Blueprint
As filed with the Securities and Exchange Commission on January 17,
2017
Registration No. __________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Torchlight Energy Resources, Inc.
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Nevada
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1311
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74-3237581
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(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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5700 W. Plano Parkway, Suite 3600
Plano, Texas 75093
(214) 432-8002
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant’s Principal Executive
Offices)
John A. Brda
President
5700 W. Plano Parkway, Suite 3600
Plano, Texas 75093
(214) 432-8002
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
Robert D. Axelrod
Axelrod, Smith & Kirshbaum
5300 Memorial Drive, Suite 1000
Houston, Texas 77007
(713) 861-1996
Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this registration
statement.
If any
of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in
connection with dividend or interest reinvestment plans, check the
following box. ☒
If this
Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
If this
Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier
effective registration statement for the same
offering. ☐
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.
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Large
accelerated filer ☐
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Accelerated
filer ☐
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Non-accelerated
filer ☐
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Smaller
reporting company ☒
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CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered
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Amount to be
registered (1)
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Proposed maximum offering price per Share
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Proposed maximum aggregate offering price
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Amount of registration
fee (2)
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Common
stock, $.001 par value
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3,750,000
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$1.31(4)
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$4,912,500
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$569.36
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Common
stock, $.001 par value, upon exercise of stock options and
warrants
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2,400,000(3)
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$1.31(4)
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$3,144,000
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$364.39
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Total:
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6,150,000(3)
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$8,056,500
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$933.75
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(1)
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In accordance with Rule 416 under the Securities Act of 1933, as
amended (the “Securities Act”), this registration
statement also covers any additional shares of common stock which
may become issuable by reason of any stock dividends, stock splits,
or similar transactions which results in an increase in the number
of registrant’s outstanding shares of common
stock.
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(2)
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This calculation is made solely for the purposes of determining the
registration fee pursuant to the provisions of Rule 457 under the
Securities Act.
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(3)
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Represents the maximum number of shares of common stock that the
registrant expects could be issuable upon exercise of the stock
options and warrants.
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(4)
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The shares offered will be sold by the selling stockholders in
market transactions, or through negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at
negotiated prices. Accordingly, the price indicated is
based on the average of the high and low prices reported by NASDAQ
for January 13, 2017, in compliance with Rule 457(c) under the
Securities Act.
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The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment
which specifically states that this registration statement
shall become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting
pursuant to section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS ARE NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
SUBJECT
TO COMPLETION, DATED JANUARY 17, 2017
TORCHLIGHT ENERGY RESOURCES, INC.
6,150,000
SHARES OF COMMON STOCK
This
prospectus relates to the offering for resale by the selling
stockholders of up to 6,150,000 shares of our common stock, $0.001
par value, which includes:
(i)
3,750,000
shares of common stock (the “Common
Shares”);
(ii)
1,500,000
shares of common stock issuable upon exercise of certain stock
options to purchase common stock at an exercise price of $2.09 per
share (the “Options”); and
(iii)
900,000
shares of common stock issuable upon exercise of certain warrants
to purchase common stock at an exercise price of $2.09 per share
(the “Warrants”).
We
sold the 3,750,000 Common Shares to investors on December 13, 2016
in a private offering. We granted the 1,500,000 Options to Willard
G. McAndrew, our former Chief Operating Officer, on September 9,
2013 as executive compensation, and we issued the 900,000 Warrants
to Mr. McAndrew in April 2013 as consideration for consulting
services (see “Description of Securities to Be
Registered” below for more information). We are required to
file a registration statement covering the shares of common stock
underlying the Options and Warrants, pursuant to the Resignation
and Settlement Agreement we entered into with Mr. McAndrew on
September 28, 2016. The holders of the Common Shares are entitled
to “piggyback” registration rights in connection
therewith.
For a
list of the selling stockholders, please see “Selling
Stockholders” section herein. We are not selling
any shares of our common stock in this offering and therefore will
not receive any proceeds from the sale thereof. We will, however, receive proceeds from any
Options or Warrants exercised, which are exercisable for
cash. We will bear all expenses, other than
selling commissions and fees of the selling stockholders, in
connection with the registration and sale of the shares being
offered by this prospectus.
These
shares may be sold by the selling stockholders from time to time in
the over-the-counter market or other national securities exchange
or automated interdealer quotation system on which our common stock
is then listed or quoted, through negotiated transactions or
otherwise at market prices prevailing at the time of sale or at
negotiated prices.
Our
common stock is listed on the NASDAQ Capital Market under the
symbol “TRCH.” On January 13, 2017, the last
reported sales price of our common stock was $1.34 per
share.
INVESTING
IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE
REFER TO THE “RISK FACTORS” BEGINNING ON PAGE 7.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE
DATE OF THIS PROSPECTUS IS _________ __, 2017.
TABLE OF CONTENTS
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Page
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ABOUT
THIS PROSPECTUS
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5
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION
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5
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INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
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5
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CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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6
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THE
COMPANY
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6
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RISK
FACTORS
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7
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USE OF
PROCEEDS
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15
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DETERMINATION
OF OFFERING PRICE
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15
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SELLING
STOCKHOLDERS
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15
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PLAN OF
DISTRIBUTION
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17
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DESCRIPTION
OF SECURITIES TO BE REGISTERED
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19
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EXPERTS
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20
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LEGAL
MATTERS
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20
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MATERIAL
CHANGES
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20
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COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
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20
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ABOUT THIS PROSPECTUS
In this
prospectus, unless the context otherwise requires,
“Torchlight,” “Torchlight Energy,” the
“Company,” “we,” “us” and
“our” refer to Torchlight Energy Resources, Inc., a
Nevada corporation, and its subsidiaries.
You
should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to
provide you with different information. The shares of common stock
are not being offered in any state where the offer is not
permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the
front of this prospectus, and you should assume that any
information incorporated by reference is accurate only as of the
date of the document incorporated by reference, regardless of the
time of delivery of this prospectus or of any sale of the common
stock.
As
permitted under the rules of the Securities and Exchange Commission
(the “SEC”), this prospectus incorporates important
business information about us that is contained in documents that
we file with the SEC but that are not included in or delivered with
this prospectus. You may obtain copies of these documents, without
charge, from the website maintained by the SEC at www.sec.gov, as well as from us. See
“Where You Can Find Additional Information” and
“Incorporation of Certain Information by Reference” in
this prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file
annual, quarterly and current reports, proxy statements and other
documents with the SEC. You may read and copy, at prescribed rates,
any documents we have filed with the SEC at its Public Reference
Room located at 100 F Street, N.E., Washington, DC 20549. You may
obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We also file these documents
with the SEC electronically. You can access the electronic versions
of these filings on the SEC’s website found
at www.sec.gov.
We have
filed with the SEC a registration statement on Form S-1 relating to
the securities covered by this prospectus. This prospectus is a
part of the registration statement and does not contain all the
information in the registration statement. Whenever a reference is
made in this prospectus to a contract, agreement or other document,
the reference is only a summary and you should refer to the
exhibits that are filed with, or incorporated by reference into,
the registration statement for a copy of the contract, agreement or
other document. You may review a copy of the registration statement
at the SEC’s Public Reference Room in Washington, D.C., as
well as on the SEC’s website.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The
SEC’s rules allow us to “incorporate by
reference” into this prospectus certain information that we
file with the SEC. This means that we can include in this
prospectus information by referring you to another document already
on file with the SEC that contains that information. Any
information incorporated by reference into this prospectus is
considered to be part of this prospectus.
We
incorporate by reference the following documents filed with the
SEC:
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Annual
Report on Form 10-K for the year ended December 31, 2015, as
filed by us with the SEC on March 30, 2016;
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Quarterly
Reports on Form 10-Q for the quarter ended March 31, 2016, as filed
by us with the SEC on May 16, 2016, the quarter ended June 30,
2016, as filed with the SEC on August 15, 2016, and the quarter
ended September 30, 2016, as filed with the SEC on November 10,
2016; and
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Current
Reports on Form 8-K, as filed by us with the SEC on February 26,
2016, May 6, 2016, June 16, 2016, July 11, 2016, July 14, 2016,
July 21, 2016, July 25, 2016, October 4, 2016, October 13, 2016,
October 26, 2016, December 9, 2016, December 19, 2016 and January
10, 2017.
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Additionally, all
reports and other documents subsequently filed by us pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the
date of this prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference in this
prospectus and to be part hereof from the date of filing of such
reports and other documents.
Notwithstanding the
foregoing, we are not incorporating by reference any information
furnished and not filed with the SEC, including information
furnished under Item 2.02 or Item 7.01 of any Current
Report on Form 8-K, including the related exhibits under
Item 9.01, unless, and to the extent, expressly specified
otherwise. Any statement contained in a document incorporated in
this prospectus shall be deemed to be modified or superseded to the
extent that a statement contained in this prospectus modifies or
supersedes such statement. Any such statement so modified or
superseded shall only be deemed to be a part of this prospectus as
so modified or superseded.
We will
provide without charge to each person, including any beneficial
owner, to whom this prospectus is delivered, upon his or her
written or oral request, a copy of any or all of the reports or
documents referred to above that have been incorporated by
reference into this prospectus, excluding exhibits to those
documents unless they are specifically incorporated by reference
into those documents. You may request a copy of these filings, at
no cost, by contacting:
John A.
Brda, President
Torchlight
Energy Resources, Inc.
5700 W.
Plano Parkway, Suite 3600
Plano,
Texas 75093
Telephone:
(214) 432-8002
Email:
john@torchlightenergy.com
You
also may access these filings on our website at www.torchlightenergy.com. We do not
incorporate the information on our website into this prospectus or
any supplement to this prospectus and you should not consider any
information on, or that can be accessed through, our website as
part of this prospectus or any supplement to this prospectus (other
than those filings with the SEC that we specifically incorporate by
reference into this prospectus or any supplement to this
prospectus).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus, including information included or incorporated by
reference in this prospectus or any supplement to this prospectus,
may contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to,
statements about our plans, objectives, expectations and intentions
that are not historical facts, and other statements identified by
words such as “may,” “will,”
“expects,” believes,” “plans,”
“estimates,” “potential,” or
“continue,” or the negative thereof or other and
similar expressions are forward-looking statements. In addition, in
some cases, you can identify forward-looking statements by words of
phrases such as “trend,” “potential,”
“opportunity,” “believe,”
“comfortable,” “expect,”
“anticipate,” “current,”
“intention,” “estimate,”
“position,” “assume,”
“outlook,” “continue,”
“remain,” “maintain,”
“sustain,” “seek,” “achieve,”
and similar expressions. These forward looking statements are based
on current beliefs and expectations of management and are
inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are
beyond our control. In addition, these forward-looking statements
are subject to assumptions with respect to future business
strategies and decisions that are subject to change. In addition to
the factors set forth in this prospectus and the documents
incorporated by reference in this prospectus, including under the
section entitled “Risk Factors” in this prospectus and
in our Annual Report on Form 10-K, as amended, for the year ended
December 31, 2015 and in any other reports that we file with
the SEC, the following factors, among others, could cause actual
results to differ materially from the anticipated results: oil and
natural gas prices; our ability to raise or access capital; general
economic or industry conditions, nationally and/or in the
communities in which our company conducts business; changes in the
interest rate environment; legislation or regulatory requirements;
conditions of the securities markets; changes in accounting
principles, policies or guidelines; financial or political
instability; acts of war or terrorism; and other economic,
competitive, governmental, regulatory and technical factors
affecting our operations, products and prices.
All
forward-looking statements speak only as of the date of this
prospectus or, in the case of any documents incorporated by
reference in this prospectus, the date of such document, in each
case based on information available to us as of such date, and we
assume no obligation to update any forward-looking statements,
except as required by law.
THE COMPANY
We are
an energy company engaged in the acquisition, exploration,
exploitation and/or development of oil and natural gas properties
in the United States. We have been in business since
2010.
Our
primary focus is on the development of interests in oil and gas
projects we hold in West Texas, including the Orogrande Project in
Hudspeth County, Texas and the Hazel Project in the Midland Basin.
We are in the process of divesting our interests in all other oil
and gas projects other than the Orogrande Project and the Hazel
Project. We may be involved in other oil and gas projects moving
forward, pending adequate funding.
