of Dissolution, which included changes based on comments received from tax and other counsel.  On February 23, 2017, the holders of a majority of all outstanding shares of Harvest’s common stock approved the Plan of Dissolution at a  special meeting of Harvest’s stockholders.

On March 31, 2017, Delta Petroleum N.V. (“Delta Petroleum”) paid in full the 11% non-convertible senior promissory note payable owed to HNR Energia relating to Harvest’s sale of its Venezuelan interest in October 2016.  The total interest and principal paid to HNR Energia on March 31, 2017 was $12.6 million.

In light of closing the Gabon transaction and the collection of the note due from Delta Petroleum, the Board proceeded with plan for Harvest’s dissolution.  Under the dissolution, liquidation and winding up process under Delaware law, the proceeds from the Gabon transaction and the repayment of debt from Delta Petroleum will be combined with other Harvest assets to be distributed to Harvest’s stockholders in accordance with the Plan of Dissolution, subject to certain payments and costs during Harvest’s winding up process. 



On JanuaryApril 13, 2017, the Board declared an initial cash distribution of $5.75 per share of common stock payable to holders of record as of April 24, 2017.    The total initial liquidating distribution of $66.2 million was made on May 4, 2016, HNR Finance B.V., a wholly owned subsidiary of Harvest Holding (“HNR Finance”), provided a loan to CT Energia of $5.2 million under an 11.0% promissory note due 2019 (the “CT Energia Note”).  The purpose of the loan was to provide CT Energia with collateral to obtain funds for one or more loans to Petrodelta, which is 40% owned by HNR Finance.  HNR Finance’s sole recourse for2017.  Following payment of the principal amountinitial liquidating distribution, Harvest’s common stock ceased to be traded on the New York Stock Exchange as of 8:00 p.m. Eastern time on May 4, 2017.  Although our Board has not established a firm timetable for further liquidating distributions, the loan was the payments of principal and interest from loans that CT Energia has madeBoard intends to, Petrodelta. 

The source of funds for HNR Finance’s $5.2 million loansubject to CT Energia was a capital contribution from Harvest Holding, which,contingencies inherent in return, received the same aggregate amount of capital contributions from its shareholders, pro rata according to their equity interests in Harvest Holding. Of that aggregate amount of capital contributions, HNR Energia contributed $2.6 million, which was a capital contribution from Harvest. During the three months ended March 31, 2016, we recorded a $5.2 million allowance to fully reserve the CT Energia Note due to concerns related to the continued deteriorating economic conditions in Venezuela andwinding up our assessment relating to the probability that the CT Energia Note will be collected.  As of September 30, 2016, the CT Energia Note remained fully reserved and we had not accruedbusiness, make such distributions, if any, interest with respect to this note receivable.

as soon as practicable

and periodically as we convert our remaining assets to cash and pay our remaining liabilities and obligations subject to law.    Further liquidating distributions, if any, will be made in cash. The timing and amount of interim liquidating distributions and final liquidating distributions will depend on the timing and amount of proceeds the Company may receive upon the sale of any remaining assets less any cost incurred and less obligations, in connection with any litigation and the extent to which reserves for current or future liabilities are required. Accordingly, there can be no assurance that there will be any liquidating distributions prior to a final liquidating distribution.

During the liquidation of our assets, the Board may authorize the Company to pay all costs and expenses, including without limitation, any brokerage, agency, professional and other fees and expenses of persons rendering services, including legal counsel, accountants and tax advisors, to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of the Plan of Dissolution.

Under the Liquidation Basis of Accounting, assets are stated at their estimated net realizable values and liabilities are stated at contractual amounts and estimated liabilities are at their estimated settlement amounts, including those estimated costs associated with implementing the Plan of Dissolution.  Estimates will be periodically reviewed and adjusted. Uncertainties as to the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value that may ultimately be distributable to stockholders.  Claims, liabilities and future expenses for operations will continue to be incurred with execution of the plan. These costs will reduce the amount of net assets available for ultimate distribution to stockholders.  Although we do not believe that a precise estimate of those expenses can currently be made, we believe that available cash is adequate to provide for our obligations, liabilities, operating costs and claims, and to make cash distributions to stockholders.  If available cash is not adequate to provide for our obligations, liabilities, operating costs and claims, estimated future liquidating distributions of cash to our stockholders will be reduced and stockholders may be required to repay liquidating distributions previously made by the Company.

