Meta Materials (MMATQ) 10-Q 16 May 16 2016 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	May. 11, 2016
Document and Entity Information
Entity Registrant Name	TORCHLIGHT ENERGY RESOURCES INC
Document Type	10-Q
Document Period End Date	Mar. 31, 2016
Amendment Flag	false
Entity Central Index Key	1,431,959
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		36,165,741
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q1

CONSOLIDATED CONDENSED BALANCE

CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Current assets:
Cash	$ 626,602	$ 1,026,600
Accounts Receivable	499,841	741,653
Production revenue receivable	203,967	199,317
Note receivable	0	613
Prepayments - development costs	88,614	0
Prepaid expenses	0	38,776
Total current assets	1,419,024	2,006,959
Investment in oil and gas properties, net	9,253,184	7,057,671
Office Equipment	39,772	43,110
Debt issuance costs, net	6,851	8,224
Other Assets	48,299	72,082
TOTAL ASSETS	10,767,130	9,188,046
Current liabilities:
Accounts payable	2,458,483	1,114,409
Accrued liabilities	652,079	628,876
Related party payables	130,000	130,000
Note payable within one year - related party	128,125	205,000
Notes payable within one year	602,527	129,741
Due to working interest owners	108,451	103,364
Interest payable	283,493	173,710
Total current liabilities	4,363,158	2,485,100
Convertible promissory notes, (Series B) net of discount of $231,533 at March 31, 2016 and $277,911 at December 31, 2015	3,337,967	3,291,589
Asset retirement obligation	$ 29,830	$ 29,083
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.001, 10,000,000 shares authorized, 133,750 shares issued and outstanding	$ 134	$ 134
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 35,216,205 issued and outstanding at March 31, 2016, 33,166,344 issued and outstanding at December 31, 2015	35,219	33,168
Additional paid-in capital	62,832,108	61,921,450
Warrants outstanding	16,679,472	16,330,961
Accumulated deficit	(76,510,758)	(74,903,439)
Total stockholders' equity	3,036,175	3,382,274
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 10,767,130	$ 9,188,046

CONSOLIDATED CONDENSED BALANCE3

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Assets [Abstract]
Discount on Convertible promissory notes noncurrent	$ 231,533	$ 277,911
Preferred Stock, par value	$ 0.001	$ 0.001
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	134,000	134,000
Preferred Stock, shares outstanding	133,750	134,000
Common Stock, par or stated value	$ 0.001	$ 0.001
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	35,216,205	33,166,344
Common Stock, shares outstanding	35,216,205	33,166,344

CONSOLIDATED CONDENSED STATEMEN

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Revenue:
Oil and gas sales	$ 194,235	$ 534,562
SWD and royalties	78	56,696
Cost of revenue	(105,998)	(230,897)
Gross income	88,315	360,361
Operating expenses:
General and administrative expenses	951,285	688,711
Depreciation, depletion and amortization	621,972	494,475
Total operating expenses	1,573,257	1,183,186
Other income (expense)
Interest income	0	0
Interest and accretion expense	(122,376)	(1,391,442)
Total other income (expense)	(122,376)	(1,391,442)
Net loss before taxes	(1,607,318)	(2,214,267)
Provision for income taxes	0	0
Net (loss)	$ (1,607,318)	$ (2,214,267)
Loss per share:Basic and Diluted	$ (0.07)	$ (0.12)
Weighted average shares outstanding: Basic and Diluted	23,113,892	18,378,669

CONSOLIDATED CONDENSED STATEME5

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW - USD ($)	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash Flows From Operating Activities
Net (loss)	$ (1,607,318)	$ (2,214,267)
Adjustments to reconcile net loss to net cash from operating activities:
Stock based compensation	82,922	(97,000)
Accretion of convertible note discounts	48,498	1,099,058
Depreciation, depletion and amortization	621,972	494,475
Change in:
Accounts receivable	241,812	(16,646)
Note receivable	613	(160)
Production revenue receivable	(4,650)	(160,516)
Prepayment of development costs	(88,614)	7,457
Prepaid expenses	38,776	29,634
Other assets	23,784	131
Accounts payable and accrued liabilities	1,367,276	1,946,804
Due to working interest owners	5,087	(643)
Asset retirement obligation	0	1,107
Interest payable	109,783	151,989
Capitalized interest	(41,912)	(205,341)
Net cash provided by (used in) operating activities	798,029	1,036,082
Cash Flows From Investing Activities
Investment in oil and gas properties	(1,481,507)	(1,507,162)
Proceeds from Sale of Leases	0	270,000
Net cash used in investing activities	(1,481,507)	(1,237,162)
Cash Flows From Financing Activities
Proceeds from sale of common stock	0	0
Proceeds from sale of preferred stock	0	0
Payment of preferred stock dividends	(112,430)	0
Proceeds from warrant exercise	0	0
Proceeds from promissory notes	505,652	33,381
Repayment of promissory notes	(109,742)	0
Net cash provided by financing activities	283,480	33,381
Net increase (decrease) in cash	(399,998)	(167,699)
Cash - beginning of period	1,026,600	179,787
Cash - end of period	626,602	12,088
Non cash transactions:
Common stock issued for services	53,173	(94,500)
Common stock issued for mineral interests	971,966	0
Warrants issued for services	2,000	4,000
Warrants issued in connection with promissory notes	27,750	0
Warrants issued in connection with lease interests	318,761	0
Reduction in accounts receivable for WI acquisition	0	101,058
Common stock issued in warrant exercises	0	0
Cash paid for interest	$ 34,741	$ 323,248

1. NATURE OF BUSINESS

1. NATURE OF BUSINESS	3 Months Ended
	Mar. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]
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

2. GOING CONCERN	3 Months Ended
	Mar. 31, 2016
GOING CONCERN
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 March 31, 2016, the Company had not yet achieved profitable operations. We had a net loss of approximately $1.6 million for the quarter ended March 31, 2016 and had accumulated losses of $76,510,758 since our inception to March 31, 2016, and expect to incur further losses in the development of our business. Working Capital as of March 31, 2016 was negative $2,944,134. 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; (3) participating in joint venture transactions with third parties; or (4) sale of assets. 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 Management has previously announced that they were seeking to divest certain of the Cimarron assets located in Logan and Kingfisher Counties, Oklahoma including lease rights and current production. As of March 31, 2016 negotiations and documentation of the sale of the Company’s Cimarron assets in Oklahoma was nearing completion. The sale closed on April 29, 2016 with a sales price $750,000 and an effective date of May 1, 2016.

3. SIGNIFICANT ACCOUNTING POLIC

3. SIGNIFICANT ACCOUNTING POLICIES	3 Months Ended
	Mar. 31, 2016
Accounting Policies [Abstract]
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 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 Risks and uncertainties Concentration of risks Fair value of financial instruments 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 As of December 31, 2015, the Company had a $419,839 account receivable from Husky Ventures for the estimated balance of the sale proceeds from the sale of the Chisholm Trail properties in fourth quarter, 2015. The Chisholm Trail properties were sold to Husky Ventures who then included them with the Husky interests in Chisholm Trail and then entered into a sale agreement with Gastar Exploration Inc. for the combined Torchlight and Husky interests. Receipt of the balance of the sale proceeds was subject to final determination of mineral lease classification and was to occur by February 28, 2016. The account receivable was not collected as of March 31, 2016. Investment in oil and gas properties 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. Capitalized interest – Depreciation, depletion, and amortization Ceiling test 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 unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. 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 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 Revenue recognition Basic and diluted earnings (loss) per share – Environmental 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 –

4. RELATED PARTY PAYABLES

4. RELATED PARTY PAYABLES	3 Months Ended
	Mar. 31, 2016
RELATED PARTY TRANSACTIONS
RELATED PARTY PAYABLES	As of March 31, 2016, related party payables consisted of accrued and unpaid compensation to two of our executive officers totaling $90,000 and a Director Fee payable to one of our Directors, Mr. Edward J. Devereaux of $40.000. Mr. Devereaux elected to receive $50,000 of the Director Fee in cash when funds are available. As of March 31, 2016 $10,000 had been paid to Mr. Devereaux. On November 4, 2014, Eunis L. Shockey, a member of the Board of directors, loaned us $500,000 under a 30 day promissory note. The promissory note accrues interest at an annual rate of 10%. The balance of the note at March 31, 2016 was $128,125. The due date of the note is December 31, 2016.

5. COMMITMENTS AND CONTINGENCIE

5. COMMITMENTS AND CONTINGENCIES	3 Months Ended
	Mar. 31, 2016
COMMITMENTS AND CONTINGENCIES
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 March 31, 2016, 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.

6. STOCKHOLDERS' EQUITY

6. STOCKHOLDERS' EQUITY	3 Months Ended
	Mar. 31, 2016
Stockholders' equity:
STOCKHOLDERS' EQUITY	During the three months ended March 31, 2016 the Company issued 59,297 shares of common stock as compensation for services, with total value of $53,173. During the three months ended March 31, 2016 the Company issued 1,718,425 shares of common stock in connection with oil and gas lease related costs of $971,966. During the three months ended March 31, 2016, the Company issued 21,739 shares of common stock in conversion of Preferred Stock valued at $25,000. During the three months ended March 31, 2016, the Company issued 250,400 shares of common stock for dividends on preferred stock with an aggregate value of $287,960. During the three months ended March 31, 2016, the Company vested 20,000 warrants as compensation for services, with a total value of $2,000. During the three months ended March 31, 2016, the Company issued 637,525 warrants in connection with oil and gas lease related costs of $318,761. During the three months ended March 31, 2016, the Company issued 37,500 warrants in connection with renewal of a loan from a Director valued at $27,750. A summary of stock options and warrants outstanding as of March 31, 2016 by exercise price and year of expiration is presented below: Exercise Expiration Date in Price 2016 2017 2018 2019 2020 Total $ 0.50 800,000 800,000 $ 0.70 425,000 425,000 $ 1.00 - 150,000 - 212,525 362,525 $ 1.08 37,500 37,500 $ 1.40 1,704,346 1,704,346 $ 1.57 3,750,000 3,750,000 $ 1.73 100,000 100,000 $ 1.75 1,135,714 - - - 1,135,714 $ 1.79 225,000 225,000 $ 1.80 850,000 850,000 $ 2.00 936,071 126,000 1,696,380 - 2,758,451 $ 2.03 2,000,000 2,000,000 $ 2.09 - - 2,800,000 - 2,800,000 $ 2.23 911,330 911,330 $ 2.29 120,000 120,000 $ 2.31 500,000 500,000 $ 2.50 100,000 - - 80,779 180,779 $ 2.82 - - 38,174 - 38,174 $ 3.00 100,000 - - - 100,000 $ 3.50 15,000 15,000 $ 4.50 - - - 700,000 700,000 $ 5.00 8,391 210,000 - - 218,391 $ 6.00 - - 577,501 327,675 905,176 $ 7.00 - - - 700,000 700,000 2,280,176 486,000 8,632,055 2,073,479 7,865,676 21,337,386 At March 31, 2016 the Company had reserved 21,337,386 shares for future exercise of warrants. 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

7. CAPITALIZED COSTS	3 Months Ended
	Mar. 31, 2016
Extractive Industries [Abstract]
7. CAPITALIZED COSTS	The following table presents the capitalized costs of the Company as of March 31, 2016 and December 31, 2015: 2016 2015 Evaluated costs subject to amortization $ 19,693,962 $ 24,177,851 Unevaluated costs 16,975,461 9,677,425 Accumulated impairment expense (22,783,989 ) (22,783,989 ) Total capitalized costs 13,885,434 11,071,287 Less accumulated depreciation, depletion and amortization (4,632,250 ) (4,013,616 ) Net capitalized costs $ 9,253,184 $ 7,057,671 Unevaluated costs as of March 31, 2016 include $696,949 associated with the Company’s interest in the Coulter #1 well. 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.

8. INCOME TAXES

8. INCOME TAXES	3 Months Ended
	Mar. 31, 2016
Income Taxes
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 carry forwards at March 31, 2016 of $25,142,099 available to offset future taxable income. The federal net operating loss carry forward 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 carry forwards. 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

9. PROMISSORY NOTES	3 Months Ended
	Mar. 31, 2016
PROMISSORY NOTES
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 12% 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 12% Notes. During the quarter ended September 30, 2014, the Company issued an additional $1,372,000 in principal value of 12% Series B Convertible Unsecured Promissory Notes. The 12% 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 12% Notes. During the fourth quarter of 2015 $1 million in note principal was converted into common stock. The total outstanding balance of Series “B” Notes at March 31, 2016 was $3,569,500. Notes Payable within one year The Company is obligated on short term notes and advances payable totaling $602,527 as of March 31, 2016. The due dates are as follows: Advance due April 30, 2016 $500,000 Note due December 31, 2016 $102,527 The advance of $500,000 which was due on April 30 has been paid in full. The note payable to a related party of $128,125 is payable with interest to a Director on December 31, 2016.

10. ASSET RETIREMENT OBLIGATION

10. ASSET RETIREMENT OBLIGATIONS	3 Months Ended
	Mar. 31, 2016
ASSET RETIREMENT OBLIGATIONS
ASSET RETIREMENT OBLIGATIONS	The following is a reconciliation of the asset retirement obligation liability through March 31, 2016: 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 Estimated liabilities recorded - Accretion Expense 819 Asset retirement obligation – September 30, 2015 $ 37,544 Estimated liabilities recorded - Accretion Expense 747 Removal of ARO for wells sold (9,208 ) Asset retirement obligation – December 31, 2015 $ 29,083 Estimated liabilities recorded - Accretion Expense 747 Asset retirement obligation – March 31, 2016 $ 29,830

11. SUBSEQUENT EVENTS

11. SUBSEQUENT EVENTS	3 Months Ended
	Mar. 31, 2016
Subsequent Events [Abstract]
11. SUBSEQUENT EVENTS	Divestiture of Hunton Play Assets Management has previously announced that they were seeking to divest certain of the Cimarron assets located in Logan and Kingfisher Counties, Oklahoma including lease rights and current production. As of March 31, 2016 negotiations and documentation of the sale of the Company’s Cimarron assets in Oklahoma was nearing completion. The sale closed on April 29, 2016 with a sales price $750,000 and an effective date of May 1, 2016. Legal Proceeding On May 4, 2016, Torchlight Energy Resources, Inc. and its subsidiary Torchlight Energy, Inc. filed a lawsuit in the 429th judicial district court in Collin County, Texas against Husky Ventures, Inc., Charles V. Long, April Glidewell, Silverstar of Nevada, Inc., Maximus Exploration, LLC, Atwood Acquisitions, LLC, Gastar Exploration Inc., J. Russell Porter, Michael A. Gerlich, Jerry R. Schuyler, and John M. Selser, Sr. Reference Item 2. Management’s Discussion and Analysis regarding the Hunton Play for further detail. Asset Acquisition Effective April 1, 2016, Torchlight Energy, Inc. acquired from McCabe Petroleum Corporation (Seller) a 66.66% working interest in approximately 12,000 acres in the Midland Basin in exchange for 1,500,000 warrants to purchase Torchlight common stock with an exercise price of $1.00 for five years and a back-in after payout of a 25% working interest to the seller. The Warrant provides that in the event an initial well is not drilled on the Oil and Gas Leases on or before July 10, 2016, that (i) if as of July 10, 2016 the Seller has exercised no portion of the Warrant, the number of Warrant Shares that the Seller will be able to acquire will be reduced to 500,000, (ii) if as of July 10, 2016 the Seller has exercised a portion of the Warrant in an amount less than 500,000 Warrant Shares, the number of Warrant Shares that the Seller will be able to acquire will be reduced to the difference between 500,000 and the number of Warrant Shares for which the Warrant has already been exercised, and (iii) if as of July 10, 2016 the Seller has exercised a portion of the Warrant in an amount more than 500,000 Warrant Shares, the number of Warrant Shares that the Seller will be able to acquire will be reduced to zero.

3. SIGNIFICANT ACCOUNTING POL17

3. SIGNIFICANT ACCOUNTING POLICIES (POLICIES)	3 Months Ended
	Mar. 31, 2016
SIGNIFICANT ACCOUNTING POLICIES (POLICIES)
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	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 March 31, 2016 and December 31, 2015 no valuation allowance was considered necessary. As of December 31, 2015, the Company had a $419,839 account receivable from Husky Ventures for the estimated balance of the sale proceeds from the sale of the Chisholm Trail properties in fourth quarter, 2015. The Chisholm Trail properties were sold to Husky Ventures who then included them with the Husky interests in Chisholm Trail and then entered into a sale agreement with Gastar Exploration Inc. for the combined Torchlight and Husky interests. Receipt of the balance of the sale proceeds was subject to final determination of mineral lease classification and was to occur by February 28, 2016. The account receivable was not collected as of March 31, 2016.
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. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. 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.
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 March 31, 2016 and March 31, 2015, the Company capitalized $41,912 and $205,341, 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 and an additional impairment at December 31, 2015 of $3,236,009 for a total impairment adjustment for 2015 of $25,674,123. No impairment was recognized at March 31, 2016. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that a 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 unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. 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.
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 May 16, 2016, the date of issuance of the financial statements. Subsequent events are disclosed in Note 11.

6. STOCKHOLDERS' EQUITY (Tables

6. STOCKHOLDERS' EQUITY (Tables)	3 Months Ended
	Mar. 31, 2016
STOCKHOLDERS' EQUITY (TABLES)
Summary of warrant activity	Exercise Expiration Date in Price 2016 2017 2018 2019 2020 Total $ 0.50 800,000 800,000 $ 0.70 425,000 425,000 $ 1.00 - 150,000 - 212,525 362,525 $ 1.08 37,500 37,500 $ 1.40 1,704,346 1,704,346 $ 1.57 3,750,000 3,750,000 $ 1.73 100,000 100,000 $ 1.75 1,135,714 - - - 1,135,714 $ 1.79 225,000 225,000 $ 1.80 850,000 850,000 $ 2.00 936,071 126,000 1,696,380 - 2,758,451 $ 2.03 2,000,000 2,000,000 $ 2.09 - - 2,800,000 - 2,800,000 $ 2.23 911,330 911,330 $ 2.29 120,000 120,000 $ 2.31 500,000 500,000 $ 2.50 100,000 - - 80,779 180,779 $ 2.82 - - 38,174 - 38,174 $ 3.00 100,000 - - - 100,000 $ 3.50 15,000 15,000 $ 4.50 - - - 700,000 700,000 $ 5.00 8,391 210,000 - - 218,391 $ 6.00 - - 577,501 327,675 905,176 $ 7.00 - - - 700,000 700,000 2,280,176 486,000 8,632,055 2,073,479 7,865,676 21,337,386
Assumptions used in calculating the fair value of the warrants	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 (Tables)

7. CAPITALIZED COSTS (Tables)	3 Months Ended
	Mar. 31, 2016
Capitalized Costs (Table):
Capitalized Costs (Table)	2016 2015 Evaluated costs subject to amortization $ 19,693,962 $ 24,177,851 Unevaluated costs 16,975,461 9,677,425 Accumulated impairment expense (22,783,989 ) (22,783,989 ) Total capitalized costs 13,885,434 11,071,287 Less accumulated depreciation, depletion and amortization (4,632,250 ) (4,013,616 ) Net capitalized costs $ 9,253,184 $ 7,057,671

10. ASSET RETIREMENT OBLIGATI20

10. ASSET RETIREMENT OBLIGATIONS (Tables)	3 Months Ended
	Mar. 31, 2016
ASSET RETIREMENT OBLIGATIONS (Tables)
Asset retirement obligation	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 Estimated liabilities recorded - Accretion Expense 819 Asset retirement obligation – September 30, 2015 $ 37,544 Estimated liabilities recorded - Accretion Expense 747 Removal of ARO for wells sold (9,208 ) Asset retirement obligation – December 31, 2015 $ 29,083 Estimated liabilities recorded - Accretion Expense 747 Asset retirement obligation – March 31, 2016 $ 29,830

2. Going Concern (Details Narra

2. Going Concern (Details Narrative) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Going Concern Accumulated Losses
Accumulated deficit	$ (76,510,758)	$ (74,903,439)

6. STOCKHOLDERS' EQUITY (Detail

6. STOCKHOLDERS' EQUITY (Details)	3 Months Ended
	Mar. 31, 2016
Risk-free interest rate	0.78%
Dividend yield	0.00%
Minimum
Expected volatility of common stock	191.00%
Discount due to lack of marketability	20.00%
Expected life of warrant in years	3 years
Maximum
Expected volatility of common stock	253.00%
Discount due to lack of marketability	30.00%
Expected life of warrant in years	5 years

7. CAPITALIZED COSTS (Details)

7. CAPITALIZED COSTS (Details) - USD ($)	Mar. 31, 2016	Dec. 31, 2015
Presents the capitalized costs as follows:
Evaluated costs subject to amortization	$ 19,693,962	$ 24,177,851
Unevaluated costs	16,975,461	9,677,425
Impairment expense	(22,783,989)	(22,783,989)
Total capitalized costs	13,885,434	11,071,287
Less accumulated depreciation, depletion and amortization	(4,632,250)	(4,013,616)
Net capitalized costs	$ 9,253,184	$ 7,057,671

8. INCOME TAXES (Details Narrat

8. INCOME TAXES (Details Narrative)	Mar. 31, 2016USD ($)
Income Taxes Operating loss carryforwards
Net operating loss carryforwards	$ 25,142,099

10. ASSET RETIREMENET OBLIGATIO

10. ASSET RETIREMENET OBLIGATION (Details) - USD ($)	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015
Asset Retiremenet Obligation Details
Asset retirement obligation	$ 29,083	$ 37,544	$ 36,725	$ 37,058	$ 35,951
Estimated liabilities recorded	0	0	0	0	0
Accretion expense	747	747	819	819	1,107
Removal of ARO for wells sold	0	(9,208)	0	(1,152)	0
Asset retirement obligation	$ 29,830	$ 29,083	$ 37,544	$ 36,725	$ 37,058