UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2014

 

Or

 

[  ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _____________

 

Commission file number: 000-51425

 

T-REX OIL, INC.

(Formerly Rancher Energy Corporation)

(Exact name of registrant as specified in its charter)

 

Nevada		98-0422451
State or other jurisdiction of incorporation or organization		I.R.S. Employer Identification No.

 

	P.O. Box 40, Henderson, CO 80640
	(Address of principal executive offices) (Zip Code)
	Registrant’s telephone number, including area code:
	303-629-1122
	Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class registered		Name of each exchange on which registered
Not Applicable		Not Applicable

 

	Securities registered pursuant to Section 12(g) of the Act:
	Common Stock (Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

                    [  ]

 

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 [  ] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 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 [  ] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

                   [X]

 

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	[  ]		Accelerated filer	[  ]
Non-accelerated filer (Do not check if a smaller reporting company)	[  ]		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 [  ] No [X]

 

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

 

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [  ] No [X]

 

On June 16, 2014, 89,701,994 shares of common stock were held by non-affiliates and had a value of $717,615 based on the average closing bid and ask of $0.008 per share.

 

The number of shares outstanding of the registrant’s common stock, $0.00001 par value, as of June 16, 2014 was 119,862,791.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 

 

Note About Forward-Looking Statements

 

In Rancher’s effort to make the information provided herein more meaningful, this Annual Report contains both historical and forward-looking statements. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “projects” or similar words or expressions. All statements other than statements of historical fact are forward-looking statements within the meanings of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements in this report are not based on historical facts, but rather reflect the current expectations of our management concerning future results and events. It should be noted that because Rancher common stock is a “penny stock,” the protections provided by Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934 do not apply. We have attempted to qualify all forward-looking statements with appropriate cautionary language to take advantage of the judicially-created doctrine of “bespeaks caution” and other protections.

 

These forward-looking statements involve substantial risks and uncertainties. There are many factors that may cause actual results to differ materially from those contemplated by these forward-looking statements. See “Risk Factors”, beginning on page 9 of this Annual Report. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause Rancher’s actual results, performance and achievements to be different from any future results, performance and achievements expressed or implied by these statements. These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in the forward-looking statements in this proxy statement/prospectus. Other unknown or unpredictable factors also could have material adverse effects on our future results.

 

Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by these statements. We caution the reader not to place undue reliance on these statements. These statements speak only as of the date of this document or, if made in any document incorporated by reference, as of the date of that document.

 

All written or oral forward-looking statements attributable to Rancher or any person acting on their behalf made after the date of this Annual Report are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Rancher does not undertake any obligation to release publicly any revisions to forward-looking statements to reflect events or circumstances after the date of this Annual Report or to reflect the occurrence of unanticipated events.

 

PART I

 

ITEM 1. BUSINESS

 

General

 

The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to “Rancher”, “we”, “our”, “us” or the “Company” are to Rancher Energy Corp.

 

HISTORY OF RANCHER ENERGY CORP.

 

The Company was incorporated on February 4, 2004, as Metalex Resources, Inc., in the State of Nevada. Prior to April 2006, we were engaged in the exploration of a gold prospect in British Columbia, Canada. The Company found no commercially exploitable deposits or reserves of gold. During April 2006, our stockholders voted to change our name to Rancher Energy Corp.

 

From January 2007 through March 2011, Rancher operated four oil and gas fields in the Powder River Basin, Wyoming. The fields, acquired in December 2006 and January 2007, were the South Glenrock B Field, the Big Muddy Field, the Cole Creek South Field and the South Glenrock A Field. In March 2011, we sold all of our interest in the four fields to Linc Energy Petroleum (Wyoming), Inc. as part of Rancher’s Plan of Reorganization described in the next paragraph.

 

 

On October 28, 2009, we filed a voluntary petition (the “Petition”) for relief in the United States Bankruptcy Court (the “Court”), District of Colorado under Chapter 11 of U.S. Bankruptcy Code (the “Bankruptcy Code,” Title 11 of the U.S.C.). On April 30, 2012, the Company filed its 2^nd Amended Plan of Reorganization (“the Plan”) and Disclosure Statement for 2^nd Amended Plan of Reorganization with the Court. On September 10, 2012, the Court approved the Plan and effective September 28, 2012 the Company was discharged from bankruptcy.

 

In September and October 2013, Rancher negotiated and became party to a Participation Agreement for the drilling of two wells in the Niobrara formation in Moffat County in northwestern Colorado, named Kowach #3-25 and Voloshin #3-25. PetroShare Corp. (“PetroShare”), an unaffiliated entity, was the operator of the prospect. Rancher and PetroShare had previously entered into a non-binding letter of intent by which the two parties were negotiating and pursuing a business combination (the “LOI”). Rancher contributed its share to the drilling and completion of the two wells of approximately $1,200,000. Disputes then developed between Rancher and PetroShare with respect to the wells and the contemplated business combination. On March 10, 2014 (as set forth in a Current Report on Form 8-K of that date), PetroShare notified Rancher that Rancher owed $283,791 for its share of completion costs of the two wells. PetroShare also alleged that it would suspend Rancher’s rights under the operating agreement for the two wells if Rancher fails to pay its share of the costs by April 9, 2014, and that such failure may be considered to be Rancher’s election not to participate in the completion of the wells. Shortly thereafter, on March 12, 2014, PetroShare notified Rancher in writing that PetroShare terminated the LOI and all negotiations for the proposed merger with Rancher.

 

In a letter dated March 14, 2014, Rancher made certain allegations with respect to PetroShare’s actions, and the parties discussed various alternatives. On March 27, 2014, the Board of Rancher approved an arrangement to settle with PetroShare and on May 5, 2014, the parties entered into an agreement to settle their claims which required, among other things, payment of $100,000 (which payment was received on May 6, 2014). The settlement agreement also requires payment by PetroShare to Rancher of $1,042,237 by June 16, 2014, as well as mutual releases that become effective upon receipt of the final payment. The settlement agreement acknowledges that neither Rancher nor PetroShare admits any liability to the other. Rancher received the remaining $1,042,237 on June 16, 2014.

 

Rancher did not convey any properties or assets to PetroShare, but (upon receipt of the final payment from PetroShare) Rancher acknowledged that the Participation Agreement and Rancher’s rights under the related joint operating agreement have been terminated. Inasmuch as Rancher had never received an assignment of any interest in the oil and gas leases, it had not obligation or right to assign any interests to PetroShare or to any other person.

 

It is important to note that Rancher will not be selling or transferring these oil and gas assets. Rancher does not have a direct ownership interest in the leases since no assignment was made to Rancher. Rancher’s only interest in the leases is through the Participation Agreement, under which a dispute has been raised. If the settlement agreement is completed as contemplated (see Note 12, Subsequent Events), Rancher will be deemed to have withdrawn from the Participation Agreement. If completed as contemplated, Rancher’s board of directors does not consider this to be the sale of all or substantially all of Rancher’s assets.

 

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 852 “Financial Reporting During Reorganization Proceedings,” which is applicable to companies in Chapter 11, generally does not change the manner in which financial statements are prepared. However, it does require that the financial statements for periods subsequent to the filing of a Chapter 11 case distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Revenues, expenses, realized gains and losses, and provisions for losses that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations. The balance sheet must distinguish Prepetition liabilities subject to compromise from both those Prepetition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities that may be affected by a plan of reorganization must be reported at the amounts expected to be allowed, even if they may settled for lesser amounts. In addition, cash provided by reorganization items, if any, must be disclosed separately in the statement of cash flows. The Company adopted ASC 852-10 effective on October 28, 2010 and segregated those items as outlined above for all activity prior to September 28, 2012 which included approximately six months of the fiscal year ended March 31, 2013.

 

 

As the Company emerged from bankruptcy, it reviewed the use of “Fresh-start” accounting and determined that under ASC 852, the Company does not qualify to use the provisions of “Fresh-start” accounting. The Company’s voting stockholders immediately before the confirmation date do not own less than 50% of the voting shares of the emerging entity.

 

As a result of the issues between Rancher and PetroShare that developed in March 2014 but which were resolved by the final payment received in June 2014, Rancher recorded no valuation reserve against its assets held for sale since it received full reimbursement for the amount recorded on Rancher’s balance sheet at March 31, 2014 for such assets.

 

Rancher intends to continue to consider business opportunities (primarily in the oil and gas industry) to acquire in the future. As of the date of this Annual Report and as a result of the completion of the PetroShare arrangement described above, Rancher’s only assets consist of cash, prepaid items, and deposits.

 

COMPANY OVERVIEW

 

Chapter 11 Reorganization

 

On October 15, 2009, a promissory note that Rancher issued in October 2007 to GasRock Capital LLC (“GasRock” or the “Lender”) (now known as Magma Assets, LLC) became due and payable. Rancher was unable to pay the amount due of approximately $10.2 million, and was unsuccessful in reaching an agreement with GasRock to extend or otherwise modify the terms of the promissory note. As a result, on October 16, 2009, GasRock pursued its rights under the terms of the promissory note and, on October 28, 2009, Rancher filed a Petition for relief in the Bankruptcy Court.

 

On January 26, 2011, the Court granted Rancher’s motion to approve Debtor-In-Possession Secured Financing from Linc Energy Petroleum (Wyoming), Inc. (“Linc Energy”). The Debtor-In-Possession Secured Financing provided for the following:

 

	●	Authorization of Rancher’s borrowing up to a maximum of $14,700,000 from Linc Energy, for the purposes of: (a) paying the GasRock debt in the amount of $13,653,698, in full; (b) funding the Carve-Out Amount of $100,000 to be used to pay administrative expenses; (c) paying pre-petition ad valorem taxes with respect to real property located in Wyoming; (d) funding the escrow amount; and (e) other purposes with the prior written consent of Linc Energy, in its sole and absolute discretion.
	●	In exchange for such funds, Rancher granted Linc Energy first priority security interests in and liens on all of Rancher’s assets (“the Collateral”), which Collateral included but was not limited to (a) Rancher’s interests in oil and gas producing properties; (b) accounts receivable; (c) equipment; (d) general intangibles; (e) accounts; (f) deposit accounts; (g) all other real and personal property.

 

On February 24, 2011, the Bankruptcy Court granted Rancher’s motion for an order authorizing (I) sale of substantially all of Rancher’s assets; and (II) assumption and assignment of certain executory contracts and unexpired leases. Pursuant to that order, and effective March 1, 2011, Rancher sold substantially all of its assets to Linc Energy pursuant to an Asset Purchase Agreement in exchange for cash of $20 million, future cash consideration of up to $825,000 and certain other adjustments as specified in the Asset Purchase Agreement. Rancher used the funds from the sale to pay outstanding principal and accrued interest on the secured financing previously received from Linc Energy in the amount of $14,829,950.

 

On June 15, 2012, Rancher entered into a settlement agreement with Linc Energy and GasRock to resolve Linc Energy’s obligation to pay the $825,000 future cash consideration. The Bankruptcy Court approved this agreement in July 2012, and Rancher received $525,000 plus other consideration as disclosed in Notes 8 and 14 of Rancher’s financial statements for the period ending September 30, 2012 (as reported in its Form 10-Q as of September 30, 2012).

 

 

The Plan required Rancher to pay the claims of its creditors as its assets allowed, and permitted, but did not obligate Rancher to continue in the oil and gas industry with a focus as discussed below on the purchase of non-operating interests in oil and gas producing properties. In addition, the Plan provided for cash to be distributed to all creditor classes in order of priority until they were paid in full or no more cash remained above the amount needed to wind up Rancher’s affairs.

 

The Plan allowed for convertible promissory notes totaling $140,000 held by officers and directors to be converted into shares of the Company’s common stock at exercise prices of $0.02 per share. The holders elected not to convert the notes, and as such, they were treated as unsecured claims and paid pursuant to the terms for unsecured claims.

 

Rancher’s common stockholders did not receive funds after payment of the creditors under the Plan. The rights of the common stockholders were otherwise unimpaired under the Plan.

 

Warrant holders holding exercisable warrants were cancelled and the holders received one share of Rancher common stock for every 100 shares of common stock the warrant holder would have been entitled to if the warrants were exercised. As a result, Rancher issued 546,068 shares of its common stock to the warrant holders during October 2012.

 

Business Strategy Post Bankruptcy

 

Since the completion of its reorganization pursuant to the Plan, Rancher has been investigating business opportunities with entities which have recently commenced operations, or that desire to utilize the public marketplace in order to raise additional capital in order to expand into new products or markets.

 

As expected, the selection of a business opportunity has been a complex and time-consuming process. When Rancher emerged from bankruptcy following the approval and effectiveness of the Plan (as reported in its Form 10-Q as of September 30, 2012), Rancher had:

 

●	Total assets of approximately $2,967,000, and
●	Working capital (current assets less current liabilities) of approximately $2,600,000;
●	Accumulated deficit of approximately $90,510,000;
●	Stockholders’ equity of approximately $2,684,000; and
●	Total shares issued and outstanding of 119,316,723 (not including 546,326 shares issued in October 2012 in exchange for warrants held by warrant holders as ordered by the Bankruptcy Court under the Plan).

 

Rancher believed that its bankruptcy discharge, its working capital, and its continued compliance with the reporting obligations of the Securities Exchange Act of 1934 would make it an attractive candidate for acquisition by a private company seeking to become public through a reverse merger or other form of business combination.

 

The analysis of new business opportunities was undertaken by or under the supervision of the Rancher board. Rancher expressed its intention to concentrate on identifying preliminary prospective business opportunities which may be brought to our attention through present associations of our directors, professional advisors or by our stockholders. In analyzing prospective business opportunities, Rancher determined to consider such matters as:

 

(i)	Available technical, financial and managerial resources;
(ii)	Working capital and other financial requirements;
(iii)	History of operations, if any, and prospects for the future;
(iv)	Nature of present and expected competition;

 

 

 

(v)	Quality, experience and depth of management services;
(vi)	Potential for further research, development or exploration;
(vii)	Specific risk factors not now foreseeable but that may be anticipated to impact the proposed activities of the company;
(viii)	Potential for growth or expansion;
(ix)	Potential for profit;
(x)	Public recognition and acceptance of products, services or trades;
(xi)	Name identification; and
(xii)	Other factors that the Rancher board considered relevant.

 

As part of Rancher’s investigation, members of the Rancher board expected to meet personally with management and key personnel. To the extent possible, Rancher intended to utilize written reports and personal investigation to evaluate the above factors. Until it entered into the Participation Agreement with PetroShare for the drilling of up to two exploratory wells in Moffat County, Colorado, in October 2013, Rancher was a “shell company” as defined in the rules and regulations of the Securities and Exchange Commission, and has been looking for a business to acquire since before receiving approval of its plan of reorganization and emerging from Chapter 11 bankruptcy in September 2012. During that period of time, the Rancher board has evaluated a number of potential business combinations in the oil and gas industry as well as other companies involved in other aspects of natural resources businesses. In addition, during and subsequent to the emergence from Chapter 11, the Rancher board members have been contacted by various shareholders who have expressed frustration with the slow pace and in some cases who recommended different business combinations.

 

In considering the drilling opportunity offered by PetroShare Energy Corp., a privately-held Colorado corporation not affiliated with Rancher (“PetroShare”), and certain other opportunities offered to Rancher before that opportunity, Rancher had determined to consider the following criteria when evaluating such opportunities:

 

	●	Proximity to existing production;
	●	Depth of existing production;
	●	Location in a known producing region;
	●	Whether there is well control data from nearby drill sites;
	●	Geologic evaluations by local geologists of production potential;
	●	Reasonable cost of acquisition;
	●	Term of lease and drilling commitment, if any; and
	●	Reasonable drilling cost estimates.

 

On October 3, 2013 (effective September 30, 2013), Rancher executed a Participation Agreement with PetroShare for the purposes of drilling at least one and up to two oil and/or gas wells to test the Niobrara formation to a depth of approximately 7,850 feet total vertical depth (TVD) in Moffatt County, Colorado.

 

On October 7, 2013, Rancher paid 30% of the costs of drilling the first well (Kowach 3-25) in exchange for a 30% working interest (25.309% net revenue interest), subject to a reduction of the working interest to 25% (and a proportional reduction of the net revenue interest) if Rancher and PetroShare did not complete a business combination. Rancher and PetroShare entered into a non-binding letter of intent by which the two parties were negotiating and pursuing a business combination (the “LOI”). Any business combination was subject to approval by Rancher’s stockholders and a number of other conditions precedent.

 

 

In evaluating the Buck Peak Prospect offered by PetroShare, the Rancher board determined that the drilling cost estimates were reasonable and offered a good opportunity for return after consideration of the risks associated with all drilling operations and the engineering reports reviewed by the Rancher board. Because PetroShare has made the final payment to Rancher, the settlement agreement is completed and therefore Rancher no longer has an interest in the Kowach #3-25 and Voloshin #3-25 and related leases. Consequently Rancher is currently a shell company as that term is defined in the SEC’s rules and regulations.

 

COMPETITION, MARKETS, REGULATION AND TAXATION

 

Competition

 

Although Rancher is not currently engaged in active business operations, it is looking for possibilities in the oil and gas industry or with respect to other minerals. There are a large number of companies and individuals engaged in the exploration for minerals and oil and gas; accordingly, there is a high degree of competition for desirable properties. Many of the companies and individuals so engaged have substantially greater financial resources than does Rancher. There can be no assurance that Rancher will be able to compete successfully with these other companies given Rancher’s available resources.

 

Markets

 

The availability of a ready market for oil and gas discovered, if any, will depend on numerous factors beyond the Company’s control, including the proximity and capacity of refineries, pipelines, and the effect of state regulation of production and of federal regulations of products sold in interstate commerce, and recent intrastate sales. The market prices of oil and gas are volatile, respond to world events, and are beyond Rancher’s control. The market for natural gas is also unsettled, and gas prices have fluctuated in the past four years with substantial fluctuation, seasonally and annually.

 

There generally are only a limited number of gas transmission companies with existing pipelines in the vicinity of a gas well or wells. If Rancher were to acquire producing gas properties that were not subject to purchase contracts or that were to terminate and other parties do not purchase the Company’s gas production, there is no assurance that Rancher would be able to enter into purchase contracts with any transmission companies or other purchasers of natural gas and there can be no assurance regarding the price which such purchasers would be willing to pay for such gas. There presently exists an oversupply of gas in the certain areas of the marketplace due to pipeline capacity, the extent and duration of which is not known. Such oversupply may result in restrictions of purchases by principal gas pipeline purchasers.

 

Effect of Changing Industry Conditions on Drilling Activity

 

Volatile oil and gas prices have caused an increase in drilling activity in the U.S. from time to time, and at other times a decline. Increases in drilling activities usually include an increase in costs, such as drilling costs, lease acquisition costs and equipment costs, and in the terms under which drilling prospects are generally available. Similarly, when oil and gas prices fall, drilling activity sometimes also reduces, and the costs of doing so also reduce. Rancher cannot predict what oil and gas prices will be in the future and what effect those prices may have on drilling activity in general, or on its ability to generate economic drilling prospects and to raise the necessary funds with which to drill them.

 

 

Federal and State Regulations

 

Governmental Regulation and Environmental Consideration

 

Numerous federal and state laws and regulations govern the oil and gas industry. These laws and regulations are often changed in response to changes in the political or economic environment. Compliance with this evolving regulatory burden is often difficult and costly and substantial penalties may be incurred for noncompliance. The following section describes some specific laws and regulations that may affect us. Rancher cannot predict the impact of these or future legislative or regulatory initiatives. Federal and state taxes have in the past affected the economic viability of such properties.

 

To the extent that Rancher again engages in operations in the oil and gas industry or other mineral exploration and development, Rancher will be subject to various increasingly stringent federal, state, and local laws regulating the drilling operations, hydraulic fracturing, discharge of materials into the environment, or otherwise relating to the protection of the environment, which directly impact oil and gas exploration, development, and production operations and consequently may impact our operations and costs. These regulations include, among others

 

(i)	Regulations by the EPA and various state agencies regarding approved methods of disposal for certain hazardous and nonhazardous wastes;
(ii)	The Comprehensive Environmental Response, Compensation and Liability Act, and analogous state laws that regulate the removal or remediation of previously disposed wastes (including wastes disposed of or released by prior owners or operators), property contamination (including groundwater contamination), and remedial plugging operations to prevent future contamination;
(iii)	The Clean Air Act and comparable state and local requirements, which may result in the gradual imposition of certain pollution control requirements with respect to air emissions from our operations;
(iv)	The Oil Pollution Act of 1990, which contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States;
(v)	The Resource Conservation and Recovery Act, which is the principal Federal statute governing the treatment, storage, and disposal of hazardous wastes; and
(vi)	State regulations and statutes governing the handling, treatment, storage, and disposal of naturally occurring radioactive material.

 

Rancher’s operations when and if recommenced) will also be subject to local, state and federal laws and regulations governing environmental quality and pollution control. Such laws and regulations may substantially increase the costs of exploring for, developing, or producing oil and gas and may prevent or delay the commencement or continuation of a given operation. To date Rancher’s compliance with these regulations has had no material effect on its operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. Rancher is unable to assess or predict at this time what effect additional regulations or legislation could have on its activities.

 

It may be anticipated that future legislation will significantly emphasize the protection of the environment, and that, as a consequence, Rancher’s activities may be more closely regulated to further the cause of environmental protection. Such legislation, as well as future interpretation of existing laws, may require substantial increases in equipment and operating costs to Rancher and delays, interruptions, or a termination of operations, the extent to which cannot now be predicted.

 

Government Contracts

 

The Company has no government contracts.

 

Number of Persons Employed

 

As of the date of this Annual Report, Rancher had two employees, its president and a bookkeeper. Directors provide services to Rancher on an as-needed basis.

 

 

ITEM 1A. RISK FACTORS

 

Risks Relating to Rancher and Its Business

 

We have incurred losses from operations in the past and expect to do so in the future.

 

We have never been profitable. We incurred net losses of $764,139 and $214,631 for the fiscal years ended March 31, 2014 and 2013, respectively. We do not expect to be profitable during the fiscal year ending March 31, 2015, even assuming we acquire business operations before that date. Our acquisition and development of prospects will require substantial additional capital expenditures in the future.

 

The lack of significant working capital and the other uncertainty and factors described throughout this Risk Factors section may impede our ability to economically acquire, develop, and exploit oil reserves. As a result, we may not be able to achieve or sustain profitability or positive cash flows from operating activities in the future.

 

The Company will need additional financing for which Rancher has no commitments, and this may jeopardize execution of the Company’s business plan post-acquisition.

 

Rancher has limited funds available to it as a result of its investment in the Participation Agreement and time and expense pursuing a business combination with PetroShare, offset to some extent by PetroShare’s payment of the settlement amount. Such funds may not be adequate to carry out a business plan in the oil and gas industry. The Company’s ultimate success depends upon our ability to enter into an appropriate business combination and to raise additional capital on reasonable terms, neither of which can be assured. We have not investigated the availability, source, or terms that might govern the acquisition of additional capital and will not do so until it determines the exact need for additional financing and what amounts, if any, may be needed. If we need additional capital, we have no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to us. If not available, our operations will be limited to those that can be financed with our available capital.

 

Rancher does not currently have business operations, and there can be no assurance that it will be able to enter into a business combination on acceptable terms.

 

Because of the limited financial resources that the Company has, it is unlikely that the Company will be able to diversify its operations. Rancher’s probable inability to diversify its activities into more than one area will subject the Company to economic fluctuations within the energy industry and therefore increase the risks associated with the Company’s operations due to lack of diversification.

 

We intend to pursue the acquisition of an operating business, but there are significant risks and impediments to our ability to do so.

 

Our sole strategy is to acquire an operating business or properties that comprise an operating business. Successful implementation of this strategy depends on our ability to identify a suitable acquisition target, acquire the target on acceptable terms and integrate its operations. In pursuing acquisition opportunities, we compete with other companies with similar strategies. Competition for acquisition targets may result in increased prices of acquisition targets and a diminished pool of companies available for acquisition. Acquisitions involve a number of other risks, including risks of acquiring undisclosed or undesired liabilities, acquired in-process technology, stock compensation expense, diversion of management attention, potential disputes with the seller of one or more acquired entities and possible failure to retain key acquired personnel. Any acquired entity or assets may not perform relative to our expectations. Our ability to meet these challenges has not been established.

 

A significant risk in our ability to acquire a business will be the need for Rancher shareholder approval. If required, Rancher shareholder approval may be difficult to obtain because of the diverse shareholder base and the lack of any controlling shareholders, including management.

 

 

Rancher’s business, oil and gas exploration and production has numerous risks which could render the Company unsuccessful.

 

The search for new oil and gas reserves frequently results in unprofitable efforts, not only from dry holes, but also from wells which, though productive, will not produce oil or gas in sufficient quantities to return a profit on the costs incurred. There is no assurance the Company will find or produce oil or gas from any of the undeveloped acreage which may be acquired by the Company, nor are there any assurances that if Rancher ever obtains any production it will be profitable.

 

Rancher will be subject to all of the market forces in the energy business, many of which could pose a significant risk to the Company’s operations.

 

The marketing of natural gas and oil which may be produced by the Company’s prospects will be affected by a number of factors beyond the Company’s control. These factors include the extent of the supply of oil or gas in the market, the availability of competitive fuels, crude oil imports, the world-wide political situation, price regulation, and other factors. Current economic and market conditions have created dramatic fluctuations in oil prices. Any significant decrease in the market prices of oil and gas could materially affect the Company’s profitability of oil and gas activities.

 

There generally are only a limited number of gas transmission companies with existing pipelines in the vicinity of a gas well or wells. In the event that producing gas properties are not subject to purchase contracts or that any such contracts terminate and other parties do not purchase the Company’s gas production, there is no assurance that Rancher will be able to enter into purchase contracts with any transmission companies or other purchasers of natural gas and there can be no assurance regarding the price which such purchasers would be willing to pay for such gas.

 

Rancher has not instituted corporate governance policies or procedures.

 

Rancher currently only has one executive officer who is an employee and who serves as our chief executive officer, our principal financial officer and acting chief accounting officer. Rancher has one independent director, an audit committee (although the audit committee does not have a charter), and Rancher retains a certified public accountant as an independent contractor who provides accounting assistance to assist its president and principal financial officer.

 

Rancher’s failure to maintain effective internal control over financial reporting may not allow Rancher to accurately report its financial results, which could cause its financial statements to become materially misleading and adversely affect the trading price of its common stock.

 

In our Annual Reports on Form 10-K for the fiscal years ended March 31, 2014 and 2013, Rancher reported the determination of management that Rancher had a material weakness in its internal control over financial reporting. Rancher’s management determined that Rancher did not adequately segregate duties of different personnel in its accounting department due to an insufficient complement of staff and inadequate management oversight and due to the fact that Rancher does not have any operations. While Rancher believes that it has made progress in remediating the weakness and has hired a CPA consultant to assist in doing so, Rancher has not completely remediated the weaknesses due to limited resources to add additional experienced staff. Rancher has not implemented a process whereby journal entries are reviewed and approved before being entered into the general ledger, and in general has not implemented comprehensive entity-level internal controls. In addition, Rancher management has failed to implement and monitor appropriate period-end cutoff procedures and to implement adequate timely approval of bank account reconciliations. Until Rancher obtains sufficient financing, Rancher will not be able to correct the material weakness in its internal control over financial reporting, its business could be harmed and the stock price of Rancher common stock could be adversely affected.

 

 

Rancher may become subject to the regulations under the Investment Company Act of 1940 and subject to regulation that would impose significant responsibilities and restrictions on our ability to do business.

 

The Investment Company Act of 1940 (the “ICA”) is intended to impose additional regulation on companies whose business is to invest or reinvest in, hold, or trade securities of other companies. Companies who own investment securities constituting more than 40% of their assets (not including cash or government securities) are by definition subject to ICA regulation unless the “transient investment company” exemption applies. If Rancher were to become an investment company, it will be subject to a significant amount of additional regulation, significant restrictions in its ability to do business, and significant restrictions on any relationship with affiliates. Rancher would also be subject to more detailed SEC scrutiny and subject to the registration and reporting requirements of the ICA in addition to the reporting requirements of the Securities Exchange Act of 1934. Compliance with these new obligations would restrict Rancher’s opportunities to conduct its business as it has heretofore done, and will result in significantly greater regulatory compliance expenses.

 

It is likely that any efforts Rancher may make to acquire a business or to raise capital will result in substantial cost to Rancher whether or not the efforts are successful.

 

Rancher’s efforts to enter into a business combination or to raise capital will require legal and accounting compliance, and such efforts can be expensive and time consuming. Most if not all of these costs will be incurred whether or not the business combination or the efforts to raise capital are successful. As a result, shareholders can anticipate any such efforts by Rancher will continue to reduce the amount of available working capital.

 

It is likely that any efforts Rancher may make to acquire a business or to raise capital will result in substantial additional dilution to our stockholders.

 

With a business combination or acquisition in which Rancher may engage, Rancher will likely issue shares of its common stock rather than paying cash for the business (as Rancher will likely need cash for operations). Moreover, if Rancher raises capital for any operations in the future or issues stock for a business combination or acquisition, such action may require the issuance of equity or debt securities which will likely result in substantial dilution to Rancher’s existing stockholders. Although Rancher will attempt to minimize the dilutive impact of any future business acquisition or capital-raising activities, Rancher cannot offer any assurance that it will be able to do so.

 

Rancher’s articles of incorporation require that it indemnify its officers and directors for expenses they may incur while serving as officers and directors of Rancher which may protect the officers and directors, but may also adversely impact Rancher’s working capital and financial condition.

 

Nevada corporate law provides for the indemnification of Rancher’s directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on Rancher’s behalf. Rancher will also bear the expenses of such litigation for any of its directors, officers, employees, or agents, upon such person’s promise to repay Rancher therefore if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by Rancher that it may be unable to recoup.

 

Nevada corporate law excludes personal liability of Rancher’s directors and its stockholders for monetary damages for breach of fiduciary duty except in certain specified circumstances. This provision does not affect the liability of any director under federal or applicable state securities laws. In addition, Rancher has an effective “errors and omissions insurance” policy for the benefit of its directors and officers in place.

 

Rancher has significant obligations under the Securities Act of 1934 which are expensive to administer and may distract our management from our business operations.

 

Because Rancher is a public company filing reports under the Securities Exchange Act of 1934, Rancher is subject to increased regulatory scrutiny and extensive and complex regulation. The Securities and Exchange Commission has the right to review the accuracy and completeness of Rancher’s reports, press releases, and other public documents. In addition, Rancher is subject to extensive requirements to institute and maintain financial accounting controls and for the accuracy and completeness of its books and records. Normally these activities are overseen by an audit committee consisting of qualified independent directors. While Rancher does have an audit committee, the audit committee is operating without a charter and has not provided the oversight typically found in audit committee supervision.

 

 

Rancher may depend upon outside advisors.

 

To supplement the business experience of the Company’s officer and directors, Rancher may be required to employ accountants, technical experts, appraisers, attorneys, or other consultants or advisors. The Company’s Board of Directors will make the selection of any such advisors. Furthermore, the Company anticipates that such persons will be engaged on an “as needed” basis without a continuing fiduciary or other obligation to Rancher.

 

Risks Relating to the Energy Production and/or Distribution Industry

 

Although Rancher is not currently engaged in the energy production or distribution industry or oil and gas exploration or development, this is the focus of Rancher’s efforts in seeking a business combination. Thus these risks may become relevant and are, therefore, set forth.

 

Extensive state and federal regulation may be costly to comply with and result in significant fines and penalties.

 

Companies that explore for and develop, produce and sell oil and natural gas in the United States are subject to extensive federal, state, local and tribal laws and regulations, including complex tax and environmental laws and the corresponding regulations, and are required to obtain various permits and approvals from federal, state, local and tribal agencies and authorities. Rancher engaged in extensive oil and gas operations before and during its bankruptcy, although it sold its properties during its bankruptcy. Notwithstanding the sale of the properties, Rancher may have some environmental obligations stemming from these earlier operations, although none have been identified. Because of the long statute of limitations associated with environmental liabilities, it may be quite a long period of time before any such liabilities become known.

 

Rancher’s ability to obtain, sustain and renew the necessary permits and approvals from federal, state, local and tribal agencies and authorities on acceptable terms and without unfavorable restrictions or conditions is subject to a change in regulations and policies and to the discretion of the applicable governmental agencies or authorities, among other factors. Possible regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and gas.

 

Competition in the oil and natural gas industry is intense, and many of our competitors have resources that are substantially greater than ours.

 

Rancher hopes to operate in the highly competitive environment for producing prospects and productive properties, marketing oil and gas and securing equipment and trained personnel. As a small company expecting to be engaged in oil and gas operations, most competitors, including major and large independent oil and gas companies, possess and employ financial, technical and personnel resources substantially greater than those of Rancher. Those companies may be able to develop and acquire more prospects and productive properties than our financial or personnel resources permit. Our ability to acquire additional prospects and discover reserves in the future will depend on our ability to evaluate and select suitable properties and consummate transactions in a highly competitive environment. Also, there is substantial competition for capital available for investment in the oil and gas industry. Larger competitors may be better able to withstand sustained periods of unsuccessful drilling and absorb the burden of changes in laws and regulations more easily than we can, which would adversely affect our competitive position. Rancher may not be able to compete successfully in the future in acquiring prospective properties, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital.

 

Seasonal weather conditions and lease stipulations adversely affect our ability to conduct drilling activities where we expect to operate.

 

Oil and natural gas operations in the Rocky Mountains are sometimes adversely affected by seasonal weather conditions and lease stipulations designed to protect various wildlife and surface interests in the prospect. These restrictions may limit our ability to operate in those areas and can potentially intensify competition for drilling rigs, oil field equipment, services, supplies and qualified personnel, which may lead to periodic shortages. These constraints and the resulting shortages or high costs could delay our operations and materially increase our operating and capital costs.

 

 

Oil and gas operations are affected by fluctuations in oil and natural gas prices and low prices could have a material adverse effect on the future of our operations.

 

If exploration efforts are successful in identifying economic amounts of oil and gas, our future success will depend largely on the prices received for any oil or gas production. Prices received also will affect the amount of future cash flow available for capital expenditures and may affect the ability to raise additional capital. Lower prices may also affect the amount of natural gas and oil that can be economically produced from reserves either discovered or acquired.

 

Prices for natural gas and oil fluctuate widely. For example, natural gas and oil prices declined significantly in 2008, and, for an extended period of time, remained below prices obtained in previous years. Factors that can cause price fluctuations include:

 

●	The level of consumer product demand;
●	Weather conditions;
●	Domestic and foreign governmental regulations;
●	The price and availability of alternative fuels;
●	Political conditions in natural gas and oil producing regions;
●	The domestic and foreign supply of natural gas and oil;
	The price of foreign imports; and
●	Overall economic conditions.

 

Volatile costs of oil and natural gas exploration will make it difficult to budget and may adversely affect Rancher’s operations.

 

The costs of oil and gas exploration, such as the costs of drilling rigs, casing, cement, and pumps, and the fuel and parts necessary to keep the rigs and pumps operating and the costs of the oil field service crews have been volatile over the past few years in direct proportion to the amount of oil and gas exploration then ongoing. As with most other companies involved in resource exploration and development, we may be adversely affected by future increases in the costs of conducting exploration, development and resource extraction that may not be fully offset by increases in the price received on sales of oil or natural gas.

 

 

Rancher expects to engage in the oil and gas business, an industry that involves many operating risks that can cause substantial losses.

 

The oil and natural gas business involves a variety of operating risks, including:

 

●	Fires;
●	Explosions;
●	Blow-outs and surface cratering;
●	Uncontrollable flows of underground natural gas, oil or formation water;
●	Natural disasters;
●	Pipe and cement failures;
●	Casing collapses;
●	Embedded oilfield drilling and service tools;
●	Abnormal pressure formations; and
●	Environmental hazards such as natural gas leaks, oil spills, pipeline ruptures or discharges of toxic gases.

 

If any of these events occur, Rancher could incur substantial losses as a result of:

 

●	Injury or loss of life;
●	Severe damage to and destruction of property, natural resources or equipment;
●	Pollution and other environmental damage;
●	Clean-up responsibilities;
●	Regulatory investigation and penalties;
●	Suspension of our operations; or
●	Repairs necessary to resume operations.

 

If Rancher were to experience any of these problems, it could affect well bores, gathering systems and processing facilities, any one of which could adversely affect the companies’ ability to conduct operations. Rancher may be affected by any of these events more than larger companies because it has limited working capital. In addition, pollution and environmental risks generally are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could adversely affect operations. Moreover, we cannot assure Rancher stockholders that we will be able to maintain adequate insurance in the future at rates considered reasonable.

 

 

Risks Relating to Our Stock

 

We may in the future issue more shares which could cause a loss of control by our present management and current stockholders.

 

We may issue further shares as consideration for the cash or assets or services out of our authorized but unissued common stock that would, upon issuance, represent a majority of the voting power and equity of our Company. The result of such an issuance would be those new stockholders and management would control our Company, and persons unknown could replace our management at this time. Such an occurrence would result in a greatly reduced percentage of ownership of our Company by our current stockholders, which could present significant risks to investors.

 

Rancher common stock has and will likely continue to experience price volatility.

 

Prior to June 10, 2014, Rancher common stock was traded on the OTCQB. Since emerging from bankruptcy protection in September 2012, Rancher common stock has traded as high as $0.03 per share (January 2013 through March 2013) and as low as less than $0.01 per share (currently). During that period, Rancher’s trading volume has ranged from as low as zero shares per day (May 27, 2014) to more than 30,000,000 shares per day (April 26, 2013). Until a larger secondary market for Rancher common stock develops, the price of and trading volume for Rancher common stock will likely continue to fluctuate substantially. The price of and trading volume for Rancher common stock is impacted not only by its performance and announcements, but also by general market conditions and other factors that are beyond Rancher’s control or influence and which may be unrelated to its performance.

 

Rancher stock is thinly-traded and as a result investors may be unable to sell at or near ask prices or at all.

 

Our common stock is thinly-traded on the OTCQB, an over-the-counter speculative trading marketplace. The OTC market typically offers less liquidity that other trading markets, meaning that the number of persons interested in purchasing the Company’s common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if it came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven, early stage company such as Rancher or purchase or recommend the purchase of any of our common stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in the our common stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on the stock price. Rancher cannot give you any assurance that a broader or more active public trading market for the Company’s common stock will develop or be sustained, or that any trading levels will be sustained. Due to these conditions, the Company can give investors no assurance that they will be able to sell their shares at or near ask prices or at all if they need money or otherwise desire to liquidate their shares in the Company.

 

Rancher common stock is subject to the penny stock rules which limit the market for Rancher common stock.

 

Rancher’s common stock is classified as a “penny stock” because it is quoted on the OTCQB with a market price below $5.00 per share. SEC rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an “established customer” or an “accredited investor.” This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customers concerning the risk of penny stocks. Many broker-dealers decline to participate in penny stock transactions because of the extra requirements imposed on penny stock transactions. Application of the penny stock rules to Rancher common stock reduces the market liquidity of its shares, which in turn affects the ability of holders of Rancher common stock to resell the shares they purchase, and they may not be able to resell at prices at or above the prices they paid.

 

 

Rancher common stock was downgraded to the OTC Markets Pink Sheets.

 

As of June 10, 2014, Rancher’s common stock was downgraded from the OTCQB and quoted on the Pink Sheets because it does not comply with the new rules for OTCQB-listed companies. This downgrade to a lower tier of the OTC market may reflect negatively on Rancher’s stock price.

 

Rule 144 sales in the future may have a depressive effect on our stock price.

 

All of the outstanding shares of common stock held by our present officers, directors, and affiliate stockholders are “restricted securities” within the meaning of Rule 144 under the Securities Act of 1933, as amended. As restricted Shares, these shares may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who has held restricted securities for six months, under certain conditions, sell every three months, in brokerage transactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock or the average weekly trading volume during the four calendar weeks prior to the sale. There is no limit on the amount of restricted securities that may be sold by a nonaffiliate after the owner has held the restricted securities for a period of six month. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.

 

Rancher will pay no foreseeable dividends in the future.

 

Rancher has not paid dividends on its common stock and does not anticipate paying such dividends in the foreseeable future.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

 

	T-REX OIL, INC.
	(fka Rancher Energy Corporation)
Dated: June 27, 2016
	By:	/s/ Donald Walford
		Donald Walford, Chief Executive Officer
		(Principal Executive Officer)
Dated: June 27, 2016
	By:	/s/ Kristi J. Kampmann
		Kristi J. Kampmann, Chief Accounting Officer
		(Principal Accounting Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Dated: June 27, 2016		T-REX OIL, INC.
		(fka Rancher Energy Corporation)
		/s/ Donald Walford
		Donald Walford, Director
		/s/ Martin Gottlob
		Martin Gottlob, Director
		/s/ Allen Heim
		Allen Heim, Director
		/s/ Herbert T. Sears
		Herbert Sears, Director