UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2015.

o Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 (No fee required)
For the transition period from _______ to _______.

Commission file number : 001-36247

TORCHLIGHT ENERGY RESOURCES, INC.
(Name of registrant in its charter)

Nevada
74-3237581
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)

5700 West Plano Pkwy, Suite 3600
Plano, Texas 75093
(Address of Principal Executive Offices)

(214) 432-8002
(Issuer's Telephone Number, Including Area Code)

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

As of August 11, 2015, there were 30,041,473 shares of the registrant’s common stock outstanding (the only class of common stock).  
 
 

 
1
 

 
FORM 10-Q

TABLE OF CONTENTS

Note About Forward-Looking Statements
3
     
PART I
FINANCIAL INFORMATION
4
     
Item 1.
Consolidated Financial Statements
4
     
 
Consolidated Balance Sheets (Unaudited)
4
     
 
Consolidated Statements of Operations (Unaudited)
5
     
 
Consolidated Statements of Cash Flows (Unaudited)
6
     
 
Notes to Consolidated Financial Statements (Unaudited)
7
     
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
15
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20
     
Item 4.
Controls and Procedures
20
     
PART II
OTHER INFORMATION
21
     
Item 1.
Legal Proceedings
21
     
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21
     
Item 5.
Other Information
21
     
Item 6.
Exhibits
22
     
 
Signatures
23










 

 




 
2
 

 
NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and in our Annual Report on Form 10-K for the year ended December 31, 2014, and in particular, the risks discussed in our Form 10-K under the caption “Risk Factors” in Item 1A therein, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, risks associated with the company's ability to obtain additional capital in the future to fund planned expansion, the demand for oil and natural gas, general economic factors, competition in the industry and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.
 
As used herein, the “Company,” “we,” “Torchlight,” “our,” and similar terms include Torchlight Energy Resources, Inc. and its subsidiaries, unless the context indicates otherwise.
 
 

 
 

 
 















 
3
 

PART I   FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS
 
TORCHLIGHT ENERGY RESOURCES, INC.
           
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
           
             
   
June 30,
   
December 31,
 
   
2015
   
2014
 
ASSETS
 
Current assets:
           
Cash
  $ 212,217     $ 179,787  
Accounts receivable
    85,117       223,371  
Production revenue receivable
    374,412       210,435  
Note receivable
    513,121       515,748  
Prepayments - development costs
    10,000       20,602  
Prepaid expenses
    -       29,634  
Total current assets
    1,194,867       1,179,577  
                 
Investment in oil and gas properties, net
    15,492,413       34,498,681  
Office equipment
    48,594       55,150  
Debt issuance costs, net
    14,829       353,733  
Other assets
    87,161       63,223  
                 
TOTAL ASSETS
  $ 16,837,864     $ 36,150,364  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
               
Accounts payable
  $ 6,825,289     $ 4,018,306  
Accrued liabilities
    240,000       240,000  
Related party payables
    90,000       90,000  
Convertible promissory notes (Series A), net of discount of
               
$700,178 at December 31, 2014
    -       7,417,420  
Notes payable within one year
    937,729       829,719  
Due to working interest owners
    43,208       73,439  
Interest payable
    268,332       383,741  
Total current liabilities
    8,404,558       13,052,625  
                 
Convertible promissory notes (Series B), net of discount of $501,119 at June 30, 2015 and $625,457 at December 31, 2014
    4,068,381       3,944,043  
Asset retirement obligation
    36,725       35,951  
                 
Commitments and contingencies
    -       -  
                 
Stockholders’ equity:
               
Preferred stock, par value $.001, 10,000,000 shares authorized,
               
98,000 shares issued and outstanding
    98       -  
Common stock, par value $0.001 per share; 75,000,000 shares authorized;
    29,852       23,235  
29,852,149 issued and outstanding at March 31, 2015
               
23,235,441 issued and outstanding at December 31, 2014
               
Additional paid-in capital
    55,823,309       43,108,752  
Warrants outstanding
    13,199,239       7,636,320  
Accumulated deficit
    (64,724,298 )     (31,650,561 )
Total stockholders' equity
    4,328,200       19,117,745  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 16,837,864     $ 36,150,364  
 
 
The accompanying notes are an integral part of these consolidated financial statements.

 
4
 

TORCHLIGHT ENERGY RESOURCES, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
                         
                         
                         
   
THREE MONTHS
   
THREE MONTHS
   
SIX MONTHS
   
SIX MONTHS
 
   
ENDED
   
ENDED
   
ENDED
   
ENDED
 
   
June 30, 2015
   
June 30, 2014
   
June 30, 2015
   
June 30, 2014
 
Revenue
                       
Oil and gas sales
  $ 508,265     $ 1,630,035     $ 1,042,827     $ 2,273,005  
SWD and royalties
    374       9,799       57,070       48,964  
                                 
Cost of revenue
    (279,646 )     (397,184 )     (510,544 )     (576,235 )
                                 
Gross income
    228,993       1,242,650       589,353       1,745,734  
                                 
                                 
Operating expenses:
                               
General and administrative expense
    8,207,314       1,318,179       8,896,025       7,139,247  
Impairment expense
    22,438,114       -       22,438,114       -  
Depreciation, depletion and amortization
    204,330       628,372       698,805       962,703  
     Total operating expenses
    30,849,758       1,946,551       32,032,944       8,101,950  
                                 
                                 
Other income (expense)
                               
Other income
    962       -       962       -  
Interest income
    (0 )     6       (0 )     56  
Interest and accretion expense
    (239,667 )     (2,226,957 )     (1,631,109 )      (4,136,444 )
Loss on sale
    -       -       -       -  
     Total other income (expense)
    (238,705 )      (2,226,951 )     (1,630,147 )      (4,136,388 )
                                 
                                 
Net loss before taxes
    (30,859,470 )     (2,930,852 )     (33,073,738 )     (10,492,604 )
                                 
Provision for income taxes
    -       -       -       -  
                                 
Net (loss)
  $ (30,859,470 )   $ (2,930,852 )   $ (33,073,738 )   $ (10,492,604 )
                                 
                                 
                                 
Loss per share:
                               
Basic and Diluted
  $ (1.44 )   $ (0.68 )   $ (2.02 )   $ (0.61 )
Weighted average shares outstanding:
                               
Basic and Diluted
    21,428,769       15,334,868       16,342,225       17,184,891  

The accompanying notes are an integral part of these consolidated financial statements.

 

 
5
 

TORCHLIGHT ENERGY RESOURCES, INC.
           
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
           
   
SIX MONTHS
   
SIX MONTHS
 
   
ENDED
   
ENDED
 
   
June 30, 2015
   
June 30, 2014
 
Cash Flows From Operating Activities
           
Net (loss)
  $ (33,073,738 )   $ (10,492,604 )
Adjustments to reconcile net loss to net cash from operations:
               
Stock based compensation
    7,078,791       4,753,686  
Accretion of convertible note discounts
    1,163,091       3,158,850  
Impairment expense
    22,438,114       -  
Depreciation, depletion and amortization
    698,805       962,703  
Change in:
               
Accounts receivable
    49,392       85,677  
Note receivable
    2,627       (294,318 )
Production revenue receivable
    (163,977 )     (777,989 )
Prepayment of development costs
    10,602       (824,383 )
Prepaid expenses
    29,634       (29,856 )
Other assets
    (23,938 )     (515 )
Accounts payable and accrued liabilities
    3,165,044       2,408,948  
Due to working interest owners
    (30,231 )     (52,046 )
Asset retirement obligation
    774       1,593  
Interest payable
    447,014       (22,900 )
Capitalized interest
    (395,738 )     373,732  
Net cash provided by (used) in operating activities
    1,396,266       (749,422 )
                 
Cash Flows From Investing Activities
               
Investment in oil and gas properties
    (4,618,743 )     (10,789,519 )
Acquisition of office equipment
    -       (53,960 )
Proceeds from Sale of Leases
    951,918       -  
Net cash used in investing activities
    (3,666,825 )     (10,843,479 )
                 
Cash Flows From Financing Activities
               
Proceeds from sale of common stock
    1,300,000       7,220,291  
Proceeds from sale of preferred stock
    9,800,000       -  
Repayment of convertible notes
    (8,859,011 )     -  
Proceeds from warrant exercise
    -       379,982  
Proceeds from promissory notes
    212,000       3,234,486  
Repayment of promissory notes
    (150,000 )     -  
Net cash provided by financing activities
    2,302,989       10,834,759  
                 
Net increase (decrease) in cash
    32,430       (758,142 )
Cash - beginning of period
    179,787       1,811,713  
                 
Cash - end of period
  $ 212,217     $ 1,053,571  
                 
Supplemental disclosure of cash flow information:
               
Non cash transactions:
               
Common stock issued for services
  $ 1,594,871     $ 168,577  
Common stock issued for mineral interests
  $ 26,400     $ 3,225,629  
Warrants issued for services
  $ 5,562,919     $ 4,663,865  
Capitalized interest cost
  $ 395,738     $ -  
Asset retirement obligation
  $ 774     $ -  
Common stock issued in conversion of promissory notes
  $ -     $ 1,995,575  
Warrants issued in connection with promissory notes
  $ -     $ 405,016  
Beneficial conversion feature on promissory notes
  $ -     $ 195,466  
Common stock issued in warrant exercises
  $ -     $ 380,000  
Cash paid for interest
  $ 931,011     $ 601,384  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
6
 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)



1. NATURE OF BUSINESS

Torchlight Energy Resources, Inc. was incorporated in October 2007 under the laws of the State of Nevada as Pole Perfect Studios, Inc. (“PPS”).  From its incorporation to November 2010, the company was primarily engaged in business start-up activities.

On November 23, 2010, we entered into and closed a Share Exchange Agreement (the “Exchange Agreement”) between the major shareholders of PPS and the shareholders of Torchlight Energy, Inc. (“TEI”).  As a result of the transactions effected by the Exchange Agreement, at closing TEI became our wholly-owned subsidiary, and the business of TEI became our sole business.  TEI was incorporated under the laws of the State of Nevada in June 2010.  We are engaged in the acquisition, exploitation and/or development of oil and natural gas properties in the United States.  In addition to TEI, we also operate our business through our wholly-owned subsidiaries Torchlight Energy Operating, LLC, a Texas limited liability company and Hudspeth Oil Corporation, a Texas corporation.

On December 10, 2010, we effected a 4-for-1 forward split of our shares of common stock outstanding.  All owners of record at the close of business on December 10, 2010 (record date) received three additional shares for every one share they owned.  All share amounts reflected throughout this report take into account the 4-for-1 forward split.

Effective February 8, 2011, we changed our name to “Torchlight Energy Resources, Inc.”  In connection with the name change, our ticker symbol changed from “PPFT” to “TRCH.”

The Company is engaged in the acquisition, exploration, development and production of oil and gas properties within the United States. The Company’s success will depend in large part on its ability to obtain and develop profitable oil and gas interests.

2. GOING CONCERN

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year.

At June 30, 2015, the Company had not yet achieved profitable operations. We had a net loss of approximately $33.1 million for the six months ended June 30, 2015 and had accumulated losses of $64,724,298 since our inception to June 30, 2015, and expects to incur further losses in the development of our business.  Working Capital as of June 30, 2015 was negative $7,209,691. The Company’s ability to continue as a going concern is dependent on its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.  Management’s plan to address the Company’s ability to continue as a going concern includes:  (1) obtaining debt or equity funding from private placement or institutional sources; (2) obtain loans from financial institutions, where possible, or (3) participating in joint venture transactions with third parties.  Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Planned Divestiture of Hunton Project

On April 8, 2015, management announced that they are seeking to divest certain of our Hunton assets located in Logan and Kingfisher Counties, Oklahoma.  Negotiations for a potential sale are ongoing at this time.
 

 
7
 

3. SIGNIFICANT ACCOUNTING POLICIES

The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America. Accounting principles followed and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below:

Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from these estimates.

Basis of presentation —The financial statements are presented on a consolidated basis and include all of the accounts of Torchlight Energy Resources Inc. and its wholly owned subsidiaries, Torchlight Energy, Inc., Torchlight Energy Operating, LLC, and Hudspeth Oil Corporation. All significant intercompany balances and transactions have been eliminated.
 
Risks and uncertainties – The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological, and other risks associated with operating an emerging business, including the potential risk of business failure.

Concentration of risks – The Company’s cash is placed with a highly rated financial institution, and the Company periodically reviews the credit worthiness of the financial institutions with which it does business. At times the Company’s cash balances are in excess of amounts guaranteed by the Federal Deposit Insurance Corporation.
 
Fair value of financial instruments – Financial instruments consist of cash, accounts receivable, accounts payable, notes payable to related party, and convertible promissory notes. The estimated fair values of cash, accounts receivable, accounts payable, and related party payables approximate the carrying amount due to the relatively short maturity of these instruments. The carrying amounts of the convertible promissory notes approximate their fair value giving affect for the term of the note and the effective interest rates.

For assets and liabilities that require re-measurement to fair value the Company categorizes them in a three-level fair value hierarchy as follows:

·Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
·Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration.
·Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Accounts receivable and Production revenue receivable – Accounts receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms, as well as amounts due from working interest owners of oil and gas properties for their share of expenses paid on their behalf by the Company. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. As of June 30, 2015 and December 31, 2014 no valuation allowance was considered necessary.

Investment in oil and gas properties – The Company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission (“SEC”). Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities.

Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir.
 
 
 

 
8
 

3. SIGNIFICANT ACCOUNTING POLICIES - continued
 
Capitalized interest – The Company capitalizes interest on unevaluated properties during the periods in which they are excluded from costs being depleted or amortized.  During the periods ended June 30, 2015 and December 31, 2014, the Company capitalized $395,738 and $371,116, respectively, of interest on unevaluated properties.

Depreciation, depletion, and amortization – The depreciable base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion, and amortization (“DD&A”), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method.
 
Ceiling test – Future production volumes from oil and gas properties are a significant factor in determining the full cost ceiling limitation of capitalized costs. Under the full cost method of accounting, the Company is required to periodically perform a “ceiling test” that determines a limit on the book value of oil and gas properties. If the net capitalized cost of proved oil and gas properties, net of related deferred income taxes, plus the cost of unproved oil and gas properties, exceeds the present value of estimated future net cash flows discounted at 10 percent, net of related tax affects, plus the cost of unproved oil and gas properties, the excess is charged to expense and reflected as additional accumulated DD&A. The ceiling test calculation uses a commodity price assumption which is based on the unweighted arithmetic average of the price on the first day of each month for each month within the prior 12 month period and excludes future cash outflows related to estimated abandonment costs. The Company recognized impairment of $22,438,114 on its oil and gas properties during the three months ended June 30, 2015. No impairment was recognized at December 31, 2014. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that an additional write-down could occur. Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. The independent engineering estimates include only those amounts considered to be proved reserves and do not include additional amounts which may result from new discoveries in the future, or from application of secondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contracts are not in place. Estimated reserves to be developed through secondary or tertiary recovery processes are classified as unevaluated properties.
 
The determination of oil and gas reserves is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent re-evaluation of reserves and cost estimates related to future development of proved oil and gas reserves could result in significant revisions to proved reserves.  Other issues, such as changes in regulatory requirements, technological advances, and other factors which are difficult to predict could also affect estimates of proved reserves in the future.

Gains and losses on the sale of oil and gas properties are not generally reflected in income. Sales of less than 100% of the Company’s interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvage value, are usually charged to accumulated depreciation.

Asset retirement obligations – Accounting principles require that the fair value of a liability for an asset’s retirement obligation (“ARO”) be recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the corresponding cost be capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset. Abandonment cost incurred is recorded as a reduction to the ARO liability.

Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement.

Asset retirement obligation activity is disclosed in Note 10.

Share-based compensation – Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award. Compensation cost for liability awards is based on the fair value of the vested award at the end of each period.

Revenue recognition – The Company recognizes oil and gas revenues when production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectability is reasonably assured.
 

 
9
 

3. SIGNIFICANT ACCOUNTING POLICIES - continued
 
Basic and diluted earnings (loss) per share – Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive.  The Company has not included potentially dilutive securities in the calculation of loss per share for any periods presented as the effects would be anti-dilutive.

Environmental laws and regulations – The Company is subject to extensive federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The Company believes that it is in compliance with existing laws and regulations.

Recent accounting pronouncements –
 
On August 27, 2014, the FASB issued ASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of the Company’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.
 
In May 2014, the FASB issued ASU 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements.
 
In April 2014, the FASB issued ASU 2014-08, which includes amendments that change the requirements for reporting discontinued operations and require additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new standard is effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption would be permitted for any annual or interim period for which an entity’s financial statements have not yet been made available for issuance. The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.
 
Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on the Company’s financial position or results from operations.

Subsequent events – The Company evaluated subsequent events through August 14, 2015, the date of issuance of the financial statements. Subsequent events are disclosed in Note 11.
 
4. RELATED PARTY PAYABLES

As of June 30, 2015, related party payables consisted of accrued and unpaid compensation to two of our executive officers totaling $90,000.

5. COMMITMENTS AND CONTINGENCIES

The Company is subject to contingencies as a result of environmental laws and regulations.  Present and future environmental laws and regulations applicable to the Company’s operations could require substantial capital expenditures or could adversely affect its operations in other ways that cannot be predicted at this time.  As of June 30, 2015, no amounts had been recorded because no specific liability has been identified that is reasonably probable of requiring the Company to fund any future material amounts.
 
 
 
10
 

6. STOCKHOLDERS’ EQUITY

The Company has authorized 10,000,000 shares of preferred stock with par value of $.001.
 
On June 9, 2015, under a Securities Purchase Agreement, we sold to certain accredited investors an aggregate of $9,800,000 in shares of Series A Convertible Preferred Stock, amounting to a total of 98,000 shares of the Series A Convertible Preferred Stock at a purchase price of $100 per share.  The designations, preferences, limitations, restrictions and relative rights of the Series A Convertible Preferred Stock are as follows: (i) a stated value of $100 per share; (ii) mandatory conversion one year after issuance (provided no insolvency event has occurred and subject to the restriction described in the following clause “(iv)”), with each holder having the right to convert at its election any time before that; (iii) a conversion price of $1.15 per shares of common stock; (iv) until stockholder approval is obtained, holders may not convert (and there shall not be any mandatory conversion) if such conversion will result in such holder beneficially owning in excess of 19.9% of our common stock; (v) a dividend in an annual amount equal to 12% on the outstanding stated value of each share payable in common stock or cash at the holder’s election; (vi) each holder shall be entitled to the number of votes equal to the number of shares of common stock into which such shares of Series A Convertible Preferred Stock could be converted; (vii) in the event of any voluntary or involuntary liquidation, dissolution or winding up, the holders will be entitled to be paid out of the assets available for distribution to our stockholders, before any payment is be made to the holders of common stock; and (viii) the holders will have the right to participate in up to 100%, in the aggregate, on a pro-rata basis, of any subsequent private placement offerings by us of our equity securities, on identical terms and conditions as set forth in such subsequent offering for so long as the holder owns the Series A Convertible Preferred Stock.
 
The preferred investors were provided 20% warrant coverage. A total of 1,704,346 warrants were issued with a five-year term and an exercise price of $1.40 per share of common stock. The warrants also provide that, until stockholder approval is obtained, holders may not exercise if such exercise will result in such holder beneficially owning in excess of 19.9% of our common stock.
 
At closing of the Securities Purchase Agreement, proceeds from the offering were used to pay off, in full, the holders of the 12% Series A Secured Convertible Promissory Notes (the “Senior Notes”), subject to the release of all liens and security interests.
 
During the three months ended June 30, 2015 the Company issued 1,412,458 shares of common stock as compensation for services, with a total value of $1,689,371.

During the three months ended June 30, 2015, the Company issued 4,931,250 shares of common stock for $1,300,000 in cash.

During the three months ended June 30, 2015, the Company issued 30,000 shares of common stock in connection with the modification of mineral leases for the extension of drilling obligations.

During the three months ended June 30, 2015, the Company issued 935,750 warrants as compensation for services with a total value of $1,186,919.

During the three months ended June 30, 2015, the Company issued 590,000 warrants in connection with short term loans having a total value of $180,500.

During the three months ended June 30, 2015, the Company issued 250,000 warrants in connection with the sale of a mineral interest having a total value of $72,500.
 
During the three months ended June 30, 2015, 75,000 warrants vested which were previously issued by the Company as compensation for services, with a total value of $30,750.

During the month of June, 2015, the Company issued, subject to shareholder approval, 3,975,000 stock options to employees valued at $4,088,250.

