Filed Pursuant to Rule 424(b)(5)
Registration No. 333-220181
PROSPECTUS SUPPLEMENT
(To
Prospectus dated September 28, 2017)
Torchlight Energy Resources, Inc.
5,000,000 Shares
Common
Stock
We are offering 5,000,000 shares of our common stock. Our common
stock is listed on The NASDAQ Capital Market under the symbol
“TRCH.” On April 17, 2018, the last reported sale price
for our common stock on The NASDAQ Capital Market was $1.24 per
share.
As of April 17, 2018, the aggregate market value of our outstanding
common stock held by non-affiliates was $58,918,017 based
on 63,379,286 shares of common stock then outstanding, of which
47,514,530 shares were held by non-affiliates, and a
closing sale price on The NASDAQ Capital Market of $1.24 on April
17, 2018. During the 12 calendar months prior to and including the
date hereof, we have not offered any securities pursuant to General
Instruction I.B.6 of Form S-3.
Investing in our common stock involves risks. See “Risk
Factors” beginning on page S-8 of this prospectus
supplement, on page 3 of the accompanying prospectus and in the
documents incorporated by reference into this prospectus
supplement.
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Per Share
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Total
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Public
Offering Price
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$1.15
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$5,750,000
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Underwriting discounts and
commissions(1)
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$0.0748
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$374,000
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Proceeds
to us, before expenses
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$1.0752
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$5,376,000
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(1)
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In addition, we have agreed to reimburse the underwriter for
certain expenses. See “Underwriting” beginning on page
S-26 of this prospectus supplement for additional
information.
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We
have granted an over-allotment option to the underwriter. Under
this option, the underwriter may elect to purchase up to an
additional 750,000 shares of common stock from us at the public
offering price less the underwriting discounts and commissions
within 30 days following the date of this prospectus supplement to
cover over-allotments, if any. If the underwriter exercises the
option in full, the total underwriting discount payable by us will
be $430,100, and the total proceeds to us, before expenses, will be
$6,182,400.
We expect to deliver the shares against payment on or about April
23, 2018.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any representation
to the contrary is a criminal offense.
Roth Capital Partners
The
date of this prospectus supplement is April 19, 2018.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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PROSPECTUS
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You should rely only on the information contained or incorporated
by reference in this prospectus supplement, the accompanying
prospectus and any free writing prospectuses we may provide to you
in connection with this offering. We have not, and the underwriter
has not, authorized any other person to provide you with any
information that is different. If anyone provides you with
different or inconsistent information, you should not rely on it.
We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus supplement, the
accompanying prospectus, the documents incorporated by reference
herein and any free writing prospectuses we may provide to you in
connection with this offering is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since those dates. You
should not consider this prospectus supplement or the accompanying
prospectus to be an offer or solicitation relating to the
securities in any jurisdiction in which such an offer or
solicitation relating to the securities is not authorized. Persons
outside the United States who come into possession of this
prospectus supplement must inform themselves about, and observe any
restrictions relating to, the offering of the securities and the
distribution of this prospectus supplement outside the United
States. Furthermore, you should not consider this prospectus
supplement or the accompanying prospectus to be an offer or
solicitation relating to the securities if the person making the
offer or solicitation is not qualified to do so, or if it is
unlawful for you to receive such an offer or
solicitation.
S-i
ABOUT THIS PROSPECTUS
SUPPLEMENT
This prospectus supplement and the accompanying prospectus are part
of a registration statement that we filed with the U.S. Securities
and Exchange Commission, or SEC, utilizing a “shelf”
registration process. This document is in two parts. The first part
is this prospectus supplement, which describes the terms of the
offering of the common stock offered hereby and also adds to and
updates the information contained in the accompanying prospectus
and the documents incorporated by reference into this prospectus
supplement and the accompanying prospectus. The second part is the
accompanying prospectus dated September 28, 2017 (included in our
Registration Statement on Form S-3 (File No. 333-220181)), which
provides more general information, some of which may not apply to
this offering and some of which may have been supplemented or
superseded by information in this prospectus supplement or
documents incorporated or deemed to be incorporated by reference in
this prospectus supplement that we filed with the SEC subsequent to
the date of the prospectus. To the extent that there is any
conflict between the information contained in this prospectus
supplement, on the one hand, and the information contained in the
accompanying prospectus or any document incorporated by reference
herein or therein, on the other hand, you should rely on the
information in this prospectus supplement.
You should rely only on the information contained in this
prospectus supplement, contained in the accompanying prospectus or
incorporated herein or therein by reference. We have not, and the
underwriter has not, authorized anyone to provide you with
information that is different. We are offering to sell, and seeking
offers to buy, the common stock offered hereby only in
jurisdictions where offers and sales are permitted. The information
contained, or incorporated by reference, in this prospectus
supplement and contained, or incorporated by reference, in the
accompanying prospectus is accurate only as of the respective dates
thereof, regardless of the time of delivery of this prospectus
supplement and the accompanying prospectus, or of any sale of our
shares of common stock. It is important for you to read and
consider all information contained in this prospectus supplement
and the accompanying prospectus, including the documents we have
referred you to in the section entitled “Where You Can Find
Additional Information” and “Incorporation of Certain
Information by Reference” below.
We own or have rights to trademarks or trade names that we use in
conjunction with the operation of our business. Each trademark,
trade name or service mark of any other company appearing in this
prospectus supplement or the accompanying prospectus belongs to its
holder. Use or display by us of other parties’ trademarks,
trade names or service marks is not intended to and does not imply
a relationship with, or endorsement or sponsorship by us of, the
trademark, trade name or service mark owner.
All references in this prospectus supplement or the accompanying
prospectus to “Torchlight,” the “Company,”
“we,” “us,” or “our” mean
Torchlight Energy Resources, Inc. and our consolidated
subsidiaries, unless we state otherwise or the context indicates
otherwise.
S-ii
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PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights certain information about this offering and
selected information contained elsewhere in or incorporated by
reference into this prospectus supplement. This summary is not
complete and does not contain all of the information that you
should consider before deciding whether to invest in our shares of
common stock. You should read this entire prospectus
supplement and the accompanying prospectus carefully, including
the “Risk Factors” section contained in this
prospectus supplement and the other documents incorporated
by reference into this prospectus supplement and in the
accompanying prospectus.
Overview
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 are primarily focused on the acquisition
of early stage projects, the development and delineation of these
projects, and then the monetization of those assets once these
activities are completed.
Since 2010, our primary focus has been the development of interests
in oil and gas projects we hold in the Permian Basin in West Texas,
including the Orogrande Project in Hudspeth County, Texas, the
Hazel Project in the Midland Basin and the recently acquired
project in Winkler County, Texas in the Delaware Basin. Within
these three projects, we expect to drill and complete over six
gross wells (horizontal and vertical) in 2018 and we expect to
drill and complete the wells in the Wolfcamp A, B, C Upper and
Lower Second Bone Spring, Third Bone Spring, and the Pennsylvanian
in the Orogrande. We also hold interests in certain other oil and
gas projects that we are in the process of divesting, including the
Hunton wells project as part of a partnership with Husky Ventures,
Inc., or Husky, in Central Oklahoma.
We employ a private equity model within a public platform, with the
goal to (i) enter into a play at favorable valuations, (ii)
“prove up” and delineate the play through committed
capital and exhaustive geologic and engineering review, and (iii)
monetize our position through an exit to public and private
independents that can continue full-scale development. Rich
Masterson, our consulting geologist, has originated several of our
current plays, as discussed below, based on his tenure as a
geologist since 1974. He is credited with originating the Wolfbone
shale play in the Southern Delaware Basin of West Texas and has
prepared prospects totaling over 150,000 acres that have been
leased, drilled and are currently being developed by Devon Energy
Corp., Occidental Petroleum Corporation, Noble Energy, and Samson
Oil & Gas Ltd., among others.
In April 2018, we announced that we have commenced a process that
could result in the monetization of the Hazel Project. Pursuant to
our corporate strategy, in our opinion between the development
activity at the Hazel Project, coupled with nearby activities of
other oil and gas operators, this project has achieved a level of
value that suggests monetization. We believe that the liquidity
that would be provided from selling the Hazel Project could be
redeployed into the Orogrande Project.
We operate our business through five wholly-owned subsidiaries,
Torchlight Energy, Inc., a Nevada corporation, or TEI, Torchlight
Energy Operating, LLC, a Texas limited liability company, Hudspeth
Oil Corporation, a Texas corporation, or Hudspeth, Torchlight
Hazel, LLC, a Texas limited liability company, and Warwink
Properties, LLC, a Texas limited liability company, or Warwrink
Properties. We currently have four full-time
employees.
We were incorporated in October 2007 under the laws of the State of
Nevada as Pole Perfect Studios, Inc. 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.
Current Projects
As of
December 31, 2017, we had interests in four oil and gas projects:
the Orogrande Project in Hudspeth County, Texas, the Hazel Project
in Sterling, Tom Green, and Irion Counties, Texas, the Winkler
Project in Winkler County, Texas, and the Hunton wells in
partnership with Husky in Central Oklahoma.
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S-1
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Orogrande Project, West
Texas
On
August 7, 2014, we entered into a Purchase Agreement, or the
Purchase Agreement, with Hudspeth, McCabe Petroleum Corporation, or
MPC, and Gregory McCabe, our Chairman. Mr. McCabe was the sole
owner of both Hudspeth and MPC. Under the terms and conditions of
the Purchase Agreement, at closing, we purchased 100% of the
capital stock of Hudspeth, which holds certain oil and gas assets,
including a 100% working interest in approximately 172,000 mostly
contiguous acres in the Orogrande Basin in West Texas. As of
December 31, 2017, leases covering approximately 133,000 acres
remain in effect. This acreage is in the primary term under
five-year leases that carry additional five-year extension
provisions. As consideration, at closing we issued 868,750
restricted shares of our common stock to Mr. McCabe and paid a
total of $100,000 in geologic origination fees to third parties.
Additionally, Mr. McCabe has, at his option, a 10% working interest
back-in after payout and a reversionary interest if drilling
obligations are not met, all under the terms and conditions of a
participation and development agreement among Hudspeth, MPC and Mr.
McCabe. We believe all drilling obligations through December 31,
2017 have been met.
On
September 23, 2015, Hudspeth entered into a Farmout Agreement, or
the Farmout Agreement, with Pandora Energy, LP, or Pandora,
Founders Oil & Gas, LLC, or Founders, and for the limited
purposes set forth therein, MPC and Mr. McCabe, for the entire
Orogrande Project in Hudspeth County, Texas. The Farmout Agreement
provided that Hudspeth and Pandora, collectively referred to as
Farmor, would assign to Founders an undivided 50% of the leasehold
interest and a 37.5% net revenue interest in the oil and gas leases
and mineral interests in the Orogrande Project, which interests,
except for any interests retained by Founders, would be reassigned
to Farmor by Founders if Founders did not spend a minimum of $45.0
million on actual drilling operations on the Orogrande Project by
September 23, 2017. Under a joint operating agreement also entered
into on September 23, 2015, Founders is designated as operator of
the leases.
On
March 27, 2017, Founders, Founders Oil & Gas Operating, LLC,
Founders’ operating partner, Hudspeth and Pandora signed a
Drilling and Development Unit Agreement, or the DDU Agreement, with
the Commissioner of the General Land Office, on behalf of the State
of Texas, and as approved by the Board for Lease of University
Lands, or University Lands, on the Orogrande Project. The DDU
Agreement has an effective date of January 1, 2017 and required a
payment from Founders, Hudspeth and Pandora, collectively, of
$335,323 as the initial consideration fee. The initial
consideration fee was paid by Founders in April 2017 and was to be
deducted from the required spud fee payable to us at commencement
of the next well drilled.
The DDU
Agreement allows for all 192 existing leases covering approximately
133,000 net acres leased from University Lands to be combined into
one drilling and development unit for development purposes. The
term of the DDU Agreement expires on December 31, 2023, and the
time to drill on the drilling and development unit continues
through December 2023. The DDU Agreement also grants the right to
extend the DDU Agreement through December 2028 if compliance with
the DDU Agreement is met and the extension fee associated with the
additional time is paid. Our drilling obligations began with one
well to be spudded and drilled on or before September 1, 2017, and
increased to two wells in year 2018, three wells in year 2019, four
wells in year 2020 and five wells per year in years 2021, 2022 and
2023. The drilling obligations are minimum yearly requirements and
may be exceeded if acceleration is desired. The DDU Agreement
replaces all prior agreements, and will govern future drilling
obligations on the drilling and development unit if the DDU
Agreement is extended.
There
are two vertical tests wells in the Orogrande Project, the
Orogrande Rich A-11 test well and the University Founders B-19 #1
test well. The Orogrande Rich A-11 test well was spudded on March
31, 2015, drilled in the second quarter of 2015 and was evaluated
and numerous scientific tests were performed to provide key data
for the field development thesis. We believe that future utility of
this well may be conversion to a salt water disposal well in the
course of further development of the Orogrande acreage. The
University Founders B-19 #1 was spudded on April 24, 2016 and
drilled in the second quarter of 2016. The well successfully pumped
down completion fluid in the third quarter of 2016 and indications
of hydrocarbons were seen at the surface on this second Orogrande
Project test well. We believe that future utility of this well may
be conversion to a salt water disposal well in the course of
further development of the Orogrande acreage.
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S-2
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During
the fourth quarter of 2017, we took back operational control from
Founders on the Orogrande Project. We were joined by Wolfbone
Investments, LLC, or Wolfbone, a company owned by Mr. McCabe. We,
along with Hudspeth, Wolfbone and, for the limited purposes set
forth therein, Pandora, entered into an Assignment of Farmout
Agreement with Founders, or the Assignment of Farmout Agreement,
pursuant to which we and Wolfbone will share the remaining
commitments under the Farmout Agreement. All original provisions of
our carried interest will remain in place including reimbursement
to us on each wellbore. Founders will remain a 9.5% working
interest owner in the Orogrande Project for the $9.5 million it had
spent as of the date of the Assignment of Farmout Agreement, and
such interests will be carried until $40.5 million is spent by
Wolfbone and us, with each contributing 50% of such capital spend,
under the existing agreement. Our working interest in the Orogrande
Project thereby increased by 20.25% to a total of 67.75% and
Wolfbone now owns 20.25%.
Founders will
operate a newly drilled horizontal well called the University
Founders #A25 (at 5,540’ depth in a 1,000’ lateral)
with supervision from us and our partners. The University Founders
#A25 was spudded on November 28, 2017. Once the well is completed,
we, MPC and Mr. McCabe will assume full operational control
including managing drilling plans and timing for all future wells
drilled in the project. We believe two additional wells will be
drilled and completed in 2018.
Mr.
Masterson is credited with originating the Orogrande Project in
Hudspeth County in the Orogrande Basin. With Mr. Masterson’s
assistance, we have identified target payzone depths between
4,100’ and 6,100’ with primary pay, described as the
WolfPenn formation, located at depths of 5,300 to 5,900’.
Based on our geologic analysis to date, the Wolfpenn formation is
prospective for oil and high British thermal unit (Btu) gas, with a
70/30 mix expected, respectively.
Hazel Project in the Midland Basin in West Texas
Effective April 4, 2016, TEI acquired from MPC a 66.66% working
interest in approximately 12,000 acres in the Midland Basin in
exchange for 1,500,000 warrants to purchase shares of our common
stock with an exercise price of $1.00 for five years and a back-in
after payout of a 25% working interest to MPC.
Initial
development of the first well on the property, the Flying B Ranch
#1, began July 9, 2016 and development continued through September
30, 2016. This well is classified as a test well in the development
pursuit of the Hazel Project. We believe that this wellbore will be
utilized as a salt water disposal well in support of future
development.
In
October 2016, the holders of all of our then-outstanding shares of
Series C Preferred Stock (which were issued in July 2016) elected
to convert into a total 33.33% working interest in our Hazel
Project, reducing our ownership from 66.66% to a 33.33% working
interest. As of December 31, 2016, no shares of our Series C
Preferred Stock were outstanding.
On
December 27, 2016, drilling activities commenced on the second
Hazel Project well, the Flying B Ranch #2. The well is a vertical
test similar to our first Hazel Project well, the Flying B Ranch
#1. Recompletion in an alternative geological formation for this
well was performed during the three months ended September 30,
2017; however, we believe that the results were uneconomic for
continuing production. We believe that this wellbore will be
utilized as a salt water disposal well in support of future
development.
We
commenced planning to drill the Flying B Ranch #3 horizontal well
in the Hazel Project in June 2017 in compliance with the continuous
drilling obligation. The well was spudded on June 10, 2017. The
well was completed and began production in late September
2017.
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S-3
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Acquisition of Additional Interests in Hazel Project
On January 30, 2017, we and our then wholly-owned subsidiary,
Torchlight Acquisition Corporation, a Texas corporation, or TAC,
entered into and closed an Agreement and Plan of Reorganization and
a Plan of Merger with Line Drive Energy, LLC, a Texas limited
liability company, or Line Drive, and Mr. McCabe, under which
agreements TAC merged with and into Line Drive and the separate
existence of TAC ceased, with Line Drive being the surviving entity
and becoming our wholly-owned subsidiary. Line Drive, which was
wholly-owned by Mr. McCabe, owned certain assets and securities,
including approximately 40.66% of 12,000 gross acres, 9,600 net
acres, in the Hazel Project and 521,739 warrants to purchase shares
of our common stock (which warrants had been assigned by Mr. McCabe
to Line Drive). Upon the closing of the merger, all of the issued
and outstanding shares of common stock of TAC automatically
converted into a membership interest in Line Drive, constituting
all of the issued and outstanding membership interests in Line
Drive immediately following the closing of the merger, the
membership interest in Line Drive held by Mr. McCabe and
outstanding immediately prior to the closing of the merger ceased
to exist, and we issued Mr. McCabe 3,301,739 restricted shares of
our common stock as consideration therefor. Immediately after
closing, the 521,739 warrants held by Line Drive were cancelled,
which warrants had an exercise price of $1.40 per share and an
expiration date of June 9, 2020. A Certificate of Merger for the
merger transaction was filed with the Secretary of State of Texas
on January 31, 2017. Subsequent to the closing the name of Line
Drive Energy, LLC was changed to Torchlight Hazel, LLC. We are
required to drill one well every six months to hold the entire
12,000 acre block for eighteen months, and thereafter two wells
every six month starting June 2018.
Also on
January 30, 2017, TEI entered into and closed a Purchase and Sale
Agreement with Wolfbone. Under the agreement, TEI acquired certain
of Wolfbone’s Hazel Project assets, including its interest in
the Flying B Ranch #1 well and the 40 acre unit surrounding the
well, for consideration of $415,000, and additionally, Wolfbone
caused to be cancelled a total of 2,780,000 warrants to purchase
shares of our common stock, including 1,500,000 warrants held by
MPC, and 1,280,000 warrants held by Green Hill Minerals, an entity
owned by Mr. McCabe’s son, which warrant cancellations were
effected through certain Warrant Cancellation Agreements. The
1,500,000 warrants held by MPC that were cancelled had an exercise
price of $1.00 per share and an expiration date of April 4, 2021.
The warrants held by Green Hill Minerals that were cancelled
included 100,000 warrants with an exercise price of $1.73 and an
expiration date of September 30, 2018 and 1,180,000 warrants with
an exercise price of $0.70 and an expiration date of February 15,
2020.
Since
Mr. McCabe held the controlling interest in both Line Drive and
Wolfbone, the transactions were combined for accounting purposes.
The working interest in the Hazel Project was the only asset held
by Line Drive. The warrant cancellation was treated in the
aggregate as an exercise of the warrants with the transfer of the
working interests as the consideration. We recorded the
transactions as an increase in its investment in the Hazel Project
working interests of $3,644,431, which is equal to the exercise
price of the warrants plus the cash paid to Wolfbone.
Upon
the closing of the transactions, our working interest in the Hazel
Project increased by 40.66% to a total ownership of
74%.
Effective June 1,
2017, we acquired an additional 6% working interest from unrelated
working interest owners in exchange for 268,656 shares of common
stock valued at $373,430, increasing our working interest in the
Hazel project to 80%, and an overall net revenue interest of
74-75%.
The
offset operators within Sterling, Tom Green and Irion Counties,
Texas, include private, private equity backed and public companies,
including, Hunt Oil Company, Devon, OXY, Banner Resources, Own
Resources, Independence Resources Management, Compass, Discovery,
Broad Oak Energy II LLC, Discovery Natural Resources, and Three
Rivers Operating Company.
Mr.
Masterson is credited with originating the Hazel Project in the
Midland Basin. With Mr. Masterson’s assistance, we are
targeting prospects in the Midland Basin that have 150 to 130 feet
of thickness, are likely to require six to eight laterals per
bench, have the potential for twelve to sixteen horizontal wells
per section, and 200 long lateral locations, assuming only two
benches.
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S-4
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Winkler Project, Winkler County, Texas
On
December 1, 2017, the Agreement and Plan of Reorganization that we
and our then wholly-owned subsidiary, Torchlight Wolfbone
Properties, Inc., a Texas corporation, or TWP, entered into with
MPC and Warwink Properties on November 14, 2017 closed. Under the
agreement, TWP merged with and into Warwink Properties and the
separate existence of TWP ceased, with Warwink Properties being the
surviving entity and becoming our wholly-owned subsidiary. Warwink
Properties was wholly owned by MPC. Warwink Properties owns certain
assets, including a 10.71875% working interest in approximately 640
acres in Winkler County, Texas. Upon the closing of the merger, all
of the issued and outstanding shares of common stock of TWP
converted into a membership interest in Warwink Properties,
constituting all of the issued and outstanding membership interests
in Warwink Properties immediately following the closing of the
merger, the membership interest in Warwink Properties held by MPC
and outstanding immediately prior to the closing of the merger
ceased to exist, and we issued MPC 2,500,000 restricted shares of
our common stock as consideration. Also on December 1, 2017, MPC
closed its transaction with MECO IV, LLC, or MECO, for the purchase
and sale of certain assets as contemplated by the Purchase and Sale
Agreement dated November 9, 2017 among MPC, MECO and additional
parties thereto, or the MECO PSA, to which we are not a party.
Under the MECO PSA, Warwink Properties received a carry from MECO
(through the tanks) of up to $1,475,000 in the next well drilled on
the Winkler County leases. A Certificate of Merger for the merger
transaction was filed with the Secretary of State of Texas on
December 5, 2017.
Also on
December 1, 2017, the transactions contemplated by the Purchase
Agreement that TEI entered into with MPC closed. Under the Purchase
Agreement, which was entered into on November 14, 2017, TEI
acquired beneficial ownership of certain of MPC’s assets,
including acreage and wellbores located in Ward County, Texas, or
the Ward County Assets. As consideration under the Purchase
Agreement, at closing TEI issued to MPC an unsecured promissory
note in the principal amount of $3,250,000, payable in monthly
installments of interest only beginning on January 1, 2018, at the
rate of 5% per annum, with the entire principal amount together
with all accrued interest due and payable on January 1, 2021. In
connection with TEI’s acquisition of beneficial ownership in
the Ward County Assets, MPC sold those same assets, on behalf of
TEI, to MECO at closing of the MECO PSA, and accordingly, TEI
received $3,250,000 in cash for its beneficial interest in the Ward
County Assets. Additionally, at closing of the MECO PSA, MPC paid
TEI a performance fee of $2,781,500 in cash as compensation for
TEI’s marketing and selling the Winkler County assets of MPC
and the Ward County Assets as a package to MECO.
MECO IV
expects to drill two gross horizontal well in this project in 2018,
with the first well expected to spud in the second quarter of 2018.
The offset operators in Winkler County include, among others, EOG
Resources, Lilis Energy, Inc., Oasis Petroleum, RSP Permian, OXY,
Jagged Peak Energy, XTO Energy, and Felix Energy.
Mr.
Masterson is credited with originating the Winkler Project in the
Delaware Basin. With Mr. Masterson’s assistance, we have
identified Wolfcamp A and B, Upper Second Bone Spring and Lower
Second Bone Spring formations within our acreage
position.
Hunton Play, Central Oklahoma
As of
December 31, 2017, we were producing from one well in the Viking
Area of Mutual Interest, or AMI, and one well in Prairie
Grove.
Legal Proceeding
We and
TEI have pending in the 429th judicial district
court in Collin County, Texas a lawsuit against Husky, Charles V.
Long, Silverstar of Nevada, Inc., Gastar Exploration Inc., J.
Russell Porter, Michael A. Gerlich, and Jerry R. Schuyler that was
originally filed in May 2016 (previous defendants April Glidewell,
Maximus Exploration, LLC, Atwood Acquisitions, LLC and John M.
Selser, Sr. have been non-suited without prejudice to re-filing the
claims). In the lawsuit, we allege, among other things, that the
defendants acted improperly in connection with multiple
transactions, and that the defendants misrepresented and omitted
material information to us with respect to these transactions. In
April 2017, Husky filed a counterclaim against us and TEI, and a
third-party petition against John Brda, our Chief Executive
Officer, President, Secretary and a member of our board of
directors, and Willard McAndrew III, a former officer of our
company, which we refer to as the Husky Counterclaim. The Husky
Counterclaim asserts a claim of breach of contract against us and
TEI and asserts a claim for tortious interference with
Husky’s contractual relationship with us and a claim for
conspiracy to tortiously interfere with unspecified Husky business
and contractual relationships against us and TEI, John Brda and
Willard McAndrew III.
In
April 2018, we and TEI entered into a binding letter agreement with
Husky and its affiliates that settled for non-financial
consideration all claims asserted by Husky, including those claims
Husky asserted against John Brda and Willard McAndrew III, as well
as the claims we and TEI asserted against Husky and its affiliates.
The binding letter agreement requires a formal settlement agreement
that will result in all claims asserted against the Company, TEI,
John Brda, Willard McAndrew III, Husky and Husky’s affiliates
to be dismissed with prejudice.
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S-5
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In May
2017, the Court granted Gastar Exploration, Inc., J. Russell
Porter, Michael A. Gerlich, and Jerry R. Schuyler’s, or
Gastar Defendants, motion for summary judgment dismissing all of
our claims against the Gastar Defendants with prejudice. The only
claim remaining related to the Gastar Defendants is a counterclaim
against us by Gastar Exploration, Inc. for our alleged breach of a
release that Gastar Exploration, Inc. claims occurred because we
filed this lawsuit against the Gastar Defendants. We have alleged
that this release is unenforceable against all the defendants,
including but not limited to, the Gastar Defendants. In January
2018, the Court heard cross-motions for summary judgment by Gastar
and us to resolve Gastar’s remaining claims against us. The
Court issued its ruling in March 2018 denying our motion for
summary judgment and granting in part Gastar’s motion for
summary judgment, but has yet to issue an order reflecting that
ruling. The Court’s ruling leaves only the issue of how much
attorneys’ fees and costs that we will have to pay to Gastar
for breaching the release. If we and Gastar cannot resolve the
amount of attorneys’ fees to be paid by us to Gastar, we will
go to trial in May 2018.
Viking AMI
In
November 2013, we entered into a Participation Agreement regarding
an AMI with Husky for the Viking Project, or the Viking AMI. We
acquired a 25% interest in approximately 3,945 acres and
subsequently acquired an additional 5% in May 2014. We had an
interest in approximately 8,800 total acres and approximately 2,600
net undeveloped acres as of December 31, 2016. Our net cumulative
investment through December 31, 2016 in undeveloped acres in the
Viking AMI was $1,387,928. In addition, we incurred $133,468 as our
share of costs related to the early stages of the construction of a
gas pipeline which was to serve the Viking AMI. As of December 31,
2017, we believe substantially all of the leases have expired
(although some may have been renewed without notice to us) and the
leases remain subject to settlement negotiations in the legal
action referenced above.
Rosedale AMI
In
December 2013, we entered into a Participation Agreement for a 25%
working interest in approximately 5,000 acres in the Rosedale AMI
consisting of eight townships in South Central Oklahoma. We
subsequently acquired an additional 5% in May 2014. We had an
interest in approximately 11,600 total acres and approximately
3,500 net undeveloped acres as of December 31, 2016. Our cumulative
investment through December 31, 2016 in the Rosedale AMI was
$2,833,744. As of December 31, 2017, we believe substantially all
of the leases have expired (although some may have been renewed
without notice to us) and the leases remain subject to settlement
negotiations in the legal action referenced above.
Prairie Grove – Judy Well
In
February 2014, we acquired a 10% working interest in a well in the
Prairie Grove AMI from a non-consenting third-party who elected not
to participate in the well. The well is producing at December 31,
2017.
Thunderbird AMI
In July
2014, we contracted for a 25% working interest in the Thunderbird
AMI. The total acres in which we had an interest at December 31,
2016 was approximately 4,300 acres and approximately 1,100 net
undeveloped acres. Our cumulative investment through December 31,
2016 in the Thunderbird AMI was $949,530. As of December 31, 2017,
we believe substantially all of the leases have expired (although
some may have been renewed without notice to us) and the leases
remain subject to settlement negotiations in the legal action
referenced above.
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S-6
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THE
OFFERING
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Shares
of common stock to be offered
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5,000,000 shares |
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Over-Allotment
Option to purchase shares of common stock
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We have
granted the underwriter an option to purchase up to an additional
750,000 shares of common stock at the public offering price, less
the underwriting discounts and commissions, which option may be
exercised at any time in whole, or from time to time in part, on or
before the 30th day following
the date of this prospectus supplement.
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Shares
of common stock to be outstanding immediately after this
offering
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68,379,286
shares of common stock (or 69,129,286 shares of common stock if the
underwriter exercises its over-allotment option to purchase
additional shares in full).
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Use of
proceeds
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The net
proceeds from this offering are expected to be approximately $5.18
million (or $5.99 million if the underwriter exercises in full its
over-allotment option to purchase additional shares) after
deducting underwriting discounts and commissions and estimated
offering expenses. We currently intend to use the net proceeds
primarily to meet our drilling obligations at our Hazel Project and
Orogrande Project and for general corporate purposes. See
“Use of Proceeds” on page S-23 of this prospectus
supplement.
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Risk
factors
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See
“Risk Factors” beginning on page S-8 of this prospectus
supplement, on page 3 of the accompanying prospectus and in the
documents incorporated by reference into this prospectus supplement
for a discussion of factors you should consider carefully before
investing in our common stock.
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NASDAQ
Capital Market symbol
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“TRCH”
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Unless
we indicate otherwise, all information in this prospectus
supplement is based on 63,340,034 shares of common stock issued and
outstanding as of December 31, 2017 and excludes as of that
date:
●
7,414,931 shares of
our common stock issuable upon the exercise of outstanding stock
options under our 2015 Stock Option Plan, or the 2015 plan, at a
weighted-average exercise price of $1.51 per share;
●
13,467,201 shares
of our common stock issuable upon the exercise of outstanding
warrants, at a weighted-average exercise price of $2.41 per share;
and
●
1,085,069 shares of
our common stock reserved for future issuance under our 2015
plan.
Unless
otherwise indicated, all information in this prospectus supplement
assumes no exercise by the underwriter of its option to purchase up
to 750,000 additional shares of our common stock.
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S-7
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
Before investing in our common stock, you should carefully consider
the risks described below, together with all of the other
information contained in this prospectus supplement, and
accompanying prospectus and incorporated by reference herein and
therein, including from our most recent Annual Report on Form 10-K
and subsequent Quarterly Reports on Form 10-Q as well as any
amendment or update to our risk factors reflected in subsequent
filings with the SEC. Some of these factors relate principally to
our business and the industry in which we operate. Other factors
relate principally to your investment in our securities. The risks
and uncertainties described below and the risks and uncertainties
incorporated by reference into this prospectus supplement and
accompanying prospectus are not the only risks facing us.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also materially and adversely
affect our business and operations.
Risks Related to this Offering
You will experience immediate and substantial dilution in the book
value per share of the shares of common stock you purchase and may
experience further dilution in the future.
The public offering price of our common stock offered pursuant to
this prospectus supplement is substantially higher than the net
tangible book value per share of our common stock. Therefore, if
you purchase shares of common stock in this offering, you will
incur immediate and substantial dilution in the pro forma net
tangible book value per share of common stock from the price per
share that you pay for the common stock. See the section entitled
“Dilution” below for a more detailed discussion of the
dilution you will incur if you purchase shares in this offering.
Furthermore, we expect that we will seek to raise additional
capital from time to time in the future. Such financings may
involve the issuance of equity and/or securities convertible into
or exercisable or exchangeable for our equity securities. We also
expect to continue to utilize equity-based compensation. To the
extent the warrants and options are exercised or we issue common
stock, preferred stock, or securities such as warrants that are
convertible into, exercisable or exchangeable for, our common stock
or preferred stock in the future, you may experience further
dilution.
We will have broad discretion in the use of the proceeds from this
offering and may apply the proceeds in ways with which you do not
agree and in ways that may not yield a return.
We
currently intend to use the net proceeds primarily to meet our
drilling obligations at our Hazel Project and Orogrande Project and
for general corporate purposes. You may not agree with our decisions,
and our use of the proceeds may not yield any return on your
investment in us. The failure of our management to apply these
funds effectively could harm our business. You will not have the
opportunity, as part of your investment decision, to assess whether
our proceeds are being used appropriately. Pending application of
our proceeds, they may be placed in investments that do not produce
income or that lose value.
Risks Related our Business and Industry
We have a limited operating history relative to larger companies in
our industry, and may not be successful in developing profitable
business operations.
We have
a limited operating history relative to larger companies in our
industry. 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. 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:
●
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;
S-8
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the level of our
competition;
●
our ability to
attract and maintain key management and employees; and
●
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.
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. 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 shareholders. 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.
Our
consolidated financial statements incorporated by reference into
this prospectus supplement are 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 $0.9 million for the year ended
December 31, 2017 and an accumulated deficit in aggregate of
approximately $83.5 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.
S-9
In our
consolidated financial statements for the year ended December 31,
2017, our auditor 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. Our plan to address our ability to
continue as a going concern includes: (i) obtaining debt or equity
funding from private placement or institutional sources, (ii)
obtaining loans from financial institutions, where possible, or
(iii) participating in joint venture transactions with third
parties. Although we believe that we will be able to obtain the
necessary funding to allow us to remain a going concern through the
methods discussed above, such methods may not prove successful. Our
consolidated financial statements incorporated by reference into
this prospectus supplement do not include any adjustments that
might result from the outcome of this uncertainty.
The negative covenants contained in our outstanding 12% unsecured
promissory notes may limit our activities and make it difficult to
run our business.
On
April 10, 2017, we sold to investors in a private transaction two
12% unsecured promissory notes with a total of $8,000,000 in
principal amount, or the 2017 Notes. In addition, on February 6,
2018, we sold to an investor in a private transaction a 12%
unsecured promissory note with a principal amount of $4,500,000, or
the 2018 Note, containing substantially the same terms as the 2017
Notes. We refer to the 2017 Notes and the 2018 Note collectively
as, the Notes. Interest only is due and payable on the Notes each
month at the rate of 12% per annum, with a balloon payment of the
outstanding principal due and payable at maturity on April 10,
2020. The holders of the Notes will also receive annual payments of
common stock at the rate of 2.5% of principal amount outstanding,
based on a volume-weighted average price. We sold the 2017 Notes at
an original issue discount of 94.25% and accordingly, we received
total proceeds of $7,540,000 from the investors. We sold the 2018
Note at an original issue discount of 96.27% and accordingly, we
received total proceeds of $4,332,150 from the investor. The Notes
allow for early redemption, provided that if we redeem before April
10, 2018 for the 2017 Notes and February 6, 2019 for the 2018 Note,
we must pay the holder all unpaid interest and common stock
payments on the portion of the Note redeemed that would have been
earned through April 10, 2018 and February 6, 2019,
respectively.
The
Notes contain negative covenants which may make it difficult for us
to run our business. Under the Notes, we may not, directly or
indirectly, consolidate with or merge into another person or sell,
lease, convey or transfer all or substantially all of our assets
(computed on a consolidated basis), unless either (i) in the case
of a merger or consolidation, we are the surviving entity or (ii)
the resulting, surviving or transferee entity expressly assumes by
supplemental agreement all of the obligations of us in connection
with the Notes.
In
addition, the Notes also contain certain covenants under which we
have agreed that, except for financing arrangements with
established commercial banking or financial institutions and other
debts and liabilities incurred in the normal course of business, we
will not issue any other notes or debt offerings which have a
maturity date prior to the payment in full of the respective Note,
unless consented to by the holder. Further, our subsidiaries cannot
sell or otherwise dispose of any shares of capital stock or assets
unless the transaction is for fair value and approved by our
disinterested directors or is pursuant to any contractual
obligation entered into by us in the ordinary course of business in
connection with drilling, exploration and development of our oil
and gas properties.
The
Notes also restrict us and our subsidiaries from (i) issuing any
preferred stock or any other comparable equity interest which are
mandatorily redeemable at a date prior to the maturity date of the
Notes, without the consent or approval of the holder, (ii)
distributing any cash or other assets to any holders of our common
stock prior to payment in full of the Notes, without the consent of
the holder, (iii) entering into any transaction with an affiliate,
subject to limited exceptions, and (iv) issuing any other notes or
debt offerings which have a maturity date prior to the payment in
full of the Notes, unless consented to by the holder.
Failure
to comply with the negative covenants could accelerate the
repayment of any debt outstanding under the Notes. Additionally, as
a result of these negative covenants, we may be at a disadvantage
compared to our competitors that have greater operating and
financing flexibility than we do.
S-10
Lastly,
we may have difficulty securing additional sources of capital
through debt financing. If we do not succeed in raising additional
capital, our resources may not be sufficient to fund our planned
operations.
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.
We are mainly concentrated in one geographic area, which increases
our exposure to many of the risks enumerated herein.
Operating
in a concentrated area increases the potential impact that many of
the risks stated herein may have upon our ability to perform. For
example, we have greater exposure to regulatory actions impacting
Texas, natural disasters in the geographic area, competition for
equipment, services and materials available in the area and access
to infrastructure and markets. In addition, the effect of
fluctuations on supply and demand may become more pronounced within
specific geographic oil and gas producing areas such as the Permian
Basin, which may cause these conditions to occur with greater
frequency or magnify the effect of these conditions. Due to the
concentrated nature of our portfolio of properties, a number of our
properties could experience any of the same conditions at the same
time, resulting in a relatively greater impact on our results of
operations than they might have on other companies that have a more
diversified portfolio of properties. Such delays or interruptions
could have a material adverse effect on our financial condition and
results of operations.
We may be unable to monetize the Hazel Project at an attractive
price, if at all, and the disposition of such assets may involve
risks and uncertainties.
In
April 2018, we announced that we have commenced a process that
could result in the monetization of the Hazel Project. Such
disposition may result in proceeds to us in an amount less than we
expect or less than our assessment of the value of the assets. We
do not know if we will be able to successfully complete such
disposition on favorable terms or at all. In addition, the sale of
these assets involves risks and uncertainties, including disruption
to other parts of our business, potential loss of customers or
revenue, exposure to unanticipated liabilities or result in ongoing
obligations and liabilities to us following any such
divestiture.
For
example, in connection with a disposition, we may enter into
transition services agreements or other strategic relationships,
which may result in additional expense. In addition, in connection
with a disposition, we may be required to make representations
about the business and financial affairs of the business or assets.
We may also be required to indemnify the purchasers to the extent
that our representations turn out to be inaccurate or with respect
to certain potential liabilities. These indemnification obligations
may require us to pay money to the purchasers as satisfaction of
their indemnity claims. It may also take us longer than expected to
fully realize the anticipated benefits of this transaction, and
those benefits may ultimately be smaller than anticipated or may
not be realized at all, which could adversely affect our business
and operating results. Any of the foregoing could adversely affect
our financial condition and results of operations.
S-11
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. Any properties in which we obtain a
mineral interest may not 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:
●
the level of
consumer demand for oil and natural gas;
●
the domestic and
foreign supply of oil and natural gas;
●
the ability of the
members of the Organization of Petroleum Exporting Countries to
agree to and maintain oil price and production
controls;
●
the price of
foreign oil and natural gas;
●
domestic
governmental regulations and taxes;
●
the price and
availability of alternative fuel sources;
●
weather
conditions;
●
market uncertainty
due to political conditions in oil and natural gas producing
regions, including the Middle East; and
●
worldwide economic
conditions.
S-12
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 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.
We
recognized an impairment charge of $70,080 for the year ended
December 31, 2016. During the year ended December 31, 2017, we
performed assessments of evaluated and unevaluated costs in the
cost pool to conform the cumulative value of the full cost pool to
the combined amount of reserve value of evaluated, producing
properties (as determined by independent analysis at December 31,
2017), plus the lesser of cumulative historical cost or estimated
realizable value of unevaluated leases and projects expected to
commence production in future operating periods. We identified
impairment of $2,300,626 in 2017 related to our unevaluated
properties. Although we had no recognized impairment expense in
2017, we have adjusted the separation of evaluated versus
unevaluated costs within our full cost pool to recognize the value
impairment related to the expiration of unevaluated leases in 2017
in the amount of $2,300,626. The impact of this change will be to
increase the basis for calculation of future period’s
depletion, depreciation and amortization to include $2,300,626 of
cost which will effectively recognize the impairment on our
consolidated statements of operations over future periods. The
$2,300,626 has also become an evaluated cost for purposes of future
period’s ceiling tests and which may further recognize the
impairment expense recognized in future periods.
Because of the inherent dangers involved in oil and gas operations,
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. This technology has evolved and continues to
evolve and become more aggressive. We believe that new techniques
can increase estimated ultimate recovery per well to over 1.0
million barrels of oil equivalent, and have increased initial
production two or three fold. We believe that recent designs have
seen improvement in, among other things, proppant per foot, barrels
of water per stage, fracturing stages, and clusters per fracturing
stage. 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. In addition, we will need to quickly
adapt to the evolving technology, which could take time and divert
our attention to other business matters. We currently have no
insurance to cover such losses and liabilities, and even if
insurance is obtained, it may not 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.
S-13
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, we may not be able to compete successfully and competitive
pressures may 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 expected growth,
which could lead to our inability to implement our business
plan.
Our
expected 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. Our systems, procedures and/or controls may not 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.
The due diligence undertaken by us in connection with all of our
acquisitions may not have revealed all relevant considerations or
liabilities related to those assets, which could have a material
adverse effect on our financial condition or results of
operations.
The due
diligence undertaken by us in connection with the acquisition of
our properties may not have revealed all relevant facts that may be
necessary to evaluate such acquisitions. The information provided
to us in connection with our diligence may have been incomplete or
inaccurate. As part of the diligence process, we have also made
subjective judgments regarding the results of operations and
prospects of the assets. If the due diligence investigations have
failed to correctly identify material issues and liabilities that
may be present, such as title defects or environmental problems, we
may incur substantial impairment charges or other losses in the
future. In addition, we may be subject to significant, previously
undisclosed liabilities that were not identified during the due
diligence processes and which may have a material adverse effect on
our financial condition or results of operations.
S-14
Our operations are heavily dependent on current environmental
regulation, changes in which we cannot predict.
Oil and
natural gas activities that we presently and in the future 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, or the EPA,
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.
We
believe 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 we do 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.
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.
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.
S-15
Further,
the EPA has asserted federal regulatory authority over hydraulic
fracturing involving “diesel fuels” under the Solid
Waste Disposal Act’s Underground Injection Control Program.
The EPA is also engaged in a study of the potential impacts of
hydraulic fracturing activities on drinking water resources in the
states where the EPA is the permitting authority. 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, reductions to our estimated proved oil and
gas reserves and estimated future net revenues may not be required
in the future, and/or that our estimated reserves may not be
present and/or commercially extractable. If our reserve estimates
are incorrect, 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.
S-16
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 have
made and intend to make appropriate inquiries into the title of
properties and other development rights we have acquired and intend
to 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
operating 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.
We have limited management and staff and are dependent upon
partnering arrangements and third-party service
providers.
We
currently have four full-time employees, including our Chief
Executive Officer and Chief Financial Officer. The loss of these
individuals would have an adverse effect on our business, as we
have very limited personnel. We leverage the services of
other independent consultants and contractors to perform various
professional services, including engineering, oil and gas well
planning and supervision, and land, legal, environmental and tax
services. We also pursue alliances with partners in the areas of
geological and geophysical services and prospect generation,
evaluation and prospect leasing. Our dependence on third-party
consultants and service providers create a number of risks,
including but not limited to:
S-17
●
the possibility
that such third parties may not be available to us as and when
needed; and
●
the risk that we
may not be able to properly control the timing and quality of work
conducted with respect to its projects.
If we
experience significant delays in obtaining the services of such
third parties or they perform poorly, our results of operations and
stock price could be materially adversely affected.
Our officers and directors control a significant percentage of our
current outstanding common stock and their interests may conflict
with those of our shareholders.
Our
executive officers and directors collectively and beneficially own
approximately 32% of our outstanding common stock as of the date of
this prospectus supplement. This concentration of voting control
gives these affiliates substantial influence over any matters which
require a shareholder 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 shareholders. 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 shareholders from realizing a premium
over the then prevailing market prices for their shares of common
stock.
We conduct substantially all of our operations through our
subsidiaries, and will rely on payments from our subsidiaries to
meet all of our obligations and may fail to meet our obligations if
our subsidiaries are unable to make payments to us.
We
derive substantially all of our operating income from our
subsidiaries. Substantially all of our assets are held by our
subsidiaries, and we rely on the earnings and cash flows of our
subsidiaries to meet our obligations, including our obligations
under the Notes. The ability of our subsidiaries to make payments
to us will depend on their respective operating results and may be
restricted by, among other things, the laws of their jurisdiction
of organization (which may limit the amount of funds available for
distributions to us), the terms of existing and future indebtedness
and other agreements of our subsidiaries, and the covenants of any
future outstanding indebtedness we or our subsidiaries incur.
For example, so long as the Notes
remain outstanding, our subsidiaries are prohibited from
distributing any cash or other assets to any equity holders in the
form of dividends and other distributions (including repurchase of
equity) prior to the payment in full of the Notes, without the
consent of (i) the holders of a majority of the principal amount
outstanding under the 2017 Notes and (ii) the holder of the 2018
Note, which consent will not be unreasonably withheld. If
our subsidiaries are unable to declare dividends, our ability to
meet any current obligation or future debt service or dividend
payments may be impacted.
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, as amended, or 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.
S-18
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,
2017. Our continued compliance with Section 404, will require that
we incur substantial accounting expense and expend significant
management efforts. We do not have an internal audit group. We have
however, engaged independent professional assistance for the
evaluation and testing of internal controls.
Terrorist attacks or cyber-incidents could result in information
theft, data corruption, operational disruption and/or financial
loss.
Like
most companies, we have become increasingly dependent upon digital
technologies, including information systems, infrastructure and
cloud applications and services, to operate our businesses, to
process and record financial and operating data, communicate with
our business partners, analyze mine and mining information,
estimate quantities of coal reserves, as well as other activities
related to our businesses. Strategic targets, such as
energy-related assets, may be at greater risk of future terrorist
or cyber-attacks than other targets in the United States.
Deliberate attacks on, or security breaches in, our systems or
infrastructure, or the systems or infrastructure of third parties,
or cloud-based applications could lead to corruption or loss of our
proprietary data and potentially sensitive data, delays in
production or delivery, difficulty in completing and settling
transactions, challenges in maintaining our books and records,
environmental damage, communication interruptions, other
operational disruptions and third-party liability. Our insurance
may not protect us against such occurrences. Consequently, it is
possible that any of these occurrences, or a combination of them,
could have a material adverse effect on our business, financial
condition, results of operations and cash flows. Further, as cyber
incidents continue to evolve, we may be required to expend
additional resources to continue to modify or enhance our
protective measures or to investigate and remediate any
vulnerability to cyber incidents.
Risks 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 listed on The NASDAQ Capital Market.
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.
Securities analysts may not initiate coverage or continue to cover
our shares of common stock and this may have a negative impact
on the market price of our shares of common stock.
The
trading market for our shares of common stock will depend, in part,
on the research and reports that securities analysts publish about
our business and our shares of common stock. We do not have any
control over these analysts. If securities analysts do not cover
our shares of common stock, the lack of research coverage may
adversely affect the market price of those shares. If securities
analysts do cover our shares of common stock, they could issue
reports or recommendations that are unfavorable to the price of our
shares of common stock, and they could downgrade a previously
favorable report or recommendation, and in either case our share
prices could decline as a result of the report. If one or more of
these analysts does not initiate coverage, ceases to cover our
shares of common stock or fails to publish regular reports on our
business, we could lose visibility in the financial markets, which
could cause our share prices or trading volume to
decline.
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.
S-19
Our
shareholders 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, or 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, as of the date
of this prospectus supplement, 19,850,356 shares of common stock
underlying outstanding stock options and warrants 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 our 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 shareholders 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 shareholders.
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.
Nasdaq may delist our common stock from trading on its exchange,
which could limit shareholders’ ability to trade our common
stock.
As a
listed company on Nasdaq, we are required to meet certain
financial, public float, bid price and liquidity standards on an
ongoing basis in order to continue the listing of our common stock.
If we fail to meet these continued listing requirements, our common
stock may be subject to delisting. If our common stock is delisted
and we are not able to list our common stock on another national
securities exchange, we expect our securities would be quoted on an
over-the-counter market. If this were to occur, our shareholders
could face significant material adverse consequences, including
limited availability of market quotations for our common stock and
reduced liquidity for the trading of our securities. In addition,
we could experience a decreased ability to issue additional
securities and obtain additional financing in the
future.
Issuance of our stock in the future could dilute existing
shareholders and adversely affect the market price of our common
stock.
We have
the authority to issue up to 150,000,000 shares of common stock and
10,000,000 shares of preferred stock, and to issue options and
warrants to purchase shares of our common stock. We are authorized
to issue significant amounts of common stock in the future, subject
only to the discretion of our board of directors. These future
issuances could be at values substantially below the price paid for
our common stock by investors. In addition, we could issue large
blocks of our stock to fend off unwanted tender offers or hostile
takeovers without further shareholder approval. Because the trading
volume of our common stock is relatively low, the issuance of our
stock may have a disproportionately large impact on its price
compared to larger companies.
The issuance of preferred stock in the future could adversely
affect the rights of the holders of our common stock.
An
issuance of preferred stock could result in a class of outstanding
securities that would have preferences with respect to voting
rights and dividends and in liquidation over the common stock and
could, upon conversion or otherwise, have all of the rights of our
common stock. Our board of directors’ authority to issue
preferred stock could discourage potential takeover attempts or
could delay or prevent a change in control through merger, tender
offer, proxy contest or otherwise by making these attempts more
difficult or costly to achieve.
S-20
This prospectus supplement, the accompanying prospectus, and the
documents incorporated by reference in this prospectus supplement
include “forward-looking statements” within the meaning
of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act.
Forward-looking statements include, but are not limited to,
statements regarding our or our management’s expectations,
hopes, beliefs, intentions or strategies regarding the future and
other statements that are other than statements of historical fact.
In addition, any statements that refer to projections, forecasts or
other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking
statements. The words “anticipate,”
“believe,” “continue,” “could,”
“estimate,” “expect,” “intend,”
“may,” “might,” “plan,”
“possible,” “potential,”
“predict,” “project,” “should,”
“would” and similar expressions may identify
forward-looking statements, but the absence of these words does not
mean that a statement is not forward-looking.
The forward-looking statements in this prospectus supplement are
based upon various assumptions, many of which are based, in turn,
upon further assumptions, including without limitation,
management’s examination of historical operating trends, data
contained in our records and other data available from third
parties. Although we believe that these assumptions were reasonable
when made, because these assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or
impossible to predict and are beyond our control, we cannot assure
you that we will achieve or accomplish these expectations, beliefs
or projections. As a result, you are cautioned not to rely on any
forward-looking statements.
In addition to these important factors and matters discussed
elsewhere herein and in the documents incorporated by reference
herein, important factors that, in our view, could cause actual
results to differ materially from those discussed in the
forward-looking statements include among other things:
●
our future operating or financial results;
●
our financial condition and liquidity, including our ability to pay
amounts that we owe, obtain additional financing in the future to
fund capital expenditures, acquisitions and other general corporate
activities;
●
our ability to continue as a going concern;
●
our development of successful operations;
●
the speculative nature of oil and gas exploration;
●
the volatile price of oil and natural gas;
●
the risk of incurring liability or damages as we conduct business
operations due to the inherent dangers involved in oil and gas
operations;
●
our ability to rely on strategic relationships which are subject to
change;
●
the competitive nature of the oil and gas market;
●
changes in governmental rules and regulations;
●
the amount, and our expected uses, of the net proceeds from this
offering; and
●
other factors listed from time to time in registration statements,
reports or other materials that we have filed with or furnished to
the SEC, including our most recent Annual Report on Form 10-K,
which is incorporated by reference in this prospectus
supplement.
S-21
These factors and the other risk factors described in this
prospectus supplement are not necessarily all of the important
factors that could cause actual results or developments to differ
materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors also could harm
our results. Consequently, actual results or developments
anticipated by us may not be realized or, even if substantially
realized, that they may not have the expected consequences to, or
effects on, us. Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking
statements.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law. If one or
more forward-looking statements are updated, no inference should be
drawn that additional updates will be made with respect to those or
other forward-looking statements.
S-22
USE OF
PROCEEDS
We
expect to receive net proceeds of approximately $5.18 million from
this offering (or approximately $5.99 million if the underwriter
exercises in full its over-allotment option to purchase additional
shares), based on the public offering price of $1.15 per share and
after deducting underwriting discounts and commissions and
estimated offering expenses. We currently intend to use the net
proceeds primarily to meet our drilling obligations at our Hazel
Project and Orogrande Project and for general corporate purposes.
We may also use a portion of the net proceeds from this offering
for potential acquisitions, although we have no commitments or
agreements with respect to any acquisitions as of the date of this
prospectus supplement. We cannot specify with certainty all of the
particular uses for the net proceeds that we will have from the
sale of the shares of common stock. Accordingly, our management
will have broad discretion in the application of the net proceeds.
We may use the proceeds for purposes that are not contemplated at
the time of the offering. Pending the application of the net
proceeds, we may invest the proceeds in investment grade, interest
bearing securities or money market funds.
S-23
DIVIDEND POLICY
We
have never declared or paid cash dividends on our common stock. We
intend to employ all available funds for the development of our
business and, accordingly, do not intend to pay any cash dividends
in the foreseeable future. Any future determination to pay cash
dividends on our common stock will be at the discretion of our
board of directors and will be dependent upon our financial
condition, results of operations, capital requirements and other
factors as the board of directors deems relevant.
In
addition, so long as the Notes remain outstanding, we and our
subsidiaries are prohibited from distributing any cash or other
assets to any holders of common stock in the form of dividends and
other distributions (including repurchase of equity) prior to the
payment in full of the Notes, without the consent of (i) the
holders of a majority of the principal amount outstanding under the
2017 Notes and (ii) the holder of the 2018 Note, which consent may
not be unreasonably withheld.
S-24
DILUTION
If you purchase shares of our common stock in this offering, your
interest will be diluted to the extent of the difference between
the public offering price per share and the net tangible book value
per share of our common stock after this offering. We calculate net
tangible book value per share by dividing our net tangible assets
(tangible assets less total liabilities) by the number of shares of
our common stock issued and outstanding as of December 31,
2017.
Our net tangible
book value at December 31, 2017 was $15.95 million or approximately
$0.25 per share. After giving effect to the sale of 5,000,000
shares of common stock in this offering at an offering price of
$1.15 per share, and after deducting underwriting discounts and
commissions and estimated offering expenses, our adjusted net
tangible book value as of December 31, 2017 would have been
approximately $21.14 million, or approximately $0.31 per share.
This represents an immediate increase in the net tangible book
value of $0.06 per share of our common stock to our existing
shareholders and an immediate dilution in net tangible book value
of approximately $0.84 per share to investors purchasing our common
stock in this offering at the public offering
price.
The
following table illustrates this per share dilution to investors
purchasing shares of common stock in this offering:
|
Public offering
price per share
|
|
$1.15
|
|
Net tangible book
value per share as of December 31, 2017
|
$0.25
|
|
|
Increase in net
tangible book value per share attributable to this
offering
|
$0.06
|
|
|
As adjusted net
tangible book value per share as of December 31, 2017, after giving
effect to this offering
|
|
$0.31
|
|
Dilution in net
tangible book value per share to investors in this
offering
|
|
$0.84
|
If the underwriter
exercises in full its over-allotment option to purchase 750,000
additional shares of our common stock at a public offering price of
$1.15 per share, after deducting underwriting discounts and
commissions and estimated offering expenses payable by us, our as
adjusted net tangible book value as of December 31, 2017 would have
been approximately $21.95 million or approximately $0.32 per share
of common stock. This represents an immediate increase in net
tangible book value per share of approximately $0.07 per share to
existing shareholders, and an immediate dilution of approximately
$0.83 per share to investors participating in this
offering.
The
above discussion and table is based on 63,340,034 shares of our
common stock issued and outstanding as of December 31, 2017, and
excludes as of that date:
●
7,414,931 shares of
our common stock issuable upon the exercise of outstanding stock
options under our 2015 plan, at a weighted-average exercise price
of $1.51 per share;
●
13,467,201 shares
of our common stock issuable upon the exercise of outstanding
warrants, at a weighted-average exercise price of $2.41 per share;
and
●
1,085,069 shares of
our common stock reserved for future issuance under our 2015
plan.
To the
extent that outstanding options or warrants are exercised, or other
shares are issued, investors purchasing shares in this offering
could experience further dilution. In addition, we may choose to
raise additional capital due to market conditions or strategic
considerations, even if we believe we have sufficient funds for our
current or future operating plans. To the extent that additional
capital is raised through the sale of equity or convertible debt
securities, the issuance of those securities could result in
further dilution to our shareholders.
S-25
UNDERWRITING
We have
entered into an underwriting agreement with Roth Capital Partners,
LLC, which we refer to as the underwriter, with respect to the
shares of common stock subject to this offering. Subject to certain
conditions, we have agreed to sell to the underwriter, and the
underwriter has agreed to purchase all of the shares of common
stock offered hereby.
The
underwriter is offering the shares of common stock subject to its
acceptance of the shares of common stock from us and subject to
prior sale. The underwriting agreement provides that the obligation
of the underwriter to pay for and accept delivery of the shares of
common stock offered by this prospectus supplement and the
accompanying prospectus is subject to the approval of certain legal
matters by its counsel and to certain other conditions. The
underwriter is obligated to take and pay for all of the shares of
common stock if any such shares are taken. However, the underwriter
is not required to take or pay for the shares of common stock
covered by the underwriter’s over-allotment option described
below.
Over-Allotment Option
We have
granted to the underwriter an option, exercisable not later than 30
days after the date of the underwriting agreement, to purchase up
to 750,000 additional shares of our common stock at the public
offering price, less underwriting discounts and commissions. The
underwriter may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the
offering of the shares of our common stock offered by this
prospectus supplement and accompanying prospectus. If the
underwriter exercises this option, the underwriter will be
obligated, subject to certain conditions, to purchase the
additional shares for which the option has been
exercised.
Discount, Commissions and Expenses
The
underwriter has advised us that it proposes to offer the shares of
common stock to the public at the public offering price set forth
on the cover page of this prospectus supplement and to certain
dealers at that price less a concession not in excess of $0.0575
per share of common stock. After this offering, the combined public
offering price and concession to dealers may be changed by the
underwriter. No such change shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus
supplement. The shares of common stock are offered by the
underwriter as stated herein, subject to receipt and acceptance by
it and subject to its right to reject any order in whole or in
part. The underwriter has informed us that it does not intend to
confirm sales to any accounts over which it exercises discretionary
authority.
The
following table shows the underwriting discount payable to the
underwriter by us in connection with this offering:
|
|
Per Share
|
Total
|
||
|
|
Without Over-allotment
|
With Over-allotment
|
Without Over-allotment
|
With Over-allotment
|
|
Public Offering
Price
|
$1.15
|
$1.15
|
$5,750,000
|
$6,612,500
|
|
Underwriting
Discounts and Commissions paid by us
|
$0.0748
|
$0.0748
|
$374,000
|
$430,100
|
We have
agreed to reimburse the underwriter for certain out-of-pocket
expenses, including the
fees and disbursements of its counsel, not to exceed $90,000 in the
aggregate. We estimate that expenses payable by us in connection
with this offering, including reimbursement of the
underwriter’s out-of-pocket expenses, but excluding the
underwriting discount referred to above, will be approximately
$190,000.
S-26
We have
also granted the underwriter a right of first refusal to
act as our sole and exclusive book-runner for each and every future
public offering of common stock for twelve months following the
consummation of this offering.
Indemnification
We have
agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained
in the underwriting agreement, or to contribute to payments that
the underwriter may be required to make in respect of those
liabilities.
Lock-Up Agreements
We and
our officers and directors have agreed, subject to limited
exceptions, for a period of 90 days after the date of the
underwriting agreement, not to offer, sell, contract to sell,
pledge, grant any option to purchase, make any short sale, or
otherwise dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exchangeable for our
common stock either owned as of the date of the underwriting
agreement or thereafter acquired without the prior written consent
of the underwriter. The underwriter may, in its sole discretion and
at any time or from time to time before the termination of
the lock-up period, without notice, release all or any
portion of the securities subject
to lock-up agreements.
Price Stabilization, Short Positions and Penalty Bids
In
connection with the offering, the underwriter may engage in
stabilizing transactions, over-allotment transactions, syndicate
covering transactions and penalty bids in accordance with
Regulation M under the Exchange Act:
●
Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified
maximum.
●
Over-allotment
involves sales by the underwriter of shares in excess of the number
of shares the underwriter is obligated to purchase, which creates a
syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the
underwriter is not greater than the number of shares that they may
purchase in the over-allotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the over-allotment option. The underwriter may close out any
covered short position by either exercising their over-allotment
option and/or purchasing shares in the open market.
●
Syndicate covering
transactions involve purchases of the common stock in the open
market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to
close out the short position, the underwriter will consider, among
other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase
shares through the over-allotment option. A naked short position
occurs if the underwriter sells more shares than could be covered
by the over-allotment option. This position can only be closed out
by buying shares in the open market. A naked short position is more
likely to be created if the underwriter is concerned that there
could be downward pressure on the price of the shares in the open
market after pricing that could adversely affect investors who
purchase in the offering.
●
Penalty bids permit
the underwriter to reclaim a selling concession from a syndicate
member when the common stock originally sold by the syndicate
member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These
stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a
decline in the market price of the common stock. As a result, the
price of our common stock may be higher than the price that might
otherwise exist in the open market. These transactions may be
discontinued at any time.
S-27
Neither
we nor the underwriter make any representation or prediction as to
the direction or magnitude of any effect that the transactions
described above may have on the price of our shares of common
stock. In addition, neither we nor the underwriter makes any
representation that the underwriter will engage in these
transactions or that any transaction, if commenced, will not be
discontinued without notice.
Passive Market Making
In
connection with this offering, the underwriter and any selling
group members may engage in passive market making transactions in
our common stock in accordance with Rule 103 of
Regulation M under the Exchange Act during a period before the
commencement of offers or sales of common stock and extending
through the completion of the distribution. A passive market maker
must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids
are lowered below the passive market maker’s bid, that bid
must then be lowered when specified purchase limits are
exceeded.
The NASDAQ Capital Market Listing
Our
common stock is listed on The NASDAQ Capital Market under the
symbol “TRCH.”
Electronic Distribution
This
prospectus supplement and the accompanying prospectus in electronic
format may be made available on websites or through other online
services maintained by the underwriter, or by its affiliates. Other
than this prospectus supplement and the accompanying prospectus in
electronic format, the information on the underwriter’s
website and any information contained in any other website
maintained by the underwriter is not part of this prospectus
supplement, the accompanying prospectus or the registration
statement of which this prospectus supplement and the accompanying
prospectus forms a part, has not been approved and/or endorsed by
us or the underwriter in its capacity as underwriter, and should
not be relied upon by investors.
Other
From
time to time, the underwriter and/or its affiliates have provided,
and may in the future provide, various investment banking and other
financial services for us for which services they have received
and, may in the future receive, customary fees. In the course of
their businesses, the underwriter and its affiliates may actively
trade our securities or loans for their own account or for the
accounts of customers, and, accordingly, the underwriter and its
affiliates may at any time hold long or short positions in such
securities or loans. Except for services provided in connection
with this offering, the underwriter has not provided any investment
banking or other financial services to us during
the 180-day period preceding the date of this prospectus
supplement.
S-28
LEGAL MATTERS
Certain
legal matters in connection with the sale of the common stock
offered hereby will be passed upon for us by Axelrod & Smith,
Houston, Texas. K&L Gates LLP, Irvine, California, has acted as
counsel for the underwriter in connection with this
offering.
The consolidated financial statements of Torchlight Energy
Resources, Inc. appearing in its Annual Report on Form 10-K for the
year ended December 31, 2017, and the effectiveness of its internal
control over financial reporting as of December 31, 2017, have been
audited by Briggs & Veselka Co., an independent registered
public accounting firm, as set forth in reports thereon, included
therein, and incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon
such reports given on the authority of such firm as experts in
accounting and auditing.
Certain
information contained in the documents we incorporate by reference
in this prospectus supplement with respect to the oil and natural
gas reserves associated with our oil and natural gas prospects is
derived from the reports of PeTech Enterprises, Inc., an
independent petroleum and natural gas consulting firm, and has been
incorporated by reference in this prospectus supplement upon the
authority of said firm as an expert with respect to the matters
covered by such reports and in giving such reports.
We have
filed with the SEC a registration statement on Form S-3 under the
Securities Act, of which this prospectus supplement and the
accompanying prospectus form a part. The rules and regulations of
the SEC allow us to omit from this prospectus supplement certain
information included in the registration statement. For further
information about us and the securities we are offering under this
prospectus supplement, you should refer to the registration
statement and the exhibits and schedules filed with the
registration statement. With respect to the statements contained in
this prospectus supplement regarding the contents of any agreement
or any other document, in each instance, the statement is qualified
in all respects by the complete text of the agreement or document,
a copy of which has been filed as an exhibit to the registration
statement.
Because
we are subject to the information and reporting requirements of the
Exchange Act, we file annual, quarterly and current reports, proxy
statements and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SEC’s
website at www.sec.gov. You may also read and copy any document we
file at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the Public Reference
Room.
We make
available free of charge on our website our annual, quarterly and
current reports, including amendments to such reports, as soon as
reasonably practicable after we electronically file such material
with, or furnish such material to, the SEC. Please note, however,
that we have not incorporated any other information by reference
from our website, other than the documents listed under the heading
“Incorporation of Certain Information by Reference”
below.
The SEC
allows us to incorporate by reference information that we file with
it. Incorporation by reference allows us to disclose important
information to you by referring you to those other documents. The
information incorporated by reference is an important part of this
prospectus supplement and the accompanying prospectus, and
information that we file later with the SEC will automatically
update and supersede information contained in this prospectus
supplement. We incorporate by reference the documents listed below
that we have previously filed with the SEC:
●
our Annual Report
on Form 10-K for the fiscal year ended December 31, 2017 filed with
the SEC on March 16, 2018;
S-29
●
our Current Report
on Form 8-K filed with the SEC on February 9, 2018;
and
●
the description of
our common stock contained in our registration statement on Form
8-A (Registration Statement No. 001-36247) filed with the SEC on
December 13, 2013, including any amendment or report filed for the
purpose of updating such description.
In
addition, all documents (other than current reports furnished under
Item 2.02 or Item 7.01 of Form 8-K and exhibits filed in such forms
that are related to such items unless such Form 8-K expressly
provides to the contrary) subsequently filed by us pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act before the
date our offering is terminated or completed are deemed to be
incorporated by reference into, and to be a part of, this
prospectus supplement and the accompanying prospectus.
Any
statement contained in this prospectus supplement and the
accompanying prospectus, or any free writing prospectus provided in
connection with this offering or in a document incorporated or
deemed to be incorporated by reference into this prospectus
supplement and the accompanying prospectus will be deemed to be
modified or superseded for purposes of this prospectus supplement
and the accompanying prospectus to the extent that a statement
contained in this prospectus supplement and the accompanying
prospectus, or any free writing prospectus provided in connection
with this offering or any other subsequently filed document that is
deemed to be incorporated by reference into this prospectus
supplement and the accompanying prospectus modifies or supersedes
the statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part
of this prospectus supplement and the accompanying
prospectus.
To
obtain copies of these filings, see “Where You Can Find
Additional Information” on page S-29 of this prospectus
supplement.
We will
provide to each person, including any beneficial holder, to whom a
prospectus supplement is delivered, at no cost, upon written or
oral request, a copy of any or all of the information that has been
incorporated by reference in the prospectus supplement but not
delivered with the prospectus supplement. You should direct any
requests for documents to:
Torchlight
Energy Resources, Inc.
5700 W.
Plano Parkway, Suite 3600
Plano,
Texas 75093
Attention:
John A. Brda, President
Telephone:
(214) 432-8002
S-30
Prospectus
Torchlight
Energy Resources, Inc.
$75,000,000
COMMON
STOCK
PREFERRED
STOCK
WARRANTS
UNITS
RIGHTS
We may offer and
sell the following securities from time to time in one or more
classes or series and in amounts, at prices and on terms that we
will determine at the time of the offering, with an aggregate
offering price not to exceed $75,000,000:
●
shares of common
stock;
●
shares of preferred
stock;
●
warrants;
●
units consisting of
combinations of any of the foregoing; and/or
●
rights to purchase
any of the foregoing.
This prospectus
provides you with a general description of these securities. Each
time we will offer and sell them, we will provide their specific
terms in a supplement to this prospectus. Such prospectus
supplement may add, update, or change information contained in this
prospectus. You should read this prospectus and the applicable
prospectus supplement, as well as all documents incorporated by
reference in this prospectus and any accompanying prospectus
supplement, carefully before you invest in our securities. This
prospectus may not be used to offer and sell securities, unless
accompanied by a prospectus supplement.
We may offer the
securities directly, through agents designated from time to time,
to or through underwriters or dealers, or through a combination of
these methods. If any agents or underwriters are involved in the
sale of any of the securities, their names, and any applicable
purchase price, fee, commission or discount arrangement between or
among them, will be set forth, or will be calculable from the
information set forth, in the applicable prospectus supplement. For
more information on this topic, please see “Plan of
Distribution.”
Our common stock is
listed on the NASDAQ Capital Market under the symbol
“TRCH.”
Investing
in any of our securities involves risk. Please see the “Risk
Factors” sections beginning on page 3 for a discussion of certain
risks that you should consider in connection with an investment in
the securities.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this
prospectus is September 28, 2017.
i
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ii
ABOUT THIS PROSPECTUS
This prospectus is
part of a registration statement that we filed with the Securities
and Exchange Commission (“SEC”) utilizing what is
commonly referred to as a shelf registration process. Under this
shelf registration process, we may offer and sell any combination
of the securities described in this prospectus in one or more
offerings. This prospectus provides you with a general description
of the securities we may offer. Each time we offer to sell
securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering and
the securities offered by us in that offering. The prospectus
supplement may also add, update, or change information contained in
this prospectus. If there is any inconsistency between the
information in this prospectus and a prospectus supplement, you
should rely on the information provided in the prospectus
supplement. This prospectus does not contain all of the information
included in the registration statement. The registration statement
filed with the SEC includes exhibits that provide more details
about the matters discussed in this prospectus. You should
carefully read this prospectus, the related exhibits filed with the
SEC, and any prospectus supplement, together with the additional
information described below under the heading “Where You Can
Find Additional Information.”
You
should rely only on the information contained, or incorporated by
reference, in this prospectus and in any accompanying prospectus
supplement. We have not authorized any other person to provide you
with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. We are not
making an offer of the securities covered by this prospectus in any
state where the offer is not permitted. You should assume that the
information appearing in this prospectus, any prospectus
supplement, and any other document incorporated by reference is
accurate only as of the date on the front cover of the respective
document. Our business, financial condition, results of operations,
and prospects may have changed since those dates.
Under
no circumstances should the delivery of this prospectus to you
create any implication that the information contained in this
prospectus is correct as of any time after the date of this
prospectus.
Unless otherwise
indicated, or unless the context otherwise requires, all references
in this prospectus to “Torchlight,” “we,”
“us,” and “our” mean Torchlight Energy
Resources, Inc. and our consolidated subsidiaries. In this
prospectus, we sometimes refer to the shares of common stock,
shares of preferred stock, warrants, units and rights consisting of
combinations of any of the foregoing collectively as the
“securities.”
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-3 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 rules of the
SEC allow us to “incorporate by reference” into this
prospectus the information we file with the SEC, which means that
we can disclose important information to you by referring you to
that information. The information incorporated by reference is
considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede
that information. We incorporate by reference the documents listed
below:
●
Our Annual Report
on Form 10-K for the fiscal year ended December 31, 2016, filed
with the SEC on March 31, 2017;
●
Our Quarterly
Reports on Form 10-Q filed for the quarter ended March 31, 2017,
filed with the SEC on May 12, 2017, and the quarter ended June 30,
2017, as filed with the SEC on August 8, 2017;
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●
Our Current Reports
on Form 8-K, as filed with the SEC on January 10, 2017, February 3,
2017, April 14, 2017 and August 22, 2017; and
●
The description of
our common stock, par value $0.001 per share, contained in our
registration statement on Form 8-A (Registration Statement No.
001-36247) filed with the SEC on December 13, 2013, including any
amendment or report filed for the purpose of updating such
description.
All documents filed
by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act (excluding any information furnished pursuant to Item
2.02 or Item 7.01, or any corresponding information furnished under
Item 9.01, on any Current Report on Form 8-K) after the date of the
initial registration statement and prior to the effectiveness of
the registration statement and after the date of this prospectus
and prior to the termination of each offering under this prospectus
shall be deemed to be incorporated in this prospectus by reference
and to be a part hereof from the date of filing of such
documents.
Any statement
contained in a document incorporated, or deemed to be incorporated,
by reference in this prospectus shall be deemed modified,
superseded, or replaced for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any
subsequently filed document that also is, or is deemed to be
incorporated, by reference in this prospectus modifies, supersedes,
or replaces such statement. Any statement so modified, superseded,
or replaced shall not be deemed, except as so modified, superseded,
or replaced, to constitute a part of this prospectus.
We will provide
without charge to each person, including any beneficial owner, to
whom a copy of this prospectus is delivered, upon that
person’s written or oral request, a copy of any or all of the
information incorporated by reference in this prospectus (other
than exhibits to those documents, unless the exhibits are
specifically incorporated by reference into those documents).
Requests should be directed to:
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, 2016 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.
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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 four wholly-owned subsidiaries, Torchlight Energy, Inc.,
also a Nevada corporation, Torchlight Energy Operating, LLC, a
Texas limited liability company, Hudspeth Oil Corporation, a Texas
corporation, and Torchlight Hazel, LLC, a Texas limited liability
company. 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
Investing in our
securities involves a high degree of risk. Before deciding to
purchase any of our securities, you should carefully consider the
discussion of risks and uncertainties:
●
under the heading
“Risk Factors” contained in our Annual Report on Form
10-K for the fiscal year that ended December 31, 2016, which is
incorporated by reference in this prospectus; and
●
in any other place
in this prospectus, any applicable prospectus supplement as well as
in any document that is incorporated by reference in this
prospectus.
See the section
entitled “Where You Can Find Additional Information” in
this prospectus. The risks and uncertainties we discuss in the
documents incorporated by reference in this prospectus are those we
currently believe may materially affect 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.
USE OF PROCEEDS
Unless otherwise
specified in an accompanying prospectus supplement, we expect to
use the net proceeds from the sale of the securities offered by
this prospectus and any accompanying prospectus supplement for
general corporate purposes, which may include, among other
things:
●
reduction or
refinancing of debt or other corporate obligations;
●
additions to our
working capital;
●
capital
expenditures; and
●
potential future
acquisitions.
Any specific
allocation of the net proceeds of an offering of securities to a
specific purpose will be determined at the time of the offering and
will be described in an accompanying prospectus supplement. We may
invest funds not required immediately for these purposes in
marketable securities and short-term investments. The precise
amount and timing of the application of these proceeds will depend
upon our funding requirements and the availability and cost of
other funds. We have not determined the amounts we plan to spend on
the areas listed above or the timing of these expenditures. As a
result, our management will have broad discretion to allocate the
net proceeds of any offering.
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PLAN OF DISTRIBUTION
We may sell the
securities offered by this prospectus and applicable prospectus
supplements in one or more of the following ways from time to
time:
●
through
underwriters or dealers;
●
through
agents;
●
directly to
purchasers, including institutional investors and our
affiliates;
●
through a
combination of any such methods of sale; or
●
through any other
methods described in a prospectus supplement.
Any such
underwriter, dealer, or agent may be deemed to be an underwriter
within the meaning of the Securities Act.
The applicable
prospectus supplement relating to the securities will set
forth:
●
the offering terms,
including the name or names of any underwriters, dealers, or
agents;
●
the purchase price
of the securities and the estimated net proceeds to us from such
sales;
●
any underwriting
discounts, commissions, and other items constituting compensation
to underwriters, dealers, or agents;
●
any initial public
offering price, if applicable;
●
any discounts or
concessions allowed or reallowed or paid by underwriters or dealers
to other dealers;
●
any delayed
delivery arrangements; and
●
any securities
exchanges on which the securities may be listed.
If underwriters or
dealers are used in the sale, the securities will be acquired by
the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions:
●
at a fixed price or
prices, which may be changed;
●
at market prices
prevailing at the time of sale;
●
at prices related
to such prevailing market prices; or
●
at negotiated
prices.
The securities may
be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one
or more of such firms. Unless otherwise stated in an applicable
prospectus supplement, the obligations of underwriters or dealers
to purchase the securities will be subject to certain customary
closing conditions and the underwriters or dealers will be
obligated to purchase all the securities if any of the securities
are purchased. Any public offering price and any discounts or
concessions allowed or reallowed or paid by underwriters or dealers
to other dealers may be changed from time to time.
Securities may be
sold directly by us, or through agents designated by us, from time
to time. Any agent involved in the offer or sale of the securities
in respect of which this prospectus and a prospectus supplement is
delivered will be named, and any commissions payable by us to such
agent will be set forth, in the prospectus supplement. Unless
otherwise indicated in the prospectus supplement, any such agent
will be acting on a best efforts basis for the period of its
appointment. Any agent selling the securities covered by this
prospectus may be deemed to be an underwriter as that term is
defined in the Securities Act.
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If so indicated in
the prospectus supplement, we will authorize underwriters, dealers,
or agents to solicit offers from certain specified institutions to
purchase securities from us at the public offering price set forth
in the prospectus supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the
future. Such contracts will be subject to any conditions set forth
in the prospectus supplement and the prospectus supplement will set
forth the commission payable for solicitation of such contracts.
The underwriters and other persons soliciting such contracts will
have no responsibility for the validity or performance of any such
contracts.
Underwriters,
dealers, and agents may be entitled under agreements entered into
with us to be indemnified by us against certain civil liabilities,
including liabilities under the Securities Act, or to contribution
by us to payments which they may be required to make. The terms and
conditions of such indemnification will be described in an
applicable prospectus supplement. Underwriters, dealers, and agents
may be customers of, engage in transactions with, or perform
services for us in the ordinary course of business.
Each class or
series of securities will be a new issue of securities with no
established trading market, other than the common stock, which is
listed on NASDAQ. We may elect to list any other class or series of
securities on any exchange, other than the common stock, but we are
not obligated to do so. Any underwriters to whom securities are
sold by us for public offering and sale may make a market in such
securities, but such underwriters will not be obligated to do so
and may discontinue any market making at any time without notice.
No assurance can be given as to the liquidity of the trading market
for any securities.
Certain persons
participating in any offering of securities may engage in
transactions that stabilize, maintain or otherwise affect the price
of the securities offered in accordance with Regulation M under the
Exchange Act. In connection with any such offering, the
underwriters or agents, as the case may be, may purchase and sell
securities in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover
syndicate short positions created in connection with the offering.
Stabilizing transactions consist of certain bids or purchases for
the purpose of preventing or retarding a decline in the market
price of the securities; and syndicate short positions involve the
sale by the underwriters or agents, as the case may be, of a
greater number of securities than they are required to purchase
from us, as the case may be, in the offering. The underwriters may
also impose a penalty bid, whereby selling concessions allowed to
syndicate members or other broker-dealers for the securities sold
for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain, or
otherwise affect the market price of the securities, which may be
higher than the price that might otherwise prevail in the open
market, and if commenced, may be discontinued at any time. These
transactions may be effected on NASDAQ, in the over-the-counter
market or otherwise. These activities will be described in more
detail in the sections entitled “Plan of Distribution”
or “Underwriting” in the applicable prospectus
supplement.
The prospectus
supplement or pricing supplement, as applicable, will set forth the
anticipated delivery date of the securities being sold at that
time.
DESCRIPTION OF COMMON AND PREFERRED
STOCK
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), our Amended and Restated
Bylaws (“Bylaws”), and the certificates of designation
for each of our two outstanding series of preferred stock, all of
which have previously been filed with the SEC.
General
Our authorized
capital stock consists of 150,000,000 shares of common stock, par
value $0.001 per share, and 10,000,000 shares of preferred
stock, par value $0.001 per share. As of August 23,
2017, there were approximately 59,549,375 shares of common stock
outstanding, and no shares of preferred stock designated or
outstanding. Additionally, we currently have warrants and stock
options outstanding to purchase a total of approximately 23,487,409
shares of common stock.
The Board of
Directors previously authorized three different series of preferred
stock—Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred
Stock—but the Board withdrew these designations effective
August 18, 2017. Presently, we have no shares of preferred stock
designated or outstanding.
Common
Stock
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.
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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.
First American
Stock Transfer, Inc. is transfer agent and registrar for our common
stock.
Our common stock is
listed on the NASDAQ Capital Market under the symbol
“TRCH.”
Preferred
Stock
Our Board of
Directors can, without approval of our stockholders, issue one or
more series of preferred stock and determine the number of shares
of each series and the rights, preferences, and limitations of each
series. The following description of the terms of the preferred
stock sets forth certain general terms and provisions of our
authorized preferred stock. If we offer preferred stock, a more
specific description will be filed with the SEC, and the
designations and rights of such preferred stock will be described
in a prospectus supplement, including the following
terms:
●
the series, the
number of shares offered, and the liquidation value of the
preferred stock;
●
the price at which
the preferred stock will be issued;
●
the dividend rate,
the dates on which the dividends will be payable, and other terms
relating to the payment of dividends on the preferred
stock;
●
the liquidation
preference of the preferred stock;
●
the voting rights
of the preferred stock;
●
whether the
preferred stock is redeemable, or subject to a sinking fund, and
the terms of any such redemption or sinking fund;
●
whether the
preferred stock is convertible, or exchangeable for any other
securities, and the terms of any such conversion or exchange;
and
●
any additional
rights, preferences, qualifications, limitations, and restrictions
of the preferred stock.
The description of
the terms of the preferred stock that will be set forth in an
applicable prospectus supplement will not be complete and will be
subject to and qualified in its entirety by reference to the
certificate of designation relating to the applicable series of
preferred stock. The registration statement, of which this
prospectus forms a part, will include the certificate of
designation as an exhibit or incorporate it by
reference.
Undesignated
preferred stock may enable our board of directors to render more
difficult or to discourage an attempt to obtain control of us by
means of a tender offer, proxy contest, merger, or otherwise and to
thereby protect the continuity of our management. The issuance of
shares of preferred stock may adversely affect the rights of the
holders of our common stock. For example, any preferred stock
issued may:
●
rank prior to our
common stock as to dividend rights, liquidation preference, or
both;
●
have full or
limited voting rights; and
●
be convertible into
shares of common stock.
As a result, the
issuance of shares of preferred stock may:
●
discourage bids for
our common stock; or
●
otherwise adversely
affect the market price of our common stock or any then existing
preferred stock.
Any preferred stock
will, when issued, be fully paid and non-assessable.
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Anti-Takeover
Provisions
Our Bylaws and
Nevada law include certain provisions which may have the effect of
delaying or deterring a change in control or in our management or
encouraging persons considering unsolicited tender offers or other
unilateral takeover proposals to negotiate with our board of
directors rather than pursue non-negotiated takeover attempts.
These provisions include authorized blank check preferred stock,
restrictions on business combinations, and the availability of
authorized but unissued common stock.
DESCRIPTION OF WARRANTS
We may issue
warrants to purchase equity securities. Warrants may be issued
independently or together with any other securities and may be
attached to, or separate from, such securities. Each series of
warrants will be issued under a separate warrant agreement to be
entered into between us and any warrant agent. The terms of any
warrants to be issued and a description of the material provisions
of the applicable warrant agreement will be set forth in the
applicable prospectus supplement.
The applicable
prospectus supplement will specify the following terms of any
warrants in respect of which this prospectus is being
delivered:
●
the title of such
warrants;
●
the aggregate
number of such warrants;
●
the price or prices
at which such warrants will be issued;
●
any changes or
adjustments to the exercise price;
●
the securities or
other rights, including rights to receive payment in cash or
securities based on the value, rate, or price of one or more
specified commodities, currencies, securities, or indices, or any
combination of the foregoing, purchasable upon exercise of such
warrants;
●
the price at which,
and the currency or currencies in which the securities or other
rights purchasable upon exercise of, such warrants may be
purchased;
●
the date on which
the right to exercise such warrants shall commence and the date on
which such right shall expire;
●
if applicable, the
minimum or maximum amount of such warrants that may be exercised at
any one time;
●
if applicable, the
designation and terms of the securities with which such warrants
are issued and the number of such warrants issued with each such
security;
●
if applicable, the
date on and after which such warrants and the related securities
will be separately transferable;
●
information with
respect to book-entry procedures, if any;
●
if applicable, a
discussion of any material United States federal income tax
considerations; and
●
any other terms of
such warrants, including terms, procedures and limitations relating
to the exchange and exercise of such warrants.
DESCRIPTION OF UNITS
As specified in the
applicable prospectus supplement, we may issue units consisting of
one or more shares of common stock, shares of preferred stock, or
warrants or any combination of such securities.
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The applicable
prospectus supplement will specify the following terms of any units
in respect of which this prospectus is being
delivered:
●
the terms of the
units and of any of the common stock, preferred stock, and warrants
comprising the units, including whether and under what
circumstances the securities comprising the units may be traded
separately;
●
a description of
the terms of any unit agreement governing the units;
and
●
a description of
the provisions for the payment, settlement, transfer, or exchange
of the units.
DESCRIPTION OF RIGHTS
We may issue rights
to purchase our common stock, preferred stock, warrants or units.
These rights may be issued independently or together with any other
security offered hereby and may or may not be transferable by the
person receiving the rights in such offering. In connection with
any offering of such rights, we may enter into a standby
arrangement with one or more underwriters or other purchasers
pursuant to which the underwriters or other purchasers may be
required to purchase any securities remaining unsubscribed for
after such offering.
Each series of
rights will be issued under a separate rights agreement that we
will enter into with a bank or trust company, as rights agent, all
as set forth in the applicable prospectus supplement. The rights
agent will act solely as our agent in connection with the
certificates relating to the rights and will not assume any
obligation or relationship of agency or trust with any holders of
rights certificates or beneficial owners of rights. We will file
the rights agreement and the rights certificates relating to each
series of rights with the SEC, and incorporate them by reference as
an exhibit to the registration statement of which this prospectus
is a part on or before the time we issue a series of
rights.
The applicable
prospectus supplement will describe the specific terms of any
offering of rights for which this prospectus is being delivered,
including the following:
●
the date of
determining the stockholders entitled to the rights
distribution;
●
the number of
rights issued or to be issued to each stockholder;
●
the exercise price
payable for each share of preferred stock, common stock or other
securities upon the exercise of the rights;
●
the number and
terms of the shares of preferred stock, common stock or other
securities which may be purchased per each right;
●
the extent to which
the rights are transferable;
●
the date on which
the holder's ability to exercise the rights shall commence, and the
date on which the rights shall expire;
●
the extent to which
the rights may include an over-subscription privilege with respect
to unsubscribed securities;
●
if applicable, the
material terms of any standby underwriting or purchase arrangement
entered into by us in connection with the offering of such
rights;
●
any other terms of
the rights, including the terms, procedures, conditions and
limitations relating to the exchange and exercise of the rights;
and
●
any other
information we think is important about the rights.
The description in
the applicable prospectus supplement of any rights that we may
offer will not necessarily be complete and will be qualified in its
entirety by reference to the applicable rights certificate, which
will be filed with the SEC. To the extent the information contained
in the prospectus supplement differs from this summary description,
you should rely on the information in the prospectus
supplement.
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EXPERTS
The consolidated
financial statements incorporated in this prospectus by reference
from Torchlight Energy Resources, Inc.’s Annual Report on
Form 10-K for the year ended December 31, 2016 have been audited by
Briggs & Veselka Co., our independent registered public
accounting firm (with respect to the financial statements for the
year ended December 31, 2016), and by Calvetti Fergusson, our
previous independent registered public accounting firm (with
respect to the financial statements for the year ended December 31,
2015), as stated in their reports included in such consolidated
financial statements, and have been so incorporated in reliance
upon the reports of such firms 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 PeTech Enterprises, Inc., an independent petroleum
and natural gas consulting firm, and has been incorporated by
reference in this prospectus upon the authority of said firm as an
expert with respect to the matters covered by such reports and in
giving such reports.
LEGAL MATTERS
Certain legal
matters in connection with the offering described in this
prospectus will be passed upon for us by Axelrod, Smith &
Kirshbaum. Any underwriters will be advised about legal matters by
their own counsel, who will be named in the applicable prospectus
supplement.
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