PART
I
ITEM
1. BUSINESS
General
The
following is a summary of some of the information contained in this document. Unless the context requires otherwise, references
in this document to “T-Rex” or the “Company” are to T-Rex Oil, Inc.
Corporate
History
T-Rex
Oil, Inc. was organized under the laws of the State of Nevada as Rancher Energy Corp. (“Rancher”). On October 8, 2014,
as approved by our board of directors and a written consent of our majority shareholder, an amendment to the Articles of Incorporation
was filed in order to authorize a reverse split of the common stock issued and outstanding on a one (1) new share for three hundred
fifty (350) old shares basis. At the same time, the Articles of Incorporation were amended to change our authorized capital to
275,000,000 shares of $0.001 par value common stock and 50,000,000 shares of $0.01 par value preferred stock. The Financial Industry
Regulatory Authority (“FINRA”) approved the amendment, effective October 29, 2014.
On
October 17, 2014, we merged into our wholly owned subsidiary, T-Rex Oil, Inc., a Colorado corporation and as a result were re-domiciled
in the state of Colorado.
On
October 28, 2015, T-Rex Oil, Inc. (“the Company”) filed an Amendment to its Articles of Incorporation to designate
the Series A Convertible Preferred Stock.
The
Amendment designates 5,000,000 shares of the authorized 50,000,000 shares of the Company’s $0.001 par value preferred stock
as the Series A Convertible Preferred Stock (“the Series A Shares.”) The Series A Shares are convertible into common
shares of the Company’s stock 9 months after the date of issuance. Further, the Series A Shares have a conversion price
based upon 80% of the 10 day average of the Company’s closing market price. The Series A Shares do not accrue dividends
and have a deemed purchase price of $2.00 per share.
In
October 2015, the Company commenced a private placement financing of $7,000,000 in Units, a Unit consisting of 1 share of its
Series A Shares and a Unit Warrant. The Unit Warrant has an exercise price of $3.00 per share and a term of 3 years. The Unit
Warrant is exercisable 9 months after issuance and is callable by the Company upon the Company’s common stock closing at
a market price of $5.00 or above for a period of 10 days.
At
March 31, 2016, the Company had received $793,038 of cash in exchange for the issuance of 409,019 shares of its Series A Preferred
Stock and Unit Warrants exercisable for 409,019 shares of common stock.
ORGANIZATIONAL
STRUCTURE
Part
of our strategy includes the use of partnerships to not only own individual projects, but to handle the drilling, completion,
operation and raising of capital for the funding of such prospects. The Company or one of its subsidiaries will then handle the
operation and management of the partnership. T-Rex Oil LLC #1, described below, is one such partnership. It is managed and operated
by Terex.
Terex
Energy Corporation
Terex
Energy Corporation (“Terex”) was incorporated in the State of Colorado in February 2014. Terex has interests in oil
and gas properties.
On
December 22, 2014, we entered into Exchange Agreements with the Terex shareholders for 100% of the shares of Terex. Pursuant to
the Exchange Agreements, we agreed to issue 7,385,700 shares of our restricted common stock for 100% of the issued and outstanding
common stock of Terex. The shares were exchanged on a one for one basis. As a result, Terex became a wholly-owned subsidiary of
the Company.
The
effective date of the acquisition was December 22, 2014, with T-Rex being the legal acquirer. However, since T-Rex is a public
company, which had nominal activity, the acquisition was treated as a recapitalization of Terex. Though T-Rex was the legal acquirer
in the acquisition, Terex was the accounting acquirer since its shareholders gained control of T-Rex. Therefore, at the date of
the acquisition the historical financial statements of Terex became those of T-Rex. As a result, the historical financial statements
of Terex supersede any prior financial statements of T-Rex.
Prior
to the share exchange with T-Rex, Terex had acquired interests in oil and gas prospects and properties discussed herein. Terex
also is an operator of oil and gas properties and as such operates the various properties owned by the Company and its subsidiaries.
Western
Interior Oil & Gas Corporation.
Western
Interior Oil & Gas Corporation (“Western Interior”) was incorporated in the State of Wyoming in August 2005. Western
Interior has producing and developmental oil and gas properties in southwest central Wyoming.
On
February 24, 2015, we entered into a Share Exchange Agreement with Western Interior and the shareholders of Western Interior.
Under the Share Exchange Agreement we exchanged shares of our common stock for 83% of the issued and outstanding common stock
of Western Interior. The acquisition was closed on March 28, 2015 and was effective March 31, 2015. At the time of closing, we
issued 7,465,168 shares of our restricted common stock in exchange for shares of Western Interior.
On
March 31, 2015, we entered into an amendment to the Share Exchange Agreement whereby we assumed certain repurchase agreements
between Western Interior and its dissident shareholders and as a result acquired the remaining 17% of Western Interior. As part
of these agreements, we assumed certain promissory notes issued to the dissenting shareholders in the total amount of $1,770,047
that are collateralized by Western Interior’s assets. As a result, Western Interior has become a wholly-owned subsidiary
of the Company.
JK
Minerals, Inc.
In
January 2016, we were assigned 100% of the equity interest issued and outstanding in JK Minerals, Inc. (“JK Minerals”)
by its sole shareholder, Blue Tip Energy Wyoming, Inc. At the time of the assignment, JK Minerals had no outstanding liabilities
and its only asset was a license to a 3-D Seismology Report performed in 2004 on the Cole Creek Property acquired by T-Rex #3.
JK Minerals was incorporated in Wyoming in July 1991 and has no operations.
T-Rex
Oil LLC #3
T-Rex
Oil, LLC #3 (“T-Rex #3”) is a Colorado limited liability company organized in January 2016. T-Rex #3 is managed by
the Company and T-Rex has a 16.67% equity interest in T-Rex #3 with the remaining 83.33% equity interest being owned by Mr. VanderPloeg
who is a director and shareholder of the Company. Per its Operating Agreement, T-Rex #3 acts and is the holder in title to any
and all assets and any related liabilities as well as operations on behalf of the Company.
Therefore,
in accordance with authoritative guidance on accounting for consolidation, as set forth in Topic 810-10-15 of the ASC, the Company
has included in these consolidated financial statements as of and for the year ended March 31, 2016 any such assets, liabilities,
revenues, costs and expenses of T-Rex #3.
T-Rex
#3 owns 13,328 gross, 10,000 net acres in the Powder River Basin of Wyoming (the “Cole Creek Property.”)
T-Rex
Oil LLC #1
T-Rex
Oil LLC #1 (“T-Rex #1”) is a Colorado limited liability company organized in December 2014. Terex is the Manager of
T-Rex #1 and is the operator of the Sioux County, Nebraska project and the Company has no equity interest in T-Rex #1.
The
Company in December 2014 entered into put agreements with the members of T-Rex #1 whereby the Company granted a right to put the
purchase of their interest of T-Rex #1 in the amount of $425,000 back to the Company at an exercise price of $2.00 per share or
a total of 212,500 shares of the Company’s common stock.
Our
Company
We
are an independent oil and gas exploration and production company focused on the acquisition, enhancement and development of oil
and gas assets primarily in the Rocky Mountain region of Wyoming. Based on a 2007 research study conducted by the Enhanced Oil
Recovery Institute at the University of Wyoming using reservoir production data provided by the Wyoming Oil and Gas Conservation
Commission (“WOGCC”), Wyoming has produced 7,024 million barrels of oil from 1,237 producing fields with the top 400
fields producing 97.7% of the total produced oil, or 6,865 million barrels of oil. A research report published by the Independent
Petroleum Association of America in November 2014 ranked Wyoming as the 9th largest U.S. state in terms of crude oil production
and the 5
th
largest U.S. state in terms of natural gas production. Our management team has extensive experience acquiring,
enhancing and operating oil and gas assets in Wyoming, which we believe will provide a competitive advantage in executing the
Company’s business strategy.
As
of October 2015, according to
www.drillingedge.com
, there are 358 active oil and gas operators in Wyoming, with the largest
producer, EOG Resources, Inc., representing only 9.24% of production, according to the WOGCC. We believe that there remain several
under-developed or mismanaged oil and gas properties in Wyoming that with proper field management, application of modern exploration
and development techniques, enhanced recovery methods and in-field drilling will increase current production and the ultimate
recovery factor of oil and gas reserves from these fields. In addition, while we are focusing on the acquisition of proven properties
that we believe can be economically enhanced in this current commodity price environment, in certain market conditions, we believe
there could be additional upside realized through the development of deeper productive horizons, or applying tertiary recovery
applications to these acquired fields.
To
date, we have focused our activities in Eastern Wyoming along the Salt Creek/Big Muddy trend. Starting with the Salt Creek field
in Natrona County, following the Salt Creek/Big Muddy trend down to the South Glenrock field in Converse County, we believe there
are a series of analogous fields that could provide ideal targets for us to execute this business strategy. The following fields
are located along this trend, which we refer to as the “String of Pearls”.
Field
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Operators
(1)
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County
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Salt
Creek
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FDL
Operating
Fossil
Energy
Chapman
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Natrona
County
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Teapot
Naval Reserve (aka Teapot Dome)
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Natrona
County Holdings
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Natrona
County
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Sage
Spring Creek
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Black
Bear Oil Corporation
Matrix
Production Company
Strachen
Exploration Company
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Natrona/Converse
County
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Burke
Ranch
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Griffiths
Oil LLC
Terex
Energy Corporation (2)
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Natrona
County
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Cole
Creek
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Blue
Tip Energy (3)
Linc
Energy Petroleum WYO
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Natrona/Converse
County
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Cole
Creek South
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Blue
Tip Energy (3)
Linc
Energy Petroleum WYO
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Converse
County
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Big
Muddy
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Vortex
Petroleum
Bass
Petroleum
Linc
Energy Petroleum WYO
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Converse
County
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Big
Muddy East
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Linc
Energy Petroleum WYO
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Converse
County
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Glenrock
South
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Linc
Energy Petroleum WYO
Muddy
Mineral Exploration
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Converse
County
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Glenrock
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Linc
Energy Petroleum WYO
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Converse
County
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(1)
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During
the year ended December 31, 2015, as identified by the WOGCC website.
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(2)
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Terex
Energy Corporation is a wholly-owned subsidiary of T-Rex Oil, Inc.
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(3)
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In
January 2016, T-Rex #3, an equity investment, acquired an 82% working interest in the Blue Tip Energy Properties in Cole Creek
and Cole Creek South. In April 2016, T-Rex #3 acquired the remaining 18% working interest in the Blue Tip Energy Properties
in Cole Creek and South Creek. T-Rex #3 holds 100% working interest in these properties.
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According
to the WOGCC, these fields range in size, but generally produce from similar stacked horizons ranging from the Deep Tensleep to
the Wall/Creek/Frontier formations.
We
acquired our first assets in the String of Pearls in 2014 and currently operate wells and properties in the Burke Ranch and Cole
Creek Fields. We have identified areas of enhancements available to increase the production and recovery factors of these fields,
including well recompletion, stimulation activities, pressure maintenance improvement, down spacing and enhanced recovery. We
believe that several other fields in the String of Pearls provide evidence of the potential of these operated assets given similar
geology and productive horizons. For instance, the Salt Creek field has achieved a nearly 40% recovery factor, developed down
to 20 acre spacing utilizing a C0
2
(Carbon Dioxide) flood. The Cole Creek field by contrast has achieved a modest 23%
recovery factor, based on 80 acre well development. We have identified several behind pipe recompletion opportunities targeting
undeveloped productive formations that are currently producing in the Salt Creek field.
As
a result, we believe that there remains significant work to be completed in our currently operated fields that match our business
strategy, while we continue to seek opportunity to acquire additional assets along this trend.
Our
Properties
We
are initially focused on the Salt Creek/Big Muddy trend in the State of Wyoming, which we refer to as the “String of Pearls”.
This trend covers approximately 8 miles running from Natrona County in the north down to Converse County in the south.
We
are attracted to this area based upon the available information of hydrocarbon production, including primary, secondary and in
some cases tertiary recovery results. While the size and recovery factors associated with the various fields within the Sting
of Pearls vary, the general geologic setting is considered to be consistent. We identify the Salt Creek field, which has achieved
a 40% recovery factor, as an indicator of the potential of these fields that are less developed at this point in time.
Historical
Production of Fields in the “String of Pearls”
Field
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Date of
Discovery
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Cumulative
Production (1)
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Estimated
Recovery Factor
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Salt Creek
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1889
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710,292,907
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~40
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%
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Teapot Naval Reserve (AKA Teapot Dome)
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1922
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28,730,483BO
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~25
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%
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Sage Spring Creek
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1949
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17,074,699
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~30
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%
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Cole Creek
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1938
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18,563,064
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~23
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%
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Cole Creek South
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1948
|
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17,274,800
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~34
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%
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Big Muddy
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1916
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53,971,243
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~24
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%
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Glenrock South
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1950
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75,893,890
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~20
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%
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(1)
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Cumulative
Production is from the WOGCC and is as of December 31, 2015.
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Cole
Creek Oil Field, Wyoming
Located
in the southwest margin of the Powder River Basin in Natrona and Converse Counties, approximately 20 miles to the northeast of
Casper, Wyoming. Our Leasehold historically produces from 4 Cretacious sand formations, the Shannon, the Frontier, the Dakota
and the Lakota. Additionally, there is potential in the Muddy and the Tensleep or Minnelusa formations. We are currently reprocessing
and reinterpreting Seismic data previously performed on parts of the property.
Production
in the field at this time is from the 2nd Frontier and the Dakota and averages 60 BOPD. We have identified several behind pipe
opportunities and plan to develop them in the near term.
Covering
approximately 13,400 gross acres and 19 producing wells and 23 existing well bores.
We
intend to focus on the re-development of the Shannon and Frontier formation using new technology and 3-D seismic re-work methods.
We intend to drill edge and infill wells initially then develop the property for tertiary recovery using polymer floods, surfactants
and possibly CO
2
injection.
Burke
Ranch Project, Natrona County, Wyoming
The
Burke Ranch Field of Wyoming consists of approximately 4,500 acres located in the southwest corner of the Powder River Basin.
The project has a potential for 40+ development and exploratory wells. Historically, the Dakota Formation has been the primary
objective. The Burke Ranch Unit was originally developed on 80 acre spacing. Downsizing the spacing to 40 acres and drilling infill
and edge wells offers low risk and high potential production.
We
are currently permitting a small 3 D seismic project on our acreage to enable us to better define the best development opportunities.
There could be additional potential in the Frontier (Wall Creek), Second Frontier, Niobrara, Mowry, and Tensleep Formations.
Burke
Ranch Field offers a variety of drilling and development opportunities.
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Tensleep
Formation - new drilling on seismic anomaly
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Dakota
Formation – additional development of the Dakota Formation to re-work the field to increase existing production
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Frontier
Formation – to recomplete the existing wells to access existing reserves behind pipe.
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Big
Horn Basin Prospect
The
Big Horn Basin, located in north-central Wyoming, is a geological structural basin of sedimentary rocks dating from the Cambrian
to Miocene. The principal productive reservoir of oil in the Big Horn Basin to date has been the Pennsylvanian Tensleep Formation.
Other producing horizons include the Mississippian Madison Limestone, Permian Phosphoria and the Cretaceous Frontier Sandstone.
Our
Big Horn Basin projects currently produce from the Triassic Crow Mountain, Permian Phosphoria and Frontier formations. They provide
us with both development and exploration opportunities.
The
Big Horn Basin Prospect properties have a combination of development and exploration projects. We expect to drill, subject to
reasonable financing, between 16 and 36 wells on the properties over the next two years.
Rawhide
- This is an opportunity for development of existing production and exploration for deeper reserves. Cumulative historical
production to date is approximately 147.0 MBO.
Meeteetse
“Deep”
- This is an opportunity to develop a large Phosphoria-Tensleep oil field. This is the largest project
in the Western Interior portfolio. In mid-2008, the Carter 1 discovery well was re-entered and recompleted in the Phosphoria formation
to restore production. Extensive testing and analysis have established Phosphoria 2P reserves on the 240 acre lease block.
Baird
Peak
- Baird Peak is a well-defined structure with 200’ of closure, with multiple pay objectives. Historically, it has
produced 128,000 BO.
Nebraska
Sioux
and Kimball County, Nebraska
We
have development of the project through T-Rex #1. The project consists of:
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We
have a 100% WI and a 75% NRI in the well and key acreage of 240 acres.
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We
have sufficient acreage to drill two new wells in an up-dip direction structurally.
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The
Company has a 31.25% WI until payout, at which time the Company would get an additional 25% working interest for a total of
56.25% in a water injection-disposal project.
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Water
injection well application for permit was submitted and in early April 2015 it was approved for injection rates of 5,000 barrels
of water per day, pending appeal.
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Water
injection well has been drilled and cased with 7 inch pipe.
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Drilling
Program and Field Activities
We
initiated our operations in Wyoming with the acquisition of the acreage in the Burke Ranch in 2014. Since closing the Cole Creek
acquisition, we have focused the majority of our activities in this field and developing a recompletion program and 3D Seismic
reprocessing and interpretation program.
We
believe there remain a number of activities to complete in the field, including further re-completions, down-spaced drilling and
enhanced oil recovery techniques which will most likely start with CO2 “huff and puff” treatments.
Business
Strategies
Our
objective is to create shareholder value by identifying and assembling a portfolio of low-risk assets with attractive economic
profiles and leveraging our technical and managerial expertise to deliver industry-leading results. We seek to achieve this objective
by executing the following strategies:
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Pursue
Out of Favor Fields.
We believe that many of our peers are currently looking to exit Wyoming to pursue other areas
of operations. We attribute this trend to either the smaller size of their respective holdings, the fact that the majority
of these assets represent conventional oil and/or natural gas production or the possibility that they currently lack the resources
to focus on the best management of these assets. By contrast, given our management experience in this area, we seek to aggregate
these assets, to achieve economies of scale, driving down our per unit operating costs, while increasing production by detailed
field management and enhancement.
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Seek
Held by Production Acreage that Can Provide Future Upside.
Our acquisition strategy is based on identifying and acquiring
producing properties that we believe can be enhanced. However, given our experience in Wyoming, we anticipate that there will
be further upside achieved if commodity prices improve through the exploration of deeper productive horizons. While we do
not quantify this upside value, we seek acquisitions where we can secure this upside optionality while executing our core
business strategy.
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Competitive
Strengths
We
possess a number of competitive strengths that we believe will allow us to successfully execute our business strategies:
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Management
Experience.