 














 
11
 
 
6. STOCKHOLDERS’ EQUITY - continued
 
A summary of stock options and warrants outstanding as of June 30, 2015 by exercise price and year of expiration is presented below:
 
Exercise
    Expiration Date in        
Price
   
2015
   
2016
   
2017
   
2018
   
2019
   
2020
   
Total
 
$ 0.50                         800,000                   800,000  
$ 1.00       -       -       150,000       -       -             150,000  
$ 1.40                                               1,704,346       1,704,346  
$ 1.57                                               3,750,000       3,750,000  
$ 1.75       705,000       1,135,714       -       -       -               1,840,714  
$ 1.79                                               225,000       225,000  
$ 1.80                                               850,000       850,000  
$ 2.00       -       1,035,271       126,000       1,696,380       -               2,857,651  
$ 2.09       -       -       -       2,800,000       -               2,800,000  
$ 2.29                               40,000                       40,000  
$ 2.50       -       100,000       -       -       85,750               185,750  
$ 2.82       -       -       -       38,174       -               38,174  
$ 3.00       -       100,000       -       -       -               100,000  
$ 4.50       -       -       -       -       700,000               700,000  
$ 5.00       -       8,391       190,000       -       -               198,391  
$ 6.00       -       -       -       577,501       330,341               907,842  
$ 7.00       -       -       -       -       700,000               700,000  
          705,000       2,379,376       466,000       5,952,055       1,816,091       6,529,346       17,847,868  

At June 30, 2015 the Company had reserved 17,847,868 common shares for future exercise of warrants plus 8,521,739 common shares for future conversion of issued preferred stock.
 
Warrants issued in relation to the promissory notes issued (see note 9) were valued using the Black Scholes Option Pricing Model. The assumptions used in calculating the fair value of the warrants issued are as follows:

Risk-free interest rate
0.78%
Expected volatility of common stock
191% - 253%
Dividend yield
0.00%
Discount due to lack of marketability
20-30%
Expected life of warrant
3 years - 5 years

7. CAPITALIZED COSTS
 
The following table presents the capitalized costs of the Company as of June 30, 2015 and December 31, 2014:

   
6/30/2015
   
12/31/2014
 
             
Evaluated costs subject to amortization
  $ 29,753,862     $ 24,276,483  
Unevaluated costs
    12,799,131       14,152,415  
Impairment expense
    (22,438,114 )     -  
Total capitalized costs
    20,114,879       38,428,898  
Less accumulated depreciation, depletion  and amortization
    (4,622,466 )     (3,930,217 )
Net capitalized costs
  $ 15,492,413     $ 34,498,681  

 
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8. INCOME TAXES

Income taxes are accounted for under the asset and liability method.  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.  The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured.
 
Authoritative guidance for uncertainty in income taxes requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an examination.  Management has reviewed the Company’s tax positions and determined there were no uncertain tax positions requiring recognition in the consolidated financial statements.  The Company’s tax returns remain subject to Federal and State tax examinations for all tax years since inception as none of the statutes have expired.  Generally, the applicable statutes of limitation are three to four years from their respective filings.

Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of tax expense in the statement of operation.  The Company has not recorded any interest or penalties associated with unrecognized tax benefits for any periods covered by these financial statements.
 
The Company had a net deferred tax asset related to federal net operating loss carryforwards of $30,014,914 and $24,089,942 at June 30, 2015 and December 31, 2014, respectively.  The federal net operating loss carryforward will begin to expire in 2030.  Realization of the deferred tax asset is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards.  The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured.
 
9. PROMISSORY NOTES

Series “A” Convertible Promissory Notes

On December 18, 2012, the Company exchanged $412,500 of outstanding convertible promissory notes for new 12% Series A Secured Convertible Promissory Notes (“Series A Notes”) described below.  The Series A Notes were issued as part of a larger offering with senior liens on the Company’s oil and gas properties.  In order to induce the holders of the previously outstanding convertible promissory notes to exchange such promissory notes and to relinquish their priority liens on the Company’s oil and gas properties in favor of all 12% Convertible Promissory Note Holders, the Company agreed to grant the note holders a total of 235,714 four year warrants to purchase common stock at $1.75 per share, valued at $240,428, and 235,714 four year warrants to purchase common stock at $2.00 per share, valued at $233,357.  The total of these warrants, $473,785, is reflected as debt issuance costs on the balance sheet as of December 31, 2012, as these costs relate to the larger offering of 12% Convertible Promissory Notes.

On December 18, 2012, the Company issued $690,000 of Series A Notes to new investors.  Together with the conversion described above, there was $1,102,500 of principal amount outstanding as of December 31, 2012.  The Series A Notes are due and payable on March 31, 2015 and provide for conversion into common stock at a price of $1.75 per share and include the issuance of 8,000 warrants for each $70,000 of principal amount purchase.  The warrants carry a five year term and have an exercise price of $2.00 per share.  They were valued at $137,340, which is reflected as a discount on the Series A Notes, to be amortized over the life of the debt under the effective interest method.  Since the conversion price on the Series A Notes was below the market price of the Company’s common stock on the date of issuance, this constitutes a beneficial conversion feature.  The amount is calculated as the difference between the market price of the common stock on the date of closing and the effective conversion price as adjusted by the discount for the warrants issued.  The amount of the beneficial conversion feature was $390,600, and is also reflected as a discount on the Series A Notes.  The fair value of the Convertible Promissory Notes is determined utilizing Level 2 measurements in the fair value hierarchy.
 
During the year ended December 31, 2013, the Company issued an additional $10,895,773 in principal value of Series A Notes.  Such notes carry the same terms as described above.  In connection therewith, the Company also issued a total of 1,308,082 five-year warrants to purchase common stock at an exercise price of $2.00 per share.  The value of the warrant shares was $1,917,158 and the amount recorded for the beneficial conversion feature was $5,770,654.  These amounts were recorded as a discount on the Series A Notes.  In addition, the Company engaged a placement agent to source investors for the majority of these additional notes.  This placement agent was paid a fee of 10% of the principal amount of the notes plus a non-accountable expense reimbursement of up to 2% of the principal raised by the agent.  The placement agent also received 552,057 warrants to purchase common shares at $2.00 per share for a period of three years, valued at $614,163.  All the amounts paid to the placement agent have been included in debt issuance costs and will be amortized into interest expense over the life of the Series A Notes.

The Series A Notes had a first priority lien on all of the assets of the Company.  

The Series “A” Convertible Notes total outstanding principal balance of $8,117,598 plus interest, was due in full at their maturity date of March 31, 2015.  On June 9, 2015, under a Securities Purchase Agreement, we sold to certain accredited investors an aggregate of $9,800,000 in shares of Series A Convertible Preferred Stock. Proceeds from the offering were used to pay off, in full, the holders of the 12% Series A Secured Convertible Promissory Notes (the “Senior Notes”), subject to the release of all liens and security interests.
 
 
 
13
 
 
9. PROMISSORY NOTES - continued
 
Series “B” Convertible Subordinated Promissory Notes
 
During the quarter ended June 30, 2014, the Company issued $3,197,500 in principal value of 12% Series B Convertible Unsecured Promissory Notes. The Series B Notes are due and payable on June 30, 2017 and provide for conversion into common stock at a price of $4.50 per share and included the issuance of one warrant for each $22.50 of principal amount purchased.  The Company issued a total of 142,111 of these five-year warrants to purchase common stock at an exercise price of $6.00 per share.  The value of the warrant shares was $405,016 and the amount recorded for the beneficial conversion feature was $195,466.  These amounts were recorded as a discount on the Series B Notes.
 
During the quarter ended September 30, 2014, the Company issued an additional $1,372,000 in principal value of Series B Convertible Unsecured Promissory Notes. The Series B Notes are due and payable on June 30, 2017 and provide for conversion into common stock at a price of $4.50 per share and included the issuance of one warrant for each $22.50 of principal amount purchased.  The Company issued a total of 60,974 of these five-year warrants to purchase common stock at an exercise price of $6.00 per share.  The value of the warrant shares was $157,388 and the amount recorded for the beneficial conversion feature was $-0-.  These amounts were recorded as a discount on the Series B Notes. The Company previously offered a reset of the conversion price downward to $1.00 to holders of the Series “B” Notes in exchange for a deferral of payment of accrued interest due on the Notes until December 31, 2015. Holders of notes totaling $2,000,000 of the total outstanding of $4,569,500 participated.
 
Notes Payable within one year
 
The Company is obligated on short term notes payable to third parties totaling $ 937,729 as of June 30, 2015.  The total balance due includes a $106,411 note due on April 30, 2015 (the parties are in discussions to extend the note with interest continuing to accrue), $245,515 which was due in December 2014 (but has been extended to December 31, 2015), $154,488 due September 30, 2015, and $431,315 due on December 31, 2015.

Notes payable to related parties included in the detail above total $692,214.
 
10. ASSET RETIREMENT OBLIGATIONS

The following is a reconciliation of the asset retirement obligation liability through June 30, 2015:
 
Asset retirement obligation – December 31, 2013
  $ 24,382  
Estimated liabilities recorded
    7,789  
Accretion Expense
    3,780  
Asset retirement obligation – December 31, 2014
  $ 35,951  
Estimated liabilities recorded
    -  
Accretion Expense
    1,107  
Asset retirement obligation – March 31, 2015
  $ 37,058  
Estimated liabilities recorded
    -  
Accretion Expense
    819  
Removal of ARO for wells sold
    (1,152 )
Asset retirement obligation – June 30, 2015
  $ 36,725  
 
11. SUBSEQUENT EVENTS

In connection with the sale of the working interest in the Orogrande Project, 500,000 three year warrants to purchase common stock with an exercise price of $2.31 were issued on July 1, 2015. Of the 500,000 warrants, 250,000 are exercisable on September 30, 2015 and the remaining 250,000 are exercisable on December 31, 2015.
 
Loan from Shareholder
 
On August 6, 2015 a shareholder advanced $250,000 to be repaid within 30 days from the proceeds of the sale of the Hunton properties or proceeds of a funding event. If repayment extends beyond 30 days 12% interest will apply retroactively from August 6, 2015.

 
14
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Basis of Presentation of Financial Information

On November 23, 2010, the Share Exchange Agreement (the “Exchange Agreement” or “Transaction”) between Pole Perfect Studios, Inc. (“PPS”) and Torchlight Energy, Inc. (“TEI”) was entered into and closed, through which the former shareholders of TEI became shareholders of PPS. At closing, PPS abandoned its previous business. Consequently, as a result of the Transaction, the business of TEI became our sole business.  In addition to TEI, we also operate our business through our subsidiaries Torchlight Energy Operating, LLC and Hudspeth Oil Corporation.

Summary of Key Results

Overview

We are engaged in the acquisition, exploration, exploitation, and/or development of oil and natural gas properties in the United States.
 
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements included herewith and our audited financial statements included with our Form 10-K for the year ended December 31, 2014.  This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.  Such discussion represents only the best present assessment by our management.

We had no active operations prior to the inception of TEI on June 25, 2010 and had limited revenues prior to the year ended December 31, 2012.  

Current Projects

As of June 30, 2015 the Company had interests in five oil and gas projects: the Marcelina Creek Field Development in Wilson County, Texas, the Coulter Field in Waller County, Texas, the Ring Energy Joint Venture in Southwest Kansas, the Hunton play in partnership with Husky Ventures in Central Oklahoma and the Orogrande Project in Hudspeth County, Texas.
 
Marcelina Creek Field Development .

On July 6, 2010, TEI entered into a participation agreement with Bayshore Operating Corporation, LLC (“Bayshore”), which is currently the holder of an oil, gas, and mineral lease covering approximately 1,045 acres in Wilson County, Texas, known as the Marcelina Creek Field Development.  The Participation Agreement provides for the drilling of four wells. Three of the obligation wells have been drilled.  The first three wells include a horizontal re-entry well known as the Johnson-1-H, a vertical well known as the Johnson #4, and a lateral well known as the Johnson #2-H.  These three wells are presently producing a total of approximately 80 BOPD.  The remaining well is to be a vertical development well at a location to be determined within the existing lease. Drilling is anticipated in 2015.

The Marcelina Creek Field Development is located over the Austin Chalk, Buda, and Eagle Ford Formations, which formations are well known and established producers in central Texas.  Their production is controlled by vertical fracturing of the rock with high productivity in wells which encounter the greatest amount of fractures.  With the advent of horizontal drilling technology, numerous opportunities exist in areas and fields that were only drilled vertically.

Coulter Field

In January 2012, we entered into a farm-in agreement, titled the “Coulter Limited Partnership Agreement” (the “Coulter Agreement”), with La Sal Energy, LLC (“La Sal”).  La Sal owns a 100% working interest and a 75% net revenue interest in approximately 940 acres of oil, gas, and mineral leases in Waller County, Texas, on which the well known as “John Coulter #1-R” is located. This well is adjacent to the Katy Field, located on its northwestern updip edge, which produces primarily from the Wilcox Sparks formation.

Pursuant to the Coulter Agreement, we acquired a 34% working interest and a 25.5% net revenue interest from La Sal’s interest in the John Coulter #1-R for the purchase price of $350,000, which was to be applied to 100% of the costs of a fracture stimulation treatment on the well.  Under the agreement, we had options to purchase additional working interests up to a total of 45%.  We exercised the first option and purchased an additional 6% for $50,000, bringing our working interest to 40% and our net revenue interest to 30%.  Our option to purchase an additional 5% working interest can be exercised by the payment of $50,000 within 30 days of first commercial production from the well.  If commercial production is established, the net revenue split will be 80% to us and 20% to La Sal until net revenue totals $437,500, after which the net revenue will be split according to the interests in the well.  Expenses above the initial $350,000 will be split according to the working interests in the well.  Our total investment in the project, including fracture stimulation, subsequent testing, purchase of additional interests and capitalized interest, amounted to $696,948 as of June 30, 2015.
 
 
15
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
The Coulter is a non-core, non-producing asset which we will attempt to monetize by sale of the lease. We presently have approximately 940 acres.
 
Smokey Hills Prospect, McPherson County, Kansas

In April 2013, we entered into an agreement to acquire certain assets of Xtreme Oil & Gas, Inc. of Plano, Texas (“Xtreme”).  Included in that agreement were the Smokey Hills Prospect in McPherson County, Kansas, the Cimarron Area Hunton Project in Logan County, Oklahoma,  and an interest in a salt water disposal facility in Seminole, Oklahoma.  Total consideration for all the properties was $1.6 million.

The Smokey Hills acquisition included approximately 16,000 gross acres and a well, the Hoffman 1-H within the greater Lindsborg Field area.  Our working interest is nearly 18%.  Wells had been drilled vertically in the 1960’s to present at depths of less than 4,000 feet looking for production from Mississippian carbonated fractured reservoirs.  The Hoffman well was drilled laterally 4,200 feet and fracking had not been completed at the time of our acquisition of the project.  Core analysis and logs indicated good porosity at 14 to 22%. Following our acquisition, the well was hydraulically fractured, but the results were disappointing.   

During 2014 a ten well program to evaluate the Prospect was conducted. Based on the economic outcome of the first five wells and the further geological analysis of the acreage, the drilling program was discontinued during the fourth quarter, 2014 and the two producing wells were shut in.

The Smokey Hill project was sold in second quarter, 2015 for $65,000.

The Ring Energy Joint Venture, Southwest Kansas

In October 2013, we entered into a Joint Venture agreement with Ring Energy.  The agreement called for us to provide for $6.2 million in drilling capital to, in effect, match Ring Energy’s expenditures for leasing.  In exchange for this commitment, we would receive a 50% interest in each well bore drilled and the acreage unit it held, until we had spent $6.2 million.  At such time, we would then receive a 50% Working Interest in the entire lease block consisting of 17,000 +/- acres.  We were to provide $3.1 million in advance of the program commencing, which would cover approximately 5 wells to be drilled and completed.  Once the initial five wells are completed, we and Ring would evaluate the program and the drilling activity and determine if another five wells are to be drilled.  Should we continue with the program, we would then deposit another $3.1 million with Ring for drilling and completion of the next five wells.

We have made the initial $3.1 million deposit and the first five well drilling program is completed. Drilling operations commenced in March, 2014. Seven wells have been drilled – three are producing, one can be converted to a salt water disposal well, one was not completed, and two were plugged and abandoned.  Based upon results from drilling, the participants elected to suspend further drilling and obtain seismic data to guide continuing development. The seismic data is being analyzed at the date of this filing.   As of June 30, 2015, the Company had invested approximately $5,325,000 in the Ring Joint Venture.  The Company believes this project is still considered to be in the testing phase.

Hunton Play, Central Oklahoma

The Xtreme transaction also included the acquisition of three Hunton wells, the Hancock, Robinson and Lenhart.  The Hancock and Robinson were producing wells but had small working interests of 1% and .25 of 1%, respectively. 

Lenhart Well

The Lenhart well is a 62% working interest and was being prepared for a fracture stimulation when it was previously damaged, prior to our acquisition, by the service contractor.  The well bore at the Hunton level has an irretrievable pipe in the hole and cannot be used to produce from the Hunton.  Although Xtreme won the litigation against the contractor, he failed to pay for the replacement of the well bore, and Xtreme was responsible for costs primarily to Baker-Hughes for work done on the well.  We took responsibility for those charges and negotiated a settlement of approximately $600,000.

Subsequent to the above, we have identified a shallow sandstone that could potentially be productive.  As previously planned, we tested this formation, and although there were hydrocarbons present, they are not in sufficient quantities to be economic.

The Lenhart property was sold for $25,000 and buyer’s assumption of plugging liability in 2015.
 
Hunton Properties

During the second quarter of 2013, Torchlight entered into an agreement with Husky Ventures to participate in the drilling of wells to the Hunton Formation in central Oklahoma. We continued to expand this relationship with Husky Ventures on a monthly basis as we expand our lease acreage in the contracted Areas of Mutual Interest (AMI’s).
 
 
16
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
When Torchlight executed the agreement Husky had already drilled and completed 18 successful wells in the Hunton.  We estimated that Husky had spent, or caused to be spent, $125 million in what we considered a Research and Development project.  The results of Husky’s initial program lead them to develop certain drilling and completions techniques of which we could participate in and take advantage of.
 
The terms in our agreement with Husky are that we pay our proportionate costs of leases and operating expenses based on our working interest.   For leasing and drilling costs (the AFE), we carry Husky for 15% based on our working interest participation.  This is to compensate Husky for the initial program mentioned above and, additionally, the project coordination of the geological, leasing, legal and title opinions, survey and permitting, all drilling, frac design, completion and equipping, day to day operations, and accounting and filing all required monthly and annual reporting to all governmental agencies.

Torchlight believes this is an equitable agreement in that we have the benefit of the initial programs results while participating with a proven operator in areas that continue to provide us with outstanding results in a safe investment environment.
 
Specifically, we were able to negotiate a 15% working interest in approximately 3,700 acres in the Cimarron Area of Logan County in May, 2013.  Leasing continued monthly which resulted in the total acreage in which the Company has an interest increasing to approximately 5,020 as of March 31, 2015 (Net undeveloped acres = 343). Our net cumulative investment through June 30, 2015 in undeveloped acres in the Cimarron AMI was $715,596

The first well in the Cimarron AMI, the Boeckman #1-H well, was spud and was subsequently completed and fracture stimulated in July, 2013.   We acquired a working interest in the Boeckman #1-H well and subsequently sold part of our ownership in the Boeckman well for $990,000. We agreed to a preferential payout to the purchaser equal to 50% of his acquired interest.  The agreement was amended in the first quarter of 2014 to include our agreement to advance funds under a note receivable from the purchaser to be repaid from the purchaser’s revenue preference subsequent to October, 2014.  

In the third quarter of 2013, we acquired from a third party for stock, a 15.3% working interest in 5011+/- acres in the Chisolm Trail AMI with Husky Ventures Inc. as the operator. Leasing also continued monthly in this AMI increasing the total acreage in which the Company has an interest to approximately 15,300 as of June 30, 2015 (Net undeveloped acres = 2,165).  Our net cumulative investment through June 30, 2015 in undeveloped acres in the Chisholm Trail AMI was $4,429,248.

In the fourth quarter of 2013 we entered into our third Area of Mutual Interest (AMI) with Husky Ventures, the Viking Prospect.  This AMI covers four townships in size. We acquired a 25% interest in 3,945 acres in the Viking. We subsequently acquired an additional 5% in May, 2014.   Leasing is continuing monthly so that we had an interest in approximately 7,735 total acres in which the Company has an interest as of June 30, 2015. (Net undeveloped acres = 2,266) Husky drilled the first two wells in the AMI in second quarter, 2014.  Our net cumulative investment through June 30, 2015 in undeveloped acres in the Viking AMI was $1,326,663.

In January of 2014, we again elected to continue to expand in the Hunton Play with Husky Ventures.  We contracted for a 25% Working Interest in approximately 5,000 acres in the R4 AMI consisting of eight townships in South Central Oklahoma. We subsequently acquired an additional 5% in May, 2014.  Leasing is continuing monthly so that the Company had an interest in approximately 11,900 total acres as of June 30, 2015 (Net undeveloped acres = 3,586). Our cumulative investment through June 30, 2015 in the R4 AMI was $2,834,514.

In February of 2014, we acquired a 10% Working Interest in a well in the Prairie Grove AMI from a non-consenting third party who elected not to participate in the well. In July of 2014, we elected to further expand in the Hunton Play with Husky Ventures.  We contracted for a 25% Working Interest in the T4 AMI.  There is an active ongoing leasing program in this AMI so that the total acres in which the Company has an interest at June 30, 2015 totals approximately 2,325 acres (Net undeveloped acres = 581). Our cumulative investment through June 30, 2015 in the T4 AMI was $949,530.
 