Torchlight Energy
Resources, Inc. is a Nevada corporation. We operate our business
through three wholly owned subsidiaries, Torchlight Energy, Inc.,
also a Nevada corporation, Torchlight Energy Operating, LLC, a
Texas limited liability company, and Hudspeth Oil Corporation, a
Texas corporation. We currently have four full time
employees.
Our
principal executive offices are located at 5700 W. Plano Parkway,
Suite 3600, Plano, Texas 75093. The telephone number of our
principal executive offices is (214) 432-8002.
RISK FACTORS
Ownership of the
common stock involves certain risks. You should consider carefully
the risks and uncertainties described in, or incorporated by
reference in, this prospectus, including the risks described below
and under the captions “Business” and “Risk
Factors” in our Annual Report on Form 10-K, as amended, for
the year ended December 31, 2015 and in any other reports that
we file with the SEC, along with the other information included or
incorporated by reference in this prospectus, in evaluating an
investment in the common stock. The information included or
incorporated by reference in this prospectus may be amended,
supplemented or superseded from time to time by other reports we
file with the SEC in the future. For a description of these reports
and documents, and information about where you can find them, see
the sections entitled “Where You Can Find Additional
Information” and “Incorporation of Certain Information
by Reference” in this prospectus.
The
risks and uncertainties described in this prospectus and the
documents incorporated by reference in this prospectus are not the
only ones facing us. Additional risks and uncertainties that we do
not presently know about or that we currently believe are not
material may also adversely affect our business. If any of the
risks and uncertainties described in this prospectus or the
documents incorporated by reference herein actually occur, our
business, financial condition and results of operations could be
adversely affected in a material way. This could cause the trading
price of the common stock to decline, perhaps significantly, and
you may lose part or all of your investment.
Risks Related to the Company and the Industry
We have a limited operating history, and may not be successful in
developing profitable business operations.
We have
a limited operating history. Our business operations must be
considered in light of the risks, expenses and difficulties
frequently encountered in establishing a business in the oil and
natural gas industries. As of the date of this prospectus, we
have generated limited revenues and have limited assets. We
have an insufficient history at this time on which to base an
assumption that our business operations will prove to be successful
in the long-term. Our future operating results will depend on
many factors, including:
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our
ability to raise adequate working capital;
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the
success of our development and exploration;
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the
demand for natural gas and oil;
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the
volatility of oil and natural gas prices;
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the
level of our competition;
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our
ability to attract and maintain key management and employees;
and
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our
ability to efficiently explore, develop, produce or acquire
sufficient quantities of marketable natural gas or oil in a highly
competitive and speculative environment while maintaining quality
and controlling costs.
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To
achieve profitable operations in the future, we must, alone or with
others, successfully manage the factors stated above, as well as
continue to develop ways to enhance our production efforts.
Despite our best efforts, we may not be successful in our
exploration or development efforts, or obtain required regulatory
approvals. There is a possibility that some, or all, of the
wells in which we obtain interests may never produce oil or natural
gas.
We have limited capital and will need to raise additional capital
in the future.
We do
not currently have sufficient capital to fund both our continuing
operations and our planned growth. We will require additional
capital to continue to grow our business via acquisitions and to
further expand our exploration and development programs. We
may be unable to obtain additional capital when required.
Future acquisitions and future exploration, development,
production and marketing activities, as well as our administrative
requirements (such as salaries, insurance expenses and general
overhead expenses, as well as legal compliance costs and accounting
expenses) will require a substantial amount of additional capital
and cash flow.
We may
pursue sources of additional capital through various financing
transactions or arrangements, including joint venturing of
projects, debt financing, equity financing or other means. We
may not be successful in identifying suitable financing
transactions in the time period required or at all, and we may not
obtain the capital we require by other means. If we do not
succeed in raising additional capital, our resources may not be
sufficient to fund our planned operations.
Our
ability to obtain financing, if and when necessary, may be impaired
by such factors as the capital markets (both generally and in the
oil and gas industry in particular), our limited operating history,
the location of our oil and natural gas properties and prices of
oil and natural gas on the commodities markets (which will impact
the amount of asset-based financing available to us, if any) and
the departure of key employees. Further, if oil or natural
gas prices on the commodities markets decline, our future revenues,
if any, will likely decrease and such decreased revenues may
increase our requirements for capital. If the amount of
capital we are able to raise from financing activities, together
with our revenues from operations, is not sufficient to satisfy our
capital needs (even to the extent that we reduce our operations),
we may be required to cease our operations, divest our assets at
unattractive prices or obtain financing on unattractive
terms.
Any
additional capital raised through the sale of equity may dilute the
ownership percentage of our stockholders. Raising any such
capital could also result in a decrease in the fair market value of
our equity securities because our assets would be owned by a
larger pool of outstanding equity. The terms of securities we
issue in future capital transactions may be more favorable to our
new investors, and may include preferences, superior voting rights
and the issuance of other derivative securities, and issuances of
incentive awards under equity employee incentive plans, which may
have a further dilutive effect.
We may
incur substantial costs in pursuing future capital financing,
including investment banking fees, legal fees, accounting fees,
securities law compliance fees, printing and distribution expenses
and other costs. We may also be required to recognize
non-cash expenses in connection with certain securities we may
issue, which may adversely impact our financial
condition.
Our auditor indicated that certain factors raise substantial doubt
about our ability to continue as a going concern.
The
financial statements included with our Form 10-K for the year ended
December 31, 2015 were presented under the assumption that we will
continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business over a reasonable length of time. We had a net loss of
approximately $43.2 million for the year ended December 31, 2015
and an accumulated deficit in aggregate of approximately $74.9
million at year end. We are not generating sufficient operating
cash flows to support continuing operations, and expect to incur
further losses in the development of our business.
In our
financial statements for the year ended December 31, 2015, our then
auditor, Calvetti Ferguson,1 indicated that
certain factors raised substantial doubt about our ability to
continue as a going concern. These factors included our accumulated
deficit, as well as the fact that we were not generating sufficient
cash flows to meet our regular working capital requirements. Our
ability to continue as a going concern is dependent upon our
ability to generate future profitable operations and/or to obtain
the necessary financing to meet our obligations and repay our
liabilities arising from normal business operations when they come
due. Management's plan to address our ability to continue as a
going concern includes: (1) obtaining debt or equity funding from
private placement or institutional sources; (2) obtaining loans
from financial institutions, where possible, or (3) participating
in joint venture transactions with third parties. Although
management believes that it will be able to obtain the necessary
funding to allow us to remain a going concern through the methods
discussed above, there can be no assurances that such methods will
prove successful. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
As a non-operator, our development of successful operations relies
extensively on third-parties who, if not successful, could have a
material adverse effect on our results of operation.
We
expect to primarily participate in wells operated by third-parties.
As a result, we will not control the timing of the
development, exploitation, production and exploration activities
relating to leasehold interests we acquire. We do, however,
have certain rights as granted in our Joint Operating Agreements
that allow us a certain degree of freedom such as, but not limited
to, the ability to propose the drilling of wells.
If our drilling partners are not successful in
such activities relating to our leasehold interests, or are unable
or unwilling to perform, our financial condition and results of
operation could have an adverse material effect.
Further, financial
risks are inherent in any operation where the cost of drilling,
equipping, completing and operating wells is shared by more than
one person. We could be held liable for the joint activity
obligations of the operator or other working interest owners such
as nonpayment of costs and liabilities arising from the actions of
the working interest owners. In the event the operator or
other working interest owners do not pay their share of such costs,
we would likely have to pay those costs. In such situations,
if we were unable to pay those costs, there could be a material
adverse effect to our financial position.
Because of the speculative nature of oil and gas exploration, there
is risk that we will not find commercially exploitable oil and gas
and that our business will fail.
The
search for commercial quantities of oil and natural gas as a
business is extremely risky. We cannot provide investors with any
assurance that any properties in which we obtain a mineral interest
will contain commercially exploitable quantities of oil and/or gas.
The exploration expenditures to be made by us may not result
in the discovery of commercial quantities of oil and/or gas.
Problems such as unusual or unexpected formations or
pressures, premature declines of reservoirs, invasion of water into
producing formations and other conditions involved in oil and gas
exploration often result in unsuccessful exploration efforts. If we
are unable to find commercially exploitable quantities of oil and
gas, and/or we are unable to commercially extract such quantities,
we may be forced to abandon or curtail our business plan, and as a
result, any investment in us may become worthless.
Strategic relationships upon which we may rely are subject to
change, which may diminish our ability to conduct our
operations.
Our
ability to successfully acquire oil and gas interests, to build our
reserves, to participate in drilling opportunities and to identify
and enter into commercial arrangements with customers will depend
on developing and maintaining close working relationships with
industry participants and our ability to select and evaluate
suitable properties and to consummate transactions in a highly
competitive environment. These realities are subject to
change and our inability to maintain close working relationships
with industry participants or continue to acquire suitable property
may impair our ability to execute our business plan.
To
continue to develop our business, we will endeavor to use the
business relationships of our management to enter into strategic
relationships, which may take the form of joint ventures with other
private parties and contractual arrangements with other oil and gas
companies, including those that supply equipment and other
resources that we will use in our business. We may not be
able to establish these strategic relationships, or if established,
we may not be able to maintain them. In addition, the
dynamics of our relationships with strategic partners may require
us to incur expenses or undertake activities we would not otherwise
be inclined to in order to fulfill our obligations to these
partners or maintain our relationships. If our strategic
relationships are not established or maintained, our business
prospects may be limited, which could diminish our ability to
conduct our operations.
The price of oil and natural gas has historically been volatile.
If it were to decrease substantially, our projections,
budgets and revenues would be adversely affected, potentially
forcing us to make changes in our operations.
Our
future financial condition, results of operations and the carrying
value of any oil and natural gas interests we acquire will depend
primarily upon the prices paid for oil and natural gas production.
Oil and natural gas prices historically have been volatile and
likely will continue to be volatile in the future, especially given
current world geopolitical conditions. Our cash flows from
operations are highly dependent on the prices that we receive for
oil and natural gas. This price volatility also affects the amount
of our cash flows available for capital expenditures and our
ability to borrow money or raise additional capital. The prices for
oil and natural gas are subject to a variety of additional factors
that are beyond our control. These factors include:
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the
level of consumer demand for oil and natural gas;
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the
domestic and foreign supply of oil and natural gas;
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the
ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil price and
production controls;
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the
price of foreign oil and natural gas;
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domestic
governmental regulations and taxes;
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the
price and availability of alternative fuel sources;
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weather
conditions;
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market
uncertainty due to political conditions in oil and natural gas
producing regions, including the Middle East; and
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worldwide
economic conditions.
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These
factors as well as the volatility of the energy markets generally
make it extremely difficult to predict future oil and natural gas
price movements with any certainty. Declines in oil and natural gas
prices affect our revenues, and could reduce the amount of oil and
natural gas that we can produce economically. Accordingly,
such declines could have a material adverse effect on our financial
condition, results of operations, oil and natural gas reserves and
the carrying values of our oil and natural gas properties. If the
oil and natural gas industry experiences significant price
declines, we may be unable to make planned expenditures, among
other things. If this were to happen, we may be forced to abandon
or curtail our business operations, which would cause the value of
an investment in us to decline in value, or become
worthless.
If oil or natural gas prices remain depressed or drilling efforts
are unsuccessful, we may be required to record additional write
downs of our oil and natural gas properties.
If oil
or natural gas prices remain depressed or drilling efforts are
unsuccessful, we could be required to write down the carrying value
of certain of our oil and natural gas properties. Write downs may
occur when oil and natural gas prices are low, or if we have
downward adjustments to our estimated proved reserves, increases in
our estimates of operating or development costs, deterioration in
drilling results or mechanical problems with wells where the cost
to re drill or repair is not supported by the expected
economics.
Under
the full cost method of accounting, capitalized oil and gas
property costs less accumulated depletion and net of deferred
income taxes may not exceed an amount equal to the present value,
discounted at 10%, of estimated future net revenues from proved oil
and gas reserves plus the cost of unproved properties not subject
to amortization (without regard to estimates of fair value), or
estimated fair value, if lower, of unproved properties that are
subject to amortization. Should capitalized costs exceed this
ceiling, an impairment would be recognized.
At
December 31, 2014, we performed an impairment review using prices
that reflect an average of 2014’s monthly prices as
prescribed pursuant to the SEC’s guidelines. These average
prices used in the December 31, 2014 impairment review were
significantly higher than the actual and currently forecasted
prices in 2015. As lower average monthly pricing is reflected in
the trailing 12-month average pricing calculation, the present
value of our future net revenues would decline and impairment would
be recognized. Since this significantly lower pricing environment
persisted into 2015 we were required to write down the value of our
oil and gas properties.
We
recognized impairment of $22,438,114 on our oil and gas properties
at June 30, 2015 and an additional impairment adjustment of
$3,236,009 was made at December 31, 2015 for a total impairment
adjustment of $25,674,123 for the year 2015. Subsequently,
impairment in the amount of $57,912 was recognized at June 30,
2016.
Because of the inherent dangers involved in oil and gas operations,
there is a risk that we may incur liability or damages as we
conduct our business operations, which could force us to expend a
substantial amount of money in connection with litigation and/or a
settlement.
The oil
and natural gas business involves a variety of operating hazards
and risks such as well blowouts, pipe failures, casing collapse,
explosions, uncontrollable flows of oil, natural gas or well
fluids, fires, spills, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards and risks could
result in substantial losses to us from, among other things, injury
or loss of life, severe damage to or destruction of property,
natural resources and equipment, pollution or other environmental
damage, cleanup responsibilities, regulatory investigation and
penalties and suspension of operations. In addition, we may be
liable for environmental damages caused by previous owners of
property purchased and leased by us. In recent years, there has
also been increased scrutiny on the environmental risk associated
with hydraulic fracturing, such as underground migration and
surface spillage or mishandling of fracturing fluids including
chemical additives. As a result, substantial liabilities to third
parties or governmental entities may be incurred, the payment of
which could reduce or eliminate the funds available for
exploration, development or acquisitions or result in the loss of
our properties and/or force us to expend substantial monies in
connection with litigation or settlements. We currently have no
insurance to cover such losses and liabilities, and even if
insurance is obtained, there can be no assurance that it will be
adequate to cover any losses or liabilities. We cannot predict the
availability of insurance or the availability of insurance at
premium levels that justify our purchase. The occurrence of a
significant event not fully insured or indemnified against could
materially and adversely affect our financial condition and
operations. We may elect to self-insure if management believes that
the cost of insurance, although available, is excessive relative to
the risks presented. In addition, pollution and environmental risks
generally are not fully insurable. The occurrence of an event not
fully covered by insurance could have a material adverse effect on
our financial condition and results of operations, which could lead
to any investment in us becoming worthless.
The market for oil and gas is intensely competitive, and
competition pressures could force us to abandon or curtail our
business plan.
The
market for oil and gas exploration services is highly competitive,
and we only expect competition to intensify in the future. Numerous
well-established companies are focusing significant resources on
exploration and are currently competing with us for oil and gas
opportunities. Other oil and gas companies may seek to
acquire oil and gas leases and properties that we have targeted.
Additionally, other companies engaged in our line of business
may compete with us from time to time in obtaining capital from
investors. Competitors include larger companies which, in
particular, may have access to greater resources, may be more
successful in the recruitment and retention of qualified employees
and may conduct their own refining and petroleum marketing
operations, which may give them a competitive advantage.
Actual or potential competitors may be strengthened through
the acquisition of additional assets and interests.
Additionally, there are numerous companies focusing their
resources on creating fuels and/or materials which serve the same
purpose as oil and gas, but are manufactured from renewable
resources.
As a
result, there can be no assurance that we will be able to compete
successfully or that competitive pressures will not adversely
affect our business, results of operations and financial condition.
If we are not able to successfully compete in the marketplace, we
could be forced to curtail or even abandon our current business
plan, which could cause any investment in us to become
worthless.
We may not be able to successfully manage our growth, which could
lead to our inability to implement our business plan.
Our
growth may place a significant strain on our managerial,
operational and financial resources, especially considering that we
currently only have a small number of executive officers, employees
and advisors. Further, as we enter into additional contracts, we
will be required to manage multiple relationships with various
consultants, businesses and other third parties. These requirements
will be exacerbated in the event of our further growth or in the
event that the number of our drilling and/or extraction operations
increases. There can be no assurance that our systems, procedures
and/or controls will be adequate to support our operations or that
our management will be able to achieve the rapid execution
necessary to successfully implement our business plan. If we are
unable to manage our growth effectively, our business, results of
operations and financial condition will be adversely affected,
which could lead to us being forced to abandon or curtail our
business plan and operations.
Our operations are heavily dependent on current environmental
regulation, changes in which we cannot predict.
Oil and
natural gas activities that we will engage in, including
production, processing, handling and disposal of hazardous
materials, such as hydrocarbons and naturally occurring radioactive
materials (if any), are subject to stringent regulation. We could
incur significant costs, including cleanup costs resulting from a
release of hazardous material, third-party claims for property
damage and personal injuries fines and sanctions, as a result of
any violations or liabilities under environmental or other laws.
Changes in or more stringent enforcement of environmental laws
could force us to expend additional operating costs
and capital expenditures to stay in compliance.
Various
federal, state and local laws regulating the discharge of materials
into the environment, or otherwise relating to the protection of
the environment, directly impact oil and gas exploration,
development and production operations, and consequently may impact
our operations and costs. These regulations include, among others,
(i) regulations by the Environmental Protection Agency and various
state agencies regarding approved methods of disposal for certain
hazardous and non-hazardous wastes; (ii) the Comprehensive
Environmental Response, Compensation, and Liability Act, Federal
Resource Conservation and Recovery Act and analogous state laws
which regulate the removal or remediation of previously disposed
wastes (including wastes disposed of or released by prior owners or
operators), property contamination (including groundwater
contamination), and remedial plugging operations to prevent future
contamination; (iii) the Clean Air Act and comparable state and
local requirements which may result in the gradual imposition of
certain pollution control requirements with respect to air
emissions from our operations; (iv) the Oil Pollution Act of 1990
which contains numerous requirements relating to the prevention of
and response to oil spills into waters of the United States; (v)
the Resource Conservation and Recovery Act which is the principal
federal statute governing the treatment, storage and disposal of
hazardous wastes; and (vi) state regulations and statutes governing
the handling, treatment, storage and disposal of naturally
occurring radioactive material.
Management believes
that we will be in substantial compliance with applicable
environmental laws and regulations. To date, we have not expended
any amounts to comply with such regulations, and management does
not currently anticipate that future compliance will have a
materially adverse effect on our consolidated financial position,
results of operations or cash flows. However, if we are deemed to
not be in compliance with applicable environmental laws, we could
be forced to expend substantial amounts to be in compliance, which
would have a materially adverse effect on our financial condition.
If this were to happen, any investment in us could be
lost.
Government regulatory initiatives relating to hydraulic fracturing
could result in increased costs and additional operating
restrictions or delays.
Vast
quantities of natural gas, natural gas liquids and oil deposits
exist in deep shale and other unconventional formations. It is
customary in our industry to recover these resources through the
use of hydraulic fracturing, combined with horizontal drilling.
Hydraulic fracturing is the process of creating or expanding
cracks, or fractures, in deep underground formations using water,
sand and other additives pumped under high pressure into the
formation. As with the rest of the industry, our third-party
operating partners use hydraulic fracturing as a means to increase
the productivity of most of the wells they drill and complete.
These formations are generally geologically separated and isolated
from fresh ground water supplies by thousands of feet of
impermeable rock layers.
We
believe our third-party operating partners follow applicable legal
requirements for groundwater protection in their operations that
are subject to supervision by state and federal
regulators. Furthermore, we believe our third-party
operating partners’ well construction practices are
specifically designed to protect freshwater aquifers by preventing
the migration of fracturing fluids into aquifers.
Hydraulic
fracturing is typically regulated by state oil and gas commissions.
Some states have adopted, and other states are considering
adopting, regulations that could impose more stringent permitting,
public disclosure, and/or well construction requirements on
hydraulic fracturing operations. For example,
Pennsylvania is currently considering proposed regulations
applicable to surface use at oil and gas well sites, including new
secondary containment requirements and an abandoned and orphaned
well identification program that would require operators to
remediate any such wells that are damaged during current hydraulic
fracturing operations. New York has placed a permit
moratorium on high volume fracturing activities combined with
horizontal drilling pending the results of a study regarding the
safety of hydraulic fracturing. And certain communities in Colorado
have also enacted bans on hydraulic fracturing.
In
addition to state laws, some local municipalities have adopted or
are considering adopting land use restrictions, such as city
ordinances, that may restrict or prohibit the performance of well
drilling in general and/or hydraulic fracturing in particular.
There are also certain governmental reviews either underway or
being proposed that focus on deep shale and other formation
completion and production practices, including hydraulic
fracturing. Depending on the outcome of these studies, federal and
state legislatures and agencies may seek to further regulate such
activities. Certain environmental and other groups have also
suggested that additional federal, state and local laws and
regulations may be needed to more closely regulate the hydraulic
fracturing process.
Further, the EPA
has asserted federal regulatory authority over hydraulic fracturing
involving “diesel fuels” under the SWDA’s UIC
Program. In February 2014, the EPA released its final guidance on
the use of diesel additives in hydraulic fracturing operations. The
EPA is also engaged in a study of the potential impacts of
hydraulic fracturing activities on drinking water resources in
these states where the EPA is the permitted authority, including
Pennsylvania, with a progress report released in late 2012 and a
draft report released in June 2015. It concluded that hydraulic
fracturing activities have not led to widespread systematic impacts
on drinking water resources in the U.S., but there are above and
below ground mechanisms by which hydraulic fracturing could affect
drinking water resources. In addition, in March 2015, the Bureau of
Land Management (“BLM”) issued a final rule to regulate
hydraulic fracturing on federal and Indian land; however,
enforcement of the rule has been delayed pending a decision in a
legal challenge in the U.S. District Court of Wyoming. Further, the
EPA issued an Advanced Notice of Proposed Rulemaking in May 2014
seeking comments relating to the information that should be
reported or disclosed for hydraulic fracturing chemical substances
and mixtures and mechanisms for obtaining this information. These
actions, in conjunction with other analyses by federal and state
agencies to assess the impacts of hydraulic fracturing could spur
further action toward federal and/or state legislation and
regulation of hydraulic fracturing activities.
We
cannot predict whether additional federal, state or local laws or
regulations applicable to hydraulic fracturing will be enacted in
the future and, if so, what actions any such laws or regulations
would require or prohibit. Restrictions on hydraulic
fracturing could make it prohibitive for our third-party operating
partners to conduct operations, and also reduce the amount of oil,
natural gas liquids and natural gas that we are ultimately able to
produce in commercial quantities from our properties. If
additional levels of regulation or permitting requirements were
imposed on hydraulic fracturing operations, our business and
operations could be subject to delays, increased operating and
compliance costs and process prohibitions.
Our estimates of the volume of reserves could have flaws, or such
reserves could turn out not to be commercially extractable. As a
result, our future revenues and projections could be
incorrect.
Estimates of
reserves and of future net revenues prepared by different petroleum
engineers may vary substantially depending, in part, on the
assumptions made and may be subject to adjustment either up or down
in the future. Our actual amounts of production, revenue, taxes,
development expenditures, operating expenses, and quantities of
recoverable oil and gas reserves may vary substantially from the
estimates. Oil and gas reserve estimates are necessarily
inexact and involve matters of subjective engineering judgment. In
addition, any estimates of our future net revenues and the present
value thereof are based on assumptions derived in part from
historical price and cost information, which may not reflect
current and future values, and/or other assumptions made by us that
only represent our best estimates. If these estimates of
quantities, prices and costs prove inaccurate, we may be
unsuccessful in expanding our oil and gas reserves base with our
acquisitions. Additionally, if declines in and instability of oil
and gas prices occur, then write downs in the capitalized costs
associated with any oil and gas assets we obtain may be required.
Because of the nature of the estimates of our reserves and
estimates in general, we can provide no assurance that reductions
to our estimated proved oil and gas reserves and estimated future
net revenues will not be required in the future, and/or that our
estimated reserves will be present and/or commercially extractable.
If our reserve estimates are incorrect, the value of our common
stock could decrease and we may be forced to write down the
capitalized costs of our oil and gas properties.
Decommissioning costs are unknown and may be substantial.
Unplanned costs could divert resources from other
projects.
We may
become responsible for costs associated with abandoning and
reclaiming wells, facilities and pipelines which we use for
production of oil and natural gas reserves. Abandonment and
reclamation of these facilities and the costs associated therewith
is often referred to as “decommissioning.” We
accrue a liability for decommissioning costs associated with our
wells, but have not established any cash reserve account for these
potential costs in respect of any of our properties. If
decommissioning is required before economic depletion of our
properties or if our estimates of the costs of decommissioning
exceed the value of the reserves remaining at any particular time
to cover such decommissioning costs, we may have to draw on funds
from other sources to satisfy such costs. The use of other
funds to satisfy such decommissioning costs could impair our
ability to focus capital investment in other areas of our
business.
We may have difficulty distributing production, which could harm
our financial condition.
In
order to sell the oil and natural gas that we are able to produce,
if any, the operators of the wells we obtain interests in may have
to make arrangements for storage and distribution to the market.
We will rely on local infrastructure and the availability of
transportation for storage and shipment of our products, but
infrastructure development and storage and transportation
facilities may be insufficient for our needs at commercially
acceptable terms in the localities in which we operate. This
situation could be particularly problematic to the extent that our
operations are conducted in remote areas that are difficult to
access, such as areas that are distant from shipping and/or
pipeline facilities. These factors may affect our and
potential partners’ ability to explore and develop properties
and to store and transport oil and natural gas production,
increasing our expenses.
Furthermore,
weather conditions or natural disasters, actions by companies doing
business in one or more of the areas in which we will operate, or
labor disputes may impair the distribution of oil and/or natural
gas and in turn diminish our financial condition or ability to
maintain our operations.
Our business will suffer if we cannot obtain or maintain necessary
licenses.
Our
operations will require licenses, permits and in some cases
renewals of licenses and permits from various governmental
authorities. Our ability to obtain, sustain or renew such
licenses and permits on acceptable terms is subject to change in
regulations and policies and to the discretion of the applicable
governments, among other factors. Our inability to obtain, or
our loss of or denial of extension of, any of these licenses or
permits could hamper our ability to produce revenues from our
operations.
Challenges to our properties may impact our financial
condition.
Title
to oil and gas interests is often not capable of conclusive
determination without incurring substantial expense. While we
intend to make appropriate inquiries into the title of properties
and other development rights we acquire, title defects may exist.
In addition, we may be unable to obtain adequate insurance
for title defects, on a commercially reasonable basis or at all.
If title defects do exist, it is possible that we may lose
all or a portion of our right, title and interests in and to the
properties to which the title defects relate. If our
property rights are reduced, our ability to conduct our
exploration, development and production activities may be impaired.
To mitigate title problems, common industry practice is to
obtain a title opinion from a qualified oil and gas attorney prior
to the drilling operations of a well.
We rely on technology to conduct our business, and our technology
could become ineffective or obsolete.
We rely
on technology, including geographic and seismic analysis techniques
and economic models, to develop our reserve estimates and to guide
our exploration, development and production activities. We
and our operator partners will be required to continually enhance
and update our technology to maintain its efficacy and to avoid
obsolescence. The costs of doing so may be substantial and
may be higher than the costs that we anticipate for technology
maintenance and development. If we are unable to maintain the
efficacy of our technology, our ability to manage our business and
to compete may be impaired. Further, even if we are able to
maintain technical effectiveness, our technology may not be the
most efficient means of reaching our objectives, in which case we
may incur higher operating costs than we would were our technology
more efficient.
The loss of key personnel would directly affect our efficiency and
profitability.
Our
future success is dependent, in a large part, on retaining the
services of our current management team. Our executive
officers possess a unique and comprehensive knowledge of our
industry and related matters that are vital to our success within
the industry. The knowledge, leadership and technical
expertise of these individuals would be difficult to replace.
The loss of one or more of our officers could have a material
adverse effect on our operating and financial performance,
including our ability to develop and execute our long term business
strategy. We do not maintain key-man life insurance with
respect to any employees. We do have employment agreements
with each of our executive officers. There can be no
assurance, however, that any of our officers will continue to be
employed by us.
Our officers and directors control a significant percentage of our
current outstanding common stock and their interests may conflict
with those of our stockholders.
As of
the date of this prospectus, our executive officers and directors
collectively and beneficially own approximately 27% of our
outstanding common stock. This concentration of voting control
gives these affiliates substantial influence over any matters which
require a stockholder vote, including without limitation the
election of directors and approval of merger and/or acquisition
transactions, even if their interests may conflict with those of
other stockholders. It could have the effect of delaying or
preventing a change in control or otherwise discouraging a
potential acquirer from attempting to obtain control of us. This
could have a material adverse effect on the market price of our
common stock or prevent our stockholders from realizing a premium
over the then prevailing market prices for their shares of common
stock.
In the future, we may incur significant increased costs as a result
of operating as a public company, and our management may be
required to devote substantial time to new compliance
initiatives.
In the
future, we may incur significant legal, accounting, and other
expenses as a result of operating as a public company. The
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”),
as well as new rules subsequently implemented by the SEC, have
imposed various requirements on public companies, including
requiring changes in corporate governance practices. Our management
and other personnel will need to devote a substantial amount of
time to these new compliance initiatives. Moreover, these rules and
regulations will increase our legal and financial compliance costs
and will make some activities more time-consuming and costly. For
example, we expect these new rules and regulations to make it more
difficult and more expensive for us to obtain director and officer
liability insurance, and we may be required to incur substantial
costs to maintain the same or similar coverage.
In
addition, the Sarbanes-Oxley Act requires, among other things, that
we maintain effective internal controls for financial reporting and
disclosure controls and procedures. In particular, we are required
to perform system and process evaluation and testing on the
effectiveness of our internal controls over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act. In performing
this evaluation and testing, management concluded that our internal
control over financial reporting is effective as of December 31,
2015. We are performing ongoing updates of our policies and
procedures in an effort to ensure our internal control remains
effective. Our compliance with Section 404, will require that we
incur substantial accounting expense and expend significant
management efforts. We currently do not have an internal audit
group, and we will need to engage independent professional
assistance. Moreover, if we are not able to comply with the
requirements of Section 404 in a timely manner, or if in the future
we or our independent registered public accounting firm identifies
deficiencies in our internal controls over financial reporting that
are deemed to be material weaknesses, the market price of our stock
could decline, and we could be subject to sanctions or
investigations by the SEC or other regulatory authorities, which
would require additional financial and management
resources.
Certain Factors Related to Our Common Stock
There presently is a limited market for our common stock, and the
price of our common stock may be volatile.
Our
common stock is currently quoted on The NASDAQ Stock Market LLC.
Our shares, however, are thinly traded, and we have a very
limited trading history. There could be volatility in the
volume and market price of our common stock moving forward.
This volatility may be caused by a variety of factors,
including the lack of readily available quotations, the absence of
consistent administrative supervision of “bid” and
“ask” quotations and generally lower trading volume. In
addition, factors such as quarterly variations in our operating
results, changes in financial estimates by securities analysts or
our failure to meet our or their projected financial and operating
results, litigation involving us, factors relating to the oil and
gas industry, actions by governmental agencies, national economic
and stock market considerations as well as other events and
circumstances beyond our control could have a significant impact on
the future market price of our common stock and the relative
volatility of such market price.
Offers or availability for sale of a substantial number of shares
of our common stock may cause the price of our common stock to
decline.
Our
stockholders could sell substantial amounts of common stock in the
public market, including shares sold upon the filing of a
registration statement that registers such shares and/or upon the
expiration of any statutory holding period under Rule 144 of the
Securities Act of 1933 (the “Securities Act”), if
available, or upon the expiration of trading limitation periods.
Such volume could create a circumstance commonly referred to as a
market “overhang” and in anticipation of which the
market price of our common stock could fall. Additionally, we have
a large number of warrants that are presently exercisable. The
exercise of a large amount of these securities followed by the
subsequent sale of the underlying stock in the market would likely
have a negative effect on our common stock’s market price.
The existence of an overhang, whether or not sales have occurred or
are occurring, also could make it more difficult for us to secure
additional financing through the sale of equity or equity-related
securities in the future at a time and price that we deem
reasonable or appropriate.
Our directors and officers have rights to
indemnification.
Our
Bylaws provide, as permitted by governing Nevada law, that we will
indemnify our directors, officers and employees whether or not then
in service as such, against all reasonable expenses actually and
necessarily incurred by him or her in connection with the defense
of any litigation to which the individual may have been made a
party because he or she is or was a director, officer or employee
of the company. The inclusion of these provisions in the
Bylaws may have the effect of reducing the likelihood of derivative
litigation against directors and officers, and may discourage or
deter stockholders or management from bringing a lawsuit against
directors and officers for breach of their duty of care, even
though such an action, if successful, might otherwise have
benefited us and our stockholders.
We do not anticipate paying any cash dividends on our common
stock.
We do
not anticipate paying cash dividends on our common stock for the
foreseeable future. The payment of dividends, if any, would
be contingent upon our revenues and earnings, if any, capital
requirements, and general financial condition. The payment of
any dividends will be within the discretion of our Board of
Directors. We presently intend to retain all earnings, if
any, to implement our business strategy; accordingly, we do not
anticipate the declaration of any dividends in the foreseeable
future.
USE OF PROCEEDS
We are
not selling any shares of our common stock in this offering and
therefore will not receive any proceeds from the sale
thereof. We will, however,
receive proceeds from any Options or Warrants exercised, which are
exercisable for cash. We will use any proceeds received from the
exercise of Options or Warrants for working capital and general
corporate purposes. The selling stockholders will pay any
underwriting discounts and commissions and expenses incurred by the
selling stockholders for brokerage, accounting, tax or legal
services or any other expenses incurred by the selling stockholders
in disposing of the shares. We will bear all other costs, fees
and expenses incurred in effecting the registration of the shares
covered by this prospectus, including, without limitation, all
registration and filing fees, NASDAQ listing fees, and fees and
expenses of our counsel and our accountants.
DETERMINATION OF OFFERING PRICE
This
offering is being made solely to allow the selling stockholders to
offer and sell shares of common stock to the public. The selling
stockholders may offer for resale some or all of their shares at
the time and price that they choose. On any given day, the price
per share is likely to be based on the market price for the common
stock on NASDAQ on the date of sale, unless shares are sold in
private transactions. Consequently, we cannot currently make a
determination of the price at which shares offered for resale
pursuant to this prospectus may be sold.
SELLING STOCKHOLDERS
The
following is a table of the selling stockholders. The
shares of common stock being offered by the selling stockholders
include shares of common stock held by selling stockholders and
issuable to the selling stockholders upon exercise of stock options
and warrants held by the selling
stockholders. Beneficial ownership in the table below is
determined in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)
promulgated by the SEC, and generally includes voting or investment
power with respect to securities. The inclusion of any
shares in this table does not constitute an admission of beneficial
ownership.
The
shares of common stock being offered under this prospectus may be
offered for sale from time to time during the period the
registration statement of which this prospectus is a part remains
effective, by or for the account of the selling stockholders.
After the date of effectiveness of the registration statement of
which this prospectus is a part, a selling stockholder may sell or
transfer, in transactions covered by this prospectus or in
transactions exempt from the registration requirements of the
Securities Act, some or all of its common stock. At the
time of the acquisition of the shares of common stock, the stock
options and the warrants, the selling stockholders had no
agreements, understandings or arrangements with any other persons,
either directly or indirectly, to distribute any
securities.
The information in
the table below is based on the information provided to us by the
selling stockholders and as of the date the same was provided to
us. The information set forth concerning the selling
stockholders includes the number of shares currently held and the
number of shares offered by each selling stockholder. The
ownership percentages in the table are based on the 55,026,503
shares of common stock we had outstanding as of December 31,
2016. Shares of common stock subject to warrants,
options and other convertible securities that are currently
exercisable or exercisable within 60 days are considered
outstanding and beneficially owned by a selling stockholder who
holds those warrants, options or other convertible securities for
the purpose of computing the percentage ownership of that selling
stockholder, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other selling
stockholder. Unless otherwise footnoted, share amounts
represent shares of common stock. None of the selling
security holders below is a registered
broker-dealer.
|
|
|
Shares Beneficially Owned
After the Offering
|
|
Selling
Stockholders
|
Shares of Common Stock
Beneficially Owned Prior to the
Offering
|
Number of Shares Being
Offered
|
|
|
|
|
|
|
|
|
|
321 Gold Ltd. (2)
|
250,000
|
50,000
|
200,000
|
*
|
|
Brian
Bromberg
|
56,250
|
56,250
|
0
|
*
|
|
Catalytic Capital Partners (3)
|
362,097(4)
|
62,500
|
299,597(4)
|
*
|
|
Chris
Ertzinger
|
56,250
|
56,250
|
0
|
*
|
|
Larry
Christopher Oldham
|
12,500
|
12,500
|
0
|
*
|
|
Cody
Clayton Oldham
|
12,500
|
12,500
|
0
|
*
|
|
Danny
Noonan
|
31,250
|
31,250
|
0
|
*
|
|
David
Bromberg
|
2,572,256(5)
|
962,500
|
1,609,756(5)
|
2.87
|
|
David Bromberg SEP (6)
|
106,000
|
100,000
|
6,000
|
*
|
|
Denk Inc. (7)
|
100,000
|
100,000
|
0
|
*
|
|
Grace Rose Advisors (7)
|
300,000
|
300,000
|
0
|
*
|
|
Hans
Mansion
|
31,250
|
31,250
|
0
|
*
|
|
James
Pickett
|
31,250
|
31,250
|
0
|
*
|
|
Kimon
C. Papasideris
|
245,000
|
125,000
|
120,000
|
*
|
|
Kingsley Family Trust (8)
|
62,500
|
62,500
|
0
|
*
|
|
KMF Investments Partner LP (9)
|
375,000
|
375,000
|
0
|
*
|
|
Larry
Clayton Oldham
|
12,500
|
12,500
|
0
|
*
|
|
Lawaisse Beursvennootschap (10)
|
31,250
|
31,250
|
0
|
*
|
|
Leonthina Group LLP (11)
|
50,000
|
50,000
|
0
|
*
|
|
Mark
Visosky
|
28,125
|
28,125
|
0
|
*
|
|
Michael
Graves
|
125,000
|
100,000
|
25,000
|
*
|
|
Paul
Rabinowitz
|
1,025,000
|
325,000
|
700,000
|
1.27
|
|
Phil
Burleson
|
15,625
|
15,625
|
0
|
*
|
|
Rick
Shand
|
125,000
|
125,000
|
0
|
*
|
|
Rosemary
Atwood
|
88,743
|
62,500
|
26,243
|
*
|
|
Samuel
Shiverick
|
31,250
|
31,250
|
0
|
*
|
|
Steve
Dunning
|
1,500,000
|
500,000
|
1,000,000(12)
|
1.78
|
|
Walter Scott
McGregor
|
200,000
|
100,000
|
100,000
|
*
|
|
WMDM Family, Ltd.
(13)
|
2,400,000
|
2,400,000(14)
|
0
|
*
|
_________________________
|
*
|
Less
than 1%
|
|
(1)
|
Assumes
all shares offered by the selling stockholders are
sold.
|
|
(2)
|
Robert
Moriarty, the President of this entity, has sole voting and
investment power.
|
|
(3)
|
Dmitriy
Shapiro and Joe Giamichael share voting and investment
power.
|
|
(4)
|
Includes
warrants that are exercisable into 150,000 shares of common stock,
which warrants are presently exercisable.
|
|
(5)
|
Includes
warrants that are exercisable into 1,043,498 shares of common
stock, which warrants are presently exercisable.
|
|
(6)
|
David
Bromberg, the President of this entity, has sole voting and
investment power.
|
|
(7)
|
Steve
Denkinger, the President of this entity, has sole voting and
investment power.
|
|
(8)
|
Nan
Kingsley and Robert Kingsley have shared voting and investment
power.
|
|
(9)
|
Jonathan
Fite and Arvind Mallik, the Managing Partners of this entity, have
shared voting and investment power.
|
|
(10)
|
Michel
Lawaisse, the CEO of this entity, has sole voting and investment
power.
|
|
(11)
|
John
Noonan, the President of this entity, has sole voting and
investment power.
|
|
(12)
|
Includes
a convertible promissory note that is convertible into 1,000,000
shares of common stock, which note is presently
convertible.
|
|
(13)
|
Willard
G. McAndrew, the manager of the general partner of this entity, has
sole voting and investment power. Mr. McAndrew served as our Chief
Operating Officer from September 2013 to October 2016 and as a
member of the Board of Directors from October 2013 to October
2016.
|
|
(14)
|
Includes
stock options that are exercisable into 1,500,000 shares of common
stock and warrants that are exercisable into 900,000 shares of
common stock. Both the stock options and warrants are presently
exercisable.
|
PLAN OF DISTRIBUTION
We are
registering the shares of common stock issuable to the selling
stockholders to permit the resale of these shares of common stock
by the holders of the shares of common stock from time to time
after the date of this prospectus. We will not receive any of the
proceeds from the sale by the selling stockholders of the shares of
common stock. We will bear all fees and expenses incident to our
obligation to register the shares of common stock.
The
selling stockholders may sell all or a portion of the shares of
common stock beneficially owned by them and offered hereby from
time to time directly or through one or more underwriters,
broker-dealers or agents. If the shares of common stock are sold
through underwriters or broker-dealers, the selling stockholders
will be responsible for underwriting discounts or commissions or
agent’s commissions. The shares of common stock may be sold
on any national securities exchange or quotation service on which
the securities may be listed or quoted at the time of sale, in the
over-the-counter market or in transactions otherwise than on these
exchanges or systems or in the over-the-counter market and in one
or more transactions at fixed prices, at prevailing market prices
at the time of the sale, at varying prices determined at the time
of sale, or at negotiated prices. These sales may be effected in
transactions, which may involve crosses or block transactions. The
selling stockholders may use any one or more of the following
methods when selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its account;
|
|
·
|
an
exchange distribution in accordance with the rules of the
applicable exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the effective date of the
registration statement of which this prospectus is a
part;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such shares at a stipulated price per share;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether such options are listed on an options exchange or
otherwise;
|
|
·
|
a
combination of any such methods of sale; and
|
|
·
|
any
other method permitted pursuant to applicable law.
|
The
selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the
Securities Act, as permitted by that rule, or Section 4(1) under
the Securities Act, if available, rather than under this
prospectus, provided that they meet the criteria and conform to the
requirements of those provisions.
Broker-dealers
engaged by the selling stockholders may arrange for other
broker-dealers to participate in sales. If the selling stockholders
effect such transactions by selling shares of common stock to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders
or commissions from purchasers of the shares of common stock for
whom they may act as agent or to whom they may sell as principal.
Such commissions will be in amounts to be negotiated, but, except
as set forth in a supplement to this Prospectus, in the case of an
agency transaction will not be in excess of a customary brokerage
commission in compliance with FINRA Rule 5110.
In
connection with sales of the shares of common stock or otherwise,
the selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn
engage in short sales of the shares of common stock in the
course of hedging in positions they assume. The selling
stockholders may also sell shares of common stock short and if such
short sale shall take place after the date that this Registration
Statement is declared effective by the SEC, the selling
stockholders may deliver shares of common stock covered by this
prospectus to close out short positions and to return borrowed
shares in connection with such short sales. The selling
stockholders may also loan or pledge shares of common stock to
broker-dealers that in turn may sell such shares, to the extent
permitted by applicable law. The selling stockholders may also
enter into option or other transactions with broker-dealers or
other financial institutions or the creation of one or more
derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by
this prospectus, which shares such broker-dealer or other financial
institution may resell pursuant to this prospectus (as supplemented
or amended to reflect such transaction). Notwithstanding the
foregoing, the selling stockholders have been advised that they may
not use shares registered on this registration statement to cover
short sales of our common stock made prior to the date the
registration statement, of which this prospectus forms a part, has
been declared effective by the SEC.
The
selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock
owned by them and, if they default in the performance of their
secured obligations, the pledgees or secured parties may offer and
sell the shares of common stock from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act of 1933, as
amended, amending, if necessary, the list of selling stockholders
to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling
stockholders also may transfer and donate the shares of common
stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
The
selling stockholders and any broker-dealer or agents participating
in the distribution of the shares of common stock may be deemed to
be “underwriters” within the meaning of Section 2(11)
of the Securities Act in connection with such sales. In such event,
any commissions paid, or any discounts or concessions allowed to,
any such broker-dealer or agent and any profit on the resale of the
shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Selling
Stockholders who are “underwriters” within the meaning
of Section 2(11) of the Securities Act will be subject to the
prospectus delivery requirements of the Securities Act and may be
subject to certain statutory liabilities of, including but not
limited to, Sections 11, 12 and 17 of the Securities Act and Rule
10b-5 under the Securities Exchange Act of 1934, as amended, or the
Exchange Act.
Each
selling stockholder has informed us that it is not a registered
broker-dealer and does not have any written or oral agreement or
understanding, directly or indirectly, with any person to
distribute the common stock. Upon the company being notified in
writing by a selling stockholder that any material arrangement has
been entered into with a broker-dealer for the sale of common stock
through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, pursuant
to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the
price at which such the shares of common stock were sold, (iv) the
commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s)
did not conduct any investigation to verify the information set out
or incorporated by reference in this prospectus, and (vi) other
facts material to the transaction. In no event shall any
broker-dealer receive fees, commissions and markups, which, in the
aggregate, would exceed eight percent (8%).
Under
the securities laws of some states, the shares of common stock may
be sold in such states only through registered or licensed brokers
or dealers. In addition, in some states the shares of common stock
may not be sold unless such shares have been registered or
qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
There
can be no assurance that any selling stockholder will sell any or
all of the shares of common stock registered pursuant to the
registration statement, of which this prospectus forms a
part.
Each
selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder, including, without limitation, Regulation M
of the Exchange Act, which may limit the timing of purchases and
sales of any of the shares of common stock by the selling
stockholder and any other participating person. Regulation M may
also restrict the ability of any person engaged in the distribution
of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing
may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will
pay all expenses of the registration of the shares of common stock,
including, without limitation, Securities and Exchange Commission
filing fees and expenses of compliance with state securities or
“blue sky” laws; provided, however, that each selling
stockholder will pay all underwriting discounts and selling
commissions, if any, and any legal expenses incurred by it. We may
be indemnified by the selling stockholders against civil
liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the
selling stockholders specifically for use in this prospectus, in
accordance with documentation and agreements with the selling
stockholders, or we may be entitled to contribution.
DESCRIPTION OF SECURITIES TO BE REGISTERED
The following is a
description of certain provisions relating to our capital stock.
For additional information regarding our stock, please refer to our
Articles of Incorporation (as amended) and our Amended and Restated
Bylaws, all of which have previously been filed with the
SEC.
General
Our
authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.001 per share, and 10,000,000 shares of
preferred stock, par value $0.001 per share. The Board
of Directors has authorized three different series of preferred
stock, 120,000 shares of Series A Convertible Preferred Stock,
40,000 shares of Series B Convertible Preferred Stock and 10,000
shares of Series C Convertible Preferred Stock. Presently, we have
no shares of preferred stock outstanding.
Common Stock
As of December 31,
2016, there were approximately 55,026,503 shares of common stock
outstanding. We are registering 6,150,000 shares of our common
stock, in aggregate.
The
rights of all holders of the common stock are identical in all
respects. Each stockholder is entitled to one vote for
each share of common stock held on all matters submitted to a vote
of the stockholders. The holders of the common stock are
entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of legally available funds.
The current policy of the Board of Directors, however, is to retain
earnings, if any, for reinvestment.
Upon
liquidation, dissolution or winding up of the Company, the holders
of the common stock are entitled to share ratably in all aspects of
the Company that are legally available for distribution, after
payment of or provision for all debts and liabilities and after
payment to the holders of preferred stock, if any. The
holders of the common stock do not have preemptive subscription,
redemption or conversion rights under our Articles of
Incorporation. Cumulative voting in the election of Directors is
not permitted. There are no sinking fund provisions applicable to
the common stock. The outstanding shares of common stock are
validly issued, fully paid and nonassessable.
Our
common stock is listed on the NASDAQ Capital Market under the
symbol “TRCH.”
Stock Options
On
September 9, 2013, we appointed Willard G. McAndrew III as Chief
Operating Officer. Under his employment agreement, we granted him a
total of 1,500,000 stock options to purchase shares of common
stock, which options were to vest upon the company achieving
certain production thresholds. On January 7, 2014, our Compensation
Committee and Board of Directors approved amending this employment
agreement whereby all of these stock options vested immediately.
The stock options have an exercise price of $2.09 per share and
expire on September 9, 2018. Mr. McAndrew transferred the stock
options to WMDM Family, Ltd., a limited partnership that Mr.
McAndrew controls.
Warrants
On
April 15, 2013, we issued Mr. McAndrew 900,000 warrants to purchase
shares of common stock as consideration for consulting services
performed for us by Mr. McAndrew. The warrants were fully vested
upon issuance. The warrants have an exercise price of $2.09 per
share and expire on April 15, 2018. Mr. McAndrew transferred the
warrants to WMDM Family, Ltd., a limited partnership that Mr.
McAndrew controls.
EXPERTS
The
consolidated financial statements incorporated in this prospectus
by reference from Torchlight Energy Resources, Inc.’s Annual
Report on Form l0-K for the year ended December 31, 2015 have been
audited by Calvetti Ferguson, our previous
independent registered public accounting firm, as stated in
their reports included in such consolidated financial statements,
and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
Certain
information contained in the documents we incorporate by reference
in this prospectus with respect to the oil and natural gas reserves
associated with our oil and natural gas prospects is derived from
the reports of CREST Engineering Services, Inc. and PeTech
Enterprises, Inc., each an independent petroleum and natural gas
consulting firm, and has been incorporated by reference in this
prospectus upon the authority of said firms as experts with respect
to the matters covered by such reports and in giving such
reports.
LEGAL MATTERS
The
validity of the issuance of the common stock offered under this
prospectus has been passed upon for us by Axelrod, Smith &
Kirshbaum, Houston, Texas.
MATERIAL CHANGES
There
have been no material changes in the registrant’s affairs
that have occurred since the end of the last fiscal year and that
have not been described in a Form 10-Q or Form 8-K filed under the
Exchange Act.
COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
As
permitted by Nevada law, our Bylaws provide that we shall indemnify
a person in connection with an action, suit or proceeding, whether
civil, criminal, administrative or investigative, including without
limitation an action in our right to procure a judgment in our
favor, by reason of the fact that the person is or was our
director, officer, employee or agent, including attorneys’
fees, judgments, fines and amounts paid in settlement, if the
person acted in good faith and did not breach his or her fiduciary
duties to the company through intentional misconduct, fraud or a
knowing violation of law.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, we have been advised that in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
PART II – INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The
following table sets forth estimated expenses expected to be
incurred in connection with the issuance and distribution of the
securities being registered. All such expenses will be paid by
us.
|
Securities and
Exchange Commission Registration Fee
|
$933.75
|
|
Printing and
Engraving Expenses
|
$2,000.00
|
|
Accounting Fees and
Expenses
|
$10,000.00
|
|
Legal Fees and
Expenses
|
$20,000.00
|
|
Blue Sky
Qualification Fees and Expenses
|
-0-
|
|
Miscellaneous
|
$1,000.00
|
|
|
|
|
TOTAL
|
$33,933.75
|
Item 14. Indemnification of Directors and Officers.
Our
Bylaws provide that we shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in our right, by reason of the fact that the person is or was our
director, officer, employee or agent, or is or was serving at our
request as a director, officer, employee or agent of another
enterprise, against expenses, including attorneys’ fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with the action,
suit or proceeding if the person: (a) is not liable pursuant to
Section 78.138 of the Nevada Revised Statutes (“NRS”);
or (b) acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to our best interests,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was
unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person is liable pursuant to NRS
78.138 or did not act in good faith and in a manner which he or she
reasonably believed to be in or not opposed to our best interests,
or that, with respect to any criminal action or proceeding, he or
she had reasonable cause to believe that the conduct was
unlawful.
Our
Bylaws also provide that we shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in our right to procure a
judgment in our favor by reason of the fact that the person is or
was our director, officer, employee or agent, or is or was serving
at our request as a director, officer, employee or agent of another
enterprise against expenses, including amounts paid in settlement
and attorneys’ fees actually and reasonably incurred by the
person in connection with the defense or settlement of the action
or suit if the person: (a) is not liable pursuant to NRS 78.138; or
(b) acted in good faith and in a manner which he or she reasonably
believed to be in or not opposed to our best
interests. Indemnification may not be made for any
claim, issue or matter as to which such a person has been adjudged
by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to us or for amounts paid in
settlement to us, unless and only to the extent that the court in
which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems
proper.
Further, our Bylaws
provide that the expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be
paid by the Corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined by a court of
competent jurisdiction that the director or officer is not entitled
to be indemnified by us.
Sections 78.7502
and 78.751 permit the indemnifications described
above. Further, Section 78.7502 provides that, to the
extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any
claim, issue or matter therein, we are required to indemnify him or
her against expenses, including attorneys’ fees, actually and
reasonably incurred by him or her in connection with the
defense.
Item 15. Recent Sales of Unregistered Securities.
On
December 13, 2016, we sold a total of 3,750,000 shares of common
stock to investors in a private placement offering for aggregate
cash consideration of $3,000,000. These investors were composed of
predominantly existing stockholders of the company. There were no
broker-dealers involved in the transaction and no commissions were
paid. The securities in the offering were issued under the
exemption from registration provided by Section 4(a)(2) of the
Securities Act of 1933 and the rules and regulations promulgated
thereunder, including Regulation D. The issuance of securities did
not involve a “public offering” based upon the
following factors: (i) the issuance of the securities was an
isolated private transaction; (ii) a limited number of securities
was issued to a limited number of purchasers; (iii) there were no
public solicitations; (iv) each purchaser represented that it was
an “accredited investor”; (v) the investment intent of
the purchasers; and (vi) the restriction on transferability of the
securities issued.
During
the three months ended September 30, 2016, (a) we issued a total of
150,000 shares of common stock as compensation for consulting
services; (b) we issued a total of 251,456 shares of common stock
in connection with oil and gas lease related costs, including
without limitation 115,000 shares to Green Hill Minerals, LLC
(Green Hill Minerals is owned by sons of Gregory McCabe, our
director since July 2016); (c) we issued a total of 425,000
warrants in connection with oil and gas lease related costs to
Green Hill Minerals, LLC (Green Hill Minerals is owned by sons of
Gregory McCabe, our director since July 2016), which warrants have
an exercise price of $.70 per share and expire in February 2020;
and (d) we issued 250,000 shares of common stock in exercise of
warrants at $.50 per share in connection with the termination of a
consulting agreement. All of the above sales of securities
described in this paragraph were sold under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated thereunder. The
issuances of securities did not involve a “public
offering” based upon the following factors: (i) the issuances
of securities were isolated private transactions; (ii) a limited
number of securities were issued to a limited number of purchasers;
(iii) there were no public solicitations; (iv) the investment
intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
On July
8, 2016, we sold a total of 10,000 shares of Series C Convertible
Preferred Stock (the “Series C Preferred”) to certain
investors at a purchase price of $100 per share for total
consideration of $1,000,000 (the designation for this series is
described above under the section “Description of Securities
to be Registered” in the prospectus). The securities in the
offering were issued under the exemption from registration provided
by Section 4(a)(2) of the Securities Act of 1933 and the rules and
regulations promulgated thereunder, including Regulation D. The
issuance of securities did not involve a “public
offering” based upon the following factors: (i) the issuance
of the securities was an isolated private transaction; (ii) a
limited number of securities was issued to a limited number of
purchasers; (iii) there were no public solicitations; (iv) each
purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchasers; and
(vi) the restriction on transferability of the securities
issued.
During
the three months ended June 30, 2016, we issued the following
securities: (a) we issued a total of 489,535 shares of common stock
as compensation for consulting services; (b) we issued a total of
690,000 shares of common stock in connection with oil and gas lease
related costs, including without limitation 115,000 shares to Green
Hill Minerals, LLC (Green Hill Minerals is owned by sons of Gregory
McCabe, our director since July 2016); (c) we issued a total of
189,861 shares of common stock for dividends on preferred stock;
(d) we vested 500,000 warrants to a consultant as compensation for
services, which warrants have an exercise price of $1.80 per share
and expire in June 2020; (e) we issued 1,925,000 warrants in
connection with oil and gas lease related costs, including (i)
1,500,000 warrants to purchase our common stock at an exercise
price of $1.00 for five years, which were issued to McCabe
Petroleum Corporation (“MPC”) (of which Gregory McCabe,
our director since July 2016, is the sole owner) in April 2016 in
connection with the acquisition from MPC of a working interest in
the Midland Basin, and (ii) 425,000 warrants to purchase our common
stock at an exercise price of $0.70 per share that expire in
February 2020, which were issued to Green Hill Minerals, LLC; (f)
and in April 2016, we issued 100,000 warrants in connection with
renewal of a loan from our director E.L. Shockey, which warrants
have an exercise price of $0.77 per share of common stock and
expire in April 2019. All of the above sales of securities
described in this paragraph were sold under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated thereunder. The
issuances of securities did not involve a “public
offering” based upon the following factors: (i) the issuances
of securities were isolated private transactions; (ii) a limited
number of securities were issued to a limited number of purchasers;
(iii) there were no public solicitations; (iv) the investment
intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
In June
2016, we offered to all existing warrant holders (excluding
officers, directors and certain consultants) who are accredited
investors a limited time right to exercise any warrants they held
at the reduced exercise price of $0.50 per share, regardless of the
exercise price of the subject warrant. This private offering
terminated on July 15, 2016, and we completed the issuance of a
total of 2,764,005 shares of common stock for total consideration
of $1,382,003 in connection with the exercise of the warrants. Any
warrants that warrant holders did not exercise in the offering
remain in full force and effect under their previous terms and
conditions, including their previous exercise price (as opposed to
the $0.50 exercise price which was available only through the
offering). We also agreed to use our best efforts to file a
registration statement within 60 days of the termination of the
offering to register all shares purchased in the offering. There
were no broker-dealers involved in the transaction and no
commissions were paid. We intend to use proceeds from the offering
for general corporate purposes. The securities in the offering were
issued under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder, including Regulation D. The issuance of
securities did not involve a “public offering” based
upon the following factors: (i) the issuance of the securities was
an isolated private transaction; (ii) a limited number of
securities was issued to a limited number of purchasers; (iii)
there were no public solicitations; (iv) each purchaser represented
that it was an “accredited investor”; (v) the
investment intent of the purchasers; and (vi) the restriction on
transferability of the securities issued.
During
the three months ended March 31, 2016, we issued the following
securities: (a) we issued 59,297 shares of common stock as
compensation for consulting services; (b) we issued 1,718,425
shares of common stock in connection with lease related costs; (c)
we issued 21,739 shares of common stock in conversion of preferred
stock; (d) we issued 250,400 shares of common stock for dividends
on preferred stock; (e) we issued 637,525 warrants in connection
with lease related costs, including 212,525 warrants in January
2016 with an exercise price of $1.00 per shares that expire in
January 2019, and 425,000 warrants in February 2016 with an
exercise price of $0.70 per share that expire in February 2020; (f)
in January 2016, we issued 37,500 warrants in connection with
renewal of a loan from a director, which warrants have an exercise
price of $1.08 per share and expire in January 2019; and (g) in
February 2016, we vested 20,000 warrants as compensation for
services, which warrants have an exercise price of $5.00 per share
and expire in February 2017. All of the above sales of securities
described in this paragraph were sold under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated thereunder. The
issuances of securities did not involve a “public
offering” based upon the following factors: (i) the issuances
of securities were isolated private transactions; (ii) a limited
number of securities were issued to a limited number of purchasers;
(iii) there were no public solicitations; (iv) the investment
intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
During
the three months ended December 31, 2015, we issued the following
securities: (a) we issued a total of 328,438 shares of common stock
to consultants as compensation for services; (b) we issued a total
of 257,750 shares of common stock to holders of our Series A
Convertible Preferred Stock as payment of the dividend due December
31, 2015; (c) in November 2015, we issued to each of John A. Brda,
our President and Chief Executive Officer, Willard G. McAndrew, our
Chief Operating Officer, and Roger N. Wurtele, our Chief Financial
Officer, 10,000 shares of common stock (a total of 30,000 shares)
in exchange for $13,300 in accrued and unpaid compensation (a total
of $39,900) at a price of $1.33 per share; (d) three warrant
holders exercised warrants, purchasing a total of 65,000 shares of
common stock at an exercise price of $1.75 per share; (e) in
October 2015, we issued 1,250,000 three-year warrants to purchase
common stock at an exercise price of $2.03 per share to a
consultant as compensation for services; (f) in December 2015, we
issued 40,000 three-year warrants to purchase common stock at an
exercise price of $2.29 per share to Eunis L. Shockey, our
director, as consideration for extending a loan; and (g) in
December 2015, we issued 15,000 warrants to purchase common stock
at an exercise price of $3.50 per share to a consultant as
compensation for services, which warrants expire in October 2019.
All of the above sales of securities described in this paragraph
were sold under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder. The issuances of securities did not involve
a “public offering” based upon the following factors:
(i) the issuances of securities were isolated private transactions;
(ii) a limited number of securities were issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) the
investment intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
On
September 28, 2015, we sold a total of 37,000 shares of Series B
Convertible Preferred Stock (the “Series B Preferred”)
to certain investors at a purchase price of $100 per share for
total consideration of $3,700,000 (the designation for this series
is described above under the section “Description of
Securities to be Registered” in the
Prospectus). Under the terms of the sale, we provided
each investor 50% warrant coverage and accordingly issued the
investors a total of 911,330 five-year warrants to purchase shares
of our common stock at an exercise price of $2.23 per
share. The warrants provide that holders may not
exercise the warrant if such exercise will result in such holder
beneficially owning in excess of 4.99% of our common
stock. Additionally, under the terms of the transaction,
we provided the investors registration rights under which a
registration statement covering the shares of common stock
underlying the Series B Preferred and warrants is to be filed
within 30 days of closing. The securities in the
offering were issued under the exemption from registration provided
by Section 4(a)(2) of the Securities Act of 1933 and the rules and
regulations promulgated thereunder, including Regulation
D. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of the securities was an isolated private transaction;
(ii) a limited number of securities was issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) each
purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchasers; and
(vi) the restriction on transferability of the securities
issued.
On July
1, 2015, we issued an investor 500,000 three-year warrants as part
of the final terms and conditions of its purchase of a working
interest in certain of our oil and gas properties. Of these
warrants, 250,000 warrants became exercisable on September 30, 2015
and the remaining 250,000 warrants became exercisable on December
31, 2015. The warrants have an exercise price of $2.31 per share.
The above sale of securities were sold under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated thereunder. The
issuance of securities did not involve a “public
offering” based upon the following factors: (i) the issuance
of securities was an isolated private transaction; (ii) a limited
number of securities were issued to a single purchaser; (iii) there
were no public solicitations; (iv) the investment intent of the
purchaser; and (v) the restriction on transferability of the
securities issued.
During
the three months ended June 30, 2015, we issued the following
securities: (i) we issued a total of 1,412,458 shares of common
stock to consultants as compensation for services; (ii) in June
2015, we issued 30,000 shares of common stock in connection with
the modification of mineral leases for the extension of drilling
obligations; (iii) we issued a total of 935,750 warrants as
compensation for services, including 85,750 five year warrant in
April 2015 with an exercise price of $2.50 per share, and 850,000
five year warrants in June 2015 with an exercise price of $1.80 per
share; (iv) we issued a total of 670,000 warrants (of which 590,000
vested) in connection with short term loans, including 400,000
three year warrants in May 2015 with an exercise price of $0.50 per
share, 120,000 three year warrants (of which 40,000 vested) in June
2015 with an exercise price of $2.29 per share, and 150,000 three
year warrants in April 2015 with an exercise price of $0.50 per
share; (v) in May 2015, we issued 250,000 three year warrants in
connection with the sale of a mineral interest, which warrants have
an exercise price of $0.50 per share; (vi) in June 2015, we granted
a total of five-year 7,950,000 stock option awards, including
7,500,000 stock options to executive officers with an exercise
price of $1.57 per share and 450,000 stock options to employees
with an exercise price of $1.79 per share, which options were
granted under our 2015 Stock Option Plan which plan was approved by
the Board of Directors in June 2015 and was approved by our
stockholders in September 2015 and will be subject to a two-year
vesting schedule with one-half vesting immediately, one-fourth
vesting after one year of the grant date, and the remaining
one-fourth vesting after the second year, provided however that the
options will be subject to earlier vesting under certain events set
forth in the 2015 Stock Option Plan, including without limitation a
change in control. All of the above sales of securities
described in this paragraph were sold under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated
thereunder. The issuances of securities did not involve
a “public offering” based upon the following factors:
(i) the issuances of securities were isolated private transactions;
(ii) a limited number of securities were issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) the
investment intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
On June
2, 2015, we entered into a Securities Purchase Agreement with
certain accredited investors to sell shares of Series A Convertible
Preferred Stock. On June 9, 2015, the transactions
contemplated by the Securities Purchase Agreement closed,
and we sold a total of 98,000 shares of the Series A
Convertible Preferred Stock at a purchase price of $100 per share,
for total consideration $9,800,000. As part of the sale,
we provided each investor 20% warrant coverage and accordingly
issued the investors a total of 1,704,348 five-year warrants to
purchase shares of our common stock at an exercise price of $1.40
per share. The warrants provide that, until stockholder
approval is obtained, holders may not exercise if such exercise
will result in such holder beneficially owning in excess of 19.9%
of our common stock. The securities in the offering were issued
under the exemption from registration provided by Section 4(a)(2)
of the Securities Act of 1933 and the rules and regulations
promulgated thereunder, including Regulation D. The
issuance of securities did not involve a “public
offering” based upon the following factors: (i) the issuance
of the securities was an isolated private transaction; (ii) a
limited number of securities was issued to a limited number of
purchasers; (iii) there were no public solicitations; (iv) each
purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchasers; and
(vi) the restriction on transferability of the securities
issued.
On May
11, 2015, we sold to five investors in a private offering an
aggregate 4,300,000 shares of our restricted common stock at a
purchase price of $0.25 per share. We received aggregate
consideration of $1,075,000 for the securities. The
securities in the offering were issued under the exemption from
registration provided by Section 4(a)(2) of the Securities Act of
1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of the securities was an isolated private transaction;
(ii) a limited number of securities was issued to a single
purchaser; (iii) there were no public solicitations; (iv) the
purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchaser; and
(vi) the restriction on transferability of the securities
issued.
On
April 1, 2015, a major shareholder lent us $150,000 pursuant to a
12% promissory note due September 30, 2015, convertible at $0.25
per share. In addition, the major shareholder received
150,000 warrants, with a term of three years at an exercise price
of $0.50 per share. The securities were issued under the
exemption from registration provided by Section 4(a)(2) of the
securities Act of 1933 and the rules and regulations promulgated
thereunder. The issuances of securities did not involve
a “public offering” based upon the following
factors: (i) the issuances of securities were an
isolated private transaction; (ii) a limited number of securities
were issued to a single purchaser; (iii) there were no public
solicitations; (iv) the purchaser represented that it was an
“accredited investor”; (v) the investment intent of the
purchaser; and (vi) the restriction on transferability of the
securities issued.
In
March, 2015 we granted a third party a right to acquire 631,250
shares of our common stock at $0.35 per share in connection with
that party granting us an extension for certain drilling
obligations. In May 2015, the investor exercised this
right to acquire the 631,250 shares of common stock, and we issued
the 631,250 shares of common stock to the investor for $225,000 in
cash. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities was issued to a single
purchaser; (iii) there were no public solicitations; (iv) the
purchaser represented that it was an accredited investor; (v) the
investment intent of the purchaser; and (vi) the restriction on
transferability of the securities issued.
In
February and March, 2015, we issued 243,000 restricted shares of
common stock to two consultants as compensation for
services. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities were issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) the
investment intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
In
November 2014, we issued 75,000 warrants to a consultant as
compensation for services. The warrants have a term of
three years and an exercise price of $5.00 per
share. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities were issued to a single
purchaser; (iii) there were no public solicitations; (iv) the
investment intent of the purchaser; and (v) the restriction on
transferability of the securities issued.
In
December 2014, we issued 150,000 warrants to a major shareholder in
connection with the loaning of funds to the company under a
promissory note. The warrants have a term of three years
and an exercise price of $1.00 per share. The securities were
issued under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder. The issuances of securities did
not involve a “public offering” based upon the
following factors: (i) the issuances of securities were an isolated
private transaction; (ii) a limited number of securities were
issued to a single purchaser; (iii) there were no public
solicitations; (iv) the purchaser represented that it was an
“accredited investor”; (v) the investment intent of the
purchaser; and (vi) the restriction on transferability of the
securities issued.
During
the quarter ended September 30, 2014, we issued 365,000 restricted
shares of common stock to consultants as compensation for
services. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities were issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) the
investment intent of the purchasers; and (v) the restriction
on transferability of the securities issued.
In
September, 2014, we issued 70,000 shares of restricted common stock
for cash of $140,000. The securities were issued under
the exemption from registration provided by Section 4(a)(2) of the
Securities Act of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities were issued to a single
purchaser; (iii) there were no public solicitations; (iv) the
investment intent of the purchaser; and (v) the restriction on
transferability of the securities issued.
In
September 2014, we sold to certain investors a total of 75,000
restricted shares of common stock at a purchase price of $3.50 per
share and Purchase Warrants to purchase: (i) 61,045 shares of
common stock at an exercise price of $4.50 per share, and (ii)
61,045 shares of common stock at an exercise price of $7.00 per
share, all under the terms and conditions contained in a Securities
Purchase Agreement and warrant agreement. The Purchase
Warrants have a term of five years. We received total
consideration of $262,500 for the
securities. Additionally, the Securities Purchase
Agreement provides “piggyback” registration rights for
the shares of stock sold and shares of stock underlying the
warrants sold. The securities in the offering were
issued under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder, including Rule 506 of Regulation
D. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of the securities was an isolated private transaction;
(ii) a limited number of securities was issued to a limited number
of purchasers; (iii) there were no public solicitations; (iv) each
purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchasers; and
(vi) the restriction on transferability of the securities
issued.
In
September 2014, we acquired an interest in the Orogrande Leases in
West Texas in exchange for 868,750 restricted shares of common
stock. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuances of securities did not involve
a “public offering” based upon the following factors:
(i) the issuances of securities were an isolated private
transaction; (ii) a limited number of securities were issued to a
single purchaser; (iii) there were no public solicitations; (iv)
the purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchaser; and
(vi) the restriction on transferability of the securities
issued.
During
the quarter ended September 30, 2014, investors exercised warrant
agreements to purchase a total of 400,000 shares of common stock at
prices from $2.00 to 2.50 per share. The securities were
issued under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder. The issuances of securities did
not involve a “public offering” based upon the
following factors: (i) each issuance of securities was an isolated
private transaction; (ii) a limited number of securities were
issued to a limited number of purchasers; (iii) there were no
public solicitations; (iv) each purchaser previously represented
that it was an “accredited investor”; (v) the
investment intent of each purchaser; and (vi) the restriction on
transferability of the securities issued.
During
the quarter ended September 30, 2014, we sold 12% Series B
Unsecured Convertible Promissory Notes to investors, which notes
have an aggregate principal amount of $1,372,000. The notes are due
and payable on June 30, 2017 and have a conversion price of $4.50
per share. We also issued these investors a total of
60,974 of five-year warrants exercisable at $6.00 per
share. We received total consideration of
$1,372,000. We also issued 2,500 warrants to a placement
agent in connection with the sale of the notes. The securities were
issued under the exemption from registration provided by Section
4(a)(2) of the Securities Act of 1933 and the rules and regulations
promulgated thereunder. The issuances of securities did
not involve a “public offering” based upon the
following factors: (i) the issuances of securities were an isolated
private transaction; (ii) a limited number of securities were
issued to a limited number of purchasers; (iii) there were no
public solicitations; (iv) each purchaser represented that it was
an “accredited investor”; (v) the investment intent of
each purchaser; and (vi) the restriction on transferability of the
securities issued.
On
August 14, 2014, we sold certain securities to Castleton
Commodities Opportunities Master Fund, L.P., including 860,000
restricted shares of common stock at a purchase price of $3.50 per
share and (ii) five year warrants to purchase: (a) 700,000 shares
of common stock at an exercise price of $4.50 per share, and (b)
700,000 shares of common stock at an exercise price of $7.00 per
share, all under the terms and conditions contained in a Securities
Purchase Agreement and warrant agreement. We received
total consideration of $3,010,000 for the 860,000 shares of common
stock and the 1,400,000 warrants. Additionally, the
Securities Purchase Agreement provides “piggyback”
registration rights for the shares of stock sold and shares of
stock underlying the warrants sold. The securities in
the offering were issued under the exemption from registration
provided by Section 4(a)(2) of the Securities Act of 1933 and the
rules and regulations promulgated thereunder, including Rule 506 of
Regulation D. The issuance of securities did not involve
a “public offering” based upon the following factors:
(i) the issuance of the securities was an isolated private
transaction; (ii) a limited number of securities was issued to a
single purchaser; (iii) there were no public solicitations; (iv)
the purchaser represented that it was an “accredited
investor”; (v) the investment intent of the purchaser; and
(vi) the restriction on transferability of the securities
issued.
During
the quarter ended June 30, 2014, we issued 50,180 shares of common
stock to consultants as compensation for services. The
securities were issued under the exemption from registration
provided by Section 4(a) (2) of the Securities Act of 1933 and the
rules and regulations promulgated thereunder. The
issuance of securities did not involve a “public
offering” based upon the following factors: (i) the
issuance of securities was an isolated private transaction; (ii) a
limited number of securities were issued to a limited number of
purchasers; (iii) there were no public solicitations; (iv) the
investment intent of the purchasers; and (v) the restriction on
transferability of the securities issued.
During
the quarter ended June 30, 2014, investors exercised warrant
agreements to purchase a total of 100,000 shares of common stock at
a price of $2.00 per share. The securities were issued
under the exemption from registration provided by Section 4(a)(2)
of the Securities Act of 1933 and the rules and regulations
promulgated thereunder. The issuances of securities did
not involve a “public offering” based upon the
following factors: (i) each issuance of securities was an isolated
private transaction; (ii) a limited number of securities were
issued to a limited number of purchasers; (iii) there
were no public solicitations; (iv) each purchaser
previously represented that it was an “accredited
investor”; (v) the investment intent of each
purchaser; and (vi) the restriction on transferability of the
securities issued.
On June
6, 2014, our wholly-owned subsidiary, Torchlight Energy, Inc.
(“TEI”) entered into and closed a Purchase and Sale
Agreement with Zenith Petroleum Corporation. Under the
agreement, TEI purchased from Zenith certain oil and gas properties
located in Oklahoma and received from Zenith $1,650,000
cash. As consideration for the properties and cash,
Zenith received 1,350,000 restricted shares of common stock of
Torchlight Energy Resources, Inc. The securities sold
were issued under the exemption from registration provided by
Section 4(a)(2) of the Securities Act of 1933 and the rules and
regulations promulgated thereunder. The issuance of
securities did not involve a “public offering” based
upon the following factors: (i) the issuance of the securities was
an isolated private transaction; (ii) a limited number of
securities were issued to a single purchaser; (iii) there were no
public solicitations; (iv) the purchaser represented that it was an
“accredited investor”; (v) the investment intent of the
purchaser; and (vi) the restriction on transferability of the
securities issued.
In May
and June of 2014, we sold 12% Series B Unsecured Convertible
Promissory Notes to investors, which notes have an aggregate
principal amount of $3,197,500. The notes are due and
payable on June 30, 2017 and have a conversion price of $4.50 per
share. We also issued these investors a total of 142,111
of five-year warrants exercisable at $6.00 per share. We
received total consideration of $3,197,500. The
securities were issued under the exemption from registration
provided by Section 4(a)(2) of the Securities Act of 1933 and the
rules and regulations promulgated thereunder. The
issuances of securities did not involve a “public
offering” based upon the following factors: (i) the issuances
of securities were an isolated private transaction; (ii) a limited
number of securities were issued to a limited number of purchasers;
(iii) there were no public solicitations; (iv) each purchaser
represented that it was an “accredited investor”; (v)
the investment intent of each purchaser; and (vi) the restriction
on transferability of the securities issued.
In
April 2014, we granted 60,000 stock options to purchase shares of
common stock at an exercise price of $5.05 per share to an employee
of a subsidiary of ours, as consideration for services
rendered. 20,000 of the options vested immediately,
20,000 of the options will vest on February 1, 2015 and the
remaining 20,000 options will vest on February 1,
2016. All of the options will expire on April 1,
2017. The securities were issued under the exemption
from registration provided by Section 4(a)(2) of the Securities Act
of 1933 and the rules and regulations promulgated
thereunder. The issuance of securities did not involve a
“public offering” based upon the following factors: (i)
the issuance of securities was an isolated private transaction;
(ii) a limited number of securities were issued to a single
purchaser; (iii) there were no public solicitations; (iv) the
investment intent of the purchaser; and (v) the restriction on
transferability of the securities issued.
In
February and March 2014, two investors exercised warrant
agreements, whereby they purchased from us 100,000 shares of common
stock at a price of $1.75 per share and 2,500 shares of common
stock at a price of $2.00 per share, respectively. The
securities were issued under the exemption from registration
provided by Section 4(a)(2) of the Securities Act of 1933 and the
rules and regulations promulgated thereunder. The
issuances of securities did not involve a “public
offering” based upon the following factors: (i) the issuances
of the securities were isolated private transactions; (ii) a
limited number of securities were issued to a limited number of
purchaser; (iii) there were no public solicitations; (iv) the
purchasers previously represented that they were “accredited
investors”; (v) the investment intent of the purchasers; and
(vi) the restriction on transferability of the securities
issued.
On
January 31, 2014, we sold to investors in a private offering an
aggregate of 1,400,000 shares of restricted common stock and
350,041 warrants to purchase shares of restricted common
stock. Each warrant has an exercise price of $6.00 per
share and expires on December 31, 2018. The securities
were sold in units, each of which consisted of one share of common
stock and 1/4 of a warrant to purchase a share of common stock (the
“Units”). We received aggregate
consideration of $5,600,000 for the securities. In
connection with the sale of these securities, we paid National
Securities Corporation, the placement agent, a fee of $560,000 and
paid additional transaction expenses of approximately $25,000 plus
issued the placement agent (and its affiliates) warrants to
purchase a total of 140,000 Units at an exercise price of $6.00 per
Unit until December 31, 2018.
The
securities in the two offerings described above (occurring in
December 2013 and January 2014) were issued to investors under the
exemption from registration provided by Section 4(a)(2) of the
Securities Act of 1933 and the rules and regulations promulgated
thereunder. The issuances of securities did not involve
a “public offering” based upon the following factors:
(i) the issuances of the securities were isolated private
transactions; (ii) a limited number of securities were issued to a
limited number of purchasers; (iii) there were no public
solicitations; (iv) the purchasers represented that they were
“accredited investors”; (v) the investment intent of
the purchasers; and (vi) the restriction on transferability of the
securities issued.
Item
16. Exhibits.
The
following is a list of exhibits filed as part of this registration
statement. Where so indicated by footnote, exhibits which were
previously filed are incorporated herein by reference. Any
statement contained in an incorporated document will be deemed to
be modified or superseded for purposes of this registration
statement to the extent that a statement contained herein or in any
other subsequently filed incorporated document modifies or
supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this registration
statement.
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2.1
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Share
Exchange Agreement dated November 23,
2010. (Incorporated by reference from Form 8-K filed
with the SEC on November 24, 2010.) *
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3.1
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Articles
of Incorporation. (Incorporated by reference from Form
S-1 filed with the SEC on May 2, 2008.) *
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3.2
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Certificate
of Amendment to Articles of Incorporation dated December 10, 2014.
(Incorporated by reference from Form 10-Q filed with the SEC on May
15, 2015.) *
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3.3
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Certificate
of Amendment to Articles of Incorporation dated September 15, 2015.
(Incorporated by reference from Form 10-Q filed with the SEC on
November 12, 2015.) *
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3.4
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Amended
and Restated Bylaws (Incorporated by reference from Form 8-K filed
with the SEC on October 26, 2016.) *
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4.1
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Certificate
of Designation for Series A Convertible Preferred Stock
(Incorporated by reference from Form 8-K filed with the SEC on June
9, 2015.) *
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4.2
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Certificate
of Designation for Series B Convertible Preferred Stock
(Incorporated by reference from Form 8-K filed with the SEC on
September 30, 2015.) *
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4.3
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Certificate
of Designation for Series C Convertible Preferred Stock
(Incorporated by reference from Form 8-K filed with the SEC on July
11, 2016.) *
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4.4
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Stock
Option Agreement with Willard G. McAndrew dated September 9,
2013
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4.5
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Warrant
to Purchase Common Stock with WMDM Family, Ltd. dated April 15,
2013
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10.1
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12%
Series B Unsecured Convertible Promissory Note (form
of) (Incorporated by reference from Form 10-Q filed with the
SEC on August 14, 2015.) *
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10.2
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Securities
Purchase Agreement (for Series A Convertible Preferred
Stock) (Incorporated by reference from Form 10-Q filed with
the SEC on August 14, 2015.) *
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10.3
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Employment
Agreement (with John A. Brda) (Incorporated by reference from Form
8-K filed with the SEC on June 16, 2015.) *
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10.4
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Employment
Agreement (with Willard G. McAndrew) (Incorporated by reference
from Form 8-K filed with the SEC on June 16, 2015.) *
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10.5
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Employment
Agreement (with Roger Wurtele) (Incorporated by reference from Form
8-K filed with the SEC on June 16, 2015.) *
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10.6
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Loan
documentation and warrants with Eunis L. Shockey (Incorporated by
reference from Form 10-Q filed with the SEC on August 14, 2015.)
*
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10.7
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Farmout
Agreement between Hudspeth Oil Corporation, Founders Oil & Gas,
LLC and certain other parties (Incorporated by reference from Form
8-K filed with the SEC on September 29, 2015) *
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10.8
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Securities
Purchase Agreement and Amendment to Securities Purchase Agreement
(for Series B Convertible Preferred Stock) (Incorporated by
reference from Form 10-Q filed with the SEC on November 12, 2015)
*
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10.9
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Purchase
and Sale Agreement with Husky Ventures, Inc. (Incorporated by
reference from Form 8-K filed with the SEC on November 12, 2015)
*
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10.10
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Purchase
Agreement with McCabe Petroleum Corporation for acquisition of
“Hazel Project” (Incorporated by reference from Form
10-Q filed with the SEC on August 15, 2016) *
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10.11
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Resignation
and Settlement Agreement with Willard G. McAndrew (Incorporated by
reference from Form 10-Q filed with the SEC on November 10, 2016)
*
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16.01
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Letter
from Calvetti Ferguson to the Securities and Exchange Commission
(Incorporated by reference from Form 8-K filed with the SEC on
December 19, 2016) *
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23.2
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Consent
of Axelrod, Smith & Kirshbaum (incorporated in Exhibit
5.1)
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*
Incorporated by reference from our previous filings with the
SEC
Item 17. Undertakings.
Insofar
as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The
undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
(a) To
include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(b) To
reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more
than 20% change in the maximum aggregate offering price set forth
in the “Calculation of Registration Fee” table in the
effective registration statement.
(c) To
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2)
That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b) (1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3)
That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Plano,
State of Texas, on January 16, 2017.
TORCHLIGHT ENERGY RESOURCES, INC.
By /s/
John A. Brda
John A.
Brda
President
POWER OF ATTORNEY
Torchlight Energy
Resources, Inc. and each of the undersigned do hereby appoint John
A. Brda his true and lawful attorney to execute on behalf of
Torchlight Energy Resources, Inc. and the undersigned any and all
amendments to this registration statement on Form S-1 and to
file the same with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission;
each of such persons shall have the power to act hereunder with or
without the other.
In
accordance with the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates stated.
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Signature
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Title
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Date
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/s/ John A. Brda
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John A.
Brda
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Director,
Chief Executive Officer, President and Secretary
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January
16, 2017
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/s/ Gregory McCabe
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Gregory
McCabe
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Director
(Chairman of the Board)
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January
17, 2017
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/s/ Roger N. Wurtele
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Roger
N. Wurtele
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Chief
Financial Officer and Principal Accounting Officer
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January
16, 2017
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/s/ E. Scott Kimbrough
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E.
Scott Kimbrough
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Director
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January
17, 2017
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/s/ R. David Newton
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R.
David Newton
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Director
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January
17, 2017
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/s/ Alexandre Zyngier
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Alexandre
Zyngier
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Director
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January
17, 2017
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