T-REX OIL, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - T-REX OIL, INC.	ex32-2.htm
EX-32.1 - T-REX OIL, INC.	ex32-1.htm
EX-31.2 - T-REX OIL, INC.	ex31-2.htm
EX-31.1 - T-REX OIL, INC.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2016

[ ] TRANSITION REPORT UNDER 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.

(Exact name of registrant as specified in its charter)

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

520 Zang Street, Suite 250

Broomfield, CO 80021

(Address of principal executive offices)

(720) 502-4483

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]
(Do not check if a smaller reporting company)

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 [X] No [ ]

As of August 19, 2016, T-Rex Oil, Inc. has 16,502,262 shares of $0.001 par value common stock outstanding.

Table of Contents

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheet – June 30, 2016 (Unaudited) and Balance Sheet – March 31, 2016 (Audited)	3

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended June 30, 2016 and 2015	4

	Consolidated Statement of Cash Flows (Unaudited) for the Three Months Ended June 30, 2016 and 2015	5

	Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended June 30, 2016	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Mine Safety Disclosures	24

Item 5.	Other Information	24

Item 6.	Exhibits	24

SIGNATURES		25

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

T-Rex Oil, Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2016			March 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	136,977		$	428,204
Accounts receivable, trade		358,385			132,391
Loan to affiliate		-			-
Prepaids		107,565			50,370
Total current assets		602,927			610,965

Property and equipment
Oil and gas properties, successful efforts method of accounting
Proved		11,754,817			11,368,626
Unproved		4,754,620			4,745,917
Other		404,514			404,514
Total property and equipment		16,913,951			16,519,057
Less accumulated depreciation, depletion, amortization and valuation allowance		14,644,958			14,621,873
Net property and equipment		2,268,993			1,897,184
Other assets
Deposits and other assets		402,265			275,658
Total other assets		402,265			275,658
Total assets	$	3,274,185		$	2,783,807

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	1,006,449		$	758,832
Asset retirement obligations, current		176,587			176,587
Notes payable		778,161			783,210
Total current liabilities		1,961,197			1,718,629

Long-term liabilities
Asset retirement obligations, net of current		1,176,190			1,020,556

Total liabilities		3,137,387			2,739,185

Commitments and Contingencies		-			-

STOCKHOLDERS' EQUITY
Preferred shares, $0.001 par value, 50,000,000 shares authorized; 409,019 and 409,019 shares issued and outstanding at June 30 2016 and March 31 2016, respectively		409			409
Common shares, $0.001 par value, 275,000,000 shares authorized; 15,866,099 and 15,480,882 shares issued and outstanding at June 30, 2016 and March 31, 2016, respectively		15,866			15,481
Additional paid in capital		27,625,852			26,785,705
Accumulated deficit		(27,505,329	)		(26,756,973	)
Stockholders' equity		(58,891	)		44,622
Total liabilities and stockholders' equity	$	3,274,185		$	2,783,807

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

T-Rex Oil, Inc. and Subsidiaries

Consolidated Statements of Operations

	For the Three Months Ended June 30,
	2016			2015
Revenues
Oil and gas sales	$	320,011		$	163,911
Total revenues		320,011			163,911

Operating expenses:
Lease operating expense		153,375			73,640
Production taxes		42,343			5,550
General and administrative expense		742,181			615,780
Exploration expense		76,282			(40,622	)
Depreciation, depletion, amortization and accretion		45,407			144,648
Total operating expenses		1,059,588			798,996

Loss from operations		739,577			635,085

Other income (expense)
Interest expense		(13,665	)		(55,962	)
Interest income		4,886			94

Total other income		(8,779	)		(55,868	)

Loss before income taxes		(748,356	)		(690,953	)

Income taxes		-			-

Net loss		(748,356	)		(690,953	)

Deemed dividend for beneficial conversion feature of preferred stock		(37,805	)		-

Net loss attributable to common shareholders		(786,161	)		(690,953	)

Net loss per common share Basic and diluted	$	(0.05	)	$	(0.05	)

Weighted average number of common shares		15,671,374			15,345,683

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

T-Rex Oil, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	For the Three Months Ended June 30,
	2016			2015
OPERATING ACTIVITIES
Net loss attributable to common stockholders	$	(748,356	)	$	(690,953	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation, depletion, amortization and accretion		45,407			144,648
Equity based compensation		11,511			21,373
Changes in:
Accounts receivable, trade		(225,994	)		(21,933	)
Prepaids		11,925			4,510
Accounts payable and accrued liabilities		242,569			27,305
Net cash (used in) operating activities		(662,938	)		(515,050	)
INVESTING ACTIVITIES
Additions to oil and gas properties		(261,583	)		(123,877	)
Loans to affiliates, net of repayments		-			25,000
Proceeds from sale of mineral interest		-			30,000
Additions to other assets		(38	)		39,226
Net cash (used in) investing activities		(261,621	)		(29,651	)
FINANCING ACTIVITIES
Sale of shares and exercise of options		433,332			662,500
Shareholder cash contribution		200,000			-
Proceeds from notes payable, net of repayments		-			23,079
Net cash provided by financing activities		633,332			685,579
NET CHANGE IN CASH		(291,227	)		140,878
CASH, Beginning		428,204			636,542
CASH, Ending	$	136,977		$	777,420
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Equity based compensation	$	207,200		$	207,200
Beneficial conversion on feature of preferred stock	$	37,805		$	-
Deemed dividend for beneficial conversion feature of preferred stock	$	(37,805	)	$	-
Interest paid	$	74,883		$	30,697
Income taxes paid	$	-		$	-

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

T-Rex Oil, Inc. and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

	Preferred Shares				Common Shares				Additional						Total
	$0.001 Par Value				$0.001 Par Value				Paid-in			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital			(Deficit)			Equity
BALANCES, April 1, 2015		409,019	$	409		15,480,882	$	15,481	$	26,785,705		$	(26,756,973	)	$	10,042,717
Sale of shares for cash at $0.75 per share		-		-		99,378		99		74,514			-			74,613
Sale of shares for cash at $1.50 per share		-		-		235,839		236		353,483			-			353,719
Shareholder cash contribution		-		-		-		-		200,000			-			200,000
Issuance of shares for cash - exercise of options		-		-		50,000		50		4,950			-			5,000
Equity based compensation		-		-		-		-		207,200			-			207,200
Beneficial conversion feature of preferred stock										37,805			-			37,805
Deemed dividend for preferred stock’s
beneficial conversion feature		-		-		-		-		(37,805	)		-			(37,805	)
Net loss for the period		-		-		-		-		-			(748,356	)		(748,356	)
BALANCES, June 30, 2016		409,019	$	409		15,866,099	$	15,866	$	27,625,852		$	(27,505,329	)	$	10,134,893

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

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Note 1 – Organization and History

T-Rex Oil, Inc. (the “Company”) was incorporated in Colorado on September 2, 2014. Rancher Energy Corp was incorporated in Nevada on February 2, 2004. Effective October 20, 2014, T-Rex Oil, Inc. and Rancher Energy Corp were merged under the laws of the State of Colorado and T-Rex Oil, Inc. became the surviving entity.

The Company is currently engaged in the acquisition, exploration, and development of oil and gas prospects in the Rocky Mountain region of Wyoming.

On February 24, 2015, the Company entered into a Share Exchange Agreement with Western Interior Oil & Gas Corporation, a Wyoming private oil and natural gas company (“Western Interior”) and the shareholders of Western Interior. Under the Share Exchange Agreement the Company exchanged 7,465,168 shares of its restricted common stock for 170,878 shares of the issued and outstanding common stock of