On April 8, 2015, we announced that we are seeking to divest certain of our Hunton assets located in Logan and Kingfisher Counties, Oklahoma. Negotiations for a potential sale are ongoing at this time.
 
Salt Water Disposal Facility

As part of the Xtreme transaction we also acquired a 22.5% net royalty on a salt water disposal facility in Seminole, Oklahoma.  No value was placed on the facility due to operational uncertainty.  The facility which was newly commissioned in January 2013 is a state of the art disposal facility which can handle 20,000 barrels of produced and injected fluids per day.  Oil and gas wells produce large quantities of saltwater that must be trucked and disposed of at a cost to the producer. In addition to the royalty, we had a 24.65% Working Interest which was acquired from some investors that have turned over their working interest in lieu of paying their outstanding JIB Account Receivable due to Torchlight, plus the right to an additional working interest of 37.5% when the original investors in the facility receive a payout of their investment. The SWD facility was sold in the second quarter, 2015 for $300,000.
 
 
17
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
Orogrande Project, West Texas
 
On August 7, 2014, we entered into a Purchase Agreement with Hudspeth Oil Corporation (“Hudspeth”), McCabe Petroleum Corporation (“MPC”), and Greg McCabe. Mr. McCabe was the sole owner of both Hudspeth and MPC. Under the terms and conditions of the Purchase Agreement, at closing, we purchased 100% of the capital stock of Hudspeth which holds certain oil and gas assets, including a 100% working interest in 172,000 mostly contiguous acres in the Orogrande Basin in West Texas. This acreage is in the primary term under five-year leases that carry additional five-year extension provisions. As consideration, at closing we issued 868,750 shares of our common stock to Mr. McCabe and paid a total of $100,000 in geologic origination fees to third parties.  Additionally, Mr. McCabe will have an optional 10% working interest back-in after payout and a reversionary interest if drilling obligations are not met, all under the terms and conditions of a participation and development agreement.  Closing of the transactions contemplated by the Purchase Agreement occurred on September 23, 2014.
 
Of the 172,000 acres, 40,154 were scheduled for renewal in December, 2014.  The Company renewed the leases for the 40,154 acres during second quarter, 2015. Prior to March 31, 2015, the Company had the obligation to begin drilling its first well in order to hold the acreage block. The well was permitted and spudded and drilling began by March 31.

The Company finalized an agreement to sell a 5% working interest in the Orogrande acreage on June 30, 2015 with an effective date of April 1, 2015. Sale proceeds were $500,000 which were received in April, 2015. In addition, the Company issued 250,000 three year warrants with an exercise price of $.50 to the purchaser.
 
Historical Results for the six months ended June 30, 2015 and 2014:

Revenues and Cost of Revenues

For the six months ended June 30, 2015, we had production revenue of $1,042,827 compared to $2,273,005 for 2014.  Refer to the table of production and revenue included below for quarterly changes in revenue.  Our cost of revenue, consisting of lease operating expenses and production taxes, was $510,544, and $576,235 for the six months ended June 30, 2015 and 2014, respectively.
 
Results of operations for the six months ended June 30, 2015 includes Impairment expense of $22,438,114 to recognize the impact of industry conditions (decline in oil price of $46 per barrel for the year ended June 30) on the carrying value of the Investment in Oil and Gas Properties on the Company’s Balance Sheet. The Impairment expense is substantially attributable to the Hunton properties in Oklahoma.
 
Impairment was calculated in two steps. The Ceiling Test as of June 30, 2015 comparing PV10 value of reserves to cumulative costs of evaluated properties (those in production or in development) resulted in Impairment expense of $16,406,993. The $6,031,121 balance of Impairment expense represents the downward adjustment in cumulative costs of unevaluated properties  calculated by comparison of cumulative costs per books to fair value indicated by recent industry transactions.
 
Property
 
Quarter
   
Oil Production {BBLS}
   
Gas Production {MCF}
   
Oil Revenue
   
Gas Revenue
   
Total Revenue
 
                                     
Marcelina
  Q1 - 2014       3,888       0     $ 360,074     $ -     $ 360,074  
Oklahoma
  Q1 - 2014       2,326       7,366     $ 233,686     $ 49,210     $ 282,896  
Total Q1-2014
          6,214       7,366     $ 593,760     $ 49,210     $ 642,970  
                                               
Marcelina
  Q2 - 2014       4,546       0     $ 368,937     $ -       368,937  
Oklahoma
  Q2 - 2014       9,660       33,584     $ 899,709     $ 189,073       1,088,782  
Kansas
  Q2 - 2014       2,059       0     $ 172,316     $ -       172,316  
Total Q2-2014
          16,265       33,584     $ 1,440,962     $ 189,073     $ 1,630,035  
                                               
Marcelina
  Q3 - 2014       3,189       0     $ 289,230     $ -     $ 289,230  
Oklahoma
  Q3 - 2014       13,900       35,951     $ 1,346,858     $ 185,830     $ 1,532,688  
Kansas
  Q3 - 2014       1,257       0     $ 119,797     $ -     $ 119,797  
Total Q3-2014
          18,346       35,951     $ 1,755,885     $ 185,830     $ 1,941,715  
                                               
Marcelina
  Q4 - 2014       2,768       0     $ 118,132     $ -     $ 118,132  
Oklahoma
  Q4 - 2014       12,578       93,193     $ 663,053     $ 429,960     $ 1,093,013  
Kansas
  Q4 - 2014       744       0     $ 29,690     $ -     $ 29,690  
Total Q4-2014
          16,090       93,193       810,875       429,960       1,240,835  
                                               
Year Ended 12/31/14
      56,915       170,094     $ 4,601,482     $ 854,073     $ 5,455,555  
                                               
Marcelina
  Q1 - 2015       2,425       0     $ 98,787     $ -     $ 98,787  
Oklahoma
  Q1 - 2015       5,931       37,226     $ 277,574     $ 117,521     $ 395,095  
Kansas
  Q1 - 2015       979       0     $ 40,680     $ -     $ 40,680  
Total Q1-2015
          9,335       37,226       417,041       117,521       534,562  
                                               
Marcelina
  Q2 - 2015       1,957       0     $ 101,291     $ -     $ 101,291  
Oklahoma
  Q2 - 2015       5,495       32,348     $ 290,540     $ 97,374     $ 387,914  
Kansas
  Q2 - 2015       889       0     $ 19,060     $ -     $ 19,060  
Total Q2-2015
          8,341       32,348     $ 410,891     $ 97,374     $ 508,265  

 
18
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
We recorded depreciation, depletion, and amortization expense of $698,805for the six months ended June 30, 2015.
 
General and Administrative Expenses

Our general and administrative expenses for the six months ended June 30, 2015 and 2014 were $8,896,025 and $7,139,247, respectively. Our general and administrative expenses consisted of consulting and compensation expense, substantially all of which was non-cash or deferred, accounting and administrative costs, professional consulting fees, and other general corporate expenses.  The change in general and administrative expenses for the quarters ended June 30, 2015 compared to 2014 is detailed as follows:
 
Increase(decrease) in non cash stock and warrant compensation
  $ 2,325,114  
Increase(decrease) in capital funding expense
  $ (145,528 )
Increase(decrease) in consulting expense
  $ 274,820  
Increase(decrease) in investor relations expense
  $ (499,361 )
Increase(decrease) in travel expense
  $ (132,709 )
Increase(decrease) in salaries and compensation
  $ (329,319 )
Increase(decrease) in general corporate expenses
  $ 263,761  
         
Total Increase in General and Administrative Expenses
  $ 1,756,778  
 
Historical Results for the three months ended June 30, 2015 and 2014:

Revenues and Cost of Revenues

For the three months ended June 30, 2015, we had production revenue of $508,265 compared to $1,630,035 for the three months ended June 30, 2014. Refer to the table of production and revenue history above.  Our cost of revenue, consisting of lease operating expenses and production taxes, was $279,646, and $397,184 for the three months ended June 30, 2015 and 2014, respectively.
 
General and Administrative Expenses

Our general and administrative expenses for the three months ended June 30, 2015 and 2014 were $8,207,314 and $1,318,179, respectively. Our general and administrative expenses consisted of consulting and compensation expense, substantially all of which was non-cash or deferred, accounting and administrative costs, professional consulting fees, and other general corporate expenses.  The change in general and administrative expenses for the three months ended June 30, 2015 compared to 2014 is detailed as follows:
 
Increase(decrease) in non cash stock and warrant compensation
  $ 6,815,489  
Increase(decrease) in capital funding expense
  $ (34,400 )
Increase(decrease) in consulting expense
  $ 106,019  
Increase(decrease) in investor relations expense
  $ (174,736 )
Increase(decrease) in travel expense
  $ (36,466 )
Increase(decrease) in salaries and compensation
  $ (69,968 )
Increase(decrease) in general corporate expenses
  $ 283,197  
         
Total Increase in General and Administrative Expenses
  $ 6,889,135  
 
Liquidity and Capital Resources

At June 30, 2015, we had working capital of ($7,209,691), current assets of $1,194,867 consisting of cash, accounts receivable, notes receivable, and prepaid expenses and total assets of $16,837,864 consisting of current assets, investments in oil and gas properties, and other assets. As of June 30, 2015, we had current liabilities of $8,404,558, consisting of, accounts payable (principally for development costs), payables to related parties, notes payable, and accrued interest. Stockholders’ equity was $4,328,200.
 
 
19
 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
 
Cash flow provided by (used) in operating activities for the six months ended June 30, 2015 was $1,396,266 compared to $(749,422) for the six months ended June 30, 2014, an increase of $2,145,688. Cash flow provided by operating activities for the six months ended June 30, 2015 can be primarily attributed to net losses from operations of $33,073,738 which consists primarily of $22,438,114 of impairment expense, $8,896,025 in general and administrative expenses ($7,078,791 of which is non-cash, stock based compensation), depreciation, depletion and amortization of $698,805, accretion of convertible note discounts of $1,163,091. Cash flow used in operating activities for the six months ended June 30, 2014 can be primarily attributed to net losses from operations of $10,492,604, which consists primarily of $7,139,247 in general and administrative expenses ($4,753,686 of which is non-cash stock based compensation), depreciation, depletion, and amortization of $962,703, and accretion of convertible note discounts $3,158,850. We expect to continue to use cash flow in operating activities until such time as we achieve sufficient commercial oil and gas production to cover all of our cash costs.

Cash flow used in investing activities for the six months ended June 30, 2015 was $3,666,825 compared to $10,843,479 for the six months ended June 30, 2014.  Cash flow used in investing activities consists primarily of oil and gas investments in properties during the six months ended June 30, 2015 and 2014.

Cash flow provided by financing activities for the six months ended June 30, 2015 was $2,302,989 as compared to $10,834,759 for the six months ended June 30, 2014.  Cash flow provided by financing activities consists primarily of proceeds from promissory notes, common stock issues, and warrant exercises.  We expect to continue to have cash flow provided by financing activities as we seek new rounds of financing and continue to develop our oil and gas investments.

Our current assets are insufficient to meet our current obligations or to satisfy our cash needs over the next twelve months and as such we will require additional debt or equity financing to meet our plans and needs.  We face obstacles in continuing to attract new financing due to our history and current record of net losses and working capital deficits.   Despite our efforts, we can provide no assurance that we will be able to obtain the financing required to meet our stated objectives or even to continue as a going concern.

We do not expect to pay cash dividends in the foreseeable future.

Commitments and Contingencies

We are subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to our operations could require substantial capital expenditures or could adversely affect our operations in other ways that cannot be predicted at this time.  As of June 30 2015 and June 30, 2014, no amounts have been recorded because no specific liability has been identified that is reasonably probable of requiring us to fund any future material amounts.
 
As of June 30, 2015 the Company had interests in five oil and gas projects: the Marcelina Creek Field Development in Wilson County, Texas, the Coulter Field in Waller County, Texas, the Ring Energy Joint Venture in Southwest Kansas and the Hunton play in partnership with Husky Ventures in Central Oklahoma and the Orogrande Project in Hudspeth County, Texas. See the description under “Current Projects” above under “Overview” for more information and disclosure regarding commitments and contingencies relating to these projects.  

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.
 
ITEM 4.   CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2015. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports we submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that such information was accumulated and communicated to our principal executive officer and principal financial officer, in a manner that allowed for timely decisions regarding disclosure. 
 
Changes in Internal Control over Financial Reporting

Our principal executive officer and principal financial officer have indicated that, upon evaluation, there were no changes in our internal control over financial reporting or other factors during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
 
 
20
 

PART II   OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
 
On February 16, 2012, we filed a lawsuit against Hockley Energy, Inc. and Frank O. Snortheim in the District Court of Harris County, Texas in connection with farmout agreements we entered into with Hockley Energy in November 2011.  The Company sued Hockley Energy and Snortheim for breach of contract, fraudulent inducement, promissory estoppel pertaining to failure to perform two farmout agreements entered into on November 4, 2011, the first relating to the Marcelina Creek prospect and the second relating to the East Stockdale prospect.  Under the Marcelina Farmout, Hockley Energy had an obligation to fund $2,231,250.00 no later than November 18, 2011.  They did not perform as promised.  On February 23, 2015, the Company obtained a summary judgment against Hockley Energy in the amount of $16,400,000 in damages and $21,877.77 in attorney fees.  We are currently seeking to enforce the judgment, but it is doubtful that any substantial portion of the judgment is recoverable from Hockley Energy.  The remaining claims against Snortheim have been set for trial the two-week period beginning on October 19, 2015.  There are no counterclaims pending.  Management is open to settlement discussions.  Because there are no counterclaims, the possibility of an adverse outcome is remote.
 
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the three months ended June 30, 2015, we issued a total of 1,412,458 shares of common stock to consultants as compensation for services.

In May 2015, an investor exercised a right to acquire 631,250 shares of common stock at $.35 per share, whereby we issued 631,250 shares of common stock to the investor for $225,000 in cash.

In June 2015, we issued 30,000 shares of common stock in connection with the modification of mineral leases for the extension of drilling obligations.

During the three months ended June 30, 2015, we issued a total of 935,750 warrants as compensation for services, including 85,750 five year warrant in April 2015 with an exercise price of $2.50 per share, and 850,000 five year warrants in June 2015 with an exercise price of $1.80 per share.

During the three months ended June 30, 2015, we issued a total of 670,000 warrants (of which 590,000 vested) in connection with short term loans, including 400,000 three year warrants in May 2015 with an exercise price of $0.50 per share, 120,000 three year warrants (of which 40,000 vested, see Item 5 “Other Information” below) in June 2015 with an exercise price of $2.29 per share, and 150,000 three year warrants in April 2015 with an exercise price of $0.50 per share.

In May 2015, we issued 250,000 three year warrants in connection with the sale of a mineral interest.  The warrants have an exercise price of $0.50 per share.

In June 2015, we granted a total of 7,950,000 stock option awards, including 7,500,000 stock options to executive officers with an exercise price of $1.57 per share and 450,000 stock options to employees with an exercise price of $1.79 per share.  The options were granted under our 2015 Stock Option Plan which plan was approved by the Board of Directors in June 2015 and will be presented for approval to our stockholders at the upcoming 2015 annual meeting.  The options have a term of five years.  The options will be subject to a two-year vesting schedule with one-half vesting immediately (subject to stockholders approving the 2015 Stock Option Plan), one-fourth vesting after one year of the grant date, and the remaining one-fourth vesting after the second year, provided however that the options will be subject to earlier vesting under certain events set forth in the 2015 Stock Option Plan, including without limitation a change in control.  Further, the options cannot be exercised prior to obtaining stockholder approval of the 2015 Stock Option Plan, and the options will be cancelled if stockholder approval is not obtained.

All of the above sales of securities described in this Item 2 were sold under the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933 and the rules and regulations promulgated thereunder.  The issuances of securities did not involve a “public offering” based upon the following factors: (i) the issuances of securities were isolated private transactions; (ii) a limited number of securities were issued to a limited number of purchasers; (iii) there were no public solicitations; (iv) the investment intent of the purchasers; and (v) the restriction on transferability of the securities issued.

ITEM 5.  OTHER INFORMATION

On November 4, 2014, Eunis L. Shockey loaned us $500,000 under a 30-day promissory note.  The promissory note accrues interest at an annual rate of 10%.  We did not make payment on the note on the December 4, 2014 maturity date.  As consideration for defaulting on the note and for Mr. Shockey agreeing to extend the note, we issued 400,000 warrants to Mr. Shockey on May 4, 2015.  The warrants have a term of three years and an exercise price of $0.50 per share.  On May 14, 2015, we repaid $100,000 of the note, reducing the principal balance to $400,000.  On June 30, 2015, we issued 120,000 warrants to Mr. Shockey as consideration for agreeing to extend the promissory note to December 31, 2015. 40,000 of the warrants vested immediately with the remaining 80,000 warrants being unvested. The warrants have a term of three years and an exercise price of $2.29 per share.  Under the terms of the extension, if the note is not earlier prepaid, an additional 40,000 of the warrants vest on September 30, 2015 and the remaining 40,000 warrants vest on December 31, 2015.  In the event that a portion of the note is paid, then the number of warrants, which remain subject to vesting, will be reduced pro rata.   (The disclosure regarding these transactions found under the heading “Certain Relationships and Related Transactions” in our Definitive Proxy Statement filed with the SEC on August 6, 2015 inaccurately reflects the exercise price of the warrants issued on June 30, 2015.)
 
 
 
21
 
 
ITEM 6.  EXHIBITS
 
Exhibit No.
 
Description
 
2.1
 
Share Exchange Agreement dated November 23, 2010.  (Incorporated by reference from Form 8-K filed with the SEC on November 24, 2010.) *
 
       
3.1
 
Articles of Incorporation.  (Incorporated by reference from Form S-1 filed with the SEC on May 2, 2008.) *
 
       
3.2
 
Certificate of Amendment to Articles of Incorporation dated December 10, 2014. (Incorporated by reference from Form 10-Q filed with the SEC on May 15, 2015.) *
 
       
3.3
 
Amended and Restated Bylaws (Incorporated by reference from Form 8-K filed with the SEC on January 12, 2011.) *
 
       
4.1
 
Certificate of Designation for Series A Convertible Preferred Stock (Incorporated by reference from Form 8-K filed with the SEC on June 9, 2015.) *
 
       
10.1
 
Agreement to Participate in Oil and Gas Development Joint Venture between Bayshore Operating Corporation, LLC and Torchlight Energy, Inc. (Incorporated by reference from Form 8-K filed with the SEC on November 24, 2010) *
 
       
10.2
 
Purchase and Sale Agreement between Torchlight Energy, Inc. and Xtreme Oil and Gas, Inc. effective April 1, 2013. (Incorporated by reference from Form 10-Q filed with the SEC on May 15, 2013.) *
 
       
10.3
 
Development Agreement between Ring Energy, Inc. and Torchlight Energy Resources, Inc. (Incorporated by reference from Form 8-K filed with the SEC on October 22, 2013.) *
 
       
10.4
 
Coulter Limited Partnership Agreement dated January 10, 2012 (Incorporated by reference from Form 10-Q filed with the SEC on August 14, 2014.) *
 
       
10.5
 
Promissory Note with Boeckman Well LLC dated May 1, 2013 and amendments thereto  (Incorporated by reference from Form 10-Q filed with the SEC on August 14, 2014.) *
 
       
10.6
 
12% Series A Secured Convertible Promissory Note (form of) (Incorporated by reference from Form 10-Q filed with the SEC on August 14, 2014.) *
 
       
10.7
 
Securities Purchase Agreement (form of), January 2014 (Incorporated by reference from Form 10-Q filed with the SEC on August 14, 2014.) *
 
       
10.8
 
Registration Rights Agreement (form of), January 2014 (Incorporated by reference from Form 10-Q filed with the SEC on August 14, 2014.) *
 
       
10.9
 
Purchase Agreement with Hudspeth Oil Corporation, McCabe Petroleum Corporation and Greg McCabe dated August 7, 2014 (Incorporated by reference from Form 10-Q/A filed with the SEC on October 21, 2014) *
 
 
10.10
 
Purchase and Sale Agreement between Torchlight Energy, Inc. and Zenith Petroleum Corporation (Incorporated by reference from Form 8-K filed with the SEC on June 10, 2014) *
 
       
10.11
 
Securities Purchase Agreement with Castleton Commodities Opportunities Master Fund, L.P. (Incorporated by reference from Form 8-K filed with the SEC on August 20, 2014) *
 
       
   
       
   
       
10.14
 
Employment Agreement (with John A. Brda) (Incorporated by reference from Form 8-K filed with the SEC on June 16, 2015.) *
 
       
10.15
 
Employment Agreement (with Willard G. McAndrew) (Incorporated by reference from Form 8-K filed with the SEC on June 16, 2015.) *
 
       
10.16
 
Employment Agreement (with Roger Wurtele) (Incorporated by reference from Form 8-K filed with the SEC on June 16, 2015.) *
 
       
   

   
       
   
       
   
       
101.INS
 
XBRL Instance Document
 
101.SCH
 
XBRL Taxonomy Extension Schema
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 
101.DEF
 
XBRL Taxonomy Extension Definitions Linkbase
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
* Incorporated by reference from our previous filings with the SEC
 
22
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
Torchlight Energy Resources, Inc.
   