Rights Agreement to Protect Net Operating Losses

On February 16, 2017, the Board adopted a Rights Agreement (the “Rights Plan”) designed to preserve the Company’s tax assets.  As of December 31, 2016, the Company had cumulative net operating loss carryforwards ("NOLs") of approximately $56.0 million, which can be utilized in certain circumstances to offset possible future U.S. taxable income. 

Harvest’s ability to use these tax benefits would be limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code. An ownership change would occur if stockholders that own (or are deemed to own) at least five percent or more of Harvest’s outstanding common stock increased their cumulative ownership in the Company by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. The Rights Plan reduces the likelihood that changes in Harvest’s investor base would limit Harvest’s future use of its tax benefits.

In connection with the adoption of the Rights Plan, the Board declared a non-taxable dividend of one preferred share purchase right for each share of the Company's common stock outstanding as of February 17, 2017. Effective as of the close of business on February 17, 2017, if any person or group acquires five percent or more of the outstanding shares of the Company's common stock, or if a person or group that already owns five percent or more of the Company's common stock acquires additional shares (“acquiring person or group”), then, subject to certain exceptions, there would be a triggering event under the Rights Plan. The rights would then separate from the Company's common stock and entitle the registered holder to purchase from the Company one one-hundredth of a share of the Series D Preferred Stock of the Company at a price of $26, subject to adjustment. Rights held by the acquiring person or group will become void and will not be exercisable.

The Board has the discretion to exempt certain transactions, persons or entities from the operation of the Rights Plan if it determines that doing so would not jeopardize or endanger the Company's use of its tax assets or is otherwise in the best interests of the Company. The Board also has the ability to amend or terminate the Rights Plan prior to a triggering event. The rights issued under the Rights Plan will expire on February 17, 2020, or on an earlier date if certain events occur, as described more fully in the Rights Plan that the Company filed with the SEC on February 21, 2017.  The Rights Plan was amended to eliminate our dissolution as an event of termination, as described in the Current Report on Form 8-K filed with the SEC on May 3, 2017.

Note 2 – Liquidity

After the completion of the sale of our Gabon interests on April 10, 2017, our primary asset is cash.  We will use the proceeds from the sale of our Gabon interests to pay expenses and taxes, if any, associated with the sale and for other operating expenses. Subject to determinations to be made by our Board, the remaining proceeds will be used to provide reserves of funds for future or contingent liabilities as may be determined necessary by our Board pursuant to Delaware law, to pay or settle existing obligations, to pay costs (including taxes) associated with the liquidation and winding up of our business, and to distribute remaining assets to our

As discussed above under Share Purchase Agreement, the Company sold its 51% interest in Harvest Holding, the parent company of HNR Finance, which holds the CT Energia Note), to an affiliate of CT Energy on October 7, 2016.

Reverse Stock Split

On December 2, 2015, the Company received notification from the New York Stock Exchange (“NYSE”) that the Company was not in compliance with the NYSE's continued listing standards, which require a minimum average closing price of $1.00 per share over 30 consecutive trading days.  In an effort to correct the deficiency, after the market closed on November 3, 2016, the Company completed a one-for-four reverse split of its issued and outstanding common stock.  The Company’s common stock began trading on a split-adjusted basis at market open on November 4, 2016.  In connection with the reverse stock split, the Company amended its amended and restated certificate of incorporation to reduce the authorized number of shares of common stock from 150,000,000 to 37,500,000.

As of November 4, 2016, the closing price of the Company’s common stock had increased to $4.45 per share.  Given the increase in our common stock price, the Company expects that it will regain compliance with the NYSE’s minimum price listing standard on December 19, 2016.

 All share and per share amounts in this report have been reported on a post-split basis.

Note 2 – Liquidity

stockholders.  We expect the net proceeds from the sale of our Venezuelan interestscash on October 7, 2016hand will be adequate to meet our short-term liquidity requirements.   

In January, April and July 2016, due to our liquidity position, the Company amended the 15% Note to increase the principal amount of the note equal to the amount of the accrued interest, less withholding tax, which was due to CT Energy.  On May 3, 2016, the Company increased the principal amount of the 15% Note by $3.0 million.   Taking these increases into account, the principal amount outstanding under the 15% Note was $30.9 million as of September 30, 2016.  As of September 30, 2016, we had capitalized interest payments, less withholding tax, totaling $2.7 million. 

As discussed above in Note 1 –  Organization – Share Purchase Agreement, the outstanding principal under the Additional Draw Note was  $8.0 million at September 30, 2016.  The Additional Draw Note was cancelled on October 7, 2016 upon the closing of the sale of our Venezuelan interests. 

Our primary tangible asset is our oil and gas interests in Gabon.  We have received two proposalsrequirements for the purchase of our Gabon interests and are in discussions with both potential buyers; however, there can be no assurances that these discussions or either proposal will lead to a definitive transaction.  We currently are evaluating the continued development or possible sale of our Gabon interests, potential distributions of cash to our stockholders, and possible dissolution of the Company.    

The Company completed a one-for-four reverse splitOn April 13, 2017, the Board declared an initial cash distribution of its issued and outstanding$5.75 per share of common stock payable to holders of record as of April 24, 2017.  The total initial liquidating distribution of $66.2 million was made on November 3, 2016.May 4, 2017.    Other contingent items include:  (1) the gain contingency represented by our lawsuit against Newfield (as to which the likelihood of revenues to us cannot be assured and the amount of any success cannot correctly be estimated (2) the funds blocked by OFAC in the LOGSA matter, which is a gain contingency of $0.7 million if we are able to recoup these funds, and (3) various other assets whose realizable cash value is not expected to exceed $2.0 million.  See Note 17 – Organization – Reverse Stock SplitCommitments and Contingencies, above, for morefurther information.All share and per share amounts in this report have been reflected on a post-split basis in these financial statements.

On April 25, 2016, the Company received a notice from the NYSE stating that the Company was not in compliance with a second NYSE continued listing requirement, which provides that a company is not in compliance if its average global market capitalization over a consecutive 30 trading-day period is less than $50 million and, at the same time, its stockholders’ equity is less than $50 million.  The Company believes that the sale of its Venezuelan interests on October 7, 2016 ultimately will allow it to regain compliance with this listing standard by increasing its stockholders’ equity.  However, the Company must demonstrate compliance for two consecutive financial quarters before the deficiency can be cured.

Upon the closing of the sale of the Company’s 51 percent interest in Harvest Holding, the Company received, among other consideration, $69.4 million in net cash proceeds and a $12.0 million note payable from Delta Petroleum, due six months after closing.   A portion of the proceeds from the sale have been and will be used to fund costs associated with the either the sale or development of the Company’s Gabon prospect, to pay certain severance costs, to fund capital expenditures, to pay tax obligations related to the sale, to fund any potential future dividends declared and to maintain ongoing general operating and administrative expenses.  

Note 3 – Summary of Significant Accounting Policies

Liquidation Basis of Accounting

As a result of the approval of the Plan of Dissolution, the Company adopted the Liquidation Basis of Accounting, effective January 1, 2017. This basis of accounting is considered appropriate when, among other things, liquidation of the Company is imminent, as defined in ASC 205-30 “Presentation of Financial Statements – Liquidation Basis of Accounting”.  Under the Liquidation Basis of Accounting the following financial statements are no longer presented (except for periods prior to the adoption of the Liquidation Basis of Accounting): a consolidated condensed balance sheet, a consolidated condensed statement of operations and comprehensive loss and a consolidated condensed statement of cash flows. The consolidated condensed statement of net assets and the consolidated condensed statement of changes in net assets are the principal financial statements presented under the Liquidation Basis of Accounting.  Although the Plan of Dissolution was approved by the stockholders on February 23, 2017, the Company is using the liquidation basis of accounting effective January 1, 2017 as a convenience date.  Any activity between January 1, 2017 and February 23, 2017 would not be materially different under the going concern basis. 

Under the Liquidation Basis of Accounting, all of the Company’s assets have been stated at their estimated net realizable value and are based on current contracts, estimates and other indications of sales value net of estimated selling costs.  All liabilities of the Company have been stated at contractual amounts and estimated liabilities are at their estimated settlement amounts, including those estimated costs associated with implementing the Plan of Dissolution.  These amounts are presented in the accompanying consolidated condensed statement of net assets.  These estimates will be periodically reviewed and adjusted as appropriate.  There can be no assurance that these estimated values will be realized.  Such amounts should not be taken as an indication of the timing or amount of future distributions or our actual dissolution.  The valuation of assets at their net realizable value and liabilities at their anticipated settlement amount represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Dissolution.  The actual values and costs associated with carrying out the Plan of Dissolution are expected to differ from amounts reflected in the accompanying financial statements because of the plan’s inherent uncertainty.  These differences may be material.  In particular, the estimates of our costs will vary with the length of time necessary to complete the Plan of Dissolution.  Accordingly, it is not possible to predict with certainty the timing or aggregate amount which may ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying consolidated condensed statement of net assets.

Principles of Consolidation

The consolidated condensed financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Third-party interests in our majority-owned subsidiaries are presented as noncontrolling interests owners.

Basis of Presentation

The accompanying interim unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) in conjunction with the rules and regulations of the Securities and Exchange Commission.  The results for such interim periods are not necessarily indicative of the results to be expected for the year.  In the opinion of management, all adjustments considered necessary for a fair presentation of the results for the respective periods have been reflected.  These consolidated condensed financial statements and accompanying notes should be read in conjunction with the Company’s Form 10-K for the year ended December 31, 2016.

Reclassifications

Certain reclassifications related to discontinued operations have been made to prior period amounts to conform to the current period presentation.amounts.  These reclassifications did not affect our consolidated condensed financial results.

Use of Estimates

The preparation ofIn preparing the consolidated condensed financial statements in conformity with U.S. GAAP requiresincluding the Liquidation Basis of Accounting, management is required to make estimates and assumptions that affect the reported amounts of assets, including net assets in liquidation, and liabilities and disclosure of contingent assets and liabilities atas of the date of the consolidated condensed financial statements and the reported amounts of revenuesincome and expenses duringexpense for the reporting period.  Other important significant estimates are those included in the valuation of our assets and liabilities that are recorded at fair value on a recurring and non-recurring basis.  Actual results could differ from those estimates.

Oil

Discontinued Operations

Prior to the adoption of the Liquidation Basis of Accounting, the Company followed the guidance of the Presentation of Property, Plant, and Natural GasEquipment Topics of the ASC, with respect to long-lived assets classified as held for sale.  The ASC required that the results of operations, including impairment, gains and losses related to the properties that were sold or properties that were intended to be sold, be presented as discontinued operations in the statements of operations for all periods presented and the assets and liabilities of properties intended to be sold were to be separately classified on the balance sheet.  Properties designated as held for sale were carried at the lower of cost or fair value less costs to sell and were not depreciated.

Net Loss Per Share

Prior to the adoption of the Liquidation Basis of Accounting, the Company reported basic net loss per share data by dividing net loss by the weighted average number of shares common stock outstanding during each period.  Diluted net loss per share was computed by dividing net loss by the weighted average number of shares of common stock outstanding, including the dilutive effect, if any, of options and warrants.  The major componentsdiluted net loss per share calculation for the three months ended March 31, 2016 excluded 1.8 million options and 8.5 million warrants because we were in a loss position.

Reportable Segments

We regularly allocate resources to and assess the performance of propertyour operations by segments that are organized by unique geographic and equipmentoperating characteristics. The segments are organized in order to manage regional business, currency and tax related risks and opportunities. Operations included under the heading “United States” include corporate management, cash management, business development and financing activities performed in the United States and other countries, which do not meet the requirements for separate disclosure. All intersegment revenues, other income and equity earnings, expenses and receivables are eliminated in order to reconcile to consolidated totals. Corporate general and administrative and interest expenses are included in the United States segment and are not allocated to other operating segments. Segment assets as follows:of March 31, 2017 and December 31, 2016 and segment loss attributable to Harvest for the three months ended March 31, 2016 have been adjusted to conform to the current presentation method in which intersegment items are eliminated from each segment’s assets and results.







Other Administrative Property

Furniture,Prior to adoption of Liquidation Basis of Accounting, furniture, fixtures and equipment arewere recorded at cost and depreciated using the straight-line method over their estimated useful lives, which rangeranged from three to five years. Leasehold improvements arewere recorded at cost and amortized using the straight-line method over the life of the applicable lease. For the three and nine months ended September 30,March 31, 2016, depreciation expense fromwas $20 thousand in continuing

operations was $11 thousand and $41 thousand, respectively.  For the three and nine months ended September 30, 2015, depreciation expense from continuing operations was  $21 thousand and $67 thousand, respectively.

Other Assets

Other assets at September 30, 2016 and DecemberMarch 31, 20152017 include deposits and retainers.  During 2015 we fully reserved the $1.1 million blocked payment related to our drilling operations in Gabon.  The payment was blocked in accordance with the U.S. sanctions against Libya as set forth in Executive Order 13566 of February 25, 2011, and administered by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”).  See Note 10 – Commitments and Contingencies.   Atat December 31, 2015, we recorded an allowance for doubtful accounts of $0.7 million2016 include deposits and the remaining balance of the blocked payment was reclassified to a receivable from our joint venture partner for $0.4 million. prepaid insurance.





Capitalized Interest

We capitalizePrior to adoption of Liquidation Basis of Accounting, we capitalized interest costs for qualifying oil and natural gas properties. The capitalization period begins when expenditures are incurred on qualified properties, activities begin which are necessary to prepare the property for production and interest costs have been incurred. The capitalization period continues as long as these events occur.  The average additions for the period are used in the interest capitalization calculation. During the three and nine months ended September 30,March 31, 2016, and 2015, we did not capitalize interest costs due to insufficient on-going activity related to our oil and natural gas activities.

Fair Value Measurements

We measure and disclose our fair values in accordance with the provisions of ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a three-level hierarchy, which encourages an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the hierarchy are defined as follows:

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, accounts receivable and stock appreciation rights (“SARs”), restricted stock units (“RSUs”), debt, embedded derivatives and warrant derivative liability.. We maintain cash and cash equivalents in bank deposit accounts with commercial banks, which at times may exceed the federally insured limits. We have not experienced any losses from such investments. Concentrations of credit risk with respect to accounts receivable are limited due to the nature of our receivables. In the normal course of business, collateral is not required for financial instruments with credit risk.  The estimated fair value of cash and cash equivalents and accounts receivable, prepaid costs, accounts payable, accrued expenses and other current liabilities approximate their carrying value due to their short-term nature (Level 1).  The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value as of September 30, 2016March 31, 2017 and December 31, 2015.  During the year ended December 31, 2015, we impaired the carrying value of our Dussafu project in Gabon by $23.2 million and our investment in affiliate by $164.7 million.  See Note 5 – Investment in Affiliate and Note 7 – Gabon for more information.2016.





(a) See Note 8 – Debt and Financing, Note – 9 Warrant Derivative Liability and Note 13 – Discontinued Operations



As of September 30,March 31, 2017, the fair value of our liability awards included $0.6 million for our SARs which were recorded in accrued expense.   As of December 31, 2016, the fair value of our liability awards included $0.4 million for our SARs and $0.4 million for the RSUs both of which were recorded in accrued expenses.   As of December 31, 2015, the fair value of our liability awards included $0.1$1.9 million for our SARs which were recorded in accrued expenses and $0.2 million for our RSUs which were recorded in accrued expenses and other long-term liabilities.expenses.

Derivative Financial Instruments



AsPrior to adoption of Liquidation Basis of Accounting and as required by ASC 820, a financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.  See Note 9 – Warrant Derivative Liability for a descriptionAs of March 31, 2017 and discussion of our warrantDecember 31, 2016, we did not have derivative liability as well as a description of the valuation models and inputs used to calculate the fair value.  See Note 8 – Debt and Financing for a description and discussion of our embedded derivatives related to our 15% Note as well as a description of the valuation models and inputs used to calculate the fair value.  All of our embedded derivatives included in our assets held for sale and warrants included in liabilities held for sale are classified as Level 3 within the fair value hierarchy.  See Note 13 – Discontinued Operations for discussion of our discontinued operations.instruments.    



Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

The following table provides a reconciliation of financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

(a) See Note 8 – Debt and Financing and Note 13 – Discontinued Operations





(a) See Note 9 – Warrant Derivative Liability and Note 13 – Discontinued Operations



13

Table of Contents