Item 2.01 - Completion of Acquisition or Disposition of Assets
Completion of Acquisition of Terex Energy Corp.
On December 22, 2014, T-Rex Oil, Inc. acquired 100% control of Terex Energy
Corp. after agreeing to exchanging 7,378,200 shares with the Terex shareholders.
The shares are exchanged on a one for one basis. Pursuant to the Exchange
Agreements, the Company agreed to issue shares of its restricted common stock
for 100% of the issued and outstanding common stock of Terex. As a result, Terex
will be a wholly owned subsidiary of the Company.
In addition to the exchange of common stock, the Company exchanged on a one for
one basis the following outstanding options and warrants with those of its own.
The table below sets forth the equity that is being exchanged.
Type of Equity Terex Balance Issued by T-Rex
-------------------------- ---------------------------- ------------------------
Options (1) 800,000 800,000
Warrants (2) 350,000 350,000
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(1) The Options, subject to vesting, have an exercise price of $0.10 per share
and a term of 3 years. (2) The Warrants, subject to vesting, have an exercise
price of $1.00 per share and a term of 3 years.
On August 19, 2014, the Company entered into a Securities Purchase Agreement
with Terex in which it sold 129,851,356 pre-reverse shares of its restricted
common stock to Terex for $1,300,000 in cash. Concurrently, two members of the
Board of Directors of the Company resigned, and two new members of the Board of
Directors were appointed who were members of the Board of Directors and officers
of Terex prior to the Agreement. As a result of this transaction, Terex became
the majority shareholder of the Company, owning 52% of the issued and
outstanding shares of the Company's common stock as well as controlling the
Company's operations. Prior to this Securities Purchase Agreement, Terex owned
no shares of the Company's 119,862,791 issued and outstanding pre-reverse shares
of common stock nor was any member of the Board of Directors or officer of Terex
a part of the Board of Directors or management of the Company.
Prior to the exchange of shares, Terex owned 371,003 shares of common stock of
the Company. These shares are surrendered and deemed retired to treasury of
T-Rex as of date hereof. The officers and directors of the Company remain the
officers and directors post-merger. At the time of the acquisition, Donald
Walford, Martin Gottlob, were officers and directors of Company, were and are
officers, directors, and major (control) shareholders of Terex.
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BUSINESS DESCRIPTION
T-Rex Oil, Inc. ("We," "Us," "Our") was organized under the laws of the State of
Nevada as Rancher Energy Corp. Effective October 29, 2014, we amended our
Articles of Incorporation to change our name to T-Rex Oil, Inc. and to authorize
50,000,000 shares of preferred stock in addition to our common stock. On October
8, 2014, 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, with fractional
shares being redeemed in cash. The Financial Industry Regulatory Authority
approved the amendment, effective October 29, 2014. We are engaged in the
acquisition, exploration, and if warranted, development of oil and gas prospects
in the Rocky Mountain and Mid Continent regions.
Prior to August 2014, we had minimal operations that were focused mainly on
administrative activities, the identification of potential oil and gas
prospects, and one prospect participation in Colorado that was rescinded in June
2014. On December 22, 2014, we acquired 100% of the issued and outstanding
common stock of Terex Energy Corp., Inc. ("Terex") pursuant to Exchange
Agreements with the shareholders of Terex Energy Corp., and we entered into an
Agreement and Plan of Merger ("the Agreement") entered into on December 22,
2014, whereby Terex was merged into us. Terex is an operating oil and gas
company with active drilling and exploration operations.
On August 19, 2014, prior to entering into the Agreement, Terex had purchased
371,003 shares (adjusted for reverse split) from us. After such purchase, Terex
held approximately 52% of the issued and outstanding common stock of the
Company.
On December 22, 2014, we entered into the Exchange Agreements with the Terex
shareholders for 100% of the shares of Terex. Pursuant to the Exchange
Agreements, we agreed to issue 7,378,200 shares of our restricted common stock
for 100% of the issued and outstanding common stock of Terex. The shares are to
be 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 merger, 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.
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Terex
Terex was incorporated in the State of Colorado in February 2014 and is
headquartered in Denver, Colorado. Terex has interests in oil and gas
properties. Terex acquired interests in several prospects and projects discussed
hereafter.
Terex intends to strive to be a low cost and effective producer of hydrocarbons
and intends to develop the business model and corporate strategy as discussed
herein.
The Company's approach to lease acquisition, development and production is
founded on the discipline of acquiring leases in areas of proven production. In
most cases the leases that are under consideration have at one time contained
producing oil or gas wells have had offset production and currently have
production or shut-in wells that are viable for work over and or re-completion.
This managed risk approach greatly reduces the risk normally associated with oil
and gas development. There are hundreds of wells in our area of interest that
meet these criteria. In many instances, the wells were shut-in during a period
of declining oil and gas prices and in most cases are ideal for our business
model. Our business model is simple; strict adherence to lease acquisition
surrounded by proven production, offering well workovers, re-completion, and
enhanced oil recovery opportunities in the known producing formations, with long
term production potential at a low cost of development, maintenance, and
operation. The Company is not an exploration company, per se, rather it seeks
leases with discovered oil and gas with current or prior production.
One strategy that has grown in prominence and application with respect to
petroleum is to use a development program approach. We describe our development
plan approach as a set of techniques utilizing the injection of specific fluids
such as: water, steam, natural gas, carbon dioxide, nitrogen, and various
chemicals and surfactants intended to increase the amount of oil that can
ultimately be extracted from any oil field. Many oil exploration and production
companies are using development program approaches to maximize the potential of
old oil fields.
Our business operations are in the development, production, and low risk
exploration of oil and gas including unconventional natural gas, in the Rocky
Mountain region of the continental United States; specifically, in the Rocky
Mountain area of Utah, Colorado, Wyoming and Kansas.
Corporate Strategy
Our corporate strategy in developing our operations and evaluating potential
acquisitions is as follows.
Pursue concurrent development of our core area of the Rocky Mountains.
We plan to spend up to $10,000,000 on acquisition, drilling, re-completion, and
development programs in 2015. We plan to raise these funds in Private Placements
of Common Stock, Preferred Stock and/or convertible debt. Many of our targeted
prospects are in reservoirs that have demonstrated predictable geologic
attributes and consistent reservoir characteristics, which typically lead to
more repeatable drilling and re-completion results than those achieved through
wildcats.
Achieve consistent reserve growth through repeatable development
We intend to achieve consistent reserve growth over the next four years through
a combination of acquisitions and drilling. In 2015, we intend to continue to
focus on acquisition, drilling, re-completion and development programs. We
anticipate that the majority of future reserve and production growth will come
through the acquisition of production, the execution of our drilling and
re-completion program, enhanced oil recovery in old reservoirs and on
development activities on prospects of which we are aware, which include proved
and unproved locations. Our targets generally will consist of locations in
fields that demonstrate low variance in well performance, which leads to
predictable and repeatable field development.
Our reserve estimates, if any, may change continuously and we intend to evaluate
such reserve estimates internally on a frequent basis--quarterly if
warranted--with independent engineering evaluation on an annual basis.
Deviations in the market prices of both crude oil and natural gas and the
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effects of acquisitions, dispositions, development and any successful
exploration activities may have a significant effect on the quantities and
future values of our reserves, if any.
Maintain high percentage ownership and operational control over our asset base
We intend to retain a high degree of operational control over our asset base,
through a high average Working Interest or acting as the operator in our areas
of significant activity. This is designed to provide us with controlling
interests in a multi-year inventory of drilling locations, positioning us for
reserve and production growth through our drilling operations. We plan to
control the timing, level and allocation of our drilling capital expenditures
and the technology and methods utilized in the planning, drilling and completion
process on related targets. We believe this flexibility to opportunistically
pursue low risk exploration and development projects relating to selected
prospects may provide us with a meaningful competitive advantage.
Acquire and maintain acreage positions in high potential resource plays
We believe that our intended acquisition and development in known production
prospects in the Rockies should be supplemented with exploratory efforts that
may lead to new discoveries in the future. We intend to continually evaluate our
opportunities and pursue potential opportunities that take advantage of our
strengths. We are examining potential prospects in such areas as Utah, Colorado
and Wyoming, which have gained substantial interest within the exploration and
production sector due to their relatively under-explored nature and the
potential for meaningful hydrocarbon recoveries. There are other mid-size and
large independent exploration and production companies conducting drilling
activities in these plays.
Pursue a disciplined acquisition strategy in our core areas of operation
We intend to also focus on growing through targeted acquisitions. Although
drilling prospects may provide us with the opportunity to grow reserves and
production without acquisitions, we continue to evaluate acquisition
opportunities, primarily in our core areas of operation.
Experienced management and operational team with advanced exploration and
development technology
Our senior management team has over 75 years of experience in the oil and gas
industry, and has a proven track record of creating value both organically and
through strategic acquisitions. Our management intends to utilize the best
available and fit-for-purpose technology, sophisticated geologic and 3-D seismic
models to enhance predictability and reproducibility over significantly larger
areas than historically possible. We also intend to utilize state-of-the art
drilling and completion technology, as well as multi-zone, multi-stage
artificial stimulation ("frac") technology in completing wells to substantially
increase near-term production, resulting in faster payback periods and higher
rates of return and present values. Our team has successfully applied these
techniques, normally associated with completions in the most advanced Rocky
Mountain crude oil and natural gas fields, to improve initial and ultimate
production and returns, in other companies.
OIL AND GAS PROJECTS
Our initial project participation is in the Covenant Overthrust area of Utah.
Utah has long been known to contain petroleum and natural gas and has
established itself as a petroleum production discovery area in the United
States.
DESCRIPTION OF PROPERTIES/ASSETS/OIL AND GAS PROSPECTS
(a) Real Estate. None.
(b) Title to properties. None.
(c) Oil and Gas 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
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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
Proved Reserves - None
The following table sets forth our estimated net proved reserves as of December
2014.
Reserves
--------------------------------
Oil Natural Gas
Estimated Proved Reserves Data: (MBbls) (MMScf)
-------------- -----------------
Proved developed reserves 0 0
Proved undeveloped reserves 0 0
-------------- -----------------
Total proved reserves 0 0
============== =================
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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 changes and other factors. See
"Qualifications of Technical Persons and Internal Controls Over Reserves
Estimation Process."
Proved Undeveloped Reserves - None
Our proved undeveloped reserves at December 2014 were no oil and no natural gas.
Qualifications of Technical Persons and Internal Controls Over Reserves
Estimation Process
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.
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. 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, seismic
data and well test data.
Summary of Oil and Natural Gas Properties and Projects
Production, Price and Cost History
The following table presents net production sold, average sales prices and
production costs and expenses for the year ended March 31 2014, the Company did
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not have any activities that resulted in production or sales during the year to
November 30, 2014. During the year ended December 2014, the Company did not have
any production of or sales of natural gas.
Revenue
Oil sales $ 0
Net production sold
Oil (Bbl) 0
Average sales prices
Oil ($/Bbl) $0
Costs and expenses (per Bbl)
Lease operating expenses -
Transportation and marketing expenses -
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Developed and Undeveloped Acreage
The following table presents our total gross and net developed and undeveloped
acreage by region as of December 22, 2014:
Developed Acres Undeveloped Acres
------------------------------ -------------------------------
Gross (1) Net(2) Gross Net (%)
---------------- ------------- ----------------- -------------
Covenant Mondo 3,986 14% (3)
Cole Creek 4,000 50.975%
Burke Ranch 4,500 100%
================ ============= ================= =============
Total 8,000 -
================ ============= ================= =============
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(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) The working interest after tanks are constructed will be 11.6667%
Productive Wells
The following table presents the total gross and net productive wells by area
and by oil or natural gas completion as of December 22, 2014:
Oil Wells Natural Gas Wells
---------------------------- -------------------------------
Gross (1) Net(2) Gross(1) Net % (2)
-------------- ------------- -------------- ----------------
Covenant Mondo 0 0 0 0
Cole Creek 0 0 7 0%
Burke Ranch 0 0 0 0
============== ============= ============== ================
Total 0 0 7 -
============== ============= ============== ================
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(1) "Gross" means the total number of wells in which we have a working
interest.
(2) "Net" means the sum of the fractional working interest that we own in gross
wells.
Drilling Activity
The Company's operational activities are focused on re-work of existing wells
and fields, for production purposes, and minority drilling participation to
minimize risk.
At December 22, 2014, the Company had no wells being drilled.
Our oil and natural gas prospects are located in the Western US, Rocky Mountain
Region.
The following is a description of our properties.
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COMPANY PROJECTS
1) Covenant Mondo
- Participation in 3,986 net acres - 2 miles adjacent to Covenant Field
- 150,000,000 BO Field, Sevier County, Utah T22S-R1W - Overthrust Belt
- On same seismic and gravity data set as Covenant Field discovery.
- Initial test well will be 2,500 ft. high to live oil shows in offset
wells on two flanks.
- Navajo Sandstone - excellent reservoir characteristics 12-15%
Porosity, 100 mD permeability
- 450 ft. - 1100 ft. potential pay.
- Terex has paid for a 10.00% working interest in first two wells;
spudded first in 2014. - Working interest before tanks - 14%.
- Working interest after tanks - 11.6667%
- NRI - 8.9833%
2) Water Disposal Facility
- Sioux County, Nebraska, T25N-R56W Sec. 13
- LOI for purchase of a well with 7 inch casing for a water disposal
well.
- Current rates for water disposal are $1.65 per barrel. Disposal
demand is very high.
- State of Nebraska has given us preliminary verbal approval for
disposal well development.
- Surface use agreement negotiated for 5.00% royalty, 95% LNRI.
- Potential injection rates up to 15,000 BWPD.
3) Cole Creek Field
- Cole Creek Field located in SW margin of Powder River Basin, Natrona
and Converse Counties, WY. Shannon sand reservoir is one of the main
oil producing formations in the field.
- RESERVOIR EVALUATION projections - Shannon Formation
- Original oil in place = 33.39 MMBO
- Cumulative Primary Production = 5,959,642 BO
- Cumulative Secondary Production = 3,292,783 BO
- Expected Incremental Recovery:
Secondary = 128,643 BO
CO2 = 4,200,000 BO
- There are up to 7 undrilled Shannon locations on the periphery of the
field.
- Red Hawk owns 50.9% of the field and farmout interest to company on a
90/10 basis for 750,000 shares stock, 77% NRI
- Alpha Development owns 17.5% and Slawson owns 31.6% working interests
4) Development Oil Well
- Sioux County, Nebraska, T25N-R55W
- Terex has executed an LOI for purchase of a producing oil well, that
when initially drilled tested 24-30 BOPH from two different
stratigraphic horizons. It ultimately produced 30,000 barrels of oil
and still produces intermittently. We own the acreage for two wells to
be located in an updip direction structurally from this well that
flowtested 720 BOPD from the Virgil Formation.
- The formation was damaged in the drilling and completion stages, and
only produced a fraction of what it tested for.
- We have designed a drilling and completion program to prevent this
formation damage from occurring.
- Executed LOI for purchase of 100% working interest and 75% NRI in the
well and key acreage.
5) Burke Ranch Unit
- T37N-R78-79W, Natrona County, Wyoming
- Engineered Reserves are:
- Dakota reservoir OOIP = 11,824,000 BO
- Dakota CUM Production = 5,551,000 BO
- Remaining Oil in Place = 6,273,000 BO
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- Additional development locations can be drilled on 40 acre spacing
(It has been developed on 80 acre spacing) and represent significant
potential upside.
- Mapped structural anomalies in the Tensleep and Frontier Formations
represent additional exploration targets with tremendous potential
reserves.
- Terex agreed to purchase Burke Ranch Unit for $400,000 and 400,000
shares of stock.
- Working interest inside the Unit- 100%
- NRI inside the Unit - 79.25%
- Working interest outside the Unit - 100%
- NRI outside the Unit - 80%
6) Niobrara/Codell Acreage
-----------------------
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- Participation in Wattenberg Niobrara/Codell acreage that is in the
heart of the known thermally mature Niobrara/Codell productive trend.
The acreage has significant Niobrara and Codell potential, with 8-16
horizontal wells per section likely, surrounding local oil field
development has demonstrated. Local wells EUR is approximately
250,000-400,000 BOE per well.
7) Miller Prospect
- An agreement to participate in the drilling of two development wells
in Kimball County, Nebraska. One offsets a J Sand Field that has
produced approximately 1.7MMBO and the other offsets several D Sand
producers in an updip direction. Both represent low risk development
wells in a very prolific area of the DJ Basin.
- Working Interest D Sand 100%
- Net Revenue Interest D Sand 87.5%
- Working Interest J Sand 10%
- NRI J Sand 80%.
COMPETITION, MARKETS, REGULATION AND TAXATION
Competition
There are a large number of companies and individuals engaged in the exploration
for minerals and oil and gas; accordingly, there is a high degree of competition
for desirable properties. Almost all of the companies and individuals so engaged
have substantially greater technical and financial resources than we do.
Markets
The availability of a ready market for oil and gas discovered, if any, will
depend on numerous factors beyond our control, including the proximity and
capacity of refineries, pipelines, and the effect of state regulation of
production and of federal regulations of products sold in interstate commerce,
and recent intrastate sales. The market price of oil and gas are volatile and
beyond our control. The market for natural gas is also unsettled, and gas prices
have increased dramatically in the past four years with substantial fluctuation,
seasonally and annually.
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 and there can be no
assurance regarding the price which such purchasers would be willing to pay for
such gas. There presently exists an oversupply of gas in the certain areas of
the marketplace due to pipeline capacity, the extent and duration of which is
not known. Such oversupply may result in restrictions of purchases by principal
gas pipeline purchasers.
Effect of Changing Industry Conditions on Drilling Activity
Lower oil and gas prices have caused a decline in drilling activity in the U.S.
from time to time. However, such reduced activity has also resulted in a decline
in drilling costs, lease acquisition costs and equipment costs, and an
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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 and to raise the necessary funds with which
to drill them.
Governmental Regulation and Environmental Consideration
Oil and Gas: The oil and gas business in the United States is subject to
regulation by both federal and state authorities, particularly with respect to
pricing, allowable rates of production, marketing and environmental matters.
The production of crude oil and gas has, in recent years, been the subject of
increasing state and federal controls. No assurance can be given that newly
imposed or changed federal laws will not adversely affect the economic viability
of any oil and gas properties we may acquire in the future. Federal income and
"windfall profit" taxes have in the past affected the economic viability of such
properties.
The above paragraphs only give a brief overview of potential state and federal
regulations. Because we have only acquired specific properties, and because of
the wide range of activities in which we may participate, it is impossible to
set forth in detail the potential impact federal and state regulations may have
on us.
Compliance with Environmental Laws and Regulations
Our operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. To date our compliance
with these regulations has had no material effect on our operations, capital,
earnings, or competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
The Department of Energy
The Department of Energy Organization Act (Pub. L. No. 95-91) became effective
October 1, 1977. Under this Act various agencies, including the Federal Energy
Administration (FEA) and the Federal Power Commission (FPC), have been
consolidated to constitute the cabinet-level Department of Energy (DOE). The
Economic Regulatory Administration (ERA), a semi-independent administration
within the DOE, now administers most of the regulatory programs formerly managed
by the FEA, including oil pricing and allocation. The Federal Energy Regulatory
Commission (FERC), an independent agency within the DOE, has assumed the FPC's
responsibility for natural gas regulation.
Regulation and Pricing of Natural Gas
Our operations may be subject to the jurisdiction of the Federal Energy
Regulatory Commission (FERC) with respect to the sale of natural gas for resale
in interstate and intrastate commerce. State regulatory agencies may exercise or
attempt to exercise similar powers with respect to intrastate sales of gas.
Because of its complexity and broad scope, the price impact of future
legislation on the operation of us cannot be determined at this time.
Crude Oil and Natural Gas Liquids Price and Allocation Regulation
Pursuant to Executive Order Number 12287, issued January 28, 1981, President
Reagan lifted all existing federal price and allocation controls over the sale
and distribution of crude oil and natural gas liquids. Executive Order Number
12287 was made effective as of January 28, 1981, and consequently, sales of
crude oil and natural gas liquids after January 27, 1981 are free from federal
regulation. The price for such sales and the supplier-purchaser relationship
will be determined by private contract and prevailing market conditions. As a
result of this action, oil which may be sold by us will be sold at deregulated
or free market prices. At various times, certain groups have advocated the
reestablishment of regulations and control on the sale of domestic oil and gas.
State Regulations
Our production of oil and gas, if any, will be subject to regulation by state
regulatory authorities in the states in which we may produce oil and gas. In
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general, these regulatory authorities are empowered to make and enforce
regulations to prevent waste of oil and gas and to protect correlative rights
and opportunities to produce oil and gas as between owners of a common
reservoir. Some regulatory authorities may also regulate the amount of oil and
gas produced by assigning allowable rates of production.
Proposed Legislation
A number of legislative proposals have been and probably will continue to be
introduced in Congress and in the legislatures of various states, which, if
enacted, would significantly affect the petroleum industries. Such proposals and
executive actions involve, among other things, the imposition of land use
controls such as prohibiting drilling activities on certain federal and state
lands in roadless wilderness areas. At present, it is impossible to predict what
proposals, if any, will actually be enacted by Congress or the various state
legislatures and what effect, if any, such proposals will have. However,
President Clinton's establishment of numerous National Monuments by executive
order has had the effect of precluding drilling across vast areas of the Rocky
Mountain West.
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, 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 to 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 will
be conducted at 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 will conduct a title examination and
attempt to remedy extremely 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 its 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 at this time.
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Government Contracts
We have no government contracts.
Company Sponsored Research and Development
We are not conducting any research.
Number of Persons Employed
Currently, T-Rex had no full-time employees. After the transaction, T-Rex will
have three full-time employees. Donald Walford and Martin Gottlob, officers and
directors of T-Rex, have Consulting and/or Corporate Advisor Agreements with our
subsidiary Terex, which are on a month-to-month basis. Donald Walford works up
to 40 hours per week pursuant to his Consulting Agreement. The other Officers
and Directors work on an as needed part-time basis.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is presently traded on the over-the-counter market on the OTC
Markets. On November 26, 2014 we began trading on the OTC Pink Sheets under the
symbol "TRXO," prior to the Company's name change in October 2014, the Company's
trading symbol was "RNCH."
The offering of the shares registered hereby could have a material negative
effect on the market price for the stock.
Rules Governing Low-price Stocks That May Affect Our Shareholders' Ability to
Resell Shares of Our Common Stock
Our stock is currently traded on the OTC Pink Sheets. Quotations on the OTC/BB
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not reflect actual transactions. Our common stock will be subject to certain
rules adopted by the SEC that regulate broker-dealer practices in connection
with transactions in "penny stocks." Penny stocks generally are securities with
a price of less than $5.00, other than securities registered on certain national
exchanges or quoted on the Nasdaq system, provided that the exchange or system
provides current price and volume information with respect to transaction in
such securities. The additional sales practice and disclosure requirements
imposed upon broker-dealers are and may discourage broker-dealers from effecting
transactions in our shares which could severely limit the market liquidity of
the shares and impede the sale of shares in the secondary market.
The penny stock rules require broker-dealers, prior to a transaction in a penny
stock not otherwise exempt from the rules, to make a special suitability
determination for the purchaser to receive the purchaser's written consent to
the transaction prior to sale, to deliver standardized risk disclosure documents
prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide the customer with current bid and offer quotations for the penny stock.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks.
Holders
As of the date of this filing, we have 137 shareholders of record of our common
stock. Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Under Rule 144(k), a person who has not been one of our affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least 6 months, is entitled to sell shares
without complying with the manner of sale, volume limitation or notice
provisions of Rule 144.
11
Dividends
To date, we have not paid any dividends to shareholders. There are no
restrictions which would limit our ability to pay dividends on common equity or
that are likely to do so in the future. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend; we would not be able to pay our debts as they
become due in the usual course of business; or our total assets would be less
than the sum of the total liabilities plus the amount that would be needed to
satisfy the rights of shareholders who have preferential rights superior to
those receiving the distribution.
Legal Proceedings
We are not a party to any pending legal proceedings, nor are we aware of any
civil proceeding or government authority contemplating any legal proceeding
since our emergence from Chapter 11 bankruptcy reorganization. One case is
pending under the pre-bankruptcy action covered by insurance.
PLAN OF OPERATIONS
We have not recognized revenues from our operations during 2014. We have minimal
capital, moderate cash. We are illiquid and need cash infusions from investors
or shareholders to provide capital, or loans from any sources, none of which
have been arranged nor assured.
We will need substantial additional capital to support our existing and proposed
future energy operations. We have recognized no operating revenues since
bankruptcy emergence. We have no committed source for any funds as of date here.
No representation is made that any funds will be available when needed. In the
event funds cannot be raised when needed, we may not be able to carry out our
business plan, may never achieve sales or royalty income, and could fail in
business as a result of these uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
Expected 2015 Budget - 12 months
--------------------------------
Development of connection, rework, recompletion, $2,500,000
Working Capital $4,009,500
Acquisitions $2,000,000
General and Administrative Expenses:
Legal and Accounting/Auditing $257,000
Consulting $695,000
Filing Fees (State, SEC, etc.) $7,500
Travel $60,000
Interest $66,000
Miscellaneous $405,000
--------------------
TOTAL $10,000,000
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The Company may change any or all of the budget categories in the execution of
its business model. None of the line items are to be considered fixed or
unchangeable. The Company may need substantial additional capital to support its
budget. The Company has minimal revenues to date in the oil and gas exploration,
development and production business.
12
We intend to conduct a Private Offering of shares of our restricted Common Stock
for capital. We intend to raise up to $10,000,000 in the next twelve months with
a structure not yet determined in debt or equity. We cannot give any assurances
that we will be able to raise the full $10,000,000 to fund the budget. Further,
we will need to raise additional funds to support not only our expected budget,
but our continued operations. We cannot make any assurances that we will be able
to raise such funds or whether we would be able to raise such funds with terms
that are favorable to us.
Our plan of operations is as follows:
MILESTONES
--------------------------------------------------------------------------------
1st Quarter 2015 Continuation of Recompletion
Operations; and Oversee operations of
Wyoming oil and gas prospects.
--------------------------------------------------------------------------------
2rd Quarter 2015 Continuation of Recompletion Operations
and production operations and development
of any new oil and gas prospects
--------------------------------------------------------------------------------
3rd Quarter 2015 Continuation of Recompletion
Operations; and Expand operations of
Wyoming oil and gas prospects.
--------------------------------------------------------------------------------
4th Quarter 2015 Continuation of Recompletion Operations
and production operations and development
of any new oil and gas prospects
--------------------------------------------------------------------------------
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We will need substantial additional capital to support our proposed future
energy operations. We have minimal revenues. We have no committed source for any
funds as of date here. No representation is made that any funds will be
available when needed. In the event funds cannot be raised when needed, we may
not be able to carry out our business plan, may never achieve sales or royalty
income, and could fail in business as a result of these uncertainties.
Decisions regarding future participation in exploration wells or geophysical
studies or other activities will be made on a case-by-case basis. We may, in any
particular case, decide to participate or decline participation. If
participating, we may pay our proportionate share of costs to maintain our
proportionate interest through cash flow or debt or equity financing. If
participation is declined, we may elect to farmout, non-consent, sell or
otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited
financial statements and notes thereto included herein. We caution readers
regarding certain forward looking statements in the following discussion and
elsewhere in this report and in any other statement made by, or on our behalf,
whether or not in future filings with the Securities and Exchange Commission.
Forward-looking statements are statements not based on historical information
and which relate to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based upon estimates
and assumptions that are inherently subject to significant business, economic
and competitive uncertainties and contingencies, many of which are beyond our
control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by, or on our behalf. We disclaim any
obligation to update forward-looking statements.
13
PLAN OF OPERATIONS
We have no revenues from our operations. We have minimal capital, moderate cash.
We are illiquid and need cash infusions from investors or shareholders to
provide capital, or loans from any sources, none of which have been arranged nor
assured.
We will need substantial additional capital to support our existing and proposed
future energy operations. We have only recognized minimal and sporadic revenues.
We have no committed source for any funds as of date here. No representation is
made that any funds will be available when needed. In the event funds cannot be
raised when needed, we may not be able to carry out our business plan, may never
achieve sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration or other activities will
be made on a case-by-case basis. We may, in any particular case, decide to
participate or decline participation. If participating, we may pay our
proportionate share of costs to maintain our proportionate interest through cash
flow or debt or equity financing. If participation is declined, we may elect to
farmout, non-consent, sell or otherwise negotiate a method of cost sharing in
order to maintain some continuing interest in the prospect.
RESULTS OF OPERATIONS (as consolidated with Terex Energy Corp.)
For the Year Ended March 31, 2014 Compared to the same year ended March 31, 2013
Overview. With respect to our operations, for the fiscal year ended March 31,
2014, we reported a net loss of $744,306 compared to a net loss of $214,631 for
fiscal year ended March 31, 2013.
Revenues. The Company had no revenues from operations during 2014 or 2013.The
Company does not anticipate recognizing any revenues from its limited operations
during the next 12 months.
General and administrative expenses. General and administrative expenses for
2014 were $747,219 compared to $531,241 for 2013. The increase of $215,978 was
primarily attributable to increase in legal and professional costs incurred in
pursuing the business combination with PetroShare which was not completed.
Interest expense. There was no interest expense for 2014 compared to an interest
credit of $47,236 for 2013 as a result of the Court rendering a determination of
the amount of interest due on the notes and therefore the Company recording such
adjustment.
Interest and other income. Interest income for 2014 was $2,913 compared to other
income of $350,494 for 2013. This decrease of $347,581 is primarily due to the
CO2 supply agreement being terminated in December 2012.
Reorganization expenses. Reorganization items for 2014 were $0 as a result of
the Company no longer being in bankruptcy compared to $47,274 for 2013.
LIQUIDITY
The report of our independent registered public accounting firm on the financial
statements for the years ended March 31, 2014 and 2013 includes an explanatory
paragraph relating to the uncertainty of our ability to continue as a going
concern. We have incurred a cumulative net loss of approximately $91.9 million
for the period from incorporation (February 4, 2004) to September 30, 2014.
We do not have any sources of revenue and our projected revenue is not
sufficient to sustain our ongoing general and administrative costs. We had no
operations as of April 1, 2012 and are not certain at the date of this filing
whether there will be any during the 2015 fiscal year.
14
RESULTS OF OPERATIONS (Consolidated with Terex Energy Corp. for purposes of
filing)
For the Six Months Ended September 30, 2014, Compared to the Six Months Ended
September 30, 2013
We have incurred operating losses for the six months ended September 30, 2014 of
($1,081,917) compared to $357,879) in losses for the same period in 2013. Loss
per share was ($0) each period of which $1,053,282 in 2014 and $342,535 in 2013
were general and administrative, and $27,368 in 2014 were asset impairment. Our
income was interest only at $488 in 2014 and $1,288 in 2013 for the period.
At September 30, 2014, on a consolidated basis, we had $2,607,886 in cash on
hand. We had a total of $4,075,360 in assets at September 30, 2014 and current
and total liabilities of $210,762 at September 30, 2014.
Short Term
On a short-term basis, we have not generated any revenue or revenues sufficient
to cover operations. Based on prior history, we will continue to have
insufficient revenue to satisfy current and recurring liabilities as the Company
continues exploration activities.
Capital Resources
The Company has only common stock as its capital resource.
We have no material commitments for capital expenditures within the next year,
however if operations are commenced, substantial capital will be needed to pay
for participation, investigation, exploration, acquisition and working capital.
Need for Additional Financing
We do not have capital sufficient to meet cash needs for any significant
prospect rework program or participations. We will have to seek loans or equity
placements to cover such cash needs. Once exploration commences, its needs for
additional financing is likely to increase substantially.
No commitments to provide additional funds have been made by the Company's
management or other stockholders. Accordingly, there can be no assurance that
any additional funds will be available to us to allow us to cover the Company's
expenses as they may be incurred.
The Company will need substantial additional capital to support its proposed
future energy operations. We have minimal revenues. The Company has no committed
source for any funds as of the date hereof. No representation is made that any
funds will be available when needed. In the event funds cannot be raised when
needed, we may not be able to carry out our business plan, may never achieve
sales or royalty income, and could fail in business as a result of these
uncertainties.
Decisions regarding future participation in exploration wells, workers' other
activities will be made on a case-by-case basis. The Company may, in any
particular case, decide to participate or decline participation. If
participating, we may pay its proportionate share of costs to maintain the
Company's proportionate interest through cash flow or debt or equity financing.
If participation is declined, the Company may elect to farmout, non-consent,
sell or otherwise negotiate a method of cost sharing in order to maintain some
continuing interest in the prospect.
CRITICAL ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less and money market instruments to be cash equivalents.
Oil and Gas Properties, Full Cost Method
The Company uses the full cost method of accounting for oil and gas producing
activities. Costs to acquire mineral interests in oil and gas properties, to
drill and equip exploratory wells used to find proved reserves, and to drill and
equip development wells including directly related overhead costs and related
asset retirement costs are capitalized.
15
Under this method, all costs, including internal costs directly related to
acquisition, exploration and development activities are capitalized as oil and
gas property costs. Properties not subject to amortization consist of
exploration and development costs which are evaluated on a property-by-property
basis. Amortization of these unproved property costs begins when the properties
become proved or their values become impaired. The Company assesses the
realization of unproved properties, taken as a whole, if any, on at least an
annual basis or when there has been an indication that impairment in value may
have occurred. Impairment of unproved properties is assessed based on
management's intention with regard to future exploration and development of
individually significant properties and the ability of the Company to obtain
funds to finance such exploration and development. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized.
Costs of oil and gas properties will be amortized using the units of production
method.
In applying the full cost method, the Company will perform an impairment test
(ceiling test) at each reporting date, whereby the carrying value of property
and equipment is compared to the "estimated present value," of its proved
reserves discounted at a 10-percent interest rate of future net revenues, based
on current economic and operating conditions, plus the cost of properties not
being amortized, plus the lower of cost or fair market value of unproved
properties included in costs being amortized, less the income tax effects
related to book and tax basis differences of the properties. If capitalized
costs exceed this limit, the excess is charged as an impairment expense.
Revenue Recognition
The Company recognizes revenue when it is earned and expenses are recognized
when they occur.
RISK FACTORS RELATED TO OUR COMPANY
Our business has an operating history of only two years after Bankruptcy
emergence and is unproven and therefore risky.
We propose 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.
We have a lack of revenue history and have a no history of successful operations
after bankruptcy reorganization.
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 the limited financial resources that we have, 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.
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.
16
Our capital needs consist primarily of expenses related to geological
evaluation, general and administrative and potential project participation and
could exceed $10,000,000 in the next twelve months. Such funds are not currently
committed to any project.
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 not receive proceeds from this offering to conduct such work and,
therefore, 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 it determines 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 stockholders.
We may issue further shares as consideration for the cash or assets or services
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 those new stockholders and management would control
our Company, and persons unknown could replace our management at this time. 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 will depend upon management but we will 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 is
engaged in business activities outside of our business, and the amount of time
they devote as Officers and Directors, (See "Executive Team") Because investors
will not be able to manage our business, they 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 them from devoting full-time to our Company, when the business may
demand such full-time participation.
Our officers and directors may have conflicts of interests as to corporate
opportunities which we may not be able or allowed to participate in.
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
17
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 no intention
of merging with or acquiring business opportunity from any affiliate or officer
or director.
We have agreed to indemnification of officers and directors as is provided by
Nevada Statute.
Nevada 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 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 therefore 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 shareholders is limited
Nevada Revised Statutes exclude personal liability of our directors and our
stockholders 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 that otherwise would be the case. This provision
does not affect the liability of any director under federal or applicable state
securities laws.
We are an "emerging growth company," and any decision on our part to comply only
with certain reduced disclosure requirements applicable to "emerging growth
companies" could make our common stock less attractive to investors.
We are an "emerging growth company," as defined in the JOBS Act, and, for as
long as we continue to be an "emerging growth company," we expect and fully
intend to take advantage of exemptions from various reporting requirements
applicable to other public companies but not to "emerging growth companies,"
including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002,
reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. We could be an "emerging
growth company" for up to five years, or until the earliest of (i) the last day
of the first fiscal year in which our annual gross revenues exceed $1 billion,
(ii) the date that we become a "large accelerated filer" as defined in Rule
12b-2 under the Exchange Act, which would occur if the market value of our
common stock that is held by non-affiliates exceeds $700 million as of the last
business day of our most recently completed second fiscal quarter, or (iii) the
date on which we have issued more than $1 billion in non-convertible debt during
the preceding three year period.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth
company" can take advantage of the extended transition period provided in
Section 7(a)2(B) of the Securities Act for complying with new or revised
accounting standards. In other words, an "emerging growth company" can delay the
adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have elected to opt in to the extended transition
period for complying with the revised accounting standards. We have elected to
rely on these exemptions and reduced disclosure requirements applicable to
"emerging growth companies" and expect to continue to do so.
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.
18
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. Competitor's 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, 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 of 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 assurance that we will be able to enter into purchase contracts with any
transmission companies or other purchasers of natural gas and there can be no
assurance 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 may affect prices adversely. Such
oversupply may result in reductions of purchases and prices paid to producers by
principal gas pipeline purchasers. (See "Our Business and 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 Prospectus, 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.
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.
19
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.
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.
Legal Proceedings
The Company 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.
RISK FACTORS RELATED TO OUR STOCK
No public market exists for our common stock at this time, and there is no
assurance of a future market.
There is no public market for our common stock, and no assurance can be given
that a market will develop or that a shareholder ever will be able to liquidate
his investment without considerable delay, if at all. If a market should
develop, the price may be highly volatile. Factors such as those discussed in
the "Risk Factors" section may have a significant impact upon the market price
of the shares offered hereby. Due to the low price of our securities, many
brokerage firms may not be willing to effect transactions in our securities.
Even if a purchaser finds a broker willing to effect a transaction in our
shares, the combination of brokerage commissions, state transfer taxes, if any,
and any other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of our shares as collateral for any loans.
Our stock, which is currently listed on the OTC Pink Market under TRXO, will in
all likelihood be thinly traded and as a result you may be unable to sell at or
near ask prices or at all if you need to liquidate your shares.
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The shares of our common stock may be thinly-traded. We are a small company
which is relatively unknown to stock analysts, stock brokers, institutional
stockholders and others in the investment community that generate or influence
sales volume, and that even if we came to the attention of such persons, they
tend to be risk-averse and would be reluctant to follow an unproven, early stage
company such as ours or purchase or recommend the purchase of any of our
Securities until such time as we became more seasoned and viable. As a
consequence, there may be periods of several days or more when trading activity
in our Securities is minimal or non-existent, as compared to a seasoned issuer
which has a large and steady volume of trading activity that will generally
support continuous sales without an adverse effect on Securities price. We
cannot give you any assurance that a broader or more active public trading
market for our common Securities will develop or be sustained, or that any
trading levels will be sustained. Due to these conditions, we can give
stockholders no assurance that they will be able to sell their shares at or near
ask prices or at all if they need money or otherwise desire to liquidate their
securities.
Our common stock may be volatile, which substantially increases the risk that
you may not be able to sell your securities at or above the price that you may
pay for the security.
If we are able to obtain an exchange listing of our common stock in the future,
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
securities 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 after this
offering may be higher or lower than the price you may pay. 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:
o Variations in our quarterly operating results;
o Loss of a key relationship or failure to complete significant
transactions;
o Additions or departures of key personnel; and
o Fluctuations in stock market price and volume.
Additionally, in recent years the stock market in general, has 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.
The regulation of penny stocks by the SEC and FINRA may discourage the
tradability of our securities.
We are a "penny stock" company, as our stock price is less than $5.00 per share.
As a "penny stock," our stock is 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
stockholders. For purposes of the rule, the phrase "accredited stockholders"
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 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 purchasers in this offering to
sell their securities in any market that might develop therefore 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 and Exchange
Act of 1934, as amended. Because our securities constitute "penny stocks" within
the meaning of the rules, the rules would apply to us and to our securities. The
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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.
Stockholders should be aware that, according to 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 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.
Inventory in penny stocks have limited remedies in the event of violations of
penny stock rules. While the courts are always available to seek remedies for
fraud against us, most, if not all, brokerages require their customers to sign
mandatory arbitration agreements in conjunctions with opening trading accounts.
Such arbitration may be through an independent arbiter. Stockholders may file a
complaint with FINRA against the broker allegedly at fault, and FINRA may be the
arbiter, under FINRA rules. Arbitration rules generally limit discovery and
provide more expedient adjudication, but also provide limited remedies in
damages usually only the actual economic loss in the account. Stockholders
should understand that if a fraud case is filed an against a company in the
courts it may be vigorously defended and may take years and great legal expenses
and costs to pursue, which may not be economically feasible for small
stockholders.
That absent arbitration agreements, specific legal remedies available to
stockholders of penny stocks include the following: If a penny stock is sold to
the investor in violation of the requirements listed above, or other federal or
states securities laws, the investor may be able to cancel the purchase and
receive a refund of the investment.
If a penny stock is sold to the investor in a fraudulent manner, the investor
may be able to sue the persons and firms that committed the fraud for damages.
The fact that we are a penny stock company will cause many brokers to refuse to
handle transactions in the stocks, and may discourage trading activity and
volume, or result in wide disparities between bid and ask prices. These may
cause stockholders significant illiquidity of the stock at a price at which they
may wish to sell or in the opportunity to complete a sale. Stockholders will
have no effective legal remedies for these illiquidity issues.
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. Stockholders whose investment criteria
are dependent on dividends should not invest in our common stock.
Rule 144 sales in the future may have a depressive effect on our stock price.
All of the outstanding shares of common stock are held by our present officers,
directors, and affiliate stockholders as "restricted securities" within the
meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted
shares, 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 may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a 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
non-affiliate after the owner has held the restricted securities for a period of
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two years. 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 stockholders, may have a depressive effect upon the price of the common
stock in any market that may develop.
Our stockholders may suffer future dilution due to issuances of shares for
various considerations in the future.
There may be substantial dilution to T-Rex stockholders as a result of future
decisions of the Board to issue shares without shareholder approval for cash,
services, or acquisitions.
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 the investors purchasing pursuant to shares will pay for
their stock holdings or at which future purchasers in the market may pay.
Therefore, any new potential investors will bear most of the risk of loss.
We have determined an arbitrary offering price of our shares.
The price of our shares has been determined arbitrarily by us with no
established criteria of value. There is no direct relationship between these
prices and our assets, book value, lack of earnings, shareholder's equity, or
any other recognized standard of value of our business. The offering price
should not be considered an indication of the actual value of the shares or
securities.