  Date: August 14, 2015
/s/ John A. Brda
 
By: John A. Brda
 
Chief Executive Officer
   
 
 
  Date: August 14, 2015
/s/ Roger Wurtele
 
By: Roger Wurtele
 
Chief Financial Officer and Principal Accounting Officer

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
23
Exhibit 10.12
 

NEITHER THIS 12% SERIES B UNSECURED CONVERTIBLE PROMISSORY NOTE (THE “NOTE”) NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“ACT”), OR THE SECURITIES LAWS OF ANY STATE.  NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE MAY BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR DELIVERY TO TORCHLIGHT ENERGY RESOURCES, INC. OF AN OPINION OF LEGAL COUNSEL SATISFACTORY TO TORCHLIGHT ENERGY RESOURCES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS.

12% SERIES B UNSECURED CONVERTIBLE PROMISSORY NOTE
OF
TORCHLIGHT ENERGY RESOURCES, INC.

NOTE NO. _____________________                                                                                                ________________, 2014

FOR VALUE RECEIVED, TORCHLIGHT ENERGY RESOURCES, INC., a Nevada corporation with its principal office located at 5700 Plano Parkway, Ste. 3600, Plano, Texas 75093 (the “ Company ” or “ Debtor ”), unconditionally promises to pay to __________________________ whose address is _________________, ___________________, _____________________ , or the registered assignee, upon presentation of this 12% Series B Unsecured Convertible Promissory Note (the “ Note ”) by the registered holder hereof (the “ Registered Holder ” or “ Holder ”) at the office of the Company, the principal amount of $_________(“ Principal Amount ”), together with the accrued and unpaid interest thereon and other sums as hereinafter provided, subject to the terms and conditions as set forth below.  The effective date of execution and issuance of this Note is __________, 2014 (“ Original Issue Date ”).

1.            Series . This Note is one of a series of duly authorized and issued promissory notes of the Company designated as its 12% Series B Unsecured Convertible Promissory Notes in an aggregate principal face value for all Notes of this Series of up to a maximum of $15,000,000 (subject to increase to no more than $25,000,000) with no minimum amount (each, a “ Series Note ,” and collectively, the “ Series Notes ”).  Each of the Series Notes is being issued in accordance with that certain Securities Purchase Agreement dated as of _________, 2014, between the Company and the Registered Holder, and is subject to the terms and conditions set forth in the Securities Purchase Agreement.  The Holder of this Note with the holders of all of the Series Notes are sometimes hereinafter collectively referred to as “ Series Holders .”

2.            Schedule for Payment of Principal and Interest .   The Principal Amount outstanding hereunder shall be paid in one lump sum payment of $________________ on or before June 30, 2017 (the “ Maturity Date ”), and the interest on the Principal Amount outstanding hereunder shall be payable at the rate of 12% per annum and shall be due and payable quarterly, in arrears, with the initial interest payment due September 30, 2014 (unless sold thereafter), and continuing thereafter on each successive December 31, March 31,  June 30 and September 30 of each year during the term of this Note.  Accrual of interest on the outstanding Principal Amount, payable in cash, shall commence on the date of receipt of funds by the Company and shall continue until payment in full of the outstanding Principal Amount has been made hereunder.  The interest so payable will be paid to the person whose name this Note is registered on the records of the Company regarding registration and transfers of the Note (the “ Note Register ”). Payments made by the Company shall be made to all Series Holders at the same time.
 
 
 
 
 
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3.            Payment .  Payment of any sums due to the Holder under the terms of this Note shall be made in United States Dollars by check or wire transfer at the option of the Company.  Payments made by the Company shall be made to all Series Holders at the same time.  Payment shall be made at the address last appearing on the Note Register of the Company as designated in writing by the Holder hereof from time to time.  If any payment hereunder would otherwise become due and payable on a day on which commercial banks in Dallas, Texas, are permitted or required to be closed, such payment shall become due and payable on the next succeeding day on which commercial banks in Dallas, Texas, are not permitted or required to be closed (" Business Day ")   and, with respect to payments of Principal Amount, interest thereon shall be payable at the then applicable rate during such extension, if any.  The forwarding of such funds shall constitute a payment of outstanding principal and interest hereunder and shall satisfy and discharge the liability for principal and interest on this Note to the extent of the sum represented by such payment.  Except as provided in Section 4 hereof, this Note may not be prepaid without the prior written consent of the Holder.

4.            Company’s Option to Redeem Note .  On or after June 30, 2015 but not before, up to 100%, in whole or in part, of the outstanding Principal Amount of the Note, plus any accrued and unpaid interest, will be subject to redemption at the option of the Company.  If the Company elects to redeem on or after June 30, 2015 but before June 30, 2016, the Company shall pay to the Holder, in addition to the Redemption Amount (as defined below), a redemption penalty equal to 2% of the amount of the Note redeemed, and if the Company elects to redeem on or after June 30, 2016 (and before the Maturity Date), the Company shall pay to the Holder, in addition to the Redemption Amount, a redemption penalty equal to 1% of the amount of the Note redeemed (the “ Redemption Penalty ”).  Any amount of the Note subject to redemption, as set forth herein (the “ Redemption Amount ”), may be redeemed by the Company at any time and from time to time, upon not less than 10 nor more than 30 days notice to the Holder.  If less than 100% of the outstanding Principal Amount of each Series Note, plus any accrued and unpaid interest thereon, is to be redeemed at any time, the Company must redeem a pro rata amount of each Series Note.

The Company shall deliver to the Holder a written Notice of Redemption (the “ Notice of Redemption ”) specifying the date for the redemption (the “ Redemption Payment Date ”), which date shall be at least 10 but not more than 30 days after the date of the Notice of  Redemption (the “ Redemption Period ”).  A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has previously delivered a Notice of Conversion (as defined in Section 5(b) below) or for conversions elected to be made by the Holder pursuant to Section 5 during the Redemption Period.  The Redemption Amount shall be determined as if the Holder’s conversion elections had been completed immediately prior to the date of the Notice of Redemption.  On the Redemption Payment Date, the Redemption Amount and the Redemption Penalty must be paid in good funds to the Holder.  After the Redemption Payment Date, interest will cease to accrue on the Note or the portion thereof called for redemption.

 
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5.            Conversion Rights .

(a)            Conversion .  At any time after the Original Issue Date, the Holder of this Note will have the right, at the Holder's option, to convert all or any portion of the Principal Amount hereof and any accrued but unpaid interest thereon into shares of common stock, par value $.001 per share, of the Company (“ Common Stock ”) in a manner and in accordance with Section 5(b) below (unless earlier paid or redeemed) at the conversion price as set forth below in Section 5(c) (subject to adjustment as described herein).  The right to convert the Principal Amount or interest thereon of this Note called for redemption will terminate at the close of business on the Business Day prior to the Redemption Payment Date for such Note, unless the Company subsequently fails to pay the applicable Redemption Amount.  The shares of Common Stock to be issued upon such conversion (or upon a conversion under Section 6 below) are hereinafter referred to as the “Conversion Shares” .

(b)            Mechanics of Holder’s Conversion .  In the event that the Holder elects to convert any portion of this Note into Common Stock, the Holder shall give notice of such election by delivering an executed and completed notice of conversion (“ Notice of Conversion ”) to the Company.  The Notice of Conversion will provide a breakdown in reasonable detail of the Principal Amount and/or accrued interest that is being converted and state the denominations in which such Holder wishes the certificate or certificates for the Conversion Shares to be issued.  The Registered Holder must surrender this Note to the Company with the Notice of Conversion.  On each Conversion Date (as hereinafter defined) and in accordance with its Notice of Conversion, the Company shall make the appropriate reduction to the Principal Amount and/or accrued interest as entered in its records and shall provide written notice thereof to the Holder within five (5) Business Days after the Conversion Date.  Each date on which a Notice of Conversion is delivered or telecopied to the Company in accordance with the provisions hereof shall be deemed a Conversion Date (the “ Conversion Date ”).  Pursuant to the terms of the Notice of Conversion, the Company will issue instructions to its transfer agent as soon as practicable thereafter, to cause to be issued and delivered to the Holder certificates for the number of full shares of Conversion Shares to which such Holder shall be entitled as aforesaid and, if necessary, the Company shall cause to be issued and delivered to the Holder a new promissory note representing any unconverted portion of this Note.  The Company shall not issue fractional Conversion Shares upon conversion, but the number of Conversion Shares to be received by any Holder upon conversion shall be rounded down to the next whole number and the Holder shall be entitled to payment of the remaining principal amount by a Company check.  In the case of the exercise of the conversion rights set forth herein the conversion privilege shall be deemed to have been exercised and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the date of receipt by the Company of the Notice of Conversion.  The Holder shall be treated for all purposes as the record holder of the Conversion Shares, unless the Holder provides the Company written instructions to the contrary.

(c)            Conversion Price .  The Conversion Price of the Common Stock into which the Principal Amount, or the then outstanding interest due thereon, of this Note is convertible shall be $4.50 per share (subject to adjustment as described herein).
 

 
 
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(d)            Adjustment Provisions .  The Conversion Price and number and kind of shares or other securities to be issued upon conversion pursuant to this Note shall be subject to adjustment from time to time upon the happening of certain events while this conversion right remains outstanding, as follows:

(i)            Reclassification . In case of any reclassification, consolidation or merger of the Company with or into another entity or any merger of another entity with or into the Company, or in the case of any sale, transfer or conveyance of all or substantially all of the assets of the Company (computed on a consolidated basis), each Note then outstanding will, without the consent of any Holder, become convertible only into the kind and amount of securities, cash or other property receivable upon such reclassification, consolidation, merger, sale, transfer or conveyance by a Holder of the number of shares of Common Stock into which such Note was convertible immediately prior thereto, after giving effect to any adjustment event.

(ii)              Stock Split, Dividend .  If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a subdivision or split of Common Stock, or by the declaration of a dividend on the Common Stock, which dividend is wholly or partially in the form of additional shares of Common Stock or any other securities of the Company, then immediately after the effective date of such subdivision or split-up, or the record date with respect to such dividend, as the case may be, the Conversion Price shall be appropriately reduced so that the holder of this Note thereafter exchanged shall be entitled to receive the percentage of shares of Common Stock which such holder would have owned immediately following such action had this Note been exchanged immediately prior thereto;

(iii)            Reverse Split .  If the number of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding Common Stock or reverse split, then, immediately after the effective date of such combination, the Conversion Price shall be appropriately increased so that the holder of this Note thereafter exchanged shall be entitled to receive the percentage of shares of Common Stock which such holder would have owned immediately following such action had this Note been exchanged immediately prior thereto.
 
(e)            Issuance of New Note .  Upon any partial conversion of this Note, a new promissory note containing the same date and provisions of this Note shall be issued by the Company to the Holder for the principal balance of this Note and interest which shall not have been converted or paid.  The Holder shall not pay any costs, fees or any other consideration to the Company for the production and issuance of a new promissory note.

(f)            Reservation of Shares .  The Company shall at all times reserve for issuance and maintain available, out of its authorized but unissued Common Stock, solely for the purpose of effecting the full conversion of the Note, the full number of shares of Common Stock deliverable upon the conversion of the Note from time to time outstanding. The Company shall from time to time (subject to obtaining necessary director and stockholder action), in accordance with the laws of the State of Nevada, increase the authorized number of shares of its Common Stock if at any time the authorized number of shares of its Common Stock remaining unissued shall not be sufficient to permit the conversion of the Note.

6.            Company’s Option to Require Conversion .  On or after the Original Issue Date, if (i) there is an effective registration statement filed with the Securities and Exchange Commission registering the Conversion Shares to be issued upon conversion of the Note or such Conversion Shares are eligible for resale under Rule 144 under the Act, (ii) there is a 30-day average daily trading volume of 150,000 or more shares of common stock for the last 30 consecutive Trading Days (as hereinafter defined), as reported by the NASDAQ Stock Market and (iii) the closing price of the Common Stock on the Trading Market (as hereinafter defined) is $6.75 (subject to adjustment consistent with the adjustments set forth in Section 5(d) above) or more for 30 out of 60 consecutive Trading Days while the registration statement referred to in clause “(i)” above is effective or while the Conversion Shares are eligible for resale under Rule 144, then the Company may require the Registered Holder to convert up to 100%, in whole or in part, of the outstanding Principal Amount of the Note, plus any accrued and unpaid interest.  The Conversion Shares subject to such required conversion are hereinafter referred to as the “ Required Conversion Shares ”.
 
 
 
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The Company will have 10 Trading Days after all of the conditions set forth in the preceding paragraph are met (subject to adjustment consistent with the adjustments set forth in Section 5(d) above) to deliver to the Registered Holder a written notice of required conversion (the “ Notice of Required Conversion ”).  The Notice of Required Conversion will also provide a breakdown in reasonable detail of the Principal Amount and/or accrued interest that is being converted.  The date the Notice of Required Conversion is delivered is deemed the “ Required Conversion Date ,” on which date and in accordance with its Notice of Required Conversion, the Company shall make the appropriate reduction to the Principal Amount and/or accrued interest as entered in its records.  The Registered Holder must surrender this Note to the Company within 5 Business Days of the Required Conversion Date.  Pursuant to the terms of the Notice of Required Conversion, the Company will issue instructions to its transfer agent as soon as practicable after receipt of the Note, to cause to be issued and delivered to the Holder certificates for the number of full shares of Conversion Shares to which such Holder shall be entitled as aforesaid and, if necessary, the Company shall cause to be issued and delivered to the Holder a new promissory note representing any unconverted portion of this Note.  The Company shall not issue fractional Conversion Shares upon conversion, but the number of Conversion Shares to be received by any Holder upon conversion shall be rounded down to the next whole number and the Holder shall be entitled to payment of the remaining principal amount by a Company check.  In the case of the exercise of the Company’s option to require conversion set forth herein, the conversion shall be deemed to have been effected and the Conversion Shares issuable upon such conversion shall be deemed to have been issued upon the Required Conversion Date.

“ Trading Day ” means a day on which the principal Trading Market is open for business.  “ Trading Market ” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

7.            Representations and Warranties of the Company .  The Company represents and warrants to the Holder that:

(a)            Organization .  The Company is validly existing and in good standing under the laws of the state of Nevada and has the requisite power to own, lease and operate its properties and to carry on its business as now being conducted.  The Company is duly qualified to do business and is in good standing in each jurisdiction in which the character or location of the properties owned or leased by the Company or the nature of the business conducted by the Company makes such qualification necessary or advisable, except where the failure to do so would not have a material adverse effect on the Company.
 
 
 
 
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(b)            Power and Authority .   The Company has the requisite power to execute, deliver and perform this Note, and to consummate the transactions contemplated hereby.  The execution and delivery of this Note by the Company and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company.  This Note has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company and is enforceable against the Company in accordance with its terms except (i) that such enforcement may be subject to bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights and (ii) that the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court before which any proceedings therefor may be brought.

8.            Events of Defaults and Remedies .  The following are deemed to be an event of default (" Event of Default ") hereunder: (i) the failure by the Company to pay any installment of interest on this Note or any other Series Notes as and when due and payable and the continuance of any such failure for 10 days; (ii) the failure by the Company to pay all or any part of the principal on this Note or any other Series Notes when and as the same become due and payable as set forth above, at maturity, by acceleration or otherwise; (iii) the failure of the Company to perform any conversion of Notes required under this Note or any other Series Notes and the continuance of any such failure for 10 days; (iv) the failure by the Company to observe or perform any covenant or agreement contained in this Note or any other Series Notes and the continuance of such failure for a period of 30 days after the written notice is given to the Company; (v) the assignment by the Company for the benefit of creditors, or an application by the Company to any tribunal for the appointment of a trustee or receiver of a substantial part of the assets of the Company, or the commencement of any proceedings relating to the Company under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debts, dissolution or other liquidation law of any jurisdiction; or the filing of such application, or the commencement of any such proceedings against the Company and an indication of consent by the Company to such proceedings, or the appointment of such trustee or receiver, or an adjudication of the Company bankrupt or insolvent, or approval of the petition in any such proceedings, and such order remains in effect for 60 days; (vi) a default in the payment of principal or interest when due which extends beyond any stated period of grace applicable thereto or an acceleration for any other reason of maturity of any indebtedness for borrowed money of the Company with an aggregate principal amount in excess of $1,000,000; and (vii) final unsatisfied judgments not covered by insurance aggregating in excess of $1,000,000, at any one time rendered against the Company and not stayed, bonded or discharged within 75 days.

9.            The Holder’s Rights and Remedies upon the Occurrence of an Event of Default .  Following the occurrence and during the continuance of an Event of Default:

(a)            Remedies . The Holder may declare any and all of the obligations under the Note (the “ Obligations ”) to be immediately due and payable.

(b)            Exercise of Remedies .  The Holder may by notice to the Company  accelerate the payment of all obligations (provided that no such notice shall be required if the Event of Default is under Section 8(v)); the Holder may proceed to enforce payment of any of the Obligations; and all Obligations shall bear interest payable on demand at the rate per annum 4% in excess of the applicable rate of interest provided in Section 2 (the “ Default Rate ”).  Notwithstanding the foregoing, at any time after such a declaration of acceleration has been made and before a judgment and/or decree for payment of the money due has been obtained, the Holder at such time, may provide written notice to the Company that the Holder may rescind and annul such declaration and its consequences if all existing Events of Default, other than the non-payment of the principal and interest on the Series Notes which have become due solely by such acceleration, have been cured or waived.  No such rescission or annulment shall affect any subsequent default or impair any right consequent thereon.
 
 
 
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(d)            Cumulative Remedies .  The rights and remedies of the Holder shall be deemed to be cumulative, and any exercise of any right or remedy shall not be deemed to be an election of that right or remedy to the exclusion of any other right or remedy.

10.            Limitation on Merger, Sale or Consolidation .  The Company may not, directly or indirectly, consolidate with or merge into another person or sell, lease, convey or transfer all or substantially all of its assets (computed on a consolidated basis), whether in a single transaction or a series of related transactions, to another person or group of affiliated persons, unless either (i) in the case of a merger or consolidation, the Company is the surviving entity or (ii) the resulting, surviving or transferee entity expressly assumes by supplemental agreement all of the obligations of the Company in connection with the Notes.Upon any consolidation or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, the successor entity formed by such consolidation or into which the Company is merged or to which such transfer is made, shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Note with the same effect as if such successor entity had been named therein as the Company, and the Company will be released from its obligations under the Series Notes, except as to any obligations that arise from or as a result of such transaction.

11.            Corporate Obligation .  No recourse shall be had for the payment of the principal or the interest on this Note, or for any claim based thereon, or otherwise in respect thereof, or based on or in respect of any Note supplemental thereto, against any incorporator, stockholder, officer, or director (past, present, or future) of the Company, whether by virtue of any constitution, statute, or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being by the acceptance hereof, and as part of the consideration for the issue hereof, expressly waived and released.

12.            Listing of Registered Holder of Note .  This Note will be registered as to principal amount in the Holder’s name on the books of the Company at its principal office in Plano, Texas (the “ Note Register ”), after which no transfer hereof shall be valid unless made on the Company’s books at the office of the Company, by the Holder hereof, in person, or by attorney duly authorized in writing, and similarly noted hereon.

13.            Registered Holder Not Deemed a Stockholder .   No Holder, as such, of this Note shall be entitled to vote or receive dividends or be deemed the holder of shares of the Company for any purpose, nor shall anything contained in this Note be construed to confer upon the Holder hereof, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise.
 
 
 
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14.            Waiver of Demand, Presentment, Etc .   The Company hereby expressly waives demand and presentment for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, bringing of suit and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereunder, regardless of and without any notice, diligence, act or omission as or with respect to the collection of any amount called for hereunder.

15.            Attorney’s Fees .   The Company agrees to pay all costs and expenses, including without limitation reasonable attorney's fees, which may be incurred by the Holder in collecting any amount due under this Note or in enforcing any of Holder’s conversion rights as described herein.

16.            Enforceability .   In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.

17.            Intent to Comply with Usury Laws .   In no event will the interest to be paid on this Note exceed the maximum rate provided by law.  It is the intent of the parties to comply fully with the usury laws of the State of Texas; accordingly, it is agreed that notwithstanding any provisions to the contrary in this Note, in no event shall such Note require the payment or permit the collection of interest (which term, for purposes hereof, shall include any amount which, under Texas law, is deemed to be interest, whether or not such amount is characterized by the parties as interest) in excess of the maximum amount permitted by the laws of the State of Texas.  If any excess of interest is unintentionally contracted for, charged or received under this Note, or in the event the maturity of the indebtedness evidenced by the Note is accelerated in whole or in part, or in the event that all of part of the Principal Amount or interest of this Note shall be prepaid, so that the amount of interest contracted for, charged or received under this Note, on the amount of the Principal Amount actually outstanding from time to time under this Note shall exceed the maximum amount of interest permitted by the applicable usury laws, then in any such event (i) the provisions of this paragraph shall govern and control, (ii) neither the Company nor any other person or entity now or hereafter liable for the payment thereof, shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by such applicable usury laws, (iii) any such excess which may have been collected shall be either applied as a credit against the then unpaid principal amount thereof or refunded to the Company at the Holder’s option, and (iv) the effective rate of interest shall be automatically reduced to the maximum lawful rate of interest allowed under the applicable usury laws as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under the Note which are made for the purpose of determining whether such rate exceeds the maximum lawful rate of interest, shall be made, to the extent permitted by applicable laws, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the Note evidenced thereby, all interest at any time contracted for, charged or received from the Company or otherwise by the Holders in connection with this Note.
 
 
 
 
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18.            Governing Law; Consent to Jurisdiction .   This Note shall be governed by and construed in accordance with the laws of the State of Texas without regard to the conflict of laws provisions thereof.  In any action between or among any of the parties, whether rising out of this Note or otherwise, each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and/or state courts located in Plano, Texas.

19.            Amendment and Waiver .  Any waiver or amendment hereto shall be in writing signed by the Holder.  No failure on the part of the Holder to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right hereunder preclude any other or further exercise thereof or the exercise of any other rights.  The remedies herein provided are cumulative and not exclusive of any other remedies provided by law.

20.            Restrictions Against Transfer or Assignment .  Neither this Note nor the shares issuable upon conversion of this Note may be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of by the Registered Holder hereof, in whole or in part, unless and until either (i) the Note or the shares issuable upon conversion of the Note have been duly and effectively registered for resale under the Securities Act of 1933, as amended, and under any then applicable state securities laws; or (ii) the Registered Holder delivers to the Company a written opinion acceptable to the Company’s counsel that an exemption from such registration requirements is then available with respect to any such proposed sale or disposition.  Any transfer of this Note otherwise permissible hereunder shall be made only at the principle office of the Company upon surrender of this Note for cancellation and upon the payment of any transfer tax or other government charge connected therewith, and upon any such transfer a new Series Note will be issued to the transferee in exchange therefor.

21.            Entire Agreement; Headings .  This Note constitutes the entire agreement between the Holder and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations and understandings, written or oral, of such parties.  The headings are for reference purposes only and shall not be used in construing or interpreting this Note.

22.            Notices .  Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing and delivered in person, or sent by registered or certified mail (return receipt requested) or recognized overnight delivery service, postage pre-paid, or sent by email addressed as follows, or to such other address as such party may notify to the other parties in writing:

(a)           If to the Company, to it at the following address:

5700 Plano Parkway, Ste. 3600
Plano, Texas 75093
Attn: John Brda, President
Email: john@torchlightenergy.com
 
 
 
 
 
 

 
 
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(b)           If to Registered Holder, then to the address listed on the front of this Note, unless changed, by notice in writing as provided for herein.

A notice or communication will be effective (i) if delivered in person or by overnight courier, on the Business Day it is delivered, (ii) if sent by registered or certified mail, the earlier of the date of actual receipt by the party to whom such notice is required to be given or three (3) days after deposit in the United States mail and (iii) if sent by email, on the date sent.

[Remainder of page intentionally left blank.  Signature page follows.]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

 
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IN WITNESS WHEREOF, Torchlight Energy Resources, Inc. has caused this Note to be duly executed in its corporate name by the manual signature of its President.
 
  TORCHLIGHT ENERGY RESOURCES, INC .  
       
 
By:
   
    John Brda, President  
       
       

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



 
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ANNEX A
NOTICE OF CONVERSION


The undersigned hereby elects to convert principal and/or accrued interest under the 12% Series B Unsecured Convertible Promissory Note due June 30, 2017 of Torchlight Energy Resources, Inc., a Nevada corporation (the “Company”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the Company, according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.
 
Conversion Calculations:  
  Date to Effect Conversion:
   
   
  Principal Amount of 12% Series B Unsecured Convertible Promissory Note to be Converted:
   
   
  Accrued Interest Amount of 12% Series B Unsecured Convertible Promissory Note to be Converted:
   
   
  Number of Shares of Common Stock to be Issued:
   
   
 

 
  Signature:    
       
       
  Name:    
       
       
  Address:    
 
 

 


 


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Exhibit 10.13

 
SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “ Agreement ”) is dated as of June 2, 2015, by and among Torchlight Energy Resources, Inc. , a Nevada corporation (the “ Company ”), and each purchaser identified as such on the signature pages hereto (each, including its successors and permitted assigns, a “Purchaser” and collectively the “Purchasers” ).
 
Recitals
 
A.            The Company and each Purchaser is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “ Securities Act ”), and Rule 506 of Regulation D (“ Regulation D ”) as promulgated by the United States Securities and Exchange Commission (the “ Commission ”) under the Securities Act.
 
B.            The Company has authorized or will authorize the issuance and sale to Purchasers of up to an aggregate 120,000 shares of Series A Convertible Preferred Stock, par value $0.001 (the “Preferred Stock” ), having the rights, preferences, privileges and restrictions set forth in the Certificate of Designation to be filed with the State of Nevada upon the Closing (as hereinafter defined) in the form of Exhibit “A” attached to this Agreement (the “Certificate of Designation” ), which Preferred Stock will be convertible into shares of the Company’s common stock, par value $0.001 per share ( “Common Stock” ), in accordance with the terms and conditions set forth therein (as converted into shares of Common Stock, collectively the “Conversion Shares” ).
 
C.             Each Purchaser, severally and not jointly, wishes to purchase and the Company wishes to sell, upon the terms and conditions stated in this Agreement, the aggregate number of shares of Preferred Stock, at a purchase price of $100 per share, set forth opposite such Purchaser’s name on the Schedule of Purchasers attached hereto as Exhibit “B” (the “Schedule of Purchasers” ).
 
D.            The Company wishes to issue to each Purchaser, upon the terms and conditions stated in this Agreement, the aggregate number of warrants, in substantially the form attached hereto as Exhibit “C” (the “Warrants” ), to purchase shares of Common Stock at an exercise price and other terms as set forth therein (with the shares of Common Stock issued upon exercise of any of the Warrants being collectively referred to herein as the “Warrant Shares” ).  The Preferred Stock, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “Securities.”
 
Now, Therefore, in consideration   of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows:
 
ARTICLE 1
 
AUTHORIZATION, SALE AND ISSUANCE OF SECURITIES
 
1.1             Authorization of Securities .
 
At or prior to the Closing, the Company shall have authorized the issuance and sale to the Purchasers of the Securities.
 

 
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1.2           Sale and Purchase of Preferred Stock; Issuance of Warrants.
 
Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, the aggregate number of shares of Preferred Stock, at a purchase price of $100 per share, set forth opposite such Purchaser’s name on the Schedule of Purchasers.   Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue Warrants to each Purchaser to purchase the aggregate number of initial Warrant Shares set forth opposite such Purchaser’s name on the Schedule of Purchasers.  The Warrants shall have an exercise price equal to $1.40 per initial Warrant Share, subject to adjustment as provided in the Warrants.
 
ARTICLE 2
 
CLOSING
 
2.1             Closing.   The closing of the transactions contemplated by this Agreement (the “Closing” ) shall take place on June 9, 2015 (the “Closing Date” ) at the offices of the Company, 5700 W. Plano Parkway, Suite 3600, Plano, Texas 75903, or at such other time and place as agreed upon by the parties hereto.
 
2.2             Delivery and Execution.   At the Closing, (a) the Company and the Purchasers shall instruct Welsh LeBlanc, LLC (the “Escrow Agent” ) to deliver, in immediately available funds, the aggregate Escrow Funds (as defined below) to the Company constituting the aggregate purchase price for the Preferred Stock, (b) the Company shall deliver to each Purchaser one or more stock certificates, free and clear of all restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing the number of shares of Preferred Stock such Purchaser is purchasing as is set forth on the Schedule of Purchasers, and (c) the Company shall deliver to each Purchaser one or more Warrants, free and clear of all restrictive and other legends (except as expressly provided in Section 4.1(b) hereof), evidencing the aggregate number of initial Warrant Shares such Purchaser is entitled to receive as is set forth on the Schedule of Purchasers.  As used in this Agreement, the term “Escrow Funds” shall mean the funds deposited in escrow by the Purchasers with the Escrow Agent.
 
2.3           Conditions to Closing.
 
(a)           The obligations of each Purchaser to acquire the Preferred Stock and the Warrant at the Closing is subject to the following on or prior to the Closing Date:
 
(i)            Certificate of Designation.   The Company shall have filed the Certificate of Designation with the State of Nevada.
 
(ii)            Release of Lien; Forebearance.   The 12% Series A Secured Convertible Promissory Note Holders shall have (A) released any liens on the “Orogrande Acreage” located in Hudspeth County, Texas and (B) executed and delivered to the Company (and the Company shall have provided the Purchasers with a copy thereof) either (x) a written agreement, acceptable to the Company and the applicable Purchaser, not to (1) demand or receive from the Company payment on all or any part of such 12% Series A Secured Convertible Promissory Notes, by way of payment, prepayment, setoff, lawsuit or otherwise, (2) exercise any remedy with respect to such 12% Series A Secured Convertible Promissory Notes or any property of the Company, whether now owned or hereafter acquired, (3) accelerate such 12% Series A Secured Convertible Promissory Notes, or (4) commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against the Company with respect to such 12% Series A Secured Convertible Promissory Notes or (y) a written release of all obligations of the Company with respect to such 12% Series A Secured Convertible Promissory Notes, in each case in a form reasonably acceptable to the Purchasers and the Company and their respective legal counsel and conditioned only upon the consummation of the purchase of the Preferred Stock and the Warrants as contemplated in Section 1.2 and the payment to such 12% Series A Secured Convertible Promissory Note Holders contemplated in Section 4.4.
 
 
 
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(iii)            Representations and Warranties .  The representations and warranties made by the Company contained in this Agreement will be true and correct in all material respects as of the Closing Date, except for any such representations and warranties that are qualified by “materiality” or “Material Adverse Effect,” which shall be true and correct in all respects as of the Closing Date.
 
(iv)            Covenants .  All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date will have been performed or complied with in all material respects.
 
(v)            Delivery of Documents.   The Company shall have delivered the documents required to be delivered by the Company pursuant to Section 2.2 above.
 
(vi)           Corporate Resolution .  The Company shall provide a corporate resolution of the Board of Directors which approves the transactions contemplated herein and authorize the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date.
 
(vii)           No Injunction .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement.
 
(viii)          No Suspension of Trading in Common Stock .  The Common Stock shall not have been suspended, as of the Closing Date, by the Commission.
 
(ix)            Termination .  This Agreement shall not have been terminated as to such Purchaser in accordance with Section 5.16 herein.
 
(x)             Material Adverse Effect .  There shall not have occurred any event or circumstance that has, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  For the avoidance of doubt, the term “Material Adverse Effect” shall include, without limitation, any attempt, demand or claim by any of the 12% Series A Secured Convertible Promissory Note Holders to (A) exercise any remedy with respect to the 12% Series A Secured Convertible Promissory Notes or any property of the Company, whether now owned or hereafter acquired, (B) accelerate such 12% Series A Secured Convertible Promissory Notes, or (C) to commence, or cause to commence, prosecute or participate in any administrative, legal or equitable action against the Company with respect to such 12% Series A Secured Convertible Promissory Notes.
 
(b)           The Company’s obligation to sell and issue the Preferred Stock and the Warrants to a Purchaser at the Closing is subject to the fulfillment of the following on or prior to the Closing Date:
 
(i)            Representations and Warranties .  The representations and warranties made by such Purchaser contained in this Agreement will be true and correct in all material respects as of the Closing Date, except for any such representations and warranties that are qualified by “materiality” or “Material Adverse Effect,” which shall be true and correct in all respects as of the Closing Date.
 
 
 
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(ii)            Covenants .  All covenants, agreements and conditions contained in this Agreement to be performed by such Purchaser on or prior to the Closing Date will have been performed or complied with in all material respects.
 
(iii)            Delivery of Documents.   Such Purchaser shall have delivered the documents and funds required to be delivered by such Purchaser pursuant to Section 2.2 above.
 
(iv)            Corporate Resolution .  Such Purchaser shall provide, if applicable, corporate resolutions of the Board of Directors which approve the transactions contemplated herein and authorize the execution, delivery and performance of this Agreement and the documents referred to herein to which it is or is to be a party dated as of the Closing Date.
 
(v)            No Injunction .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by this Agreement.
 
(vi)            No Suspension of Trading in Common Stock .  The Common Stock shall not have been suspended, as of the Closing Date, by the Commission.
 
(vii)           Termination .  This Agreement shall not have been terminated as to such Purchaser in accordance with Section 5.16 herein.
 
ARTICLE 3
 
REPRESENTATIONS AND WARRANTIES
 
3.1             Representations and Warranties of the Company. The Company hereby represents and warrants to each Purchaser that the following statements are true and correct as of the date hereof and the Closing Date (except for the representations and warranties that speak as of a specific date, which shall be made as of such date):
 
(a)            Subsidiaries. The Company has no direct or indirect subsidiaries other than (i) Torchlight Energy, Inc., a Nevada corporation, (ii) Torchlight Energy Operating, LLC, a Texas limited liability company, and (iii) Hudspeth Oil Corporation, a Texas corporation.  Torchlight Energy, Inc., Torchlight Energy Operating, LLC and Hudspeth Oil Corporation are herein referred to collectively as the “Subsidiaries” .
 
 
 
 
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(b)            Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite corporate power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  The Company and each of its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in a Material Adverse Effect (as hereinafter defined), and no Proceeding (as hereinafter defined) has been instituted, is pending, or, to the Company’s Knowledge (as hereinafter defined), has been threatened in writing in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.   “Material Adverse Effect” means any effect on the business, results of operations, prospects, assets or condition (financial or otherwise) of the Company that is material and adverse to the Company.   “Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.   “Company’s Knowledge”   or “Knowledge”   means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the officers of the Company who, as of the date hereof, have responsibility for the matter or matters that are the subject of the statement or the knowledge such officer or officers would have acquired after reasonable inquiry.
 
(c)            Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement, the schedules and exhibits attached hereto and the Warrants (collectively, the “Transaction Documents” ) and otherwise to carry out its obligations hereunder and thereunder.  The Company’s execution and delivery of each of the Transaction Documents to which it is a party and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the shares of Preferred Stock and the Warrants, the reservation for issuance and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock, and the reservation for issuance and the subsequent issuance of the Warrant Shares upon exercise of the Warrants) have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals and the filing by the Company of the Certificate of Designation with the State of Nevada.  Each of the Transaction Documents to which it is a party has been (or upon delivery will be) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
 
(d)            No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, but not limited to, the sale and delivery of the shares of Preferred Stock and the Warrants, the reservation for issuance and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock and the reservation for issuance and the subsequent issuance of the Warrant Shares upon exercise of the Warrants) do not and will not (i) conflict with or violate any provisions of the Company’s or any Subsidiary’s certificate or articles of incorporation, or bylaws or otherwise result in a violation of the organizational documents of the Company or any Subsidiary, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien upon any of the properties or assets of the Company or any Subsidiary or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any indenture, loan or credit agreement or other material contract (other than the 12% Series A Secured Convertible Promissory Notes) or (iii) subject to the Required Approvals (as hereinafter defined), conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or any Subsidiary is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by each Purchaser herein), or by which any property or asset of the Company or any Subsidiary is bound or affected, except in the case of clause (ii) and clause (iii) such as would not, individually or in the aggregate, have  or  reasonably be expected to result in a Material Adverse Effect.
 
 
 
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(e)            Consents and Approvals. Neither the Company nor any of its Subsidiaries is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person (as hereinafter defined) in connection with the execution, delivery and performance by the Company of the Transaction Documents (including, but not limited to, the sale and delivery of the shares of Preferred Stock and the Warrants, the reservation for issuance and the subsequent issuance of the Conversion Shares upon conversion of the Preferred Stock, and the reservation for issuance and the subsequent issuance of the Warrant Shares upon exercise of the Warrants), other than (i) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (ii) the filing of any requisite notices and/or applications pursuant to any state securities laws, (iii) the filing of any requisite notices and/or application(s) to the Principal Trading Market (as hereinafter defined) for the issuance and sale of the Securities and the listing of the Conversion Shares and Warrant Shares for trading or quotation, as the case may be, thereon in the time and manner required thereby, (iv) consent of the 12% Series A Secured Convertible Promissory Note Holders as to the release of lien, and (v) any filings required in accordance with Form 8-K of the Securities Exchange Act of 1934, as amended (the “Exchange Act” ) (collectively, the “ Required Approvals ” ).   “Person” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.    “Principal Trading Market” means the Trading Market (as hereinafter defined) on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement and the Closing Date, shall be the NASDAQ Capital Market. “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.
 
(f)            Issuance of the Securities. The shares of Preferred Stock have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, fully paid and nonassessable and free and clear of all liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights.  The Conversion Shares issuable upon conversion of the Preferred Stock have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents and the Certificate of Designation will be duly and validly issued, fully paid and nonassessable, free and clear of all liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights.  The Warrants have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents, will be duly and validly issued, free and clear of all liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights. The Warrant Shares issuable upon exercise of the Warrants have been duly authorized and, when issued and paid for in accordance with the terms of the Transaction Documents and the Warrants will be duly and validly issued, fully paid and nonassessable, free and clear of all liens suffered or permitted by the Company, other than restrictions on transfer provided for in the Transaction Documents or imposed by applicable securities laws, and shall not be subject to preemptive or similar rights.  Assuming the accuracy of the representations and warranties of the Purchasers in this Agreement, the Securities will be issued in compliance with all applicable federal and state securities laws.  As of the Closing Date, the Company shall have reserved from its duly authorized capital stock the number of shares of Common Stock issuable upon conversion of the Preferred Stock (without taking into account any limitations on the conversion of the Preferred Stock set forth in the Certificate of Designation).  As of the Closing Date, the Company shall have reserved from its duly authorized capital stock the number of shares of Common Stock issuable upon exercise of the Warrants (without taking into account any limitations on the exercise of the Warrants set forth in the Warrants).
 
 
 
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(g)            Capitalization. The number of shares and type of all authorized, issued and outstanding capital stock, options and other securities of the Company (whether or not presently convertible into or exercisable or exchangeable for shares of capital stock of the Company) has been set forth in the SEC Reports (as hereinafter defined) and has not changed since the date set forth in the most recently filed of the SEC Reports, except to reflect stock issuances, convertible debt conversions, stock option exercises and grants and warrant exercises and grants which have not, individually or in the aggregate, had a material affect on the issued and outstanding capital stock, options and other securities of the Company.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents that have not been effectively waived as of the Closing Date. Except as set forth in the SEC Reports or a result of the purchase and sale of the Preferred Stock and Warrants, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock or Common Stock Equivalents except where such issuances would not, individually or in the aggregate, have a material effect on the issued and outstanding capital Stock, options and other securities of the Company. The issuance and sale of the Preferred Stock and Warrants will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities, except as set forth in Schedule 3.1(g). All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all applicable federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any stockholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the Company’s Knowledge, between or among any of the Company’s stockholders.
 
(h)      SEC Reports. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for twelve (12) months preceding and including the date hereof (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “ SEC Reports” ) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension, except where the failure to file on a timely basis would not have or reasonably be expected to result in a Material Adverse Effect (including, for this purpose only, any failure which would prevent any Purchaser from using Rule 144 to resell any Securities).  As of their respective filing dates, or to the extent corrected by a subsequent restatement, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.  Each material indenture, loan or credit agreement or other material contract to which the Company or any Subsidiary is a party or to which the property or assets of the Company or any of its Subsidiaries are subject has been filed as an exhibit, or duly incorporated by reference, to the SEC Reports or has been made available to Purchaser.
 
 
 
 
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(i)            Financial Statements. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles, as applied by the Company ( “GAAP” ), applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries taken as a whole as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial year-end audit adjustments.
 
(j)            Tax Matters. The Company and each of its Subsidiaries (i) has accurately and timely prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company, and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except where the failure to so pay or file or set aside provisions for any such tax, assessment, charge or return would not have or reasonably be expected to result in a Material Adverse Effect.
 
(k)            Material Changes. Since the date of the latest financial statements included within the SEC Reports, except as specifically disclosed in any SEC Reports filed with the Commission subsequent to the filing of the SEC Report that includes such financial statements, or set forth in Section 3.2(i) hereof, there have been no events, occurrences or developments that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
 
(l)            Environmental Matters. To the Company’s Knowledge, the Company (i) is not in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “ Environmental Laws ” ), (ii) does not own or operate any real property contaminated with any substance that is in violation of any Environmental Laws, (iii) is not liable for any off-site disposal or contamination pursuant to any Environmental Laws, and (iv) is not subject to any claim relating to any Environmental Laws; which violation, contamination, liability or claim has had or would have a Material Adverse Effect; and there is no pending or, to the Company’s Knowledge, threatened investigation that might lead to such a claim.
 
 
 
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(m)            Litigation. There is no Action (as hereinafter defined) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) except as disclosed in the SEC Reports or with respect to information set forth in Section 3.2(i), would, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  Except as disclosed in its SEC Reports, neither the Company nor any Subsidiary, nor to the Company’s Knowledge any current director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  Other than publicly available correspondence between the Commission  and the Company, there has not been, within one year prior to the date hereof, and to the Company’s Knowledge there is not pending or contemplated, any investigation by the Commission involving the Company or any current director or officer of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any of its Subsidiaries under the Exchange Act or the Securities Act.   “Action” means any action, suit, inquiry, notice of violation, Proceeding (including any partial Proceeding such as a deposition) or investigation pending or, to the Company’s Knowledge, threatened in writing against the Company, any Subsidiary or any of their respective properties or any officer, director or employee of the Company or any Subsidiary acting in his or her capacity as an officer, director or employee before or by any federal, state, county, local or foreign court, arbitrator, governmental or administrative agency, regulatory authority, stock market, stock exchange or trading facility.
 