Our management has a total combined experience of 100+ years in the oil and gas industry with a particular
focus on Wyoming. We believe that this firsthand knowledge of our management, which includes having drilled numerous wells
in Wyoming, and our ownership of acres of surface land, provide us with a competitive advantage when executing our acquisition
strategy, in addition to our planned field enhancement operations. As a result of this experience, we believe that we will
be able to produce our fields in Wyoming much more efficiently than many of our peers.
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Multi-Year,
Low-Risk Development Drilling Inventory.
We have identified a number of field enhancements that could be conducted
across our current asset base including 7 initial recompletions, the development of 61 PUD drilling locations (56 in Cole
Creek and 5 in the Big Horn Basin) and additional locations should we determine to down-space to 40 acre well spacing. Likewise,
we believe there are 18 to 20 behind pipe zones that provide us with additional reserves.
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Proven
Acquisition Strategy.
Given the experience of our management team, we have been successful in identifying and closing
on acquisitions within the Salt Creek/Big Muddy trend that fit our business strategy. This firsthand knowledge provides us
with insight into possible asset transactions before many of our peers are aware of them. Coupled with our knowledge related
to the geologic and operational setting of these assets, we believe we have a strong advantage in determining the price to
pay for these potential acquisitions, while also having a clear understanding of how to enhance value prior to closing the
transaction.
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COMPETITION,
MARKETS, REGULATION AND TAXATION
Competition
There
are a large number of companies and individuals engaged in the exploration for oil and gas; accordingly, there is a high degree
of competition for desirable properties. However, the staff at T-Rex is experienced and knowledgeable about the Rocky Mountain
region and can evaluate potential acquisitions and opportunities with greater efficiency.
Markets
The
availability of a ready market for newly discovered oil and gas reserves will depend on numerous factors beyond our control, including
the proximity and capacity of refineries and pipelines, the effect of state regulation of production and of federal regulation
of products sold in interstate commerce and recent intrastate sales. The market price of oil and gas is volatile and beyond our
control.
Global
Oil Supply
In
the last two years, the produced global oil supply is outpacing oil demand which, in part, has resulted in declining oil prices.
It is only in the last several months that production has come into line with demand and pricing has seen a relatively stable
period, though prices have not rebound to pre-2014 levels.
Despite
this, the industry continues to work on a production decline curve, and the industry continues to focus on trying to replace depleting
reserves with more conventional and cost effective production techniques.
Effect
of Changing Industry Conditions on Drilling Activity
Lower
oil and gas prices have caused a decline in drilling activity in the U.S. recently. However, such reduced activity will normally
result in a decline in drilling, lease acquisition and equipment costs, and an improvement in the terms under which drilling prospects
are generally available. We cannot predict what oil and gas prices will be in the future and what effect those prices may have
on drilling activity in general, or on our ability to generate economic drilling prospects or to raise the necessary funds with
which to drill them.
Effect
of Technology
Evolving
scientific and technological developments in the last five years have not only provided access to previously unreachable and large
reserves, but in many cases have made the production of such reserves highly profitable. In addition, these developments have
taken previously shut in fields/wells and made them once again economically viable and in some cases, greatly so.
Government
Regulations
Our
operations are subject to various federal, state and local laws and regulations that change from time to time. Many of these regulations
are intended to prevent pollution and protect environmental quality, including regulations related to permit requirements for
the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling, completing
and casing wells, the surface use and restoration of properties upon which wells are drilled, the sourcing and disposal of water
used in the drilling and completion process, groundwater testing, air emissions, noise, lighting and traffic abatement and the
plugging and abandonment of wells. Other regulations are intended to prevent the waste of oil and gas and to protect the rights
among owners in a common reservoir. These include regulation of the size of drilling and spacing units or proration units, the
number, or density, of wells which may be drilled in an area, the unitization or pooling of oil and natural gas wells and regulations
that generally prohibit the venting or flaring of natural gas and that impose certain requirements regarding the ratability or
fair apportionment of production from fields and individual wells. In addition, our operations are subject to regulations governing
the pipeline gathering and transportation of oil and natural gas, as well as various federal, state and local tax laws and regulations.
Failure
to comply with applicable laws and regulations can result in substantial penalties. Our competitors in the oil and natural gas
industry are generally subject to the same regulatory requirements and restrictions that affect our operations. The regulatory
burden on the industry increases the cost of doing business and affects profitability. Although we believe we are in substantial
compliance with all applicable laws and regulations, such laws and regulations are frequently amended or reinterpreted. Therefore,
we are unable to predict the future costs or impact of compliance.
Regulation
of Production
Federal,
state and local agencies have promulgated extensive rules and regulations applicable to our oil and natural gas exploration, production
and related operations. Most states require drilling permits, drilling and operating bonds and the filing of various reports and
impose other requirements relating to the exploration and production of oil and natural gas. Many states also have statutes or
regulations addressing conservation matters including provisions governing the size of drilling and spacing units or proration
units, the density of wells and the unitization or pooling of oil and natural gas properties. Some states like Wyoming and Colorado
allow the forced pooling or integration of tracts to facilitate exploration while other states rely primarily or exclusively on
the voluntary pooling of lands and leases. In areas with voluntary pooling, it may be more difficult to develop a project if the
operator owns less than 100% of the leasehold. The statutes and regulations of some states limit the rate at which oil and gas
is produced from properties, prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability
of production. This may limit the amount of oil and gas we can produce from our wells and may limit the number of wells or locations
at which we can drill. The federal and state regulatory burden on the oil and natural gas industry increases our cost of doing
business and affects our profitability. Because these rules and regulations are amended or reinterpreted frequently, we are unable
to predict the future cost or impact of complying with these laws.
The
Wyoming Oil and Gas Conservation Commission is the primary regulator of exploration and production of oil and gas resources in
the principal area in which we operate. The WOGCC regulates oil and gas operators through rules, policies, written guidance, orders,
permits and inspections. Among other criteria, the WOGCC enforces specifications regarding drilling, development, production,
abandonment, enhanced recovery, safety, aesthetics, noise, waste, flowlines and wildlife.
Regulation
of sales and transportation of natural gas
Historically,
the transportation and sales for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas
Act of 1938 (“NGA”), the Natural Gas Policy Act of 1978 and the Federal Energy Regulatory Commission (“FERC”)
regulations. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated the price for all “first sales”
of natural gas. Thus, all of our sales of gas may be made at market prices, subject to applicable contract provisions. Sales of
natural gas are affected by the availability, terms and cost of pipeline transportation. Since 1985, the FERC has implemented
regulations intended to make natural gas transportation more accessible to gas buyers and sellers on an open-access, non-discriminatory
basis. We cannot predict what further action the FERC will take on these matters. Some of the FERC’s more recent proposals
may, however, adversely affect the availability and reliability of interruptible transportation service on interstate pipelines.
We do not believe that we will be affected by any action taken materially differently than other natural gas producers, gatherers
and marketers with which we compete.
Regulation
of sales and transportation of oil
Our
sales of crude oil are affected by the availability, terms and cost of transportation. Interstate transportation of oil by pipeline
is regulated by the FERC pursuant to the Interstate Commerce Act (“ICA”), the Energy Policy Act of 1992 and the rules
and regulations promulgated under those laws. The ICA and its implementing regulations require that tariff rates for interstate
service on oil pipelines, including interstate pipelines that transport crude oil and refined products (collectively referred
to as “petroleum pipelines”) be just and reasonable and non-discriminatory and that such rates and terms and conditions
of service be filed with the FERC.
Intrastate
oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate oil pipeline
regulation, and the degree of regulatory oversight and scrutiny given to intrastate oil pipeline rates, varies from state to state.
Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, we do not believe that
the regulation of oil transportation rates will affect our operations in any way that is materially different than those of our
competitors who are similarly situated.
Environmental
Laws.
Oil
and gas exploration and development are specifically subject to existing federal and state laws and regulations governing environmental
quality and pollution control. Such laws and regulations may substantially increase the costs of exploring for, developing or
producing oil and gas and may prevent or delay the commencement or continuation of a given operation.
All
of our operations involving the exploration for or the production of any minerals are subject to existing laws and regulations
relating to exploration procedures, safety precautions, employee health and safety, air quality standards, pollution of stream
and fresh water sources, odor, noise, dust and other environmental protection controls adopted by federal, state and local governmental
authorities as well as the right of adjoining property owners. We may be required to prepare and present to federal, state or
local authorities data pertaining to the effect or impact that any proposed exploration for or production of minerals may have
upon the environment. All requirements imposed by any such authorities may be costly and time consuming, and may delay commencement
or continuation of exploration or production operations.
It
may be anticipated that future legislation will significantly emphasize the protection of the environment, and that, as a consequence,
our activities may be more closely regulated to further the cause of environmental protection. Such legislation, as well as future
interpretation of existing laws, may require substantial increases in equipment and operating costs to us and delays, interruptions
or a termination of operations, the extent of which cannot now be predicted.
Title
to Properties.
We
are not the record owner of our interest in our properties and rely instead on contracts with the owner or operator of the property,
pursuant to which, among other things, we have the right to have our interest placed of record. As is customary in the oil and
gas industry, a preliminary title examination generally will be conducted prior to the time unproved properties or interests are
acquired by us. Prior to commencement of drilling operations on such acreage and prior to the acquisition of proved properties,
we usually will conduct a thorough title examination and will remedy any significant defects before proceeding with operations
or the acquisition of proved properties, as we may deem appropriate.
Our
properties are subject to royalty, overriding royalty and other interests customary in the industry, liens incident to agreements,
current taxes and other burdens, minor encumbrances, easements and restrictions. Although we are not aware of any material title
defects or disputes with respect to our undeveloped acreage, to the extent such defects or disputes exist, we would suffer title
failures.
BACKLOG
OF ORDERS
.
We
currently have no orders for sales.
GOVERNMENT
CONTRACTS.
We
have no government contracts.
COMPANY
SPONSORED RESEARCH AND DEVELOPMENT
.
We
are not conducting any research.
NUMBER
OF PERSONS EMPLOYED
As
of March 31, 2016, T-Rex and its subsidiaries had 8 full-time employees. Jon Nicolaysen, and Allen Heim, officers and directors
of T-Rex, have Employment Agreements with our subsidiary, Terex. Don Walford and Martin Gottlob, officers and directors of T-Rex,
have Employment Agreements with the Company. All officers of the Company work 40 hours a week. All other employees are at will
employees.
OFF
BALANCE SHEET ARRANGEMENTS
We
do not have any off-balance sheet arrangements.
ITEM
1A. RISK FACTORS
FORWARD
LOOKING STATEMENTS
This
document includes forward-looking statements, including, without limitation, statements relating to T-Rex’s plans, strategies,
objectives, expectations, intentions and adequacy of resources. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or implied by the forward-looking statements. These factors
include, among others, the following: our ability of to implement our business strategy; our ability to obtain additional financing;
T-Rex’s limited operating history; unknown liabilities associated with future acquisitions; our ability to manage growth;
significant competition; our ability to attract and retain talented employees; future government regulations; and other factors
described in this filing or in other of T-Rex’s filings with the Securities and Exchange Commission. T-Rex is under no obligation
to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
RISK
FACTORS RELATED TO OUR COMPANY
Our
business has an operating history of only three years after Bankruptcy emergence and is unproven and therefore risky.
We
have only in the last two years begun operations under the business plan discussed herein. Potential investors should be made
aware of the risk and difficulties encountered by a new enterprise in the oil and gas industry, especially in view of the intense
competition from existing businesses in the industry and current industry conditions.
We
have a limited revenue history and have a short history of operations.
We
have only recently begun operations in the oil and gas industry. During the year ended March 31, 2016, we recognized a net loss
of $15,767,831 compared to $11,043,541 during the year ended March 31, 2015. With our acquisition of Western Interior effective
March 31, 2015, we began to recognize revenues from operations during the first quarter of the fiscal year ended March 31, 2016;
however, these are not enough to support operations.
We
are not profitable and the business effort is considered to be in an early stage of operations. We must be regarded as a new or
development venture with all of the unforeseen costs, expenses, problems, risks and difficulties to which such ventures are subject.
We
are not diversified and we will be dependent on only one business.
Because
of our limited financial resources, it is unlikely that we will be able to diversify our operations. Our probable inability to
diversify our activities into more than one area will subject us to economic fluctuations within the energy industry and therefore
increase the risks associated with our operations due to lack of diversification.
If
we complete the proposed transaction with Norris, we will have diversified our operations to include both manufacturing and threading
for both the oil and gas industry and the horizontal directional drilling trenchless industry. However, these operations will
still be reliant on the oil and gas industry and, in addition, there is no assurance that the acquisition will be completed.
We
can give no assurance of success or profitability to our investors.
There
is no assurance that we will ever operate profitably. There is no assurance that we will generate revenues or profits, or that
the market price of our common stock will be increased thereby.
We
may have a shortage of working capital in the future which could jeopardize our ability to carry out our business plan.
Our
capital needs consist primarily of expenses related to geological evaluation, general and administrative and potential exploration
participation and could exceed $10,000,000 in the next twelve months. Such funds are not currently committed.
If
we find oil and gas reserves to exist on a prospect, we will need substantial additional financing to fund the necessary exploration
and development work. Furthermore, if the results of that exploration and development work are successful, we will need substantial
additional funds for continued development. We will need to obtain the necessary funds either through debt or equity financing,
some form of cost-sharing arrangement with others or the sale of all or part of the property. There is no assurance that we will
be successful in obtaining any financing. These various financing alternatives may dilute the interest of our shareholders and/or
reduce our interest in the properties.
We
will need additional financing for which we have no commitments, and this may jeopardize execution of our business plan.
We
have limited funds, and such funds may not be adequate to carry out the business plan in the oil and gas industry. Our ultimate
success depends upon our ability to raise additional capital. We have not investigated the availability, source or terms that
might govern the acquisition of additional capital and will not do so until we determine a need for additional financing. If we
need additional capital, we have no assurance that funds will be available from any source or, if available, that they can be
obtained on terms acceptable to us. If not available, our operations will be limited to those that can be financed with our modest
capital.
We
may in the future issue more shares, which could cause a loss of control by our present management and current shareholders.
We
may issue further shares out of our authorized but unissued common stock that would, upon issuance, represent a majority of the
voting power and equity of our Company. The result of such an issuance would be that those new shareholders and management would
control our Company, and persons unknown could replace our current management. Such an occurrence would result in a greatly reduced
percentage of ownership of our Company by our current shareholders, which could present significant risks to investors.
We
have warrants and options issued and outstanding which are convertible into our common stock. A conversion of such equity instruments
could have a dilutive effect on existing shareholders.
At
March 31, 2016, we have warrants issued and outstanding exercisable into 1,351,877 shares of our common stock at ranges from $0.10
to $3.50 per share and options issued and outstanding exercisable into 1,127,750 shares of common stock at ranges from $0.10 to
$2.00 per share. They are exercisable in whole or in part. The exercise of the warrants and/or options into shares of our common
stock could have a dilutive effect to the holdings of our existing shareholders.
We
will depend upon management but we may at times have limited participation of management.
Our
directors are also acting as our officers. We will be heavily dependent upon their skills, talents and abilities, as well as several
consultants to us, to implement our business plan, and may, from time to time, find that the inability of the officers, directors
and consultants to devote their full-time attention to our business results in a delay in progress toward implementing our business
plan. Consultants may be employed on a part-time basis under a contract to be determined.
Our
directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholder and/or
partners of other entities engaged in a variety of businesses. Thus, our officers and directors may have potential conflicts including
their time and efforts involved in participation with other business entities. Each officer and director of our business may be
engaged in business activities outside of our business, and the amount of time they devote as officers and directors to our business
will be up to 40 hours per week. Investors in the Company should critically assess all of the information concerning our officers
and directors.
We
do not know of any reason other than outside business interests that would prevent our officers and directors from devoting full-time
to our Company when the business may demand such full-time participation.
Our
officers and directors may have conflicts of interest as to corporate opportunities in which we may not be able or allowed to
participate.
Presently
there is no requirement contained in our Articles of Incorporation, Bylaws or minutes which requires officers and directors of
our business to disclose to us business opportunities which come to their attention. Our officers and directors do, however, have
a fiduciary duty of loyalty to us to disclose to us any business opportunities which come to their attention in their capacity
as an officer and/or director or otherwise. Excluded from this duty would be opportunities which the person learns about through
his involvement as an officer and director of another company.
We
have agreed to indemnification of officers and directors as is provided by Colorado Statute.
Colorado
Revised Statutes provide for the indemnification of our directors, officers, employees and agents, under certain circumstances,
against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from
their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors,
officers, employees or agents, upon such person’s promise to repay us therefor if it is ultimately determined that any such
person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by
us that we will be unable to recoup.
Our
directors’ liability to us and to our shareholders is limited.
Colorado
Revised Statutes exclude personal liability of our directors and our shareholders for monetary damages for breach of fiduciary
duty except in certain specified circumstances. Accordingly, we will have a much more limited right of action against our directors
than otherwise would be the case. This provision does not affect the liability of any director under federal or applicable state
securities laws.
RISK
FACTORS RELATING TO OUR BUSINESS
Our
business, the oil and gas business, has numerous risks which could render us unsuccessful.
The
search for new oil and gas reserves frequently results in unprofitable efforts, not only from dry holes, but also from wells which,
though productive, will not produce oil or gas in sufficient quantities to return a profit on the costs incurred. There is no
assurance we will find or produce oil or gas from any of the wells we have acquired or which may be acquired by us, nor are there
any assurances that if we ever obtain any production it will be profitable.
We
have substantial competitors who have an advantage over us in resources and management.
We
are and will continue to be an insignificant participant in the oil and gas business. Most of our competitors have significantly
greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive
disadvantage in identifying and developing or exploring suitable prospects. Competitors’ resources could overwhelm our restricted
efforts to acquire and explore oil and gas prospects and cause failure of our business plan.
We
will be subject to all of the market forces in the energy business, many of which could pose a significant risk to our operations.
The
marketing of natural gas and oil which may be produced by our prospects will be affected by a number of factors beyond our control.
These factors include the extent of the supply of oil or gas in the market, the availability of competitive fuels and alternative
energy sources, crude oil imports, the world-wide political situation, price regulation and other factors. Current economic and
market conditions have created dramatic fluctuations in oil prices. Any significant decrease in the market prices of oil and gas
could materially affect our profitability from oil and gas activities.
There
generally are only a limited number of gas transmission companies with existing pipelines in the vicinity of a gas well or wells.
In the event that producing gas properties are not subject to purchase contracts or that any such contracts terminate and other
parties do not purchase our gas production, there is no assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas or regarding the price which such purchasers would be willing to pay
for such gas. There may, on occasion, be an oversupply of gas in the marketplace or in pipelines; the extent and duration of such
oversupply may affect prices adversely. Such oversupply may result in reductions of purchases and prices paid to producers by
principal gas pipeline purchasers. (See “Item 1. Business - Competition, Markets Regulation and Taxation.”)
We
believe investors should consider certain negative aspects of our operations.
Dry
Holes:
We may expend substantial funds acquiring and potentially participating in exploring properties which we later
determine not to be productive. All funds so expended will be a total loss to us.
Technical
Assistance
:
We will find it necessary to employ technical assistance in the operation of our business. As of the date
of this annual report, we have not contracted for any technical assistance. When we need it, such assistance is likely to be available
at compensation levels we would be able to pay. However, there is no assurance that such assistance will be available or, if available,
that it will be at an acceptable compensation level.
Uncertainty
of Title
:
We will attempt to acquire leases or interests in leases by option, lease, farmout or by purchase. The validity
of title to oil and gas property depends upon numerous circumstances and factual matters (many of which are not discoverable of
record or by other readily available means) and is subject to many uncertainties of existing law and our application.
Government
Regulations
:
The area of exploration of natural resources has become significantly regulated by state and federal governmental
agencies, and such regulation could have an adverse effect on our operations. Compliance with statutes and regulations governing
the oil and gas industry could significantly increase the capital expenditures necessary to develop our prospects.
Nature
of our Business
:
Our business is highly speculative, involves the commitment of high-risk capital and exposes us to potentially
substantial losses. In addition, we will be in direct competition with other organizations which are significantly better financed
and staffed than we are.
General
Economic and Other Conditions
:
Our business may be adversely affected from time to time by such matters as changes in
general economic, industrial and international conditions; changes in taxes, oil and gas prices and costs; excess supplies and
other factors of a general nature.
Our
business is subject to significant weather interruptions.
Our
activities may be subject to periodic interruptions due to weather conditions. Weather-imposed restrictions during certain times
of the year on roads accessing properties could adversely affect our ability to benefit from production on such properties or
could increase the costs of drilling new wells because of delays.
Reserve
estimates depend on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates
or underlying assumptions will materially affect the quantities and present value of our reserves. The Company’s current
estimates of reserves could change, potentially in material amounts, in the future, in particular due to the recent significant
decline in commodity prices.
The
process of estimating crude oil and natural gas reserves is complex and inherently imprecise. It requires interpretation of available
technical data and many assumptions, including assumptions relating to current and future economic conditions, production rates,
drilling and operating expenses and commodity prices. Any significant inaccuracy in these interpretations or assumptions could
materially affect our estimated quantities and present value of our reserves. See
Part I, Item 2
for information about
our estimated crude oil and natural gas reserves, PV-10 and Standardized Measure of discounted future net cash flows as of March
31, 2016.
In
order to prepare reserve estimates, we must project production rates and the amount and timing of development expenditures. Our
booked proved undeveloped reserves must be developed within five years from the date of initial booking under SEC reserve rules.
Changes in the timing of development plans that impact our ability to develop such reserves in the required time frame could result
in fluctuations in reserves between periods as reserves booked in one period may need to be removed in a subsequent period.
We
must also analyze available geological, geophysical, production and engineering data in preparing reserve estimates. The extent,
quality and reliability of this data can vary with the uncertainty of decline curves and the ability to model heterogeneity of
the porosity, permeability and pressure relationships in unconventional resources. The process also requires economic assumptions,
based on historical data but projected into the future, about matters such as crude oil and natural gas prices, drilling and operating
expenses, capital expenditures, taxes and availability of funds.
The
prices used in calculating our estimated proved reserves are, in accordance with SEC requirements, calculated by determining the
unweighted arithmetic average of the first-day-of-the-month commodity prices for the preceding 12 months. Commodity prices declined
significantly in the fourth quarter of calendar year 2014 and were unstable during calendar year 2015 and if such prices do not
increase significantly, our future calculations of estimated proved reserves will be based on lower commodity prices which could
result in our having to remove non-economic reserves from our proved reserves in future periods.
Actual
future production, crude oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities
of recoverable crude oil and natural gas reserves will vary and could vary significantly from our estimates. Any significant variance
could materially affect the estimated quantities and present value of our reserves, which in turn could have an adverse effect
on the value of our assets. In addition, we may adjust estimates of proved reserves, potentially in material amounts, to reflect
production history, results of exploration and development, prevailing crude oil and natural gas prices and other factors, many
of which are beyond our control.
The
present value of future net revenues from our proved reserves will not necessarily be the same as the current market value of
our estimated crude oil and natural gas reserves and, in particular, may be reduced due to the recent significant decline in commodity
prices.
You
should not assume the present value of future net revenues from our proved reserves is the current market value of our estimated
crude oil and natural gas reserves. In accordance with SEC rules, we base the estimated discounted future net revenues from proved
reserves on the 12-month unweighted arithmetic average of the first-day-of-the-month commodity prices for the preceding twelve
months. Actual future prices may be materially higher or lower than the SEC pricing used in the calculations. Actual future net
revenues from crude oil and natural gas properties will be affected by factors such as:
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the
actual prices we receive for sales of crude oil and natural gas;
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the
actual cost and timing of development and production expenditures;
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the
timing and amount of actual production; and
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changes
in governmental regulations or taxation.
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The
timing of both our production and our incurrence of expenses in connection with the development and production of crude oil and
natural gas properties will affect the timing and amount of actual future net revenues from proved reserves, and thus their actual
present value. In addition, the 10% discount factor we use when calculating discounted future net revenues may not be the most
appropriate discount factor based on interest rates in effect from time to time and risks associated with our reserves or the
crude oil and natural gas industry in general.
We
may be required to write down the carrying values of our crude oil and natural gas properties if crude oil prices remain at their
current levels or decline further.
Accounting
rules require that we periodically review the carrying values of our crude oil and natural gas properties for possible impairment.
Based on specific market factors, prices and circumstances at the time of prospective impairment reviews, and the continuing evaluation
of development plans, production data, economics and other factors, we may be required to write down the carrying values of our
crude oil and natural gas properties. A write-down results in a non-cash charge to earnings. We have incurred impairment charges
in the past and may incur additional impairment charges in the future, particularly if crude oil prices remain at their currently
low levels or decline further, which could have a material adverse effect on our results of operations for the periods in which
such charges are taken.
We
are subject to significant operating hazards and uninsured risk in the energy industry.
Our
proposed operations will be subject to all of the operating hazards and risks normally incident to exploring, drilling for and
producing oil and gas, such as encountering unusual or unexpected formations and pressures, blowouts, environmental pollution
and personal injury. We will maintain general liability insurance but we have not obtained insurance against such things as blowouts
and pollution risks because of the prohibitive expense. Should we sustain an uninsured loss or liability, or a loss in excess
of policy limits, our ability to operate may be materially adversely affected.
We
are subject to federal income tax laws and changes therein which could adversely impact us
.
Federal
income tax laws are of particular significance to the oil and gas industry in which we engage. Legislation has eroded various
benefits of oil and gas producers and subsequent legislation could continue this trend. Congress is continually considering proposals
with respect to federal income taxation which could have a material adverse effect on our future operations and on our ability
to obtain risk capital which our industry has traditionally attracted from taxpayers in high tax brackets.
We
are subject to substantial government regulation in the energy industry which could adversely impact us.
The
production and sale of oil and gas are subject to regulation by state and federal authorities, the spacing of wells and the prevention
of waste. There are both federal and state laws regarding environmental controls which may necessitate significant capital outlays,
resulting in extended delays, materially affect our earnings potential and cause material changes in the in our proposed business.
We cannot predict what legislation, if any, may be passed by Congress or state legislatures in the future, or the effect of such
legislation, if any, on us. Such regulations may have a significant effect on our operating results.
RISK
FACTORS RELATED TO OUR STOCK
The
regulation of penny stocks by SEC and FINRA may discourage the tradability of our securities.
We
are a “penny stock” company. Our securities are subject to a Securities and Exchange Commission rule that imposes
special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or
accredited investors. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions
with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000, excluding the primary residence,
or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For
transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive
the purchaser’s written agreement to the transaction prior to the sale. Effectively, this discourages broker-dealers from
executing trades in penny stocks. Consequently, the rule will affect the ability of investors to sell their securities in any
market that might develop therefor because it imposes additional regulatory burdens on penny stock transactions.
In
addition, the Securities and Exchange Commission has adopted a number of rules to regulate “penny stocks”. Such rules
include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7 and 15g-9 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Because our securities constitute “penny stocks” within the meaning of the
rules, the rules would apply to us and to our securities. The rules will further affect the ability of owners of shares to sell
our securities in any market that might develop for them because it imposes additional regulatory burdens on penny stock transactions.
Shareholders
should be aware that, according to the Securities and Exchange Commission, the market for penny stocks has suffered in recent
years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers
that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales
and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling
broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated
to a desired level and consequent investor losses. Our management is aware of the abuses that have occurred historically in the
penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of practical limitations to prevent the described patterns
from being established with respect to our securities.
We
will pay no foreseeable dividends in the future.
We
have not paid dividends on our common stock and do not ever anticipate paying such dividends in the foreseeable future.
Our
investors may suffer future dilution due to issuances of shares for various considerations in the future.
There
may be substantial dilution to our shareholders as a result of future decisions of the Board to issue shares without shareholder
approval for cash, services or acquisitions.
At
March 31, 2016, we have warrants issued and outstanding exercisable for 1,351,877 shares of our common stock at ranges from $0.10
to $3.50 per share. In addition, we have options exercisable into 1,127,750 shares of our common stock at ranges from $0.10 to
$2.00 per share. The warrants and options are exercisable in whole or in part. The exercise of the warrants and/or options into
shares of our common stock could have a dilutive effect to the holdings of our existing shareholders.
Rule
144 sales in the future may have a depressive effect on our stock price.
All
of the outstanding shares of common stock held by our present officers, directors, and affiliate shareholders are “restricted
securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted securities, these
shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable
exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence
that a person who has held restricted securities for six months, under certain conditions, may sell every three months, in brokerage
transactions, a number of shares that does not exceed the greater of 1.0% of the company’s outstanding common stock or the
average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted
securities that may be sold by a nonaffiliate after the owner has held the restricted securities for a period of six months. A
sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares
of common stock of present shareholders, may have a depressive effect upon the price of the common stock in any market that may
develop.
Our
common stock may be volatile, which substantially increases the risk that you may not be able to sell your shares at or above
the price that you have paid for the shares
.
Because
of the limited trading market for our common stock and because of the possible price volatility, you may not be able to sell your
shares of common stock when you desire to do so. The inability to sell your shares in a rapidly declining market may substantially
increase your risk of loss because of such illiquidity and because the price for our securities may suffer greater declines because
of our price volatility.
The
price of our common stock that will prevail in the market at any given time may be higher or lower than the price you paid. Certain
factors, some of which are beyond our control, that may cause our share price to fluctuate significantly include, but are not
limited to the following:
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Variations
in our quarterly operating results;
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Loss
of a key relationship or failure to complete significant transactions;
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Additions
or departures of key personnel; and
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Fluctuations
in stock market price and volume.
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Additionally,
in recent years the stock market in general, and the over-the-counter markets in particular, have experienced extreme price and
volume fluctuations. In some cases, these fluctuations are unrelated or disproportionate to the operating performance of the underlying
company. These market and industry factors may materially and adversely affect our stock price, regardless of our operating performance.
In the past, class action litigation often has been brought against companies following periods of volatility in the market price
of those companies’ common stock. If we become involved in this type of litigation in the future, it could result in substantial
costs and diversion of management attention and resources, which could have a further negative effect on your investment in our
stock.
Any
new potential investors will suffer a disproportionate risk and there will be immediate dilution of existing investor’s
investments.
Our
present shareholders have acquired their securities at a cost significantly less than that which future purchasers in the market
may pay. Therefore, any new potential investors will bear most of the risk of loss.
Our
business is highly speculative and the investment is therefore risky.
Due
to the speculative nature of our business, it is probable that the investment in shares will result in a total loss to the investor.
Investors should be able to financially bear the loss of their entire investment. Investment should, therefore, be limited to
that portion of discretionary funds not needed for normal living purposes or for reserves for disability and retirement.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
Applicable.
ITEM
2. PROPERTIES
REAL
ESTATE.
None.
PATENTS
AND PATENT APPLICATIONS.
None.
OIL
AND GAS PROPERTIES.
Our
oil and natural gas properties are located in the states of Wyoming and Nebraska.
Title
to Properties
As
is customary in the oil and natural gas industry, we generally conduct a preliminary title examination prior to the acquisition
of properties or leasehold interests. Prior to commencement of operations on such acreage, a thorough title examination will usually
be conducted and any significant defects will be remedied before proceeding with operations. We believe the title to our leasehold
properties is good, defensible and customary with practices in the oil and natural gas industry, subject to such exceptions that
we believe do not materially detract from the use of such properties. With respect to our properties of which we are not the record
owner, we rely instead on contracts with the owner or operator of the property or assignment of leases, pursuant to which, among
other things, we generally have the right to have our interest placed on record.
Our
properties are generally subject to royalty, overriding royalty and other interests customary in the industry, liens incident
to agreements, current taxes and other burdens, minor encumbrances, easements and restrictions. We do not believe any of these
burdens will materially interfere with our use of these properties.
Summary
of Oil and Natural Gas Reserves
The
following disclosures for the fiscal year ended March 31, 2016 include only those reserves attributable to those properties located
in Fremont, Hot Springs and Park Counties in Wyoming and to those properties located in the Cole Creek field in Natrona and Converse
Counties in Wyoming.
Any
reserves attributable to our Nebraska, Burke Ranch, Wyoming, and certain undeveloped properties at Western Interior and the Mondo,
Utah project were not considered in the reserve report, as those properties are undeveloped at this time.
Reserves
The
following table sets forth our estimated net proved reserves as of March 31, 2016 based upon the reserve report dated July 19,
2016. All such reserves are attributable to those properties located in Fremont, Hot Springs, Park, Sweetwater, Natrona and Converse
Counties in Wyoming.
|
|
Oil Reserves (MBbls)
|
|
|
|
2016
|
|
|
|
Gross
(100%)
|
|
|
Net
|
|
Estimated Proved Reserves Data:
|
|
|
|
|
|
|
|
|
Proved developed proving (PDP)
|
|
|
180.4
|
|
|
|
122.6
|
|
Proved undeveloped reserves (PUD)
|
|
|
0
|
|
|
|
0
|
|
Total Proved Reserves
|
|
|
180.4
|
|
|
|
122.6
|
|
Proved
developed oil reserves are reserves that can be recovered through existing wells with existing equipment and operating methods.
There
are no proved undeveloped oil reserves at March 31, 2016. Proved undeveloped oil reserves are reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion.
Proved undeveloped reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably
certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of
economic productivity at greater distances. All proved undeveloped locations in our July 19, 2016 Reserves Report are included
in our development plan and are scheduled to be drilled within five years from their initial proved booking date.
Estimates
of proved developed and undeveloped reserves are inherently imprecise and are continually subject to revision based on production
history, results of additional exploration and development, price and production cost changes and other factors. See “—
Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process.”
Qualifications
of Technical Persons and Internal Controls Over Reserves Estimation Process
The
reserves estimates shown herein have been independently evaluated by Netherland, Sewell & Associates, Inc. (NSAI), a worldwide
leader of petroleum property analysis for industry and financial organizations and government agencies. NSAI was founded in 1961
and performs consulting petroleum engineering services under Texas Board of Professional Engineers Registration No. F-2699. Within
NSAI, the technical persons primarily responsible for preparing the estimates set forth in the NSAI reserves report incorporated
herein are Mr. Neil H. Little and Mr. Mike K. Norton. Mr. Little, a Licensed Professional Engineer in the State of Texas (No.
117966), has been practicing consulting petroleum engineering at NSAI since 2011 and has over 9 years of prior industry experience.
He graduated from Rice University in 2002 with a Bachelor of Science Degree in Chemical Engineering and from University of Houston
in 2007 with a Master of Business Administration Degree. Mr. Norton, a Licensed Professional Geoscientist in the State of Texas,
Geology (No. 441), has been practicing consulting petroleum geoscience at NSAI since 1989 and has over 10 years of prior industry
experience. He graduated from Texas A&M University in 1978 with a Bachelor of Science Degree in Geology. Both technical principals
meet or exceed the education, training and experience requirements set forth in the Standards Pertaining to the Estimating and
Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; both are proficient in judiciously
applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves
definitions and guidelines. The technologies and economic data used in the estimation of our proved reserves include, but are
not limited to, well logs, geologic maps, well test data, production data, historical price and cost information, and property
ownership interests.
Mr.
Martin Gottlob, the Company’s Vice President of Geology, is primarily responsible for the determination and the presentation
of the reserves presented by the Company.
The
technical persons responsible for preparing the reserves estimates presented herein meet the requirements regarding qualifications,
independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and
Natural Gas Reserves Information promulgated by the Society of Petroleum Engineers.
Our
internal staff of geoscience professionals work closely with our independent petroleum engineers to ensure the integrity, accuracy
and timeliness of data furnished to them in their reserves estimation process. We review with them our properties and discuss
methods and assumptions used in their preparation of our fiscal year-end reserves estimates. While we have no formal committee
specifically designated to review reserves reporting and the reserves estimation process, a copy of each of the NSAI reserve reports
is reviewed with representatives of NSAI and our internal technical staff before we disseminate any of the information. Additionally,
our senior management reviews and approves the final reserve report and any significant internally estimated changes to our proved
reserves on an annual basis.
Estimates
of oil and natural gas reserves are projections based on a process involving an independent third party engineering firm’s
collection of all required geologic, geophysical, engineering and economic data, and such firm’s complete external preparation
of all required estimates and are forward-looking in nature. These reports rely upon various assumptions, including assumptions
required by the SEC, such as constant oil and natural gas prices, operating expenses and future capital costs. The process also
requires assumptions relating to availability of funds and timing of capital expenditures for development of our proved undeveloped
reserves. These reports should not be construed as the current market value of our reserves. The process of estimating oil and
natural gas reserves is also dependent on geological, engineering and economic data for each reservoir. Because of the uncertainties
inherent in the interpretation of this data, we cannot be certain that the reserves will ultimately be realized. Our actual results
could differ materially. See “Note 13 — Supplemental Information Relating to Oil and Natural Gas Producing Activities
(Unaudited)” to our audited consolidated financial statements for additional information regarding our oil and natural gas
reserves.
Under
SEC rules, proved reserves are those quantities of oil and natural gas, which, by analysis of geoscience and engineering data,
can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and
under existing economic conditions, operating methods and government regulations. The term “reasonable certainty”
implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the
estimate. To achieve reasonable certainty, NSAI employs technologies consistent with the standards established by the Society
of Petroleum Engineers. The technologies and economic data used in the estimation of our proved reserves include, but are not
limited to, well logs, geologic maps and available downhole and production data, and well test data.
Summary
of Oil and Natural Gas Properties and Projects
Production,
Price and Cost History
During
the fiscal year ended March 31, 2016, we had production from and sold oil from our properties in the Big Horn Basin and during
the fourth quarter of the fiscal year ended March 31, 2016 we recognized production and sales of oil from our properties in the
Cole Creek Field. During the fiscal year ended March 31, 2015, we did not have any production of or sales of oil or natural gas.
Developed
and Undeveloped Acreage
The
following table presents our total gross and net developed and undeveloped acreage by region as of March 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
Developed Acres
|
|
|
Undeveloped Acres
|
|
|
Developed Acres
|
|
|
Undeveloped Acres
|
|
|
|
Gross(1)
|
|
|
Net (2)
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
Wyoming (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Horn Basin
|
|
|
480
|
|
|
|
425
|
|
|
|
4,726
|
|
|
|
2,025
|
|
|
|
480
|
|
|
|
425
|
|
|
|
4,726
|
|
|
|
2,025
|
|
Wind River Basin
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160
|
|
|
|
14
|
|
|
|
4,533
|
|
|
|
449
|
|
South Central
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,995
|
|
|
|
4,345
|
|
Cole Creek
|
|
|
6,057
|
|
|
|
4,647
|
|
|
|
6,514
|
|
|
|
4,998
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,000
|
|
|
|
2,039
|
|
Burke Ranch
|
|
|
-
|
|
|
|
-
|
|
|
|
4,222
|
|
|
|
3,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,837
|
|
|
|
3,378
|
|
Nebraska (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sioux County
|
|
|
80
|
|
|
|
80
|
|
|
|
160
|
|
|
|
160
|
|
|
|
80
|
|
|
|
80
|
|
|
|
160
|
|
|
|
160
|
|
Kimball County
|
|
|
40
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40
|
|
|
|
26
|
|
|
|
-
|
|
|
|
-
|
|
Utah (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant Mondo
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,995
|
|
|
|
3,995
|
|
Total
|
|
|
6,657
|
|
|
|
5,178
|
|
|
|
15,622
|
|
|
|
26,183
|
|
|
|
760
|
|
|
|
545
|
|
|
|
28,246
|
|
|
|
14,414
|
|
|
(1)
|
“Gross”
means the total number of acres in which we have a working interest.
|
|
|
|
|
(2)
|
“Net”
means the sum of the fractional working interests that we own in gross acres.
|
|
|
|
|
(3)
|
Approximately
2,896 gross of the total 4,726 undeveloped gross acres at the Big Horn Basis, are held through leases by production. The remaining
gross acres are held by leases with terms expiring in 2020.
|
|
|
|
|
|
The
6,514 gross undeveloped acres at Cole Creek are held by production and the 3,622 gross acres at Burke Ranch are also held
by production.
|
|
|
|
|
(4)
|
The
160 acres are held by production.
|
|
|
|
|
(5)
|
The
undeveloped acres at Covenant Mondo are held by production and two wells were drilled during the year ended March 31, 2015.
Both wells were dry holes.
|
Productive
Wells
The
following table presents the total gross and net productive wells by area and by oil or natural gas completion as of March 31,
2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
Oil Wells
|
|
|
Natural Gas Wells
|
|
|
Oil Wells
|
|
|
Natural Gas Wells
|
|
|
|
Gross(1)
|
|
|
Net(2)
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
Wyoming
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Big Horn Basin
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
Wind River Basin
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
|
0.39
|
|
|
|
-
|
|
|
|
-
|
|
South Central
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cole Creek
|
|
|
13
|
|
|
|
8.66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Burke Ranch
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Nebraska
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sioux County
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
Kimball County
|
|
|
1
|
|
|
|
.65
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
.65
|
|
|
|
-
|
|
|
|
-
|
|
Utah
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenant Mondo
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
21
|
|
|
|
16.31
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
8.04
|
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
“Gross”
means the total number of wells in which we have a working interest.
|
|
|
|
|
(2)
|
“Net”
means the sum of the fractional working interests that we own in gross wells.
|
Oil
Production, Production Prices and Production Costs
|
|
For the Fiscal Years Ending
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
|
|
|
|
|
|
|
|
Oil Sales (Bbl)
|
|
$
|
33.93
|
|
|
$
|
-
|
|
Net Production Sold
|
|
|
|
|
|
|
|
|
Oil (Bbl)
|
|
|
16,120
|
|
|
|
-
|
|
Costs and expenses (per Bbl)
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
33.48
|
|
|
$
|
-
|
|
Transportation and marketing expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
Drilling
Activity
The
Company’s operational activities are focused on re-work of existing wells for production purposes.
During
the year ended March 31, 2015, the Company recognized $1,360,119 in exploration expense to drill two wells in the Covenant Mondo
project. Both wells were dry holes.
At
March 31, 2016, the Company had no wells being drilled.
ITEM
3. LEGAL PROCEEDINGS
T-Rex
anticipates that it (including current and any future subsidiaries) will from time to time become subject to claims and legal
proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and
we cannot assure that their ultimate disposition will not have a materially adverse effect on the Company’s business, financial
condition, cash flows or results of operations. The Company is not a party to any pending legal proceedings, nor is the Company
aware of any civil proceeding or government authority contemplating any legal proceeding as of the date of this filing.
ITEM
4. MINING AND SAFETY DISCLOSURE.
Not
Applicable.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth information as to persons who currently serve as T-Rex Energy, Inc. directors or executive officers,
including their ages as of March 31, 2016.
Name
|
|
Age
|
|
Position
|
|
Term
|
|
|
|
|
|
|
|
Donald
Walford
|
|
70
|
|
Chairman,
Chief Executive Officer & Acting CFO
|
|
Annual
|
Martin
Gottlob
|
|
65
|
|
Vice
President of Geology and Director
|
|
Annual
|
Allen
Heim
|
|
58
|
|
Vice
President of Operations
|
|
Annual
|
Jon
Nicolaysen
|
|
69
|
|
Executive
Vice President and Director
|
|
Annual
|
Kristi
J Kampmann
|
|
43
|
|
Chief
Accounting Officer
|
|
Annual
|
Andrew
VanderPloeg
|
|
74
|
|
Director
|
|
Annual
|
Herbert
T Sears
|
|
68
|
|
Director
|
|
Annual
|
The
officers are elected by the board of directors at the first meeting after each annual meeting of the Company’s shareholders
and hold office until their successors are duly elected and qualified under T-Rex’s bylaws.
The
directors named above will serve until the next annual meeting of T-Rex’s shareholders. Thereafter, directors will be elected
for one-year terms at the annual shareholders’ meeting. Officers will hold their positions at the pleasure of the board
of directors absent any employment agreement. There is no arrangement or understanding between the directors and officers and
any other person pursuant to which any director or officer was or is to be selected as a director or officer.
Biographical
Information
DONALD
WALFORD, Age 70, Chairman, CEO & Acting CFO
Mr.
Walford has served as a director and an officer of several corporations among a variety of industries during the 46 years of his
business experience. They have included oil and gas companies, real estate development and sales companies, medical research and
clinical medical companies, as well as registered broker-dealers.
He
is a founder and has served as Chief Executive Officer and director of Terex Energy Corporation, prior to its merger with T-Rex
Oil, Inc., starting in February 2014. In December 2014, he became the Chief Executive Officer and Chairman of T-Rex Oil, Inc.
From October 22, 2013 to January 28, 2014, he served as the Chairman and Chief Executive Officer of Three Forks, Inc. From 2011
to March 2012, he served as a Vice President and Chief Executive Officer of Gulfstar Energy Corp. and from February 2012 through
March 2012, a director of Gulfstar Energy Corp. In recent years, he served as Founder, Chairman, CEO, and in various other capacities
of Eveia Medical, Boulder County Paramedics.
He
has been licensed as a broker-dealer in every state, as a principal in the NYSE and FINRA. He has been a principal licensed in
commodities and in municipal bonds, and was an Allied Member of the NYSE. Mr. Walford has been a consultant to the US Department
of Justice as well as an expert in three Federal Court Jurisdictions and in numerous arbitration matters. He has been a principal
and or underwriter of securities in industries such as agri-business, electronics, engineering, consumer manufacturing, construction/home
building and oil and gas. Mr. Walford has been principal or an underwriter of twelve oil and gas public companies.
He
received a B.A. in Liberal Arts from Harpur College, State University of New York (fka Binghamton University) in 1967, where he
was a full scholarship, N.Y.S. Regents Scholar.
Mr.
Walford brings to the board of directors both his experience in the oil and gas industry and his knowledge and experience in funding
smaller reporting companies.
MARTIN
R. GOTTLOB, Age 65, Director and Vice President of Geology of T-Rex
Mr.
Gottlob is an experienced Rocky Mountain States geologist, oil finder, driller and operator of oil and gas wells. Mr. Gottlob
was appointed as the Vice President of Geology and a director of T-Rex in August 2014; he has served in the same positions with
Terex since February 2014.
He
is the owner of Independence Oil II, LLC, where he has developed, drilled, completed and operated wells on behalf of clients.
From
2003 until he commenced working with Terex, he was responsible for exploration and operations for Davis Oil Co. oil properties,
where he was responsible for most phases of multiple field discoveries in the D-J Basin, in Colorado, Wyoming and Nebraska.
Between
1979 and 2003, he worked in similar capacities for Petrogulf, Minnoco, Decalta, Resource Technology and Mountain Minerals, all
in Colorado.
He
has a B.A. in Geology from the University of Colorado with an emphasis in petroleum exploration and sedimentary basin analysis,
and a Master of Science from the Colorado School of Mines, in oil and gas operations research, and management science of oil and
gas investment projects.
As
a disclosure item, Mr. Gottlob, in 1999, was convicted of domestic violence felony in the state of Colorado.
Mr.
Gottlob provides the board of directors with a perspective and experience in the operational and exploration aspects of the oil
and gas industry.
ALLEN
HEIM, Age 58, Director, Vice President of Operations
Mr.
Heim has served as the Vice President of Operations and a director of Terex since February 2014. He has served as a director of
T-Rex since August 1, 2015.
Mr.
Heim has devoted most of his 30 year career to a variety of oil field disciplines including leasing, dealing in working interests,
drilling wells, fracking and managing hands-on all phases of post drilling, including completions and follow on operations through
plug and abandon.
He
is experienced in location construction of oil well properties, pumping and long term well operations, as well as directional
drilling and fracking operations planning and execution.
Prior
to working with T-Rex, he was retained by Davis Oil Co. Prior to that he has worked with Bic Petroleum, Smith Oil, Petro West,
Bolling Oil, Pease Oil and Gas, Pan Western Energy, Paladin Energy, Charterhall, Haines Oil Field Services, New Tech Energy, O’Brien
Energy, Peterson Energy, Sunburst Inc., Markus Production, Lyco Energy and Wanda Madden Oil.
He
is the owner of Allen’s Pumping Service in Kimball, Nebraska.
Mr.
Heim provides the board of directors with both in the field oil operations expertise and guidance.
JON
NICOLAYSEN, Age 69, Director, Executive Vice President and Director
Mr.
Nicolaysen was appointed an Executive Vice President in December, 2014. Prior to that, he served as the CEO and a director of
Rancher Energy Corporation (kna T-Rex Oil, Inc.) since September 2009.
Mr.
Nicolaysen, through his company, JK Minerals Inc., was a non-operating working interest owner, but by 1997 he had bought out the
other working interest owners and as operator, began a successful 2nd Frontier development program at Cole Creek in Wyoming.
In
2005, Slawson Exploration Inc. took over as operator and continued to develop the Frontier and Dakota formations. Eventually,
Blue Tip Inc. purchased all of Slawson’s and JK’s interests in the Frontier and Dakota. In 2006, Mr. Nicolaysen purchased
the majority working interest in the Shannon formation at Cole Creek through JK Minerals Inc. In 2004, he was part of a group
that redeveloped the Big Muddy Field in Converse County, Wyoming. In 2007, these fields were sold to Rancher Energy (kna T-Rex
Oil, Inc.) for $25 million.
In
2009, as a dissatisfied shareholder, he led a successful proxy fight for control of Rancher Energy (kna T-Rex Oil, Inc.) He led
the company successfully through a long Chapter 11 bankruptcy process paying off all creditors in full.
Mr.
Nicolaysen provides the board of directors with not only his experience with a public reporting company but also his experience
in the oil and gas industry.
KRISTI
J. KAMPMANN, Age 43, Chief Accounting Officer
Ms.
Kampmann has approximately 20 years of experience in accounting and specifically in SEC reporting. She has served as the Chief
Accounting Officer, since March 1, 2016 and has worked with the Company as the comptroller from May 2015. Prior to that Ms. Kampmann
worked as the Controller of Hinto Energy, Inc. from April 2014 through May 2015. Ms. Kampmann worked as a Financial Reporting
Consultant – Paralegal with Michael A. Littman, Attorney at Law from March 2007 through April 2014.
Ms.
Kampmann has worked with small reporting companies in a range of industries, including the oil and gas industry, not only in the
development, drafting and filing of SEC filings, but also in the development of accounting and auditing procedures.
Ms.
Kampmann received an MBA from the University of Colorado, Denver in December 2001. She graduated from the Denver Paralegal Institute
in 1996 and received a B.A. from the University of Minnesota in Morris in 1995, majoring in Political Science with a minor in
Business Management.
ANDREW
P. VANDERPLOEG, Age 74, Director
Mr.
VanderPloeg, has over 45 years of experience in the securities industry where he has worked as a broker, a regulator and a securities
trader. He was licensed as a securities broker in 1967. From 1992 through his retirement in 2012, he worked as a securities broker-dealer
with Wilson Davis & Co., where he was the Denver branch manager and an over-the-counter securities trader. Since then he has
managed his personal investments.
Mr.
VanderPloeg received his Masters of Business Administration from DePaul University in 1971 and his BSBA from Marquette University
in 1963. Mr. VanderPloeg also has been a licensed CPA, although he is not currently practicing.
Mr.
VanderPloeg brings to the board of directors not only his accounting and finance experience, but his experience in the securities
industry.
HERBERT
T. SEARS, age 68, Director
Mr.
Sears is an attorney with about 40 years of domestic and international experience related to energy and technology projects. He
served as Vice President and Counsel to Stone & Webster Engineering Corporation, an operating affiliate of Stone & Webster,
Inc., an international multi-billion dollar engineering and construction firm; General Counsel to Badger Engineers, a leader in
the petrochemical industry; International Counsel to Washington Group International, a global Engineering and Construction organization;
Chairman to General Environmental Corporation (nka NT Technologies, Inc.), General Counsel to Seaflow Systems, a former leader
in deep sea oil well connections, and Consultant to Powerspan, a CO-2 injection technology company. Mr. Sears currently is the
court appointed Trustee of the Stone and Webster Liquidating Trust with responsibility for liquidating the global assets of the
former Stone & Webster operating companies.
In
2000, Mr. Sears formed Sears & Associates, a business and legal consulting firm based out of Exeter, New Hampshire from which
he still operates. Through Sears & Associates, he advises owners and engineering companies with respect to their projects
and legal activities. Mr. Sears is recognized in the industry for his expertise and creativity in negotiations, internal corporate
governance and claims resolution.
Mr.
Sears served as the Chief Financial Officer and a director of Bedrock Energy (nka Gulfstar Energy Corporation) from 2008 through
May 2010.
Mr.
Sears is a member of the state bar in Massachusetts and the International Bar Association. He graduated from Boston University
School of Management with a B.S/B.A in International Business and earned his law degree from Washington University School of Law.
Mr.
Sears not only brings management experience to the board of directors, he also provides oil and gas operational management experience.
Committees
of the Board of Directors
The
Company is managed under the direction of its board of directors.
Executive
Committee
The
Company does not have an executive committee, at this time.
Audit
Committee
The
Company does not have an audit committee at this time.
Conflicts
of Interest – General.
The
Company’s directors and officers are, or may become, in their individual capacities, officers, directors, controlling shareholders
and/or partners of other entities engaged in a variety of businesses. Thus, there exist potential conflicts of interest including,
among other things, time, efforts and corporate opportunity, resulting from participation with such other business entities. While
each officer and director of the Company’s business is engaged in business activities outside of the Company’s business,
the amount of time each of them devotes to our business will be up to approximately 40 hours per week.
Conflicts
of Interest – Corporate Opportunities
Presently
no requirement contained in the Company’s Articles of Incorporation, Bylaws or minutes requires officers and directors of
the Company’s business to disclose to T-Rex business opportunities which come to their attention. The Company’s officers
and directors do, however, have a fiduciary duty of loyalty to T-Rex to disclose to it any business opportunities which come to
their attention, in their capacity as an officer and/or director or otherwise. Excluded from this duty would be opportunities
which the person learns about through his involvement as an officer and director of another company. The Company has no intention
of merging with or acquiring an affiliate, associate person or business opportunity from any affiliate or any client of any such
person.
ITEM
11. EXECUTIVE COMPENSATION
The
following table sets forth the compensation paid to officers and directors during the fiscal years ended March 31, 2016, 2015
and 2014. The table sets forth this information for T-Rex Energy, Inc. including salary, bonus and certain other compensation
to the directors and named executive officers for the past three fiscal years.
SUMMARY
EXECUTIVES COMPENSATION TABLE
Name & Position
|
|
Year
|
|
|
Salary($)
|
|
|
Bonus
($)
|
|
|
Stock
awards
($)
|
|
|
Option
awards
($)
|
|
|
Non-equity
incentive plan compensation
($)
|
|
|
Non-qualified
deferred compensation earnings
($)
|
|
|
All
other compensation
($)
(1)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Walford, CEO & CFO (2)
|
|
|
2016
|
|
|
|
192,795
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,200
|
|
|
|
199,995
|
|
|
|
|
2015
|
|
|
|
186,000
|
|
|
|
26,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,594
|
|
|
|
222,594
|
|
|
|
|
2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Gottlob, VP of Geology (3)
|
|
|
2016
|
|
|
|
161,496
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,200
|
|
|
|
168,696
|
|
|
|
|
2015
|
|
|
|
108,562
|
|
|
|
-
|
|
|
|
-
|
|
|
|
115
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,350
|
|
|
|
110,027
|
|
|
|
|
2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Heim, VP of Operations
|
|
|
2016
|
|
|
|
194,436
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,436
|
|
|
|
|
2015
|
|
|
|
173,865
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,629
|
|
|
|
177,494
|
|
|
|
|
2014
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon Nicolaysen, Executive Vice President (4)
|
|
|
2016
|
|
|
|
151,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,200
|
|
|
|
159,000
|
|
|
|
|
2015
|
|
|
|
127,500
|
|
|
|
-
|
|
|
|
750,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
877,606
|
|
|
|
|
2014
|
|
|
|
120,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
|
126,000
|
|
|
(1)
|
All
other compensation for the officers listed above consists of an auto allowance plus medical reimbursement.
|
|
|
|
|
(2)
|
In
February 2014, Mr. Walford was issued 1,100,000 shares of Terex valued at $0.001 per share for services. As part of the T-Rex/Terex
Acquisition these shares were exchanged for T-Rex shares and options in December 2014.
|
|
|
|
|
(3)
|
In
February 2014, Mr. Gottlob was issued 750,000 shares of Terex which was valued at $0.001 for services. In April 2014, Mr.
Gottlob was issued an option exercisable for shares of Terex with an exercise price of $0.10 per share, which was expensed
at $115. As part of the T-Rex/Terex Acquisition these shares and option were exchanged for T-Rex shares and options in December
2014.
|
|
|
|
|
(4)
|
Mr.
Nicolaysen served as the CEO of T-Rex until December 2014, at which time he was appointed Executive Vice President. In December
2013, he was granted fully-vested options to purchase 7,412 shares of the Company’s common stock with an exercise price
of $3.50 per share. In August 2014 such option was canceled. In August 2014, he was issued 750,000 shares of restricted common
stock for his services. These shares were valued at $1.00 per share.
|
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
The
following table sets forth certain information concerning outstanding equity awards held by the Chief Executive and Financial
Officer and the Company’s most highly compensated executive officers for the fiscal year ended March 31, 2016 (the “Named
Executive Officers”):
|
|
Option Awards
|
|
|
Stock awards
|
|
Name
|
|
Number of securities underlying unexercised options
(#) exercisable
|
|
|
Number of securities underlying unexercised options
(#) unexercisable
|
|
|
Equity incentive plan awards: Number of securities
underlying unexercised unearned options
(#)
|
|
|
Option exercise price
($)
|
|
|
Option expiration date
|
|
|
Number of shares or units of stock that have
not vested
(#)
|
|
|
Market value of shares of units of stock that
have not vested
($)
|
|
|
Equity incentive plan awards: Number of unearned
shares, units or other rights that have not vested (#)
|
|
|
Equity incentive plan awards: Market or payout
value of unearned shares, units or others rights that have not vested
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Walford
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Gottlob VP of Geology
|
|
|
100,000
|
|
|
|
0
|
|
|
|
0
|
|
|
$
|
1.00
|
|
|
|
4/2017
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
2013
Stock Incentive Plan
Effective
March 29, 2013, the Company’s 2013 Stock Option and Award Plan (the “2013 Stock Incentive Plan”) was approved
by its board of directors. Under the 2013 Stock Incentive Plan, the board of directors may grant options or rights to purchase
common stock to officers, employees and other persons who provide services to the Company or any related company. The participants
to whom awards are granted, the type of awards granted, the number of shares covered for each award and the purchase price, conditions
and other terms of each award are determined by the board of directors, except that the term of the options shall not exceed ten
years. A total of 12 million shares of our common stock are subject to the 2013 Stock Incentive Plan. The shares issued for the
2013 Stock Incentive Plan may be either treasury or authorized and unissued shares. During the years ended March 31, 2016 and
2015, no options were granted, expired or exercised under the 2013 Stock Incentive Plan. At March 31, 2016, no options were issued
and outstanding under the 2013 Stock Incentive Plan.
2014
Stock Incentive Plan
Effective
October 1, 2014, Terex’s 2014 Stock Option and Award Plan (the “2014 Stock Incentive Plan”) was approved by
its board of directors. As part of the acquisition of Terex by T-Rex, the 2014 Stock Option Plan was renamed the T-Rex 2014 Stock
Option and Award Plan.
Under
the 2014 Stock Incentive Plan, the board of directors may grant options or rights to purchase common stock to officers, employees
and other persons who provide services to the Company or any related company. The participants to whom awards are granted, the
type of awards granted, the number of shares covered for each award and the purchase price, conditions and other terms of each
award are determined by the board of directors, except that the term of the options shall not exceed ten years. A total of 2 million
shares of our common stock are subject to the 2014 Stock Incentive Plan. The shares issued for the 2014 Stock Incentive Plan may
be either treasury or authorized and unissued shares. During the year ended March 31, 2016, there were 1,050,250 options granted
under the 2014 Stock Incentive Plan and 1,070,000 were canceled. No options expired or were exercised. At March 31, 2016, there
were 915,250 options issued and outstanding under the 2014 Stock Incentive Plan.
EMPLOYMENT
AGREEMENTS WITH OFFICERS AND DIRECTORS OF T-REX AND TEREX
Messrs.
Donald Walford, Allen Heim and Jon Nicolaysen have entered into Employment Agreements with our subsidiary, Terex. Mr. Martin Gottlob
has entered into an Employment Agreement with T-Rex.
All
of our officers and/or directors will continue to be active in other companies. All officers and directors have retained the right
to conduct their own independent business interests.
Donald
Walford Employment Agreement with Terex
In
August 2014, Mr. Walford entered into an Employment Agreement with Terex for his services as its Chief Executive Officer, President
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $204,000 and a monthly
car allowance of $600. Mr. Walford is eligible for annual bonuses as determined by the board of directors.
Allen
Heim Employment Agreement with Terex
In
November 2014, Mr. Heim entered into an Employment Agreement with Terex for his services as its Vice President of Operations and
director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Heim is eligible
for an annual bonus as determined by the board of directors.
Jon
Nicolaysen Employment Agreement with Terex
In
November 2014, Mr. Nicolaysen entered into an Employment Agreement with Terex for his services as its Vice President of Geology
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Heim is
eligible for an annual bonus as determined by the board of directors.
Martin
Gottlob Employment Agreement with T-Rex
In
January 2015, Mr. Gottlob entered into an Employment Agreement with T-Rex for his services as its Vice President of Operations
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Heim is
eligible for an annual bonus as determined by the board of directors.
General
Terms of All Employment Agreements
Termination
for Cause
All
Employment Agreements provide for termination for cause. Cause is defined as:
|
●
|
Conviction
of a felony, crime of moral turpitude or commission of an act of embezzlement or fraud
against the Company and/or its subsidiaries;
|
|
|
|
|
●
|
Deliberate
dishonesty resulting in damages to the Company; and
|
|
|
|
|
●
|
Dereliction
of duty.
|
If
terminated for cause, the employee is not entitled to any bonus for the period preceding the termination or any benefits thereunder.
Termination
At Will
All
Employment Agreements provide for termination at will by the Company with 60 days written notice. As part of any such termination,
the Company is required to repurchase 50% of the shares held by the employee up to 1,000,000 shares at a price equal to 90% of
the average trading price over the 60 days preceding the notice. Such repurchase shall happen within 30 days of the notice.
Change
of Control
In
the event of a change of control, the Employment Agreement is treated the same as if the Employment Agreement was terminated without
cause. If the Employment Agreement is terminated for a change of control, severance payments are payable on the 15
th
day after the Company gives notice of the termination. Such severance pay will consist of:
|
●
|
Full
salary through termination specified in the termination notice.
|
|
|
|
|
●
|
An
amount equal to the amount of salary and benefits equal to a 6 month period.
|
|
|
|
|
●
|
Full
vestment of any outstanding stock and/or option grants.
|
As
a result of the acquisition of Terex by T-Rex, the change in control clause in Messrs. Walford, Heim and Nicolaysen’s employment
agreements was activated. All agreed to waive such clause as it pertains to the change of control event of Terex by T-Rex.
It
is possible that situations may arise in the future where the personal interests of the officers and directors may conflict with
our interests. Such conflicts could include determining what portion of their working time will be spent on our business and what
portion on other business interests. To the best ability and in the best judgment of our officers and directors, any conflicts
of interest between us and the personal interests of our officers and directors will be resolved in a fair manner which will protect
our interests. Any transactions between us and entities affiliated with our officers and directors will be on terms which are
fair and equitable to us. Our board of directors intends to continually review all corporate opportunities to further attempt
to safeguard against conflicts of interest between their business interests and our interests.
We
have no intention of merging with or acquiring an affiliate, associated person or business opportunity from any affiliate or any
client of any such person.
DIRECTOR
COMPENSATION
All
of the Company’s officers and/or directors will continue to be active in other companies. All officers and directors have
retained the right to conduct their own independent business interests.
The
Company does not pay any directors fees for meeting attendance.
The
following table sets forth certain information concerning compensation paid to the Company’s directors during the fiscal
year ended March 31, 2016:
DIRECTORS’
COMPENSATION
Name
|
|
Fees earned or paid in cash
($)
|
|
|
Stock awards
($)
|
|
|
Option awards
($)
|
|
|
Non-equity incentive plan compensation
($)
|
|
|
Non-qualified deferred compensation earnings
($)
|
|
|
All other compensation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Walford(1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
199,995
|
|
|
|
199,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Gottlob (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
168.696
|
|
|
|
168,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon Nicolaysen (1)
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
159,000
|
|
|
|
159,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Heim (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,436
|
|
|
|
194,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Bennett(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew VanderPloeg
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herbert T Sears
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(1)
|
Mr.
Walford’s, Gottlob’s, Nicolaysen’s and Heim’s compensation as discussed in the table above and in
this footnote were paid for their services as officers of the Company as discussed in the Executive Compensation table.
|
|
|
(2)
|
Mr.
Bennett resigned as a director of the Company on April 1, 2016.
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth information with respect to the beneficial ownership of T-Rex’s outstanding common stock by:
|
●
|
each
person who is known by T-Rex to be the beneficial owner of five percent (5%) or more of T-Rex common stock;
|
|
|
|
|
●
|
T-Rex
chief financial officer, its other executive officers and each director as identified in the “Management — Executive
Compensation” section; and
|
|
|
|
|
●
|
all
of the Company’s directors and executive officers as a group.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock and options, warrants and convertible securities that are
currently exercisable or convertible within 60 days of the date of this document into shares of the Company’s common stock
are deemed to be outstanding and to be beneficially owned by the person holding the options, warrants or convertible securities
for the purpose of computing the percentage ownership of the person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person.
The
information below is based on the number of shares of T-Rex’s common stock that we believe was beneficially owned by each
person or entity as of March 31, 2016.
Name and Address of Beneficial Owner *
|
|
Amount
and
Nature of
Beneficial
Owner
Common
Stock
|
|
|
Warrants
and/or
Options
|
|
|
Percent of
Common
Stock Issued
and
Outstanding (1)
|
|
Donald Walford, CEO, Acting CFO & Chairman
|
|
|
1,080,000
|
|
|
|
-
|
|
|
|
6.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Gottlob, VP of Geology & Director (2)
|
|
|
750,000
|
|
|
|
100,000
|
|
|
|
4.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon Nicolaysen, Executive VP & Director
|
|
|
1,052,400
|
|
|
|
-
|
|
|
|
6.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allen Heim, VP of Operations & Director
|
|
|
755,000
|
|
|
|
-
|
|
|
|
4.88
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey Bennett, Executive VP of Drilling Operations (3)
|
|
|
-
|
|
|
|
14,286
|
|
|
|
-0-
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew VanderPloeg, Director (4)
|
|
|
324,528
|
|
|
|
125,000
|
|
|
|
2.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Herb Sears, Director
|
|
|
66,667
|
|
|
|
|
|
|
|
0.43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schwaben Kapital GmbH
|
|
|
1,480,152
|
|
|
|
-
|
|
|
|
9.56
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMI GmbH (5)
|
|
|
991,628
|
|
|
|
-
|
|
|
|
6.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rainer Mayerhofer (5)
|
|
|
439,021
|
|
|
|
-
|
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers asa Group (4 persons)
|
|
|
4,028,595
|
|
|
|
239,286
|
|
|
|
26.03
|
%
|
*The
Address for the above individuals and entities is c/o T-Rex Oil, Inc., 520 S. Zang Street, Suite 250, Broomfield, Colorado 80021.
|
(1)
|
Based
upon 15,480,882 shares of issued and outstanding common stock at March 31, 2016. Warrants and options exercisable for 239,286
shares of common stock are not included in this number of shares of issued and outstanding common stock as they are not considered
to be exercisable in the next 60 days.
|
|
|
|
|
(2)
|
Mr.
Gottlob holds an option exercisable for 100,000 shares of common stock with an exercise price of $0.10 per share and a term
of 3 years. The option is fully vested.
|
|
|
|
|
(3)
|
Mr.
Bennett holds a warrant exercisable for 14,286 shares of common stock with an exercise price of $3.50 per share and a term
of 3 years. The option is fully vested. Mr. Bennet resigned as a director of the Company effective April 1, 2016 and was appointed
the Executive Vice President of Drilling Operations on May 1, 2016.
|
|
|
|
|
(4)
|
Mr.
VanderPloeg holds 125,000 shares of Series A Preferred Stock convertible into shares of the Company’s common stock and
a warrant exercisable for 125,000 shares of common stock with an exercise price of $3.00 and a term of 3 years.
|
|
|
|
|
(5)
|
Mr.
Mayerhofer is the controlling officer of RMI GmbH and as such holds voting control of the 991,628 shares held by RMI GmbH.
He holds 439,021 shares of stock directly and beneficially. He has voting control over a total of 1,430,649 shares of stock
or 9.25% of the Company’s common stock.
|
Rule
13d-3 under the Exchange Act governs the determination of beneficial ownership of securities. That rule provides that a beneficial
owner of a security includes any person who directly or indirectly has or shares voting power and/or investment power with respect
to such security. Rule 13d-3 also provides that a beneficial owner of a security includes any person who has the right to acquire
beneficial ownership of such security within 60 days, including through the exercise of any option, warrant or conversion of a
security. Any securities not outstanding which are subject to such options, warrants or conversion privileges are deemed to be
outstanding for the purpose of computing the percentage of outstanding securities of the class owned by such person. Those securities
are not deemed to be outstanding for the purpose of computing the percentage of the class owned by any other person.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than the stock transactions discussed below, the Company has not entered into any transaction nor is there any proposed transaction
in which any of the founders, directors, executive officers, shareholders or any members of the immediate family of any of the
foregoing had or are to have a direct or indirect material interest.
Employment
Agreements with Officers and Directors
Donald
Walford Employment Agreement with Terex
In
August 2014, Mr. Walford entered into an Employment Agreement with Terex for his services as its Chief Executive Officer, President
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $204,000 and a monthly
car allowance of $600. Mr. Walford is eligible for annual bonuses as determined by the board of directors.
Allen
Heim Employment Agreement with Terex
In
November 2014, Mr. Heim entered into an Employment Agreement with Terex for his services as its Vice President of Operations and
director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Heim is eligible
for an annual bonus as determined by the board of directors.
Jon
Nicolaysen Employment Agreement with Terex
In
November 2014, Mr. Nicolaysen entered into an Employment Agreement with Terex for his services as its Vice President of Geology
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Heim is
eligible for an annual bonus as determined by the board of directors.
Martin
Gottlob Employment Agreement with T-Rex
In
January 2015, Mr. Gottlob entered into an Employment Agreement with T-Rex for his services as its Vice President of Operations
and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. Mr. Gottlob
is eligible for an annual bonus as determined by the board of directors.
Equity
Issuances to Officers and Directors
Year
Ended March 31, 2016
Series
A Preferred Stock
In
October 2015, Mr. VanderPloeg, a director, purchased 125,000 Series A Shares and $3 Warrants exercisable for 125,000 shares in
exchange for $250,000.
Convertible
Promissory Notes
On
January 14, 2016, in exchange for $100,000 cash we issued convertible promissory notes in the amount of $50,000 each to Mr. Nicolaysen
and Mr. Bennett. The convertible promissory notes have a term of 9 months and accrue interests at a rate of 5%. The notes are
convertible into shares of our restricted common stock at a discount of 30% of the 5-day trading closing market.
Common
Stock
In
March 2016, two of our directors, Mr. VanderPloeg and Mr. Sears, purchased shares of restricted common stock from the Company,
300,000 and 66,667 shares, respectively, at $0.75 per share.
Year
Ended March 31, 2015
In
August 2014, Mr. Nicolaysen, an officer and director of Terex, was issued 750,000 shares of the common stock of Terex for services
with a value of $750,000 that were expensed. Such shares were exchanged for shares of T-Rex as part of the acquisition of Terex
by T-Rex. In addition, Mr. Nicolaysen, a director and officer of T-Rex, returned to T-Rex an option exercisable for 7,142 shares
of common stock. T-Rex cancelled such option.
In
August 2014, T-Rex issued warrants in the following amounts and terms to its then officers and directors as follows. All amounts
have been adjusted for the October 2014 reverse split.
Name
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
Jeffrey Bennett
|
|
|
14,285
|
|
|
$
|
3.50
|
|
|
|
3
years
|
|
Mathijs van Houweninge
|
|
|
14,285
|
|
|
$
|
3.50
|
|
|
|
3
years
|
|
Al “Sid” Overton
|
|
|
14,285
|
|
|
$
|
3.50
|
|
|
|
3
years
|
|
In
April 2014, Mr. Gottlob was issued an option exercisable for 100,000 shares of Terex’s common stock with an exercise price
of $0.10 per share and a term of 3 years. The option is fully vested and had a value of $115 at the time of issuance that was
expensed. As part of the acquisition of Terex by T-Rex, this option has been exchanged for an option exercisable for 100,000 shares
of T-Rex.
Cole
Creek, Wyoming Farmout Agreement
On
September 30, 2014, Terex entered into a Farmout Agreement with Red Hawk Oil Exploration, Inc. (“Red Hawk”). Mr. Jon
Nicolaysen was an officer and director of Terex and also the president of Red Hawk.
The
Farmout Agreement provides for Terex to drill two Shannon formation wells in an operating unit formation within 24 months. Upon
drilling of the first two wells, Terex has the option of drilling additional wells at locations of its choice. Upon drilling and
completion of the first two wells, Terex is entitled to an assignment of 100% of the interest held by Red Hawk. In the event an
earning well is capable of production in paying quantities, Terex will notify Red Hawk, whereupon Red Hawk will have a right to
elect to back in to an undivided 10% of the interest assigned to Terex.
Purchase
of Sioux and Kimball County, Nebraska Properties
On
September 20, 2014, Terex entered into a Purchase and Sale Agreement with Allen Heim, Pamela Heim and Marlin C. Heim. At the time,
Allen Heim was an officer and director of Terex. Pamela Heim is the wife of Allen Heim (the “Heims”). The Purchase
and Sale Agreement entitled Terex to purchase certain oil and gas leases and a well bore in Sioux County, Nebraska, in exchange
for certain consideration. As part of the consideration, the Heims received cash of $50,000 and warrants to acquire 400,000 shares
of Terex’s common stock at $1.00 per share. At the time of purchase, the warrants were valued at $325,798. However, since
the Heims are considered related parties, the oil and gas leases and well bore were recorded at the Heims’ historical cost
of $278,000. As part of the T-Rex – Terex acquisition, the warrants were re-issued and are exercisable for shares of T-Rex.
Director
Independence
Our
board of directors undertook its annual review of the independence of the directors and considered whether any director had a
material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying
out his responsibilities. As a result of this review, the board of directors affirmatively determined that Mr. Bennett was “independent”
as such term is used under the rules and regulations of the Securities and Exchange Commission. Messrs. Walford, Nicolaysen and
Gottlob, as officers of the Company, are not considered to be “independent.”
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
GENERAL.
BF
Borgers CPA PC (“Borgers”) is the Company’s principal auditing accountant firm. The Company’s board of
directors has determined that the provision of audit services is compatible with maintaining their independence.
The
following table represents aggregate fees billed to the Company for the years ended March 31, 2016 and 2015.
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Audit Fees
|
|
$
|
146,560
|
|
|
$
|
22,140
|
|
|
|
|
|
|
|
|
|
|
Audit-related Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
$
|
3,240
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
149,800
|
|
|
$
|
22,140
|
|
All
audit work was performed by the auditors’ full time employees.
Pre-approval
Policies and Procedures
The
board of directors on an annual basis reviews audit and non-audit services performed by the independent auditor. All audit and
non-audit services are preapproved by the board of directors, which considers, among other things, the possible effect of the
performance of such services on the auditors’ independence. The board of directors has considered the role of Borgers in
providing services to us for the fiscal years ended March 31, 2016 and 2015 and has concluded that such services are compatible
with their independence as our auditors. The board has considered the services rendered and fees billed to the date of this report
by Borgers, and are satisfied as to their services being rendered on a basis of independence.
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Note
1 – Organization and History
T-Rex
Oil, Inc. (the “Company”) was incorporated in Colorado on September 2, 2014. Rancher Energy Corp was incorporated
in Nevada on February 2, 2004. Effective October 20, 2014, T-Rex Oil, Inc. and Rancher Energy Corp were merged under the laws
of the State of Colorado and T-Rex Oil, Inc. became the surviving entity. Effective October 29, 2014, the Company authorized 50,000,000
shares of preferred stock in addition to its common stock and completed a reverse split of its common stock, issued and outstanding,
on a one (1) new share for three hundred fifty (350) old shares basis.
The
Company is currently engaged in the acquisition, exploration, and development of oil and gas prospects in the Rocky Mountain region
of Wyoming.
On
December 22, 2014, the Company acquired 100% of the issued and outstanding common stock of Terex Energy Corporation (“Terex”)
pursuant to Exchange Agreements with the shareholders of Terex. Terex was incorporated in the State of Colorado in February 2014
and is headquartered in Broomfield, Colorado. Pursuant to the Exchange Agreements, the Company issued 7,385,700 shares of its
restricted common stock for 100% of the issued and outstanding common stock of Terex. The shares were exchanged on a one for one
basis. As a result, Terex has become a wholly-owned subsidiary of the Company. T-Rex Oil, Inc. was the legal acquirer and Terex
was the legal acquiree. However, under accounting rules, since the Company is a public company, which had nominal activity, the
acquisition was treated as a recapitalization of Terex. Therefore, Terex was the accounting acquirer in the transaction since
Terex’s shareholders and management gained control of T-Rex Oil, Inc. and T-Rex Oil, Inc. was the accounting acquiree. On
August 19, 2014, prior to entering into the Exchange Agreements, Terex had purchased 371,004 shares from the Company. After such
purchase, Terex owned approximately 52% of the issued and outstanding common stock of the Company. As part of the December 22,
2014 transaction, Terex surrendered its ownership of the 371,004 shares of T-Rex Oil, Inc. common stock and as a result such shares
were canceled.
On
February 24, 2015, the Company entered into a Share Exchange Agreement with Western Interior Oil & Gas Corporation, a Wyoming
private oil and natural gas company (“Western Interior”) and the shareholders of Western Interior. Under the Share
Exchange Agreement the Company exchanged 7,465,168 shares of its restricted common stock for 170,878 shares of the issued and
outstanding common stock of Western Interior thereby owning 83% of Western Interior. The acquisition was closed on March 27, 2014
and became effective March 31, 2015. On March 31, 2015, the Company entered into an amendment to the Share Exchange Agreement
whereby the Company assumed certain repurchase agreements between Schwaben Kapital GmbH, Western Interior and its dissident shareholders
and as a result acquired the remaining 17% of Western Interior. As part of these agreements, the Company assumed certain promissory
notes issued to the dissenting shareholders in the total amount of $1,770,047 that were secured by Western Interior assets. As
a result, Western Interior became a wholly-owned subsidiary of the Company. See Note 2 – Summary of Significant Accounting
Policies – Principles of Consolidation.
On
January 15, 2016, T-Rex Oil LLC #3 entered into a Purchase and Sale Agreement with Blue Tip Energy Wyoming, Inc. and Cole Creek
Recompletions LLC and acquired approximately 82% of the working interest in certain leases located in the state of Wyoming known
as the Cole Creek properties in exchange for $1,200,000 in cash plus the assumption of liabilities in the amount of $833,382 for
a total purchase price of $2,033,382. On April 20, 2016, the T-Rex Oil LLC #3 entered into a Purchase and Sale Agreement with
Black Hills Exploration & Production, Inc. and acquired the remaining approximately 18% working interest in the Cole Creek
properties in exchange for $250,000 in cash plus the assumption of liabilities in the amount of $182,938 for a total purchase
price of $432,938. These leases are proved developed and undeveloped leaseholds and include producing crude oil wells totaling
approximately 13,328 gross acres. See Note 2 – Principles of Consolidation.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Note
2 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated balance sheets at March 31, 2016 and 2015 and the consolidated statement of operations and cash flows
for the year ended March 31, 2016 include the accounts of Terex Energy Corporation, T-Rex Oil, Inc., Western Interior Oil and
Gas Corporation and T-Rex Oil LLC #3 and the consolidated statement of operations and cash flows for the year ended March 31,
2015 include the accounts of Terex Energy Corporation and the accounts of T-Rex Oil, Inc. for the period December 23, 2014 through
March 31, 2015. All intercompany balances have been eliminated during consolidation.
Use
of Estimates in the Preparation of Consolidated Financial Statements
The
preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the fair
value of assets and liabilities, oil and natural gas reserves, income taxes and the valuation allowances related to deferred tax
assets, asset retirement obligations and contingencies.
Cash
and Cash Equivalents
The
Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash
and cash equivalents include demand deposits and money market funds carried at cost which approximates fair value. The Company
maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”), although such deposits
are in excess of the insurance coverage. At March 31, 2016, the Company had $111,641 of cash deposits in excess of FDIC insured
limits.
Concentration
of Credit Risk
The
Company’s producing properties are primarily located in Wyoming and the oil and gas production is sold to various purchasers
based on market index prices. The risk of non-payment by these purchasers is considered minimal and the Company does not generally
obtain collateral for sales. The Company continually monitors the credit standing of the primary purchasers.
During the years ended March 31, 2016 and
2015, one purchaser accounted for 79% and 74.5% of total revenues, respectively.
Accounts Receivable
Accounts receivable are stated at their cost less any allowance for doubtful accounts.
The allowance for doubtful accounts is based on the management’s assessment of the collectability of specific customer accounts
and the aging of the accounts receivable. If there is deterioration in a major customer’s creditworthiness or if actual
defaults are higher than the historical experience, the management’s estimates of the recoverability of amounts due to the
Company could be adversely affected. Based on the management’s assessment, there is no reserve recorded at March 31, 2016
and 2015.
Oil
and Gas Producing Activities
The
Company uses the successful efforts method of accounting for oil and gas activities. Under this method, the costs of productive
exploratory wells, all development wells, related asset retirement obligation assets, and productive leases are capitalized and
amortized, principally by field, on a units-of-production basis over the life of the remaining proved reserves. Exploration costs,
including personnel costs, geological and geophysical expenses, and delay rentals for oil and gas leases are charged to expense
as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not
to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost
recovery, and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization
rate. A gain or loss is recognized for all other sales of producing properties. There were capitalized costs of $11,368,626 and
$10,003,625 at March 31, 2016 and 2015, respectively.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Unproved oil and gas properties are assessed
annually to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances,
which may indicate a decline in value. When impairment occurs, a loss is recognized. When leases for unproved properties expire,
the costs thereof, net of any related allowance for impairment, is removed from the accounts and charged to expense. During the
years ended March 31, 2016 and 2015, there was impairment to unproved properties in the amount of $3,384,758 and $0, respectively
and for the year ended March 31, 2016 there was a write off of expired lease costs in the amount of $3,096,931. The sale of a
partial interest in an unproved property is accounted for as a recovery of cost when substantial uncertainty exists as to the
ultimate recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent that the sales
price exceeds the carrying amount of the unproved property. A gain or loss is recognized for all other sales of unproved properties.
There were capitalized costs of $4,745,917 and $8,087,991 at March 31, 2016 and 2015, respectively.
Costs
associated with development wells that are unevaluated or are waiting on access to transportation or processing facilities are
reclassified into developmental wells-in-progress (“WIP”). These costs are not put into a depletable field basis until
the wells are fully evaluated or access is gained to transportation and processing facilities. Costs associated with WIP are included
in the cash flows from investing as part of investment in oil and gas properties. At March 31, 2016 and 2015, no capitalized developmental
costs were included in WIP.
Depreciation,
depletion and amortization of proved oil and gas properties is calculated using the units-of-production method based on proved
reserves and estimated salvage values. For the years ended March 31, 2016 and 2015, the Company recorded depreciation, depletion
and amortization expense on oil and gas properties in the amount of $3,327,337 and $0, respectively.
The
Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline
in the recoverability of its carrying value may have occurred. It estimates the undiscounted future net cash flows of its oil
and natural gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and natural gas
properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future
cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. For the years ended
March 31, 2016 and 2015, there was impairment to proved properties of $5,091,554 and $0, respectively.
Other
Property and Equipment
Other
property and equipment, such as computer hardware and software, are recorded at cost. Costs of renewals and improvements that
substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred.
When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed from
their respective accounts. Depreciation expense of other property and equipment for the years ended March 31, 2016 and 2015 was
$42,591 and $10,143, respectively.
Asset
Retirement Obligations
The
Company records estimated future asset retirement obligations (“ARO”) related to its oil and gas properties. The Company
records the estimated fair value of a liability for ARO in the period in which it is incurred with a corresponding increase in
the carrying amount of the related long-lived asset. The increased carrying value is depleted using the units-of-production method,
and the discounted liability is increased through accretion over the remaining life of the respective oil and gas properties.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
estimated liability is based on historical industry experience in abandoning wells, including estimated economic lives, external
estimates as to the cost to abandon the wells in the future, and federal and state regulatory requirements. The Company’s
liability is discounted using management’s best estimate of its credit-adjusted, risk-free rate. Revisions to the liability
could occur due to changes in estimated abandonment costs, changes in well economic lives, or if federal or state regulators enact
new requirements regarding the abandonment of wells.
|
|
For the Year Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
ARO - beginning of period
|
|
$
|
459,294
|
|
|
$
|
-
|
|
Additions
|
|
|
721,860
|
|
|
|
459,294
|
|
Deletions
|
|
|
(15,190
|
)
|
|
|
-
|
|
Accretion expense
|
|
|
31,179
|
|
|
|
-
|
|
|
|
|
1,197,143
|
|
|
|
459,294
|
|
Less current portion
|
|
|
176,587
|
|
|
|
163,389
|
|
ARO - end of period
|
|
$
|
1,020,556
|
|
|
$
|
295,905
|
|
Impairment
of Long-Lived Assets
In
accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic
360 of the ASC, the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events
occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted
future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the
amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. Revenue
is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered to the customer, the price to the buyer is fixed or determinable and collectability is reasonably assured. For goods,
this is the point at which title and risk of loss is transferred and when payment has either been received or collection is reasonably
assured. Revenues for services are recorded when the services have been provided. Revenue that does not meet these criteria is
deferred until the criteria are met.
Other
Comprehensive Loss
The
Company has no material components of other comprehensive loss and accordingly, net loss is equal to comprehensive loss for the
period.
Income
Taxes
The
Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized
for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company’s
assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in
which the temporary differences are expected to reverse.
The
Company’s deferred income taxes include certain future tax benefits. The Company records a valuation allowance against any
portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred income tax asset will not be realized.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting
for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized
in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a
two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be
sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to
meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount
that is greater than 50% likely to be realized upon its ultimate settlement. At March 31, 2016, there were no uncertain tax positions
that required accrual.
Business
Combination
The
Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance requires consideration
given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair values at the date
of acquisition. The guidance further provides that acquisition costs will generally be expenses as incurred and changes in deferred
tax asset valuations and income tax uncertainties after the acquisition date generally will affect income tax expense.
ASC
805 requires that any excess of purchase price over the fair value of assets acquired, including identifiable intangibles and
liabilities assumed be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable intangible
assets over the acquisition consideration results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity
must reassess whether ass acquired assets and assumed liabilities have been identified and recognized and perform re-measurements
to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued.
Goodwill
In
accordance with generally accepted accounting principles, goodwill cannot be amortized, however, it must be tested annually for
impairment. This impairment test is calculated at the reporting unit level. The goodwill impairment test has two steps. The first
identifies potential impairments by comparing the fair value of a reporting unit with its book value, including goodwill. If the
fair value of the reporting unit exceeds the carrying amount, goodwill is not impaired and the second step is not necessary. If
the carrying value exceeds the fair value, the second step calculates the possible impairment loss by comparing the implied fair
value of goodwill with the carrying amount. If the implied goodwill is less than the carrying amount, a write-down is recorded.
Management tests goodwill each year for impairment, or when facts or circumstances indicate impairment has occurred. See Note
4 – Fair Value Measurement.
Net
Loss per Share
Basic
net loss per common share of stock is calculated by dividing net loss available to common stockholders by the weighted-average
number of common shares outstanding during each period.
Diluted
net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding, including
the effect of other dilutive securities. The Company’s potentially dilutive securities consist of in-the-money outstanding
options and warrants to purchase the Company’s common stock. Diluted net loss per common share does not give effect to dilutive
securities as their effect would be anti-dilutive.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
treasury stock method is used to measure the dilutive impact of stock options and warrants. The following table details the weighted-average
dilutive and anti-dilutive securities related to stock options and warrants for the periods presented:
|
|
For the Year Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Dilutive
|
|
|
-
|
|
|
|
-
|
|
Anti Dilutive
|
|
|
2,494,571
|
|
|
|
1,389,546
|
|
Equity
Based Payments
The
Company recognizes compensation cost for equity based awards based on estimated fair value of the award and records capitalized
cost or compensation expense over the requisite service period. See Note 9 – Equity Based Payments.
Major
Customers
During
the year ended March 31, 2016, one purchaser accounted for approximately 79% of total revenues. The Company had no revenues from
operations during the year ended March 31, 2015 and as a result there are no customers.
Beneficial
Conversion Feature and Deemed Dividend Related to Series A Shares
Pursuant
to ASC 470-20, when the $558,171 of convertible Series A Shares of preferred stock were issued at a discount from the if-converted
$682,989 fair value as of the issuance date, the Company recognized this difference between the fair value per share of its common
stock and the conversion price, multiplied by the number of shares issuable upon conversion. This total Beneficial Conversion
Feature of $124,818 will be recorded as additional paid-in-capital for common shares. The offsetting amount will be amortizable
over the period from the issue date to the first conversion date or 9 months. Therefore, since the 409,019 Series A Shares of
preferred stock are convertible between July and December of 2016, a deemed dividend of $67,830 to the Series A Shares of preferred
stock has been recorded during the year ended March 31, 2016 in its statement of operations and cash flows. As the Company is
in an accumulated deficit position, the deemed dividend of $67,830 has been charged against additional paid-in-capital for common
shares as there being no retained earnings from which to declare a dividend.
Off-Balance
Sheet Arrangements
As
part of its ongoing business, the Company has not participated in transactions that generate relationships with unconsolidated
entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs),
which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow
or limited purposes. From its incorporation on February 11, 2014 through March 31, 2016, the Company has not been involved in
any unconsolidated SPE transactions.
Recent
Accounting Pronouncements
In
June 2014, the FASB issued ASU No. 2014-10,
Development Stage Entities (Topic915) – Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation
. This standard
update is to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements
for development stage entities, and as a result removes all incremental financial reporting requirements. This standard update
also eliminates an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity
is a variable interest entity on the basis of the amount of the investment equity that is at risk.
ASU 2014-10 is effective
for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017.
Entities are allowed to apply the guidance early for any annual reporting period or interim period for which the entity’s
financial statements have not yet been issued or made available for issuance. The Company adopted these standards and they did
not have a material impact on the Company’s consolidated financial statements.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
In
August 2014, the FASB issued
Update No. 2014-15 - Presentation of Financial Statements – Going Concern
that requires
management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to
continue as a going concern within one year after the date that the entity’s financial statements are issued, or within
one year after the date that the entity’s financial statements are available to be issued, and to provide disclosures when
certain criteria are met. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods
and interim periods thereafter. Early application is permitted. The Company is currently evaluating the provisions of this guidance
and assessing its impact, but does not currently believe it will have a material effect on the Company’s consolidated financial
statements or disclosures.
In
September 2015, the FASB issued ASU No. 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period
Adjustments.
ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during
the measurement period in the reporting period in which the adjustment amounts are determined. Under ASU 2015-16, the effect on
earnings resulting from changes to the provisional amounts, calculated as if the accounting had been completed as of the acquisition
date, must be recorded in the reporting period in which the adjustment amounts are determined rather than retrospectively. The
amendments in this ASU are effective for annual and interim periods beginning after December 15, 2015. ASU 2015-16 should be adopted
prospectively to adjustments to provisional amounts occurring after the effective date of the update and earlier application is
permitted for financial statements that have not been issued. The Company adopted these standards and they did not have a material
impact on the Company’s consolidated financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
ASU 2015-17”). ASU 2015-17 is part of the FASB’s initiative to reduce the complexity in accounting standards. ASU
2015-17 requires entities to present deferred tax assets and deferred tax liabilities as non-current in a classified balance sheet.
The amendments in this ASU simplify current guidance in ASC 740-10-45-4 that requires separate presentation of deferred tax assets
and liabilities as current and non-current in a classified balance sheet based on the classification of the related asset or liability.
ASU 2015-17 is effective for public companies for annual periods beginning after December 15, 2017 and interim periods beginning
after December 15, 2018. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company
adopted this ASU as of March 31, 2016. The adoption of this ASU did not have a material impact on our consolidated balance sheets
as of March 31, 2016 and 2015.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842).
ASU 2016-02 requires lessees to recognize all leases,
including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease.
ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods
and fiscal years beginning after December 15, 2018, and early application is permitted. The Company is in the process of determining
the method of adoption and the impact this guidance will have on its financial condition, results of operations and cash flows.
There
were other accounting standards and interpretations issued during the year ended March 31, 2016, none of which are expected to
have a material impact on the Company’s financial position, operations or cash flows.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Subsequent
Events
The
Company evaluates events and transactions after the balance sheet date but before the financial statements are issued.
Note
3 – Going Concern and Managements’ Plan
The Company’s consolidated financial
statements for the years ended March 31, 2016 and 2015 have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss
of $15,767,831 and $11,043,541 for the years ended March 31, 2016 and 2015, respectively, and an accumulated deficit of $26,756,973
as of March 31, 2016. At March 31, 2016, the Company had a working capital deficit of $(1,107,664).
The
future success of the Company is dependent on its ability to attract additional capital and ultimately, upon its ability to develop
future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that
it will attain positive cash flow from operations. Management believes that actions presently being taken to revise the Company’s
operating and financial requirements provide the opportunity for the Company to continue as a going concern.
Note
4 – Fair Value Measurements
The
Company applies the authoritative guidance applicable to all financial assets and liabilities required to be measured and reported
on a fair value basis, as well as to non-financial assets and liabilities measured at fair value on a non-recurring basis, including
impairments of proved oil and gas properties and other long-lived assets and AROs initially measured at fair value. The fair value
of an asset or liability is the amount that would be received to sell an asset or paid to transfer a liability (an exit price)
in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs
and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants
would use in valuing the asset or liability based on market data obtained from sources independent of the Company. Unobservable
input are inputs that reflect the Company’s assumptions of what market participants would use in valuing the asset or liability
based on the information available in the circumstances.
Financial
and non-financial assets and liabilities are classified within the valuation hierarchy based upon the lowest level of input that
is significant to the fair value measurement. The Company’s policy is to recognize transfers in and out of the fair value
hierarchy as of the end of the reporting period in which the event or change in circumstances caused the transfer. The Company
has consistently applied the valuation techniques discussed below in all periods presented. The hierarchy is organized into three
levels based on the reliability of the inputs as follows:
Level
1: Quoted prices in active markets for identical assets or liabilities; or
Level
2: Quoted prices in active markets for similar assets and liabilities and inputs, quoted prices for identical or similar assets
or liabilities in markets that are not active and model-derived valuations whose inputs or significant value drivers are observable;
or
Level
3: Unobservable pricing inputs in which there is little or no market data, which requires the reporting entity to develop its
own assumptions.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
following table presents the Company’s non-financial assets and liabilities that were measured at fair value on a non-recurring
basis at March 31, 2016 by level within the fair value hierarchy:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties
|
|
$
|
-
|
|
|
$
|
930,238
|
|
|
$
|
-
|
|
|
$
|
930,238
|
|
Effective
January 1, 2016, the Company acquired approximately 82% of the working interest in certain leases located in the state of Wyoming
known as the Cole Creek properties and recorded the oil and gas properties at a fair value of $2,033,382. Thus, due to the significance
of this event, the oil and gas properties were tested under ASC 360 as to its recoverability. Therefore, the oil and gas properties
were recorded at fair value if impairment is required under the accounting guidance. The Company uses Level 2 inputs and the income
valuation techniques of undiscounted oil and gas future net cash flows to measure the fair value of the oil and gas properties
and thus the model forecast including discount rates and commodity prices were selected by the independent engineers of Netherland,
Sewell & Associates, Inc. As such, there was an impairment to the oil and gas properties during the year ended March 31, 2016,
the amount of $1,103,144 and reported in the consolidated statement of operations.
The
following table presents the Company’s non-financial assets and liabilities that were measured at fair value on a non-recurring
basis at March 31, 2015 by level within the fair value hierarchy:
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Other property and equipment
|
|
$
|
-
|
|
|
$
|
22,632
|
|
|
$
|
-
|
|
|
$
|
22,632
|
|
Effective
March 31, 2015, the Company acquired Western Interior and as a result realized goodwill in the amount of $7,786,997. Thus, due
to the significance of this event, goodwill was tested under ASC 360 as to its recoverability. Therefore, goodwill is recorded
at fair value if impairment is required under the accounting guidance. The Company uses Level 2 inputs and the income valuation
techniques of undiscounted oil and gas future net cash flows to measure the fair value of goodwill and thus the model forecast
including discount rates and commodity prices were selected by the independent engineers of Netherland, Sewell & Associates,
Inc. As such, the Company’s goodwill was fully impaired during the year ended March 31, 2015 in the amount of $7,786,997
and reported in the consolidated statement of operations.
Fair
value in the initial recognition of other equipment is determined based on the quoted fair value of the vehicle using inputs from
valuation techniques used by industry participants. Accordingly, the fair value is based on observable pricing inputs and is considered
a Level 2 value measurement. Therefore, the Company’s other equipment was written down to its fair value of $22,632 and
an impairment during the year ended March 31, 2015 in the amount of $27,368 was reported in the consolidated statement of operations.
Note
5 – Significant Acquisition
Effective
January 1, 2016, the Company acquired approximately 82% of the working interest in certain leases located in the state of Wyoming
known as the Cole Creek properties.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
following table presents the allocation of the consideration given to the assets acquired and liabilities assumed, based on their
fair values at January 1, 2016:
Consideration Given
|
|
|
|
Cash
|
|
$
|
1,200,000
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
1,200,000
|
|
|
|
|
|
|
Allocation of Consideration Given
|
|
|
|
Oil and gas properties Proved
|
|
$
|
2,033,382
|
|
|
|
|
|
|
Total assets
|
|
|
2,033,382
|
|
|
|
|
|
|
Current liabilities
|
|
|
111,522
|
|
Long-term liabilities
|
|
|
721,860
|
|
|
|
|
|
|
Total liabilities
|
|
|
833,382
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,200,000
|
|
Effective
March 31, 2015, the Company acquired 100% of the issued and outstanding stock of Western Interior which is a Wyoming private oil
and natural gas company. The acquisition was a business combination accounted for using the acquisition method in accordance with
ASC 805.
The
following table presents the allocation of the consideration given to the assets acquired and liabilities assumed, based on their
fair values at March 31, 2015:
Consideration Given
|
|
|
|
|
|
|
T-Rex shares issued to Western Interior shareholders
|
|
|
7,465,168
|
|
|
|
|
|
Fair value of T-Rex shares at date of acquisition
|
|
$
|
2.60
|
|
|
$
|
19,409,437
|
|
|
|
|
|
|
|
|
|
|
Promissory notes issued to Western Interior shareholders
|
|
|
|
|
|
|
1,770,047
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
|
|
|
|
$
|
21,179,484
|
|
|
|
|
|
|
|
|
|
|
Allocation of Consideration Given
|
|
|
|
|
|
|
Current assets
|
|
$
|
154,695
|
|
|
|
|
|
Oil and gas properties
|
|
|
|
|
|
|
|
|
Proved
|
|
|
8,458,250
|
|
|
|
|
|
Unproved
|
|
|
5,585,583
|
|
|
|
|
|
Other property and equipment
|
|
|
242,837
|
|
|
|
|
|
Goodwill
|
|
|
7,780,336
|
|
|
|
|
|
Other assets
|
|
|
183,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
$
|
22,404,830
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
929,441
|
|
|
|
|
|
Long-term liabilities
|
|
|
295,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
1,225,346
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
|
|
|
|
$
|
21,179,484
|
|
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Goodwill
associated with the above transaction has been impaired. See Note 4 – Fair Value Measurements.
The
unaudited pro forma condensed combined results of operations are presented below as though the acquisition of Western Interior
occurred on April 1, 2014.
|
|
Revenue
|
|
|
Net Loss
|
|
Year ended March 31, 2015 - as reported
|
|
$
|
-
|
|
|
$
|
11,043,541
|
|
Year ended March 31, 2015 - pro forma
|
|
$
|
895,182
|
|
|
$
|
14,285,867
|
|
Note
6 – Debt
Promissory
Notes
The
Company during the year ended March 31, 2016 paid $341,405 in principal towards the repayment of promissory notes relative to
the repurchase of 18,717 shares of Western Interior common stock owned by dissident shareholders as part of agreements effective
March 31, 2015 to repurchase a total of 33,085 shares of Western Interior common stock. The Company at March 31, 2016 owes a balance
in the amount of $488,298 on one of the promissory notes plus accrued interest of $12,783 with the remaining three promissory
notes being paid in full.
On
August 1, 2015, the Company, relative to the repurchase by the Company on March 31, 2015 of the remaining 14,368 shares of Western
Interior common stock entered into an agreement with the note holder to settle the amount owed under the promissory note. As such,
the parties agreed the amount owed on such promissory note by the Company would be reduced from $768,715 to $393,795 and the difference
of $374,920 be considered a reduction in the purchase price by the Company of the 14,368 shares of Western Interior common stock.
In addition, the $393,795 was paid in full effective August 1, 2015 by the transfer to the note holder of certain oil and gas
properties owned by Western Interior which resulted in the Company reporting a gain on disposal of assets in the amount of $44,100.
On
January 14, 2016, the Company borrowed $50,000 each from two directors in exchange for secured promissory notes including interest
at the rate of 5% per annum with accrued and unpaid interest and principal due at September 30, 2016. The promissory notes are
collateralized by certain oil and gas properties located in the State of Wyoming. Holders may, at any time prior to payment of
the promissory notes elect to convert all or any portion of the promissory notes, including accrued interest, into common shares
of the Company at a price determined by the average ten consecutive day trading closing price less 30%. The Company at March 31,
2016 owes $100,000 on the two promissory notes plus accrued interest of $1,052.
Line-of-Credit
The
Company has a line-of-credit with a bank in the amount of $350,000 collateralized by certain oil and gas properties of the Company.
The line-of-credit matures in November 2016. Annual interest is at prime plus 2.50% with a floor of 7%). The Company owes $174,789
on the line-of-credit at March 31, 2016.
Installment
Notes
The
Company during the years ended March 31, 2016 and 2015, borrowed $34,374 and $17,288 from unrelated parties to finance their insurance
policies. The unsecured notes are repaid during the year ended March at $3,437 per month including interest at the rate of 5.81%
per annum. The Company owed $20,123 and $20,630 at March 31, 2016 and 2015, respectively.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Note
7 – Stockholders’ Equity
The
Company’s capital stock at March 31, 2016 consists of 325,000,000 authorized shares of which 50,000,000 shares are $0.001
par value preferred stock and 275,000,000 shares are $0.001 par value common stock.
Preferred
Shares
At
March 31, 2016 and 2015, there are a total of 409,019 and 0 shares of preferred stock issued and outstanding, respectively.
On
October 28, 2015, the Company filed an Amendment to its Articles of Incorporation to designate a class of preferred stock as the
Series A Convertible Preferred Stock.
The
Amendment sets aside 5,000,000 shares of the authorized 50,000,000 shares of the Company’s $0.001 par value preferred stock
as the Series A Convertible Preferred Stock (“the Series A Shares.”) The Series A Shares are convertible at the option
of the Holder into common shares of the Company’s stock 9 months after the date of issuance. Further, the Series A Shares
have a conversion price based upon 80% of the 10 day average of the Company’s closing market price at the time of conversion.
In
October 2015, the Company commenced a private placement financing of $7,000,000 in Units, a Unit consisting of one share of its
Series A Shares and an Unit Warrant. The Unit Warrant has an exercise price of $3.00 per share and a term of 3 years. The Unit
Warrant is exercisable 9 months after issuance and is callable by the Company upon the Company’s common stock closing at
a market price of $5.00 or above for a period of 10 days.
Pursuant
to ASC 470-20, when the $558,171 of convertible Series A Shares of preferred stock were issued at a discount from the if-converted
$682,989 fair value as of the issuance date, the Company recognized this difference between the fair value per share of its common
stock and the conversion price, multiplied by the number of shares issuable upon conversion. This total Beneficial Conversion
Feature of $124,818 will be recorded as additional paid-in-capital for common shares. The offsetting amount will be amortizable
over the period from the issue date to the first conversion date or 9 months. Therefore, since the 409,019 Series A Shares of
preferred stock are convertible between July and December of 2016, a deemed dividend of $67,830 to the Series A Shares of preferred
stock has been recorded during the year ended March 31, 2016 in its statement of operations and cash flows. As the Company is
in an accumulated deficit position, the deemed dividend of $67,830 has been charged against additional paid-in-capital for common
shares as there being no retained earnings from which to declare a dividend.
During
the year ended March 31, 2016, the Company received $818,038, including cash of $793,037, in exchange for the issuance of 409,019
shares of its Series A Preferred Stock and Unit Warrants exercisable for 419,019 shares of common stock.
We
apply the guidance enumerated in ASC 480 “
Distinguishing Liabilities from Equity
” when determining the classification
and measurement of preferred shares. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments
and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares
that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control, as equity. At all other times, we classified our preferred shares in stockholders’
equity.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
We
have applied the guidance of ASC 470 “
Deb
t” in accounting for the unit warrants and as such have valued the
Unit Warrants using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which
the most significant are the stock price at the valuation date that was at a range of $1.10 to $1.50 per share as well as the
following assumptions:
Volatility
|
|
82%
- 134%
|
Expected
Option/Warrant Term
|
|
3
years
|
Risk-free
interest rate
|
|
.25%
|
Expected
dividend yield
|
|
0.00%
|
The
expected term of the Unit Warrants granted were estimated to be the contractual term. The expected volatility was based on an
average of the volatility disclosed based upon comparable companies who had similar expected option and warrant terms. The risk-free
rate was based on the one-year U.S. Treasury bond rate.
As
a result, the Unit Warrants exercisable for 409,019 shares of our restricted common stock were valued at $135,049 and as such
$67,830 was credited to additional paid in capital during the year ended March 31, 2016.
Common
Shares
At
March 31, 2016 and 2015, there are a total of 15,480,882 and 15,295,025 shares of common stock issued and outstanding, respectively.
During
the year ended March 31, 2016, the Company as part of a private placement sold 680,536 shares of its restricted common stock for
$509,133 in cash and 11,000 shares for $27,500 in cash. In April 2015, the Company entered into a Subscription Agreement to sell
up to 2,800,000 shares of its restricted common stock pursuant to Regulation S of the Securities Act in exchange for funds totaling
$6,020,000. In July 2015, the Company and Schwaben Kapital GmbH amended their Subscription Agreement pursuant to Regulation S
of the Securities Act to extend the expiration of the Subscription Agreement from June 30, 2015 to September 30, 2015.The Agreement
was terminated as of September 30, 2015 and during the year ended March 31, 2016, the Company sold 664,050 shares of its restricted
common stock as part of the Subscription Agreement for $1,345,000 in cash or $2.15 per share. In addition, the Company issued
8,000 shares of its restricted common stock as payment of an accounts payable in the amount of $20,000 and the Company recognized
no gain or loss between the face value of the accounts payable and the fair value of the common stock.
During
the year ended March 31, 2015, the Company issued 7,385,700 shares of its restricted common stock to the shareholders of Terex
as part of an Exchange Agreement. See Note 1 – Organization and History. In addition, the Company issued 81,692 shares as
part of the recapitalization of the Company. Also, the Company issued 7,465,168 shares of its restricted common stock valued at
$19,409,437 to the shareholders of Western Interior Oil and Gas Corporation as part of an acquisition. See Note 4 – Significant
Acquisition. Further, the Company sold 20,000 shares of its restricted common stock as part of a private placement for $50,000
in cash or $2.50 per share.
Additional
Paid-in Capital
During
the year ended March 31, 2016, as the Company is in an accumulated deficit position, the deemed dividend in the amount of $67,830
was charged against additional paid-in-capital as there being no retained earnings from which to declare a dividend.
During
the year ended March 31, 2016, the Company realized additional paid in capital relative to the fair value of equity based payments
in the amount of $60,262 See Note 9 – Equity Based Payments.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
During
the year ended March 31, 2015, shareholders of Terex as part of a private placement contributed cash in the amount of $2,195,700
in exchange for 2,195,700 shares of Terex restricted common stock valued at $1.00 per share. In addition, shareholders of Terex
contributed services valued at $950,000 in exchange for 950,000 shares of Terex restricted common stock that were expensed including
750,000 shares to a related party. See Note 10 - Related Party Transactions. Further, Terex received property valued at $50,000
in exchange for 50,000 shares of Terex restricted common stock that was capitalized under other property and equipment.
During
the year ended March 31, 2015, the Company realized additional paid in capital relative to the fair value of equity based payments
in the amount of $394,682 of which $19,707 was expensed and $374,975 was capitalized of which $150,978 was from a transaction
with a related party. See Note 9 – Equity Based Payments.
Retirement
of Common Shares
During
the year ended March 31, 2016, the Company entered into settlement agreements with four of its shareholders to settle certain
claims valued at $1,531,047 in exchange for the shareholders returning to the Company 1,177,729 shares of their common stock.
Note
8 – Income Taxes
The
effective income tax rate for the years ended March 31, 2016 and 2015 differs from the U.S. Federal statutory rate due to the
following:
|
|
2016
|
|
|
2015
|
|
Federal statutory income tax rate
|
|
$
|
5,492,000
|
|
|
$
|
3,865,000
|
|
State income taxes, net of federal benefit
|
|
|
472,000
|
|
|
|
332,000
|
|
Permanent items
|
|
|
(3,231,000
|
)
|
|
|
(2,960,000
|
)
|
Change in valuation allowance
|
|
|
(2,733,000
|
)
|
|
|
(1,237,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
components of the deferred tax assets and liabilities at March 31, 2016 and 2015 are as follows:
|
|
2016
|
|
|
2015
|
|
Long-term deferred tax assets:
|
|
|
|
|
|
|
|
|
Federal net operating loss carryforwards
|
|
$
|
3,580,000
|
|
|
$
|
870,000
|
|
Equity based compensation
|
|
|
391,000
|
|
|
|
368,000
|
|
Long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
4,000
|
|
|
|
4,000
|
|
Valuation allowance
|
|
|
(3,975,000
|
)
|
|
|
(1,242,000
|
)
|
Net long-term deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
For
Income Tax Return Purposes Only
On
August 19, 2014, Terex Energy Corporation acquired 52% of the outstanding common stock of T-Rex Oil Inc. and thus T-Rex had a
change of control event under IRC section 382, which will limit T-Rex’s ability to utilize its deferred tax assets, including
net operating loss carryforwards, to offset future taxable income. T-Rex has net operating loss carryforwards of approximately
$49,000,000 which will begin to expire in 2024.
On
December 22, 2014, T-Rex acquired 100% of the outstanding common stock of Terex and Terex did not have a change of control event
under IRC section 382. Terex has net operating loss carryforwards of approximately $425,000 which will begin to expire in 2034.
On
March 31, 2015, T-Rex acquired 100% of the outstanding common stock of Western Interior and Western Interior had a change of control
event under IRC section 382 which will limit T-Rex’s ability to utilize its deferred tax assets, including net operating
loss carryforwards of approximately $12,000,000 (limited to approximately $560,000 per year) which will begin to expire in 2027,
to offset future taxable income.
The
tax years that remain open to examination by the IRS are years 2012 through 2014. Due to the Company’s net operating loss
carryforwards, the IRS may also adjust the amount of loss realizable under examination back to the year 2008.
Note
9 – Equity Based Payments
The
Company accounts for equity based payment accruals under authoritative guidance as set forth in the Topics of the ASC. The guidance
requires all equity based payments to employees and non-employees, including grants of employee and non-employee stock options
and warrants, to be recognized in the consolidated financial statements based at their fair values.
The
Black-Scholes option-pricing model is used to estimate the option and warrant fair values. The option-pricing model requires a
number of assumptions, of which the most significant are the stock price at the valuation date that ranged from $0.01 to $3.50
per share as well as the following assumptions:
Volatility
|
|
82.00%
- 134.00%
|
Expected
Option/Warrant Term
|
|
9
months - 3 years
|
Risk-free
interest rate
|
|
.12%
- .25%
|
Expected
dividend yield
|
|
0.00%
|
The
expected term of the options and warrants granted were estimated to be the contractual term. The expected volatility was based
on an average of the volatility disclosed based upon comparable companies who had similar expected option and warrant terms. The
risk-free rate was based on the one-year U.S. Treasury bond rate.
2014
Stock Incentive Plan
Effective
October 1, 2014, the Company’s 2014 Stock Option and Award Plan (the “2014 Stock Incentive Plan”) was approved
by its Board of Directors. Under the 2014 Stock Incentive Plan, the Board of Directors may grant options or purchase rights to
purchase common stock to officers, employees, and other persons who provide services to the Company or any related company. The
participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase
price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options
shall not exceed 10 years. A total of 2 million shares of the Company’s common stock are subject to the 2014 Stock Incentive
Plan. The shares issued for the 2014 Stock Incentive Plan may be either treasury or authorized and unissued shares.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
following table summarizes the non-qualified stock option and warrant activity for the years ended March 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Options/
|
|
|
Weighted Average
|
|
|
Options/
|
|
|
Weighted Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Outstanding at beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
935,000
|
|
|
$
|
0.018
|
|
|
|
28,571
|
|
|
$
|
0.010
|
|
Warrants
|
|
|
942,858
|
|
|
$
|
0.080
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
1,262,750
|
|
|
$
|
0.100
|
|
|
|
935,000
|
|
|
$
|
0.010
|
|
Warrants
|
|
|
409,019
|
|
|
$
|
3.000
|
|
|
|
942,858
|
|
|
$
|
0.800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Warrants
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
(1,070,000
|
)
|
|
$
|
0.010
|
|
|
|
(28,571
|
)
|
|
$
|
0.010
|
|
Warrants
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
1,127,750
|
|
|
$
|
0.039
|
|
|
|
935,000
|
|
|
$
|
0.018
|
|
Warrants
|
|
|
1,351,877
|
|
|
$
|
1.462
|
|
|
|
942,858
|
|
|
$
|
0.800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
1,127,750
|
|
|
$
|
0.039
|
|
|
|
907,917
|
|
|
$
|
0.010
|
|
Warrants
|
|
|
1,351,877
|
|
|
$
|
1.462
|
|
|
|
942,858
|
|
|
$
|
0.800
|
|
Weighted average remaining contractual life
|
|
Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
Life
|
|
|
Aggregate
Intrinsic Value
|
|
Options
|
|
|
1.13
|
|
|
$
|
1,115,084
|
|
|
|
2.68
|
|
|
$
|
2,258,200
|
|
Warrants
|
|
|
1.21
|
|
|
$
|
511,500
|
|
|
|
2.82
|
|
|
$
|
1,668,000
|
|
The
aggregate intrinsic value of outstanding securities is the amount by which the fair value of underlying (common) shares exceed
the amount paid for and the exercise price of the options and warrants issued and outstanding.
Note
10 – Commitments and Contingencies
Operating
Lease
The
Company leases an office space in Colorado at the rate of $4,572 per month and the lease expires in August 2017. In addition,
the Company leases an office space in Wyoming at the rate of $5,838 per month and the lease expires in June 2019. Total rent expense
under these leases was $128,340 and $37,614 for the years ended March 31, 2016 and 2015.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
The
following is a schedule of minimum future rental annual payments under the operating lease for the stated fiscal year ends:
3/31/2017
|
|
|
123,453
|
|
3/31/2018
|
|
|
83,111
|
|
3/31/2019
|
|
|
62,940
|
|
3/31/2020
|
|
|
15,735
|
|
|
|
$
|
285,240
|
|
Employment
Agreements
In
August 2014, Terex entered into an Employment Agreement for services with its Chief Executive Officer, President and director.
The Employment Agreement has a term of 3 years and provides for an annual compensation of $204,000 and a monthly car allowance
of $600. It also provides for an annual bonus as determined by the board of directors.
In
November 2014, Terex entered into an Employment Agreement for services with its Vice President of Operations and director. The
Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual
bonus as determined by the board of directors.
In
November 2014, Terex entered into an Employment Agreement for services with its Vice President of Geology and director. The Employment
Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual bonus as determined
by the board of directors.
In
January 2015, T-Rex entered into an Employment Agreement for services with its Vice President of Operations and director. The
Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual
bonus as determined by the board of directors.
Consulting
Agreement
The
Company entered into a three-year agreement effective September 1, 2014 with a consultant to perform services at the base rate
of $150,000 per year under certain terms and conditions including with an auto allowance of $600 per month. In addition, the consultant
has been granted cashless options to acquire up to 500,000 shares of T-Rex’s common stock at an option price of $0.10 per
share for a period of three years from April 1, 2014. The options vested ratably over the year ended March 31, 2015. See Note
9 – Equity Based Payments.
Note
11 – Related Party Transactions
Equity
for Services
On
April 1, 2014, an officer and director of the Company was granted options to acquire 100,000 shares of T-Rex’s restricted
common stock in exchange for services valued at $115 or $0.0015 per share.
On
August 25, 2014 a shareholder of Terex that is a director of the Company contributed services valued at $750,000 that were expensed
in exchange for 750,000 shares of Terex restricted common stock valued at $1.00 per share.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
During
September 2014, an officer of the Company and a related party sold unproved oil and gas property to the Company in exchange for
$50,000 in cash and warrants to acquire 400,000 shares of the Terex restricted common stock that was recorded by the Company at
the historical cost basis to the officer and related party or $150,798.
Consulting
Services
During
the year ended March 31, 2016 and 2015, the Company paid its officers and directors $0 and $193,149, respectively in fees that
were expensed.
T-Rex
Oil LLC #1
The
Company is the manager of T-Rex Oil LLC #1 that was formed during December 2014 for the purpose of drilling and producing oil
and gas wells. During the year ended March 31, 2015, the Company loaned the LLC $50,000 and at March 31, 2016 and 2015, the Company
is owed $0 and $50,000, respectively.
The
Company in December 2014 entered into put agreements with the members of T-Rex #1 whereby the Company granted a right to put the
purchase of their interest of T-Rex #1 in the amount of $425,000 back to the Company at an exercise price of $2.00 per share or
a total of 212,500 shares of the Company’s common stock.
T-Rex
Oil LLC #3
The
Company is the manager of T-Rex Oil LLC #3 that was formed in January 2016 for the purpose of acquiring and developing oil and
gas leases known as the Cole Creek properties in Wyoming. T-Rex Oil LLC #3 is included as part of the consolidated financial statements
as of and for the year ended March 31, 2016. See Note 1 – Organization and History.
Note
12 – Subsequent Events
Sale
of Common Shares
During
the period April 1, 2016 through June 20, 2014, the Company sold 254,382 shares of its common stock in exchange for $381,570 in
cash or at $1.50 per share and 99,328 shares in exchange for $74,497 or at $0.75 per share as part of a private placement.
Stock
Options
During
the period April 1, 2016 through June 20, 2016, the Company received $5,000 in cash in exchange to acquire 50,000 shares of the
Company’s common stock at an exercise price of $0.10 per share.
Note
13 - Supplemental Oil And Gas Disclosure (Unaudited)
Estimated
Net Quantities Of Oil And Gas Reserves (Unaudited)
There
are numerous uncertainties inherent in estimating quantities of proved crude oil and natural gas reserves. Crude oil and natural
gas reserve engineering is a subjective process of estimating underground accumulations of crude oil and natural gas that cannot
be precisely measured. The accuracy of any reserve estimate is a function of the quality of available data and of engineering
and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate
may justify revision of such estimate. Accordingly, reserves estimates are often different from the quantities of crude oil and
natural gas that are ultimately recovered.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Proved
oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated
with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing
economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the
right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or
probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator
must be reasonably certain that it will commence the project within a reasonable time.
The
area of the reservoir considered as proved includes all of the following: (a) the area identified by drilling and limited by fluid
contacts, if any, and (b) adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous
with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data. In the absence
of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology establish a lower contact with reasonable certainty.
Reserves
that can be produced economically through application of improved recovery techniques (including but not limited to, fluid injection)
are included in the proved classification when both of the following occur: (a) successful testing by a pilot project in an area
of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in
the reservoir of an analogous reservoir, or other evidence of reliable technology establishes the reasonable certainty of the
engineering analysis on which the project or program was based, and (b) the project has been approved for development by all necessary
parties and entities, including governmental entities.
Existing
economic conditions include prices and costs at which economic productivity from a reservoir is to be determined. The price shall
be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an
unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined
by contractual arrangements, excluding escalations based upon future conditions.
Proved
developed oil and gas reserves are proved reserves that can be expected to be recovered: (i) through existing wells with existing
equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the costs of a
new well; and (ii) through installed extraction equipment and infrastructure operational at the time of the reserve estimate if
the extraction is by means not involving a well.
Proved
undeveloped oil and gas reserves are proved reserves that are expected to be recovered from new wells on undrilled acreage, or
from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless
evidence using reliable technology exists that establishes reasonable certainty of economic productivity at greater distances.
Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that
they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time. Under no circumstances
shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir
or an analogous reservoir, or by other evidence using reliable technology establishing reasonable certainty.
“Prepared”
reserves are those quantities of reserves which were prepared by an independent petroleum consultant. “Audited” reserves
are those quantities of revenues which were estimated by the Company’s employees and audited by an independent petroleum
consultant. An audit is an examination of a company’s proved oil and gas reserves and net cash flow by an independent petroleum
consultant that is conducted for the purpose of expressing an opinion as to whether such estimates, in aggregate, are reasonable
and have been determined using methods and procedures widely accepted within the industry and in accordance with SEC rules.
Estimates
of the Company’s oil and natural gas reserves and present values at March 31, 2016 and 2015 were prepared by Netherland,
Sewell & Associates Inc., independent reserve engineers.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Oil
And Gas Reserves
The
following table sets forth our net proved oil and gas reserves, including the changes therein at March 31, 2016 and 2015.
Net
Proved Developed And Undeveloped Oil Reserves – (UNAUDITED):
|
|
|
|
|
Natural
|
|
|
|
Oil
|
|
|
Gas
|
|
|
|
(MBbls)
|
|
|
(MMcf) [1]
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Estimated proved reserves at April 1, 2014
|
|
|
-
|
|
|
|
-
|
|
Purchase of proved reserves [2]
|
|
|
488
|
|
|
|
-
|
|
Production
|
|
|
-
|
|
|
|
-
|
|
Disposition of properties
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Estimated proved reserves at March 31, 2015
|
|
|
488
|
|
|
|
-
|
|
Purchase of proved reserves [3]
|
|
|
76
|
|
|
|
-
|
|
Revisions of previous estimates
|
|
|
(425
|
)
|
|
|
-
|
|
Production
|
|
|
(16
|
)
|
|
|
-
|
|
Disposition of properties
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Estimated proved reserves at March 31, 2016
|
|
|
123
|
|
|
|
-
|
|
Net
Proved Oil And Gas Reserves Consisted Of The Following At March 31, 2016 and 2015:
Proved developed reserves:
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
104
|
|
|
|
-
|
|
March 31, 2016
|
|
|
123
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Proved undeveloped reserves:
|
|
|
|
|
|
|
|
|
March 31, 2015
|
|
|
384
|
|
|
|
-
|
|
March 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Base pricing, before adjustments for contractual differentials:
|
|
|
$/bbl
WTI Posted
|
|
|
|
|
|
March 31, 2015
|
|
$
|
79.21
|
|
|
$
|
0.00
|
|
March 31, 2016
|
|
$
|
42.77
|
|
|
$
|
0.00
|
|
[1]
Mboe is based on a ratio of 6 Mcf to 1 barrel.
[2]
The Company purchased Western Interior Oil and Gas Corporation at March 31, 2015.
[3]
The Company purchased the Cole Creek properties in Wyoming effective January 1, 2016.
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Results
Of Operations For Oil And Gas Producing Activities For The Years Ended March 31, 2016 and 2015:
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Revenue
|
|
$
|
547,000
|
|
|
$
|
-
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Production costs
|
|
|
539,673
|
|
|
|
30,089
|
|
Depreciation, depletion, amortization and valuation allowance
|
|
|
14,942,000
|
|
|
|
6,681
|
|
Exploration
|
|
|
4,705
|
|
|
|
1,444,742
|
|
|
|
|
|
|
|
|
|
|
Results of operations of oil and gas producing activities
|
|
$
|
(14,939,378
|
)
|
|
$
|
(1,481,512
|
)
|
Cost
Incurred For Oil And Gas Property Acquisition, Exploration And Development Activities:
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Property acquisition:
|
|
|
|
|
|
|
|
|
Proved
|
|
$
|
1,285,313
|
|
|
$
|
10,003,625
|
|
Unproved
|
|
|
154,214
|
|
|
|
8,042,728
|
|
Exploration
|
|
|
4,705
|
|
|
|
1,444,742
|
|
Development
|
|
|
-
|
|
|
|
45,263
|
|
|
|
|
|
|
|
|
|
|
Total costs incurred
|
|
$
|
1,444,232
|
|
|
$
|
19,536,358
|
|
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Aggregate
Capitalized Costs
Capitalized
costs relating to oil and gas activities for the years ended March 31, 2016 and 2015 are as follows:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
Proved
|
|
$
|
11,368,626
|
|
|
$
|
10,003,625
|
|
Unproved
|
|
|
4,745,917
|
|
|
|
8,087,991
|
|
Total capitalized costs
|
|
|
16,114,543
|
|
|
|
18,091,616
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation, depletion, and valuation allowance
|
|
|
14,495,132
|
|
|
|
2,912,155
|
|
Net capitalized costs
|
|
$
|
1,619,411
|
|
|
$
|
15,179,461
|
|
Standardized
Measure of Discounted Future Net Cash Flows
Information
with respect to the standardized measure of discounted future net cash flows relating to proved reserves is summarized below.
The price used to estimate the reserves is held constant over the life of the reserve. Future production and development costs
are derived based on current costs assuming continuation of existing economic conditions.
The
discounted future net cash flows related to proved oil and gas reserves at March 31, 2016 and 2015 (in millions):
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Future cash inflows
|
|
$
|
4.29
|
|
|
$
|
31.61
|
|
Less future costs:
|
|
|
|
|
|
|
|
|
Production
|
|
|
3.24
|
|
|
|
15.94
|
|
Development and abandonment
|
|
|
0.88
|
|
|
|
6.67
|
|
Income taxes [1]
|
|
|
-
|
|
|
|
-
|
|
Future net cash flows
|
|
|
0.17
|
|
|
|
9.00
|
|
10% discount factor
|
|
|
-
|
|
|
|
(6.58
|
)
|
Standardized measure of discounted future net cash flows
|
|
$
|
0.17
|
|
|
$
|
2.42
|
|
[1]
No income tax provision is included in the standardized measure calculation shown above as the Company does not project to
be taxable or pay cash income taxes based on its available tax assets and tax assets generated in the development of its reserves
because the tax basis of its oil and gas properties and NOL carryforwards exceed the amount of discounted future net earnings.
|
T-REX
OIL, INC. AND SUBISIDIARIES
Notes
To The Consolidated Financial Statements
March
31, 2016 And 2015
Changes
in Discounted Future Net Cash Flows
The
following summarizes the principal sources of change in the standardized measure of discounted future net cash flows during the
years ended March 31, 2016 and 2015 (in millions):
|
|
Year Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning of the period
|
|
$
|
2.81
|
|
|
$
|
-
|
|
Purchase of reserves
|
|
|
0.69
|
|
|
|
2.81
|
|
Changes in costs and prices
|
|
|
(3.32
|
)
|
|
|
-
|
|
Sales of oil and natural gas produced during the period, net of production
costs
|
|
|
(0.01
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
0.17
|
|
|
$
|
2.81
|
|