(n)            Employment Matters. No material labor dispute exists or, to the Company’s Knowledge, is imminent with respect to any of the employees of the Company.  None of the Company’s or any Subsidiary’s employees is a member of a union that relates to such employee’s relationship with the Company, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and each Subsidiary believes that its relationship with its employees is good.  No executive officer of the Company (as defined in Rule 501(f) of the Securities Act) has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer's employment with the Company or any such Subsidiary.  To the Company’s Knowledge, no executive officer, to the Company’s Knowledge, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of a third party, and to the Company’s Knowledge, the continued employment of each such executive officer does not subject the Company or any Subsidiary to any liability with respect to any of the foregoing matters.  The Company and its Subsidiaries, to their Knowledge, are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.
 
(o)            Compliance. Except as disclosed in the SEC Reports and in Section 3.2(i), neither the Company nor any of the Subsidiaries (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any of its Subsidiaries under), nor has the Company or any of its Subsidiaries received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or other material contract (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body having jurisdiction over the Company or any Subsidiary or its properties or assets, or (iii) is in violation of, or in receipt of written notice that it is in violation of, any statute, rule or regulation of any governmental authority applicable to the Company.
 
 

 
 
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(p)            Regulatory Permits. The Company and each of the Subsidiaries possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its respective business as currently conducted and as described in the SEC Reports, except where the failure to possess such permits, individually or in the aggregate, has not and would not have or reasonably be expected to result in a Material Adverse Effect ( “ Material Permits ” ), and (i) neither the Company nor any of its Subsidiaries has received any notice of Proceedings relating to the revocation or modification of any such Material Permits and (ii) the Company has no Knowledge of any facts or circumstances that the Company would reasonably expect to give rise to the revocation or modification of any Material Permits.
 
(q)            Title to Assets. The Company and the Subsidiaries do not own any real property, except for interests in oil or gas properties that may be deemed real property under state law. The Company and the Subsidiaries have good and marketable title to all tangible personal and real property owned by them which is material to the business of the Company and the Subsidiaries, in each case free and clear of all liens except for the 12% Series A Secured Convertible Promissory Notes and such liens that do not and would not reasonably be expected to materially affect the value of such property and do not and would not reasonably be expected to materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and except for liens for the payment of federal, state or other taxes for which appropriate reserves have been made in accordance with GAAP and the payment of which is not delinquent or subject to penalties. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company and the Subsidiaries.
 
(r)            Intellectual Property. To the Company’s Knowledge, the Company or its Subsidiaries owns, possesses, licenses or has other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, licenses, inventions, trade secrets, technology and other proprietary rights and processes (collectively, the “ Intellectual Property ” ) necessary for the conduct of its businesses as now conducted and which the failure to so own, possess, license or have other rights to use would not have a Material Adverse Effect. Except where any such violations or infringements would not have a Material Adverse Effect, to the Company’s Knowledge (i) the Company’s or its Subsidiaries’ use of any such Intellectual Property in the conduct of its business as presently conducted does not infringe upon the rights of any third parties; (ii) there is no infringement by third parties of any such Intellectual Property; (iii) there is no pending or threatened action challenging the Company’s rights in or to any such Intellectual Property; (iv) there is no pending or threatened action challenging the validity or scope of any such Intellectual Property; and (v) there is no pending or threatened action that the Company infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of others.
 
(s)            Insurance. The Company and each of the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes to be prudent and customary in the businesses and locations in which the Company and the Subsidiaries are engaged. Neither the Company nor any of the Subsidiaries has received any notice of cancellation of any such insurance, nor, to the Company’s Knowledge, will the Company or any Subsidiary be unable to renew their respective existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.
 
(t)            No Directed Selling Efforts or General Solicitation. Neither the Company nor, to its knowledge, any Person acting on its behalf has conducted any “general solicitation” or “general advertising” (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.
 
 

 
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(u)            Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate the registration of Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  Except as set forth in the SEC Reports, the Company has not, in the ten (10) months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.
 
(v)            No Additional Agreements. The Company does not have any agreement or understanding with any Purchaser with respect to the transactions contemplated by the Transaction Documents other than as specified in the Transaction Documents.
 
3.2             Representations and Warranties of the Purchasers . Each Purchaser hereby, severally but not jointly, represents and warrants to the Company as of the date hereof and as of the Closing Date as follows:
 
(a)            Organization; Authority .
 
(i)            Entity .   If Purchaser   is an entity, such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate, partnership, limited liability company or other similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application or insofar as indemnification and contribution provisions may be limited by applicable law.
 
(ii)            Natural Person .  If Purchaser is a natural person, he or she is of the full age of majority, with full power, capacity and authority to enter into and to consummate the transactions contemplated by the Transaction Documents to which he or she is a party and otherwise to carry out his or her obligations hereunder and thereunder, by and for himself or herself and his or her spouse, if any.  All action on the part of such Purchaser necessary for the authorization, execution, delivery and performance of the transactions contemplated by this Agreement by such Purchaser has been taken.  Each Transaction Document to which he or she is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against him or her in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application or insofar as indemnification and contribution provisions may be limited by applicable law.
 
(b)            No Conflicts . The execution, delivery and performance by such Purchaser of the Transaction Documents to which it is a party and the consummation by such Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Purchaser is a party or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the ability of such Purchaser to perform its obligations hereunder.
 
 
 
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(c)            Investment Intent . Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to, or for distributing or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities laws, provided, however , that by making the representations herein, such Purchaser does not agree to hold any of the Securities for any minimum period of time and reserves the right, subject to the provisions of this Agreement, at all times to sell or otherwise dispose of all or any part of such Securities pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws. Such Purchaser does not presently have any agreement, plan or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Securities (or any securities which are derivatives thereof) to or through any Person; such Purchaser is not a registered broker-dealer under Section 15 of the Exchange Act or an entity engaged in a business that would require it to be so registered as a broker-dealer.
 
(d)            Purchaser Status . At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act.
 
(e)            Rule 144.   Such Purchaser understands that the Securities must be held indefinitely unless such Securities are registered under the Securities Act or an exemption from registration is available.  Such Purchaser acknowledges that such Person is familiar with Rule 144 of the rules and regulations of the Commission, as amended, promulgated pursuant to the Securities Act ( “Rule 144” ), and that such Purchaser has been advised that Rule 144 permits resales only under certain circumstances.  Such Purchaser understands that to the extent that Rule 144 is not available, such Purchaser will be unable to sell any Securities without either registration under the Securities Act or the existence of another exemption from such registration requirement.
 
(f)            General Solicitation . Such Purchaser acknowledges that the Securities were not offered to such Purchaser by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which such Purchaser was invited by any of the foregoing means of communications.
 
(g)            Experience of Purchaser . Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.  Such Purchaser acknowledges that an investment in the Securities is speculative and involves a high degree of risk.
 
 

 
 
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(h)            Access to Information . Such Purchaser acknowledges that it has had the opportunity to and has reviewed the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Such Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Securities.
 
(i)            Default on Company Notes.   Such Purchaser acknowledges that it is aware that the Company is in default on its 12% Series A Secured Convertible Promissory Notes and its 12% Series B Unsecured Convertible Promissory Notes.  Such Purchaser has reviewed the disclosure contained in the Company’s Form 8-K filed with the Commission on April 7, 2015, and the Risk Factors section and Subsequent Events Note of the Company’s Form 10-K filed on April 15, 2015.
 
(j)            Independent Investment Decision . Such Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents. Such Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to such Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice. Such Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities.
 
(k)            Reliance on Exemptions . Such Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Purchaser’s compliance with, the representations, warranties, agreements, acknowledgements and understandings of such Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of  such Purchaser to acquire the Securities.
 
(l)            No Governmental Review . Such Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
 
(m)            Regulation M . Such Purchaser is aware that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of Common Stock and other activities with respect to the Common Stock by such Purchaser.
 
(n)            Residence . Such Purchaser’s principal executive offices (if such Purchaser is an entity) or principal residence (if such Purchaser is a natural person) are in the jurisdiction set forth immediately below such Purchaser’s name on the applicable signature page attached hereto.
 
(o)            Certain Fees . No Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or such Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Purchaser.
 

 
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The Company and each Purchaser acknowledge and agree that no party to this Agreement has made or makes any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Article 3 and the Transaction Documents.
 
ARTICLE 4
 
OTHER AGREEMENTS OF THE PARTIES
 
4.1             Transfer Restrictions .
 
(a)            Compliance with Laws .   Notwithstanding any other provision of the Transaction Documents, Purchaser covenants that the Securities may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state and federal securities laws.  In connection with any transfer of the Securities other than pursuant to an effective registration statement, the Company may require the Purchaser to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.
 
(b)            Legends . Certificates evidencing the Securities shall bear the following restrictive legend in substantially the following form until such time as they are not required under applicable securities laws:
 
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.
 
(c)            Acknowledgement . Each Purchaser hereunder acknowledges its primary responsibilities under the Securities Act and accordingly will not sell or otherwise transfer the Securities or any interest therein without complying with the requirements of the Securities Act. Only if there is an effective registration statement registering the shares of Common Stock underlying the Securities under the Securities Act or an exemption from registration is available, may a Purchaser hereunder sell the Securities.
 
4.2             Reservation of Common Stock.   The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance from and after the Closing Date, the number of shares of Common Stock issuable upon conversion of the Preferred Stock issued at the Closing (without taking into account any limitations on conversion of the Preferred Stock set forth in the Certificate of Designation).  The Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance from and after the Closing Date, the number of shares of Common Stock issuable upon exercise of the Warrants issued at the Closing (without taking into account any limitations on exercise of the Warrants set forth in the Warrants).
 

 
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4.3             Indemnification .
 
(a)            Indemnification of the Purchasers . Subject to the provisions of this Section 4.3, the Company will indemnify and hold each Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling Person (each, a “ Purchaser Party ”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur, as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).
 
(b)            Conduct of Third Party Indemnification Proceedings . Promptly after receipt by any Person (the “ Indemnified Person ”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any Action, Proceeding or investigation from a third party in respect of which indemnity may be sought pursuant to Section 4.3(a), such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses related thereto; provided, however , that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially prejudiced by such failure to notify. In any such Proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; (ii) the Company shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Person in such Proceeding; or (iii) in the reasonable judgment of counsel to such Indemnified Person, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any Proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, delayed or conditioned, the Company shall not effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such Proceeding.
 
4.4             Use of Proceeds .  The Company agrees to use the full proceeds from the sale of the Preferred Stock to pay to the 12% Series A Secured Convertible Promissory Note Holders to reduce the outstanding indebtedness owed to the 12% Series A Secured Convertible Promissory Note Holders as of the Closing Date; provided, however, that in the event that there are excess proceeds after the payment of all obligations due to the 12% Series A Secured Convertible Promissory Note Holders then such funds will be used by the Company for general corporate purposes.
 
 
 
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4.5             Furnishing of Information. In order to enable the Purchasers to sell the Securities under Rule 144, for a period of twenty four (24) months from the Closing, the Company shall use its commercially reasonable efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. During such twenty four (24) month period, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144.
 
4.6             Integration.   The Company shall not, and shall use its commercially reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require stockholder approval prior to the closing of such other transaction unless stockholder approval is obtained before the closing of such subsequent transaction.
 
4.7             Securities Laws Disclosure; Publicity.   By 9:00 A.M., New York City time, on the trading day immediately following the date hereof, the Company shall issue a press release (the “ Press Release ”) reasonably acceptable to the Purchasers disclosing all material terms of the transactions contemplated hereby.  On or before 9:00 A.M., New York City time, on the second (2 nd ) trading day immediately following the execution of this Agreement, the Company will file a Current Report on Form 8-K with the Commission describing the terms of the Transaction Documents (and including as exhibits to such Current Report on Form 8-K the material Transaction Documents (including, without limitation, this Agreement and the form of Warrant)).  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser or an Affiliate of any Purchaser, or include the name of any Purchaser or an Affiliate of any Purchaser in any press release or filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with (A) any registration statement and (B) the filing of final Transaction Documents (including signature pages thereto) with the Commission and (ii) to the extent such disclosure is required by law, request of the Staff of the Commission or Trading Market regulations, in which case the Company shall provide the Purchasers with prior written notice of such disclosure permitted under this subclause (ii).  Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions contemplated by this Agreement are required to be publicly disclosed by the Company as described in this Section 4.7, such Purchaser will maintain the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).
 
4.8             Non-Public Information.   Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, including this Agreement, or as expressly required by any applicable securities law, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide any Purchaser or its agents or counsel with any information regarding the Company that the Company believes constitutes material non-public information without the express written consent of such Purchaser, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
 

 
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4.9             Principal Trading Market Listing; Stockholder Approval. In the time and manner required by the Principal Trading Market, the Company shall prepare and file with such Principal Trading Market an additional shares listing application covering all of the Conversion Shares and Warrant Shares and shall use its commercially reasonable efforts to take all steps necessary to cause all of the Conversion Shares and Warrant Shares to be approved for listing on the Principal Trading Market as promptly as possible thereafter.  Further, the Company hereby shall use its commercially reasonable efforts to file a preliminary proxy statement with the Commission within 20 days from and after the Closing Date (or as soon as reasonably practicable thereafter) for the purpose of holding a special or annual stockholders meeting to approve the Potential Share Issuance (as defined below) pursuant to Rule 5635 of the NASDAQ Stock Market Rules.  The Company shall use commercially reasonable efforts to respond as promptly as reasonably practicable to any comments of the Commission or its staff concerning such preliminary proxy statement and shall cause a definitive version of such proxy statement to be mailed to the Company’s stockholders and filed with the Commission as promptly as practicable after the resolution of any such comments.  Any proxy statement filed with the Commission or mailed to the Company’s stockholders pursuant to this Section 4.9 shall include the recommendation of the Company’s board of directors that such stockholders vote their respect shares, either directly or by proxy, in favor of approving the Potential Share Issuance. The Company shall provide Kelly Hart & Hallman LLP, or such other legal counsel authorized by Gregory Alan McCabe, with a reasonable opportunity to review and provide comments to any such proxy statement (and the Company shall reasonably consider such comments) prior to filing such proxy statement with the Commission or mailing such proxy statement to the Company’s stockholders. As used herein, the term “ Potential Share Issuance ” shall mean any issuance of Conversion Shares and/or Warrant Shares that, individually or collectively, results in the holder of the applicable Preferred Stock and/or Warrants beneficially owning (as such term is used in the Certificate of Designation or the Warrants, respectively) shares of Common Stock in excess of the Beneficial Ownership Limitation (as such term is used in the Certificate of Designation or the Warrants, respectively), in each case to the extent such is required to be approved by the Company’s stockholders pursuant to such Rule 5635.
 
4.10             Form D; Blue Sky.   The Company agrees to timely file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof, promptly upon the written request of any Purchaser.  The Company, on or before the Closing Date, shall take such commercially reasonable action as the Company shall determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Purchasers under applicable securities or “Blue Sky” laws of the states of the United States (or to obtain an exemption from such qualification) and shall provide evidence of such actions promptly upon the written request of any Purchaser.
 
4.11             Additional Capital.   For a period of ninety (90) days after the Closing Date, the Company will not raise (through the sale of securities) an amount of funds that exceeds $12,000,000 minus the gross proceeds raised from the sale of the Preferred Stock.
 
ARTICLE 5
 
MISCELLANEOUS
 
5.1             Fees and Expenses . The Company and the Purchasers shall each pay the fees and expenses of their respective advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party in connection with the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities to the Purchasers.
 

 
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5.2             Entire Agreement . The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter thereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company and the Purchasers will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.
 
5.3             Notices . Any notices or other communications required or permitted hereunder shall be in writing and deemed sufficiently given if delivered by email at the email address specified in this section or if delivered in person or sent by registered or certified mail (return receipt requested) or nationally recognized overnight delivery service, postage pre-paid, addressed as follows, or to such other address has such party may notify to the other parties in writing:
 
If to the Company: 
Torchlight Energy Resources, Inc.
5700 Plano Parkway, Suite 3600
Plano, Texas  75093
Telephone No.:   (214) 432-8002
Facsimile No.:    (214) 432-8005
Attention:   John Brda, CEO
Email:  john@torchlightenergy.com

If to such Purchaser:
To the address set forth under such Purchaser’s name on its signature page hereof
 
Or such other address as may be designated in writing hereafter, in the same manner, by such Person.
 
A notice or communication will be effective (i) if delivered in person or by overnight courier, on the business day it is delivered; (ii) if sent by registered or certified mail, three (3) business days after dispatch; and (iii) if sent by email, at the email address specified in this section if sent prior to 5:00 p.m., New York City time on the date sent or if later, then on the next day, provided that a copy is sent by a nationally recognized overnight delivery service, next day delivery.
 
5.4             Amendments; Waivers. Neither this Agreement nor any provision hereof may be amended, modified or supplemented unless in writing, executed by all the parties hereto.  Except as otherwise expressly provided herein, no waiver with respect to this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought.  Except as otherwise expressly provided herein, no failure to exercise, delay in exercising, or single or partial exercise of any right, power or remedy by any party, and no course of dealing between or among any of the parties, shall constitute a waiver of, or shall preclude any other or further exercise of, any right, power or remedy.
 
5.5             Construction . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.
 

 
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5.6             Successors and Assigns . The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns.  This Agreement, or any rights or obligations hereunder, may not be assigned or delegated by the Company without the prior written consent of each Purchaser.  No Purchaser may assign any right or delegate any obligation hereunder without the written consent of the Company; provided, however, that any Purchaser may assign its rights hereunder in whole or in part to any Person to whom such Purchaser assigns or transfers any Securities in compliance with the Transaction Documents and applicable law, provided such transferee shall agree in writing to be bound, with respect to the transferred Securities, by the terms and conditions of this Agreement that apply to the “Purchasers”.  Any purported assignment or delegation in violation of this Section 5.6 shall be void, in addition to constituting a material breach of this Agreement.
 
5.7           No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except each Purchaser Party is an intended third party beneficiary of Section 4.3.
 
5.8             Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in the Dallas Courts. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Dallas Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such Dallas Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.   EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
5.9             Survival . The representations and warranties contained herein shall survive the Closing and the delivery of the Securities for a period of one (1) year from the Closing Date. The agreements and covenants contained herein shall survive the Closing and the delivery of the Securities in accordance with their terms.
 
5.10             Execution . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a “ .pdf ” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “ .pdf ” signature page were an original thereof.
 

 
Page 19 - Securities Purchase Agreement
 
 
5.11             Severability . If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor and achieves that same or substantially the same effect or result, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
 
5.12             Replacement of Securities . If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is required by the Transfer Agent. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. If a replacement certificate or instrument evidencing any Securities is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.
 
5.13             Exhibits Not Attached   Any exhibits not attached hereto on the date of execution of this Agreement shall be deemed to be and shall become a part of this Agreement as if executed on the date hereof upon each of the parties initialing and dating each such exhibit, upon their respective acceptance of its terms, conditions and/or form.
 
5.14             Rescission and Withdrawal Right.   Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
 
5.15             Gender .  All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter gender and the singular shall include the plural and vice versa, wherever appropriate.
 
5.16             Termination.   This Agreement may be terminated and the sale and purchase of the Preferred Stock and the issuance of the Warrants abandoned at any time prior to the Closing by either the Company or any Purchaser (with respect to itself only) upon written notice to the other, if the Closing has not been consummated on or prior to 5:00 P.M., Central Time, on June 15, 2015, unless extended by written agreement of all parties hereto. Nothing in this Section 5.16 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents.  In the event of a termination pursuant to this Section 5.16, the Company shall promptly notify all non-terminating Purchasers.  Upon a termination in accordance with this Section 5.16, the Company and the terminating Purchaser(s) shall not have any further obligation or liability (including arising from such termination) to the other, and no Purchaser will have any liability to any other Purchaser under the Transaction Documents as a result therefrom.
 

 
Page 20 - Securities Purchase Agreement
 

5.17             Independent Nature of Purchasers' Obligations and Rights.   The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document.  The decision of each Purchaser to purchase Securities pursuant to the Transaction Documents has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or any Subsidiary which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser and any of its agents or employees shall have any liability to any other Purchaser (or any other Person) relating to or arising from any such information, materials, statement or opinions.  Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  Each Purchaser acknowledges that no other Purchaser has acted as agent for such Purchaser in connection with making its investment hereunder and that no Purchaser will be acting as agent of such Purchaser in connection with monitoring its investment in the Securities or enforcing its rights under the Transaction Documents.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any Proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in its review and negotiation of the Transaction Documents or has voluntarily declined to seek such counsel.  For reasons of administrative convenience only, such Purchasers and their respective counsels have chosen to communicate with the Company through Kelly Hart & Hallman LLP, counsel to Gregory Alan McCabe.  Each Purchaser (other than Gregory Alan McCabe) acknowledges that Kelly Hart & Hallman LLP has rendered legal advice to Gregory Alan McCabe and not to such other Purchaser in connection with the transactions contemplated by the Transaction Documents, and that each such other Purchaser has relied for such matters on the advice of its own respective counsel.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by any Purchaser.
 
5.18             Remedies.   In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.
 
5.19             Payment Set Aside.   To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
 
 

 
 
Page 21 - Securities Purchase Agreement
 

5.20             Adjustments in Share Numbers and Prices. In the event of any stock split, subdivision, dividend or distribution to all stockholders of the Company payable in shares of Common Stock (or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly shares of Common Stock), combination or other similar recapitalization or event occurring after the date hereof and prior to the Closing, each reference in any Transaction Document to a number of shares or a price per share shall be deemed to be amended to appropriately account for such event.
 
[SIGNATURES ON FOLLOWING PAGES]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Page 22 - Securities Purchase Agreement
 
 
IN WITNESS WHEREOF , the Company hereto has caused this Agreement to be duly executed by its respective authorized signatories as of the date first indicated above.
 
  TORCHLIGHT ENERGY RESOURCES, INC.  
       
 
By:
/s/ John Brda  
  Name: John Brda  
  Title: CEO  
       

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Page 23 - Securities Purchase Agreement
 

IN WITNESS WHEREOF, the Purchaser hereto has caused this Agreement to be executed by his/her/its respective authorized signatories as of the date first indicated above.
 
  (If Purchaser is an individual)
     
  Signature:  
     
  Printed Name:  
 
  (If Purchaser is an entity)
   
  Signature:  
   
  Printed Name of Entity:  
   
  Printed Name of Signatory:   
   
  Title of Signatory:   
   
   
   
   
  Street Address
   
   
  City                                State                                Zip
   
   
  Email Address
   
   
  Amount Invested: $  
   
  Number of shares of Preferred Stock:  
 
 
 
 

 
Page 24 - Securities Purchase Agreement
 

EXHIBITS

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Page 25 - Securities Purchase Agreement
EXHIBIT 10.17

 
 
PROMISSORY NOTE
 
$ 500,000

November 4, 2014
Dallas, TX
 
 
For value received, Torchlight Energy Resources, Inc., with offices at 5700 W. Plano Parkway, Ste. 3600, Plano, TX 75093, promises to pay to Eunis Shockey, an individual and Director of Torchlight Energy Resources, Inc., whose address is _________________________________________, on demand the sum of $500,000 with interest payable at 10% to be paid back in 30 days. Said money was advanced to Torchlight Energy Resources to pay obligations of the company and are reimbursable.

Signed:
Title: President
 
 

 
 
 
 
ALLONGE TO PROMISSORY NOTE
 
THIS ALLONGE, effective June 30, 2015 (the “Allonge”), to the Promissory Note, dated November 4, 2014, in the original principal amount of $500,000 (the “Note”), is to become affixed to, modify and become a part of the Note, made originally by Torchlight Energy Resources, Inc., a Nevada corporation (the “Company”), and payable to the order of Eunis L. Shockey (the “Holder”).
 
WHEREAS, the Note was due and payable on December 4, 2014, and on May 4, 2015 the Company issued, upon Board approval on that same date, 400,000 three-year warrants at $0.50 per share as partial consideration for Mr. Shockey agreeing to extend the maturity date of the Note,  provided, however, that final terms and conditions of the extension were not yet agreed to.
 
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:
 
 
1.
Holder and Company have agreed that the Note should be amended and modified hereunder, as described more fully below:
 
The Note is amended to provide that the maturity date is extended to December 31, 2015 for the additional consideration of the issuance of 120,000 three-year warrants.  The warrants will be subject to a vesting schedule which will provide for 40,000 shares to vest on June 30, 2015, 40,000 shares to vest on September 30, 2015, and 40,000 shares to vest on December 31, 2015, provided that the warrants shall not vest if the promissory note has been re-paid prior to the date of vesting.  In the event that a portion of the note is paid, then the number of warrants, which remain subject to vesting, will be reduced pro rata.  The exercise price of the warrants shall be $2.29, which represents the closing price of the shares of the Company’s common stock on June 30, 2015, plus $0.05.

 
2.
All terms and conditions of the Note shall, except as herein modified, remain in full force and effect and all rights, duties, obligations and responsibilities of the Company and the Holder shall be governed and determined by the Note as the same has been modified by this Allonge.
 
 
3.
This Allonge is to be construed under the laws of the State of Texas.
 
IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Allonge to the Note as of the date first written above.


 
   Eunis L. Shockey      
   Eunis L. Shockey      
         
         
   Torchlight Energy Resources, Inc.      
         
         
 By:  /s/ John Brda      
    John Brda, Chief Executive Officer      
 

 
 
 
 
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE LAWS IS AVAILABLE.

THREE YEAR PURCHASE WARRANT
TO PURCHASE COMMON STOCK OF
TORCHLIGHT ENERGY RESOURCES, INC.


 
 Date of Issuance: May 4, 2015  Warrant No. MAY-100

This certifies that, for value received, TORCHLIGHT ENERGY RESOURCES, INC., a Nevada corporation (the “ Company ”), grants Eunis L. Shockey or its registered assigns (the “ Registered Holder ”),whose address is 10827 Stone Canyon Road, Dallas, Texas 75230, the right to subscribe for and purchase from the Company, at the Exercise Price (as defined herein), after May 4, 2015 (the “ Exercise Date ”) and to and including 5:00 p.m., Central Standard Time, on May 4, 2018 (the “ Expiration Date ”), 400,000 shares, as such number of shares may be adjusted from time to time as described herein (the “ Warrant Shares ”), of the Company’s common stock, par value $.001 per share (the “ Common Stock ”), subject to the provisions and upon the terms and conditions herein set forth.  The “ Exercise Price ” per share of Common Stock of the Company will be $0.50 per share .
 

                      This Warrant is issued in connection with the extension of a promissory note between the Company and the Registered Holder dated as of November 4, 2014.

                       Section 1.                        Recordation on Books of the Company.   The Company shall record this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Records ”), in the name of the Registered Holder.  The Company may deem and treat the Registered Holder as the absolute owner of this Warrant for the purpose of any exercise hereof or any distribution to the Registered Holder.

                      Section 2.                      Registration of Transfers and Exchanges.

                      (a)           Subject to Section 9 hereof, the Company shall register the transfer of this Warrant, in whole or in part, upon records to be maintained by the Company for that purpose, upon surrender of this Warrant, with the Form of Assignment attached hereto completed and duly endorsed by the Registered Holder, to the Company at the office specified in or pursuant to Section 3(b).  Upon any such registration of transfer, a new Warrant, in substantially the form of this Warrant, evidencing the Common Stock purchase rights so transferred shall be issued to the transferee and a new Warrant, in similar form, evidencing the remaining Common Stock purchase rights not so transferred, if any, shall be issued to the Registered Holder.

Warrant – Page 1
 
 
 
 
                      (b)           This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the office of the Company specified in or pursuant to Section 3(b) hereof, for new Warrants, in substantially the form of this Warrant evidencing, in the aggregate, the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Registered Holder at the time of such surrender.

                      Section 3.                      Duration and Exercise of this Warrant.

                      (a)           This Warrant shall be exercisable by the Registered Holder as to the Warrant Shares at any time during the period commencing on the Exercise Date and ending on the Expiration Date. At 5:00 p.m., Central Standard Time, on the Expiration Date, this Warrant, to the extent not previously exercised, shall become void and of no further force or effect.

                      (b)           Subject to Section 7 hereof, upon exercise or surrender of this Warrant, with the Form of Election to Purchase attached hereto completed and duly endorsed by the Registered Holder, to the Company at 5700 W. Plano Parkway, Suite 3600, Plano, Texas 75093, Attention: John Brda, President, or at such other address as the Company may specify in writing to the Registered Holder, and upon payment of the Exercise Price multiplied by the number of Warrant Shares then issuable upon exercise of this Warrant in lawful money of the United States of America, all as specified by the Registered Holder in the Form of Election to Purchase, the Company shall promptly issue and cause to be delivered to or upon the written order of the Registered Holder, and in such name or names as the Registered Holder may designate, a certificate for the Warrant Shares issued upon such exercise.  Any person so designated in the Form of Election to Purchase, duly endorsed by the Registered Holder, as the person to be named on the certificates for the Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares, evidenced by such certificates, as of the Date of Exercise (as hereinafter defined) of such Warrant.

                      (c)           The Registered Holder may pay the applicable Exercise Price pursuant to Section 3(b), at the option of the Registered Holder, either (i) by cashier’s or certified bank check payable to the Company, or (ii) by wire transfer of immediately available funds to the account which shall be indicated in writing by the Company to the Registered Holder, in either case, in an amount equal to the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise (the “ Aggregate Exercise Price ”).

                      (d)           The “ Date of Exercise ” of any Warrant means the date on which the Company shall have received (i) this Warrant, with the Form of Election to Purchase attached hereto appropriately completed and duly endorsed, and (ii) payment of the Aggregate Exercise Price as provided herein.

                      (e)           This Warrant will be exercisable either in its entirety or, from time to time, for part, only of the number of Warrant Shares which are issuable hereunder.  If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificates for the Warrant Shares issued pursuant to such exercise, deliver to the Registered Holder a new Warrant evidencing the  rights to purchase the remaining Warrant Shares, which Warrant shall be substantially in the form of this Warrant.
Warrant – Page 2
 
 
 

                       Section 4.                        Payment of Expenses.   The Company will pay all expenses (other than any federal or state taxes, including without limitation income taxes, or similar obligations of the Registered Holder) attributable to the preparation, execution, issuance and delivery of this Warrant, any new Warrant and the Warrant Shares.

                       Section 5.                        Mutilated or Missing Warrant Certificate.   If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Registered Holder, the Company will issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a substitute Warrant, in substantially the form of this Warrant, of like tenor, but, in the case of loss, theft or destruction, only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of this Warrant and, if requested by the Company, indemnity also reasonably satisfactory to it.

                      Section 6.                      Reservation, Listing and Issuance of Warrant Shares.

                      (a)           The Company will at all times have authorized, and reserve and keep available, free from preemptive rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise of the rights represented by this Warrant, the number of Warrant Shares deliverable upon exercise of this Warrant.  The Company will, at its expense, use it best efforts to cause such shares to be included in or listed on (subject to issuance or notice of issuance of Warrant Shares) all markets or stock exchanges in or on which the Common Stock is included or listed not later than the date on which the Common Stock is first included or listed on any such market or exchange and will thereafter maintain such inclusion or listing of all shares of Common Stock from time to time issuable upon exercise of this Warrant.

                      (b)           Before taking any action which could cause an adjustment pursuant to Section 7 hereof reducing the Exercise Price below the par value of the Warrant Shares, the Company will take any corporate action which may be necessary in order that the Company may validly and legally issue at the Exercise Price, as so adjusted, Warrant Shares that are fully paid and non-assessable.

                      (c)           The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and nonassessable, and (ii) free from all liens, charges and security interests.

                      Section 7.                      Adjustment of Number of Warrant Shares.

                      (a)           The number of Warrant Shares to be purchased upon exercise hereof is subject to change or adjustment from time to time as hereinafter provided:

Warrant – Page 3
 
 
 
 
(i)           Stock Dividends; Stock Splits; Reverse Stock Splits; Reclassifications . In case the Company shall (a) pay a dividend with respect to its Common Stock in shares of capital stock, (b) subdivide its outstanding shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of any class of Common Stock or (d) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), other than elimination of par value, a change in par value, or a change from par value to no par value (any one of which actions is herein referred to as an “ Adjustment Event ”), the number of Warrant Shares  purchasable upon exercise of the Warrant immediately prior to the record date for such Adjustment Event shall be adjusted so that the Registered Holder shall thereafter be entitled to receive the number of shares of Common Stock or other securities of the Company (such other securities thereafter enjoying the rights of shares of Common Stock under this Warrant) that such Registered Holder would have owned or have been entitled to receive after the happening of such Adjustment Event, had such Warrant been exercised immediately prior to the happening of such Adjustment Event or any record date with respect thereto.  An adjustment made pursuant to this Section 7(a)(i) shall become effective immediately after the effective date of such Adjustment Event retroactive to the record date, if any, for such Adjustment Event.

                                (ii)            Adjustment of Exercise Price .  Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant is adjusted pursuant to Section 7(a)(i), the Exercise Price for each Warrant Share payable upon exercise of each Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment, and the denominator   of which shall be the number of shares of Common Stock so purchasable immediately thereafter.
 
                                                (iii)            Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc .  In case the Company (a) consolidates with or merges into any other corporation and is not the continuing or surviving corporation of such consolidation of merger, or (b) permits any other corporation to consolidate with or merge into the Company and the Company is the continuing or surviving corporation but, in connection with such consolidation or merger, the Common Stock is changed into or exchanged for stock or other securities of any other corporation or cash or any other assets, or (c) transfers all or substantially all of its properties and assets to any other corporation, or (d) effects a capital reorganization or reclassification of the capital stock of the Company in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash and/or assets with respect to or in exchange for Common Stock, then, and in each such case, proper provision shall be made so that, upon the basis and upon the terms and in the manner provided in this subsection 7(a)(iii), the Registered Holder, upon the exercise of this Warrant at any time after the consummation of such consolidation, merger, transfer, reorganization or reclassification, shall be entitled to receive (at the aggregate Exercise Price in effect for all shares of Common Stock issuable upon such exercise immediately prior to such consummation as adjusted to the time of such transaction), in lieu of shares of Common Stock issuable upon such exercise prior to such consummation, the stock and other securities, cash and/or assets to which such holder would have been entitled upon such consummation if the Registered Holder had so exercised this Warrant immediately prior thereto (subject to adjustments subsequent to such corporate action as nearly equivalent as possible to the adjustments provided for in this Section).

                                (iv)            De Minimis Adjustments .  No adjustment in the Exercise Price and number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least $0.05 in the Exercise Price; provided, however, that any adjustments which by reason of this Section 7(a)(iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  All calculations shall be made to the nearest full share.

Warrant – Page 4
 
 
 
 
      (b)            Notice of Adjustment .  Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly notify the Registered Holder in writing (such writing referred to as an “ Adjustment Notice ”) of such adjustment or adjustments and shall deliver to such Registered Holder a statement setting forth the number of shares of Common Stock purchasable upon the exercise of each Warrant and the Exercise Price after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

                      (c)            Other Notices .  In case at any time:

(i)            the Company shall declare any cash dividend on its Common Stock;

(ii)           the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock;

(iii)           the Company shall offer for subscription pro rata to all of the holders of its Common Stock any additional shares of stock of any class or other rights;
 
(iv)           the Company shall authorize the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than cash dividends or cash distributions payable out of earnings or earned surplus or dividends payable in Common Stock);

(v)           there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation (other than a subsidiary of the Company in which the Company is the surviving or continuing corporation and no change occurs in the Company’s Common Stock), or sale of all or substantially all of its assets to another corporation; or

(vi)          there shall be a voluntary or involuntary dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, or winding up of the Company;

then, in any one or more of said cases the Company shall give written notice, addressed to the Registered Holder at the address of such Registered Holder as shown on the books of the Company, of (1) the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or (2) the date (or, if not then known, a reasonable approximation thereof by the Company) on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up or other action, as the case may be, shall take place.  Such notice shall also specify (or, if not then known, reasonably approximate) the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up, or other action, as the case may be.  Such written notice shall be given (except as to any bankruptcy proceeding) at least five (5) days prior to the action in question and not less than five (5) days prior to the record date or the date on which the Company’s transfer books are closed in respect thereto.  Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the 1933 Act, or to a favorable vote of stockholders, if either is required.

Warrant – Page 5
 
 
 
 
  (d)            Statement on Warrants .  The form of this Warrant need not be changed because of any change in the Exercise Price or in the number or kind of shares purchasable upon the exercise of a Warrant.  However, the Company may at any time in its sole discretion make any change in the form of the Warrant that it may deem appropriate and that does not affect the substance thereof and any Warrant thereafter issued, whether in exchange or substitution for any outstanding Warrant or otherwise, may be in the form so changed.

  (e)            Fractional Interest .  The Company will not be required to issue fractional Warrant Shares on the exercise of the Warrants.  The number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of whole shares of Common Stock purchasable on the exercise of the Warrants so presented.  If any fraction of a share of Common Stock would, except for the provisions of this Section 7(e) be issuable on the exercise of the Warrants (or specified proportion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then fair value of one share of Common Stock, as determined by the Board of Directors of the Company in good faith, multiplied by such fraction computed to the nearest whole cent.

                       Section 8.                        No Rights or Liabilities as a Stockholder.   The Registered Holder shall not be entitled to vote or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise, until the Date of Exercise shall have occurred.  No provision of this Warrant, in the absence of affirmative action by the Registered Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights and privileges of the Registered Holder, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

                      Section 9.                      Transfer Restrictions; Registration of the Warrant and Warrant Shares.

                      (a)           Neither the Warrant nor the Warrant Shares have been registered under the 1933 Act.  The Registered Holder, by acceptance hereof, represents that it is acquiring this Warrant to be issued to it for its own account and not with a view to the distribution thereof, and agrees not to sell, transfer, pledge or hypothecate this Warrant, any purchase rights evidenced hereby or any Warrant Shares unless a registration statement is effective for this Warrant or the Warrant Shares under the 1933 Act, or in the opinion of such Registered Holder’s counsel reasonably satisfactory to the Company, a copy of which opinion shall be delivered to the Company, such registration is not required as some other exemption from the registration requirement of the 1933 Act and applicable laws is available.

                      (b)           Subject to the provisions of the following paragraph of this Section 9, each Certificate for Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form:

Warrant – Page 6
 
 
 


THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE LAWS IS AVAILABLE.

                      (c)           The restrictions and requirements set forth in the foregoing paragraph shall apply with respect to Warrant Shares unless and until such Warrant Shares are sold or otherwise transferred pursuant to an effective registration statement under the 1933 Act or are otherwise no longer subject to the restrictions of the 1933 Act, at which time the Company agrees to promptly cause such restrictive legends to be removed and stop transfer restrictions applicable to such Warrant Shares to be rescinded.

                       Section 10.                      Notices.   All notices and other communications relating to this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first-class mail, postage prepaid, return receipt requested, or overnight air courier guaranteeing next day delivery to the parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto:

                      (a)           If to the Registered Holder of this Warrant or the holder of the Warrant Shares, addressed to the address of such Registered Holder or holder as set forth on books of the Company or otherwise furnished by the Registered Holder or holder to the Company.

                              (b)           If to the Company, addressed to:

                                Torchlight Energy Resources, Inc.
                                5700 W. Plano Parkway, Suite 3600
                                Plano, Texas 75093
                                Attn: John Brda, CEO

A notice or communication will be effective (i) if delivered in person or by overnight courier, on the business day it is received, and (ii) if sent by registered or certified mail, the earlier of the date of actual receipt by the party to whom such notice is required to be given or three (3) days after deposit in the United States mail.

                       Section 11.                      Binding Effect.   This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, and the holder or holders from time to time of this Warrant and the Warrant Shares.

                       Section 12.                      Survival of Rights and Duties.   This Warrant shall terminate and be of no further force and effect on the earlier of (i) 5:00 p.m., Central Standard Time, on the Expiration Date and (ii) the date on which this Warrant and all purchase rights evidenced hereby have been exercised, except that the provisions of Sections 6(c) and 9 hereof shall continue in full force and effect after such termination date.

Warrant – Page 7
 
 
 
 
                       Section 13.                      Governing Law.   This Warrant shall be governed and controlled as to the validity, enforcement, interpretations, construction and effect and in all other aspects by the substantive laws of the State of Texas.  In any action between or among any of the parties, whether arising out of this Warrant or otherwise, each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in Dallas County, Texas.

                       Section 14.                      Section Headings.   The Section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.

[Remainder of page intentionally left blank.  Signature page follows.]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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                      IN WITNESS WHEREOF, Torchlight Energy Resources, Inc. has caused this Warrant to be duly executed in its corporate name by the manual signature of its CEO.


                                                               TORCHLIGHT ENERGY RESOURCES, INC.


                                                              By: _ John Brda _______________________________
                                                                       John Brda, CEO                                

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 

Warrant – Page 9
 
 
 

FORM OF ELECTION TO PURCHASE


(To Be Executed Upon Exercise of this Warrant)

To Torchlight Energy Resources, Inc.:

                      The undersigned, the record holder of this Warrant (Warrant No. _____), hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase ___________ of the Warrant Shares and herewith and hereby tenders payment for such Warrant Shares to the order of Torchlight Energy Resources, Inc. of $_________________, representing the full purchase price for such shares at the price per share provided for in such Warrant and the delivery of any applicable taxes payable by the undersigned pursuant to such Warrant.

                      The undersigned requests that certificates for such shares be issued in the name of:
 
         
         
         
         
         
         
         
 (Please print name and address)    Social Security or Tax Identification No.    
 
 In the event that not all of the purchase rights represented by the Warrant are exercised, a new Warrant, substantially identical to the attached Warrant, representing the rights formerly represented by the attached Warrant which have not been exercised, shall be issued in the name of and delivered to:
 
         
         
         
 (Please print name and address)    Social Security or Tax Identification No.    
         
     Name of Holder (Print):    
         
     By:    
     (Name)    
     (Title):    
 
 
 
Form of Election to Purchase
 
 
 

FORM OF ASSIGNMENT

                      FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the attached Warrant (Warrant No. ___) with respect to the number of shares of Common Stock covered thereby set forth opposite the name of such assignee unto:

 
 Name of Assignee  Address
Number of Shares of  Common Stock
 


                      If the total of said purchase rights represented by the Warrant shall not be assigned, the undersigned requests that a new Warrant Certificate evidencing the purchase rights not so assigned be issued in the name of and delivered to the undersigned.

Dated:   Name of Holder (Print):    
         
       
      (Signature of Holder)    
         



 


 
 
 



THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE LAWS IS AVAILABLE.

THREE YEAR PURCHASE WARRANT
TO PURCHASE COMMON STOCK OF
TORCHLIGHT ENERGY RESOURCES, INC.


                                                                                                         
 
 Date of Issuance: June 30, 2015  Warrant No. JUNE-100
 
                      This certifies that, for value received, TORCHLIGHT ENERGY RESOURCES, INC., a Nevada corporation (the “ Company ”), grants Eunis L. Shockey or its registered assigns (the “ Registered Holder ”),whose address is 10827 Stone Canyon Road, Dallas, Texas 75230, the right to subscribe for and purchase from the Company, at the Exercise Price (as defined herein), after June 30, 2015 (the “ Exercise Date ”) and to and including 5:00 p.m., Central Standard Time, on June 30, 2018 (the “ Expiration Date ”), 120,000 shares, as such number of shares may be adjusted from time to time as described herein (the “ Warrant Shares ”), of the Company’s common stock, par value $.001 per share (the “ Common Stock ”), subject to the provisions and upon the terms and conditions herein set forth, including without limitation the vesting schedule set forth in Section 15.  The “ Exercise Price ” per share of Common Stock  of the Company will be $2.29 per share .

                      This Warrant is issued in connection with the extension of a promissory note between the Company and the Registered Holder dated as of November 4, 2014 (the “ Promissory Note ”).

                       Section 1.                        Recordation on Books of the Company.   The Company shall record this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Records ”), in the name of the Registered Holder.  The Company may deem and treat the Registered Holder as the absolute owner of this Warrant for the purpose of any exercise hereof or any distribution to the Registered Holder.

                      Section 2.                      Registration of Transfers and Exchanges.

                      (a)           Subject to Section 9 hereof, the Company shall register the transfer of this Warrant, in whole or in part, upon records to be maintained by the Company for that purpose, upon surrender of this Warrant, with the Form of Assignment attached hereto completed and duly endorsed by the Registered Holder, to the Company at the office specified in or pursuant to Section 3(b).  Upon any such registration of transfer, a new Warrant, in substantially the form of this Warrant, evidencing the Common Stock purchase rights so transferred shall be issued to the transferee and a new Warrant, in similar form, evidencing the remaining Common Stock purchase rights not so transferred, if any, shall be issued to the Registered Holder.

 
 
Warrant – Page 1
 

 

                      (b)           This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the office of the Company specified in or pursuant to Section 3(b) hereof, for new Warrants, in substantially the form of this Warrant evidencing, in the aggregate, the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Registered Holder at the time of such surrender.

                      Section 3.                      Duration and Exercise of this Warrant.

                      (a)           This Warrant shall be exercisable by the Registered Holder as to the Warrant Shares at any time during the period commencing on the Exercise Date and ending on the Expiration Date, provided the subject portion of the Warrant has vested in accordance with Section 15. At 5:00 p.m., Central Standard Time, on the Expiration Date, this Warrant, to the extent not previously exercised, shall become void and of no further force or effect.

                      (b)           Subject to Section 7 hereof, upon exercise or surrender of this Warrant, with the Form of Election to Purchase attached hereto completed and duly endorsed by the Registered Holder, to the Company at 5700 W. Plano Parkway, Suite 3600, Plano, Texas 75093, Attention: John Brda, President, or at such other address as the Company may specify in writing to the Registered Holder, and upon payment of the Exercise Price multiplied by the number of Warrant Shares then issuable upon exercise of this Warrant in lawful money of the United States of America, all as specified by the Registered Holder in the Form of Election to Purchase, the Company shall promptly issue and cause to be delivered to or upon the written order of the Registered Holder, and in such name or names as the Registered Holder may designate, a certificate for the Warrant Shares issued upon such exercise.  Any person so designated in the Form of Election to Purchase, duly endorsed by the Registered Holder, as the person to be named on the certificates for the Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares, evidenced by such certificates, as of the Date of Exercise (as hereinafter defined) of such Warrant.

                      (c)           The Registered Holder may pay the applicable Exercise Price pursuant to Section 3(b), at the option of the Registered Holder, either (i) by cashier’s or certified bank check payable to the Company, or (ii) by wire transfer of immediately available funds to the account which shall be indicated in writing by the Company to the Registered Holder, in either case, in an amount equal to the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon such exercise (the “ Aggregate Exercise Price ”).

                      (d)           The “ Date of Exercise ” of any Warrant means the date on which the Company shall have received (i) this Warrant, with the Form of Election to Purchase attached hereto appropriately completed and duly endorsed, and (ii) payment of the Aggregate Exercise Price as provided herein.

                      (e)           This Warrant will be exercisable either in its entirety or, from time to time, for part, only of the number of Warrant Shares which are issuable hereunder.  If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificates for the Warrant Shares issued pursuant to such exercise, deliver to the Registered Holder a new Warrant evidencing the  rights to purchase the remaining Warrant Shares, which Warrant shall be substantially in the form of this Warrant.
 

 
 
 
Warrant – Page 2
 
 
                       Section 4.                        Payment of Expenses.   The Company will pay all expenses (other than any federal or state taxes, including without limitation income taxes, or similar obligations of the Registered Holder) attributable to the preparation, execution, issuance and delivery of this Warrant, any new Warrant and the Warrant Shares.

                       Section 5.                        Mutilated or Missing Warrant Certificate.   If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Registered Holder, the Company will issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a substitute Warrant, in substantially the form of this Warrant, of like tenor, but, in the case of loss, theft or destruction, only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of this Warrant and, if requested by the Company, indemnity also reasonably satisfactory to it.

                      Section 6.                      Reservation, Listing and Issuance of Warrant Shares.

                      (a)           The Company will at all times have authorized, and reserve and keep available, free from preemptive rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise of the rights represented by this Warrant, the number of Warrant Shares deliverable upon exercise of this Warrant.  The Company will, at its expense, use it best efforts to cause such shares to be included in or listed on (subject to issuance or notice of issuance of Warrant Shares) all markets or stock exchanges in or on which the Common Stock is included or listed not later than the date on which the Common Stock is first included or listed on any such market or exchange and will thereafter maintain such inclusion or listing of all shares of Common Stock from time to time issuable upon exercise of this Warrant.

                      (b)           Before taking any action which could cause an adjustment pursuant to Section 7 hereof reducing the Exercise Price below the par value of the Warrant Shares, the Company will take any corporate action which may be necessary in order that the Company may validly and legally issue at the Exercise Price, as so adjusted, Warrant Shares that are fully paid and non-assessable.

                      (c)           The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and nonassessable, and (ii) free from all liens, charges and security interests.

                      Section 7.                      Adjustment of Number of Warrant Shares.

                      (a)           The number of Warrant Shares to be purchased upon exercise hereof is subject to change or adjustment from time to time as hereinafter provided:

 

 
 
Warrant – Page 3
 

(i) Stock Dividends; Stock Splits; Reverse Stock Splits; Reclassifications . In case the Company shall (a) pay a dividend with respect to its Common Stock in shares of capital stock, (b) subdivide its outstanding shares of Common Stock, (c) combine its outstanding shares of Common Stock into a smaller number of shares of any class of Common Stock or (d) issue any shares of its capital stock in a reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), other than elimination of par value, a change in par value, or a change from par value to no par value (any one of which actions is herein referred to as an “ Adjustment Event ”), the number of Warrant Shares  purchasable upon exercise of the Warrant immediately prior to the record date for such Adjustment Event shall be adjusted so that the Registered Holder shall thereafter be entitled to receive the number of shares of Common Stock or other securities of the Company (such other securities thereafter enjoying the rights of shares of Common Stock under this Warrant) that such Registered Holder would have owned or have been entitled to receive after the happening of such Adjustment Event, had such Warrant been exercised immediately prior to the happening of such Adjustment Event or any record date with respect thereto.  An adjustment made pursuant to this Section 7(a)(i) shall become effective immediately after the effective date of such Adjustment Event retroactive to the record date, if any, for such Adjustment Event.

 (ii)            Adjustment of Exercise Price .  Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant is adjusted pursuant to Section 7(a)(i), the Exercise Price for each Warrant Share payable upon exercise of each Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon the exercise of each Warrant immediately prior to such adjustment, and the denominator   of which shall be the number of shares of Common Stock so purchasable immediately thereafter.
 
 
 (iii)            Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc .  In case the Company (a) consolidates with or merges into any other corporation and is not the continuing or surviving corporation of such consolidation of merger, or (b) permits any other corporation to consolidate with or merge into the Company and the Company is the continuing or surviving corporation but, in connection with such consolidation or merger, the Common Stock is changed into or exchanged for stock or other securities of any other corporation or cash or any other assets, or (c) transfers all or substantially all of its properties and assets to any other corporation, or (d) effects a capital reorganization or reclassification of the capital stock of the Company in such a way that holders of Common Stock shall be entitled to receive stock, securities, cash and/or assets with respect to or in exchange for Common Stock, then, and in each such case, proper provision shall be made so that, upon the basis and upon the terms and in the manner provided in this subsection 7(a)(iii), the Registered Holder, upon the exercise of this Warrant at any time after the consummation of such consolidation, merger, transfer, reorganization or reclassification, shall be entitled to receive (at the aggregate Exercise Price in effect for all shares of Common Stock issuable upon such exercise immediately prior to such consummation as adjusted to the time of such transaction), in lieu of shares of Common Stock issuable upon such exercise prior to such consummation, the stock and other securities, cash and/or assets to which such holder would have been entitled upon such consummation if the Registered Holder had so exercised this Warrant immediately prior thereto (subject to adjustments subsequent to such corporate action as nearly equivalent as possible to the adjustments provided for in this Section).

(iv)            De Minimis Adjustments .  No adjustment in the Exercise Price and number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least $0.05 in the Exercise Price; provided, however, that any adjustments which by reason of this Section 7(a)(iv) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  All calculations shall be made to the nearest full share.

 
 
Warrant – Page 4
 


      (b)            Notice of Adjustment .  Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly notify the Registered Holder in writing (such writing referred to as an “ Adjustment Notice ”) of such adjustment or adjustments and shall deliver to such Registered Holder a statement setting forth the number of shares of Common Stock purchasable upon the exercise of each Warrant and the Exercise Price after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made.

                      (c)            Other Notices .  In case at any time:

(i)           the Company shall declare any cash dividend on its Common Stock;

(ii)           the Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock;

(iii)           the Company shall offer for subscription pro rata to all of the holders of its Common Stock any additional shares of stock of any class or other rights;
 
(iv) the Company shall authorize the distribution to all holders of its Common Stock of evidences of its indebtedness or assets (other than cash dividends or cash distributions payable out of earnings or earned surplus or dividends payable in Common Stock);

(v)           there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with another corporation (other than a subsidiary of the Company in which the Company is the surviving or continuing corporation and no change occurs in the Company’s Common Stock), or sale of all or substantially all of its assets to another corporation; or

(vi)           there shall be a voluntary or involuntary dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, or winding up of the Company;

then, in any one or more of said cases the Company shall give written notice, addressed to the Registered Holder at the address of such Registered Holder as shown on the books of the Company, of (1) the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or (2) the date (or, if not then known, a reasonable approximation thereof by the Company) on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up or other action, as the case may be, shall take place.  Such notice shall also specify (or, if not then known, reasonably approximate) the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, bankruptcy, assignment for the benefit of creditors, winding up, or other action, as the case may be.  Such written notice shall be given (except as to any bankruptcy proceeding) at least five (5) days prior to the action in question and not less than five (5) days prior to the record date or the date on which the Company’s transfer books are closed in respect thereto.  Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the 1933 Act, or to a favorable vote of stockholders, if either is required.

 
 
Warrant – Page 5
 
 
  (d)            Statement on Warrants .  The form of this Warrant need not be changed because of any change in the Exercise Price or in the number or kind of shares purchasable upon the exercise of a Warrant.  However, the Company may at any time in its sole discretion make any change in the form of the Warrant that it may deem appropriate and that does not affect the substance thereof and any Warrant thereafter issued, whether in exchange or substitution for any outstanding Warrant or otherwise, may be in the form so changed.

  (e)            Fractional Interest .  The Company will not be required to issue fractional Warrant Shares on the exercise of the Warrants.  The number of full Warrant Shares which shall be issuable upon such exercise shall be computed on the basis of the aggregate number of whole shares of Common Stock purchasable on the exercise of the Warrants so presented.  If any fraction of a share of Common Stock would, except for the provisions of this Section 7(e) be issuable on the exercise of the Warrants (or specified proportion thereof), the Company shall pay an amount in cash calculated by it to be equal to the then fair value of one share of Common Stock, as determined by the Board of Directors of the Company in good faith, multiplied by such fraction computed to the nearest whole cent.

                       Section 8.                        No Rights or Liabilities as a Stockholder.   The Registered Holder shall not be entitled to vote or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise, until the Date of Exercise shall have occurred.  No provision of this Warrant, in the absence of affirmative action by the Registered Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights and privileges of the Registered Holder, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

                      Section 9.                      Transfer Restrictions; Registration of the Warrant and Warrant Shares.

                      (a)           Neither the Warrant nor the Warrant Shares have been registered under the 1933 Act.  The Registered Holder, by acceptance hereof, represents that it is acquiring this Warrant to be issued to it for its own account and not with a view to the distribution thereof, and agrees not to sell, transfer, pledge or hypothecate this Warrant, any purchase rights evidenced hereby or any Warrant Shares unless a registration statement is effective for this Warrant or the Warrant Shares under the 1933 Act, or in the opinion of such Registered Holder’s counsel reasonably satisfactory to the Company, a copy of which opinion shall be delivered to the Company, such registration is not required as some other exemption from the registration requirement of the 1933 Act and applicable laws is available.

                      (b)           Subject to the provisions of the following paragraph of this Section 9, each Certificate for Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form:

 
 
Warrant – Page 6
 


THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE 1933 ACT, AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AS SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND APPLICABLE LAWS IS AVAILABLE.

                      (c)           The restrictions and requirements set forth in the foregoing paragraph shall apply with respect to Warrant Shares unless and until such Warrant Shares are sold or otherwise transferred pursuant to an effective registration statement under the 1933 Act or are otherwise no longer subject to the restrictions of the 1933 Act, at which time the Company agrees to promptly cause such restrictive legends to be removed and stop transfer restrictions applicable to such Warrant Shares to be rescinded.

                       Section 10.                      Notices.   All notices and other communications relating to this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first-class mail, postage prepaid, return receipt requested, or overnight air courier guaranteeing next day delivery to the parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto:

                      (a)           If to the Registered Holder of this Warrant or the holder of the Warrant Shares, addressed to the address of such Registered Holder or holder as set forth on books of the Company or otherwise furnished by the Registered Holder or holder to the Company.

                           (b)           If to the Company, addressed to:

                                Torchlight Energy Resources, Inc.
                                5700 W. Plano Parkway, Suite 3600
                                Plano, Texas 75093
                                Attn: John Brda, CEO

A notice or communication will be effective (i) if delivered in person or by overnight courier, on the business day it is received, and (ii) if sent by registered or certified mail, the earlier of the date of actual receipt by the party to whom such notice is required to be given or three (3) days after deposit in the United States mail.

                       Section 11.                     Binding Effect.   This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, and the holder or holders from time to time of this Warrant and the Warrant Shares.

                       Section 12.                     Survival of Rights and Duties.   This Warrant shall terminate and be of no further force and effect on the earlier of (i) 5:00 p.m., Central Standard Time, on the Expiration Date and (ii) the date on which this Warrant and all purchase rights evidenced hereby have been exercised, except that the provisions of Sections 6(c) and 9 hereof shall continue in full force and effect after such termination date.

 
 
Warrant – Page 7
 
 
                       Section 13.                      Governing Law.   This Warrant shall be governed and controlled as to the validity, enforcement, interpretations, construction and effect and in all other aspects by the substantive laws of the State of Texas.  In any action between or among any of the parties, whether arising out of this Warrant or otherwise, each of the parties irrevocably consents to the exclusive jurisdiction and venue of the federal and state courts located in Dallas County, Texas.

                       Section 14.                      Section Headings.   The Section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof.

                      Section 15.                      Vesting.   At the Date of Issuance, this Warrant will immediately vest with respect to 40,000 of the Warrant Shares with the balance of the Warrant to vest as follows: (i) on September 30, 2015, the Warrant will vest with respect to 40,000 additional Warrant Shares; and (ii) on December 31, 2015, the Warrant will vest with respect to the remaining 40,000 Warrant Shares; provided, however, that any unvested Warrant Shares will not vest if the Promissory Note has been repaid prior to the date of vesting, and in the event that a portion of the Promissory Note is repaid, then the remaining number of unvested Warrant Shares will be reduced pro rata.


[Remainder of page intentionally left blank.  Signature page follows.]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Warrant – Page 8
 


                      IN WITNESS WHEREOF, Torchlight Energy Resources, Inc. has caused this Warrant to be duly executed in its corporate name by the manual signature of its CEO.


                                                               TORCHLIGHT ENERGY RESOURCES, INC.


                                                              By: _ John Brda ________________________________
                                                                      John Brda, CEO                                

 
 
 
 
 
 
 
 
 
 
 

 

 
 
Warrant – Page 9
 

FORM OF ELECTION TO PURCHASE


(To Be Executed Upon Exercise of this Warrant)

To Torchlight Energy Resources, Inc.:

                      The undersigned, the record holder of this Warrant (Warrant No. _____), hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase ___________ of the Warrant Shares and herewith and hereby tenders payment for such Warrant Shares to the order of Torchlight Energy Resources, Inc. of $_________________, representing the full purchase price for such shares at the price per share provided for in such Warrant and the delivery of any applicable taxes payable by the undersigned pursuant to such Warrant.

                      The undersigned requests that certificates for such shares be issued in the name of:
 
 
         
         
         
         
         
         
         
(Please print name and address)   Social Security or Tax Identification No.    
 
 
In the event that not all of the purchase rights represented by the Warrant are exercised, a new Warrant, substantially identical to the attached Warrant, representing the rights formerly represented by the attached Warrant which have not been exercised, shall be issued in the name of and delivered to:
 
         
         
         
(Please print name and address)   Social Security or Tax Identification No.    
         
    Name of Holder (Print):    
         
    By:    
    (Name)    
    (Title):    
 

Form of Election to Purchase
 
 
 

FORM OF ASSIGNMENT

                      FOR VALUE RECEIVED, ________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the attached Warrant (Warrant No. ___) with respect to the number of shares of Common Stock covered thereby set forth opposite the name of such assignee unto:

Name of Assignee Address
Number of Shares of Common Stock


If the total of said purchase rights represented by the Warrant shall not be assigned, the undersigned requests that a new Warrant Certificate evidencing the purchase rights not so assigned be issued in the name of and delivered to the undersigned.

 
Dated:   Name of Holder (Print):    
         
       
    (Signature of Holder)    
         





 

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
  
I, John A. Brda , certify that:

1. I have reviewed this quarterly report on Form 10-Q of Torchlight Energy Resources, Inc. for the period ended June 30, 2015;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d- 15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material  information relating to the small  business issuer, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over the financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ John A. Brda
By: John A. Brda
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 2015
Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
  
I, Roger Wurtele , certify that:

1. I have reviewed this quarterly report on Form 10-Q of Torchlight Energy Resources, Inc. for the period ended June 30, 2015;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d- 15 (e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     a)  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material  information relating to the small  business issuer, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     c) Evaluated the effectiveness of the registrant's disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d)  Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over the financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Roger Wurtele
By: Roger Wurtele,
Chief Financial Officer
(Principal Financial Officer)
Date: August 14, 2015
Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

 
I, John A. Brda , certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report on Form 10-Q of Torchlight Energy Resources, Inc. for the period ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such quarterly report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Torchlight Energy Resources, Inc.
 
/s/ John A. Brda
 
John A. Brda,
 
Chief Executive Officer (Principal Executive Officer)
 
   
Date: August 14, 2015
 
 
I, Roger Wurtele, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the quarterly report on Form 10-Q of Torchlight Energy Resources, Inc. for the period ended June 30, 2015, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such quarterly report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Torchlight Energy Resources, Inc.
 
/s/ Roger Wurtele
 
Roger Wurtele,
 
Chief Financial Officer (Principal Financial Officer)
 
   
Date: August 14, 2015
 
 
 
The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of Torchlight Energy Resources, Inc. under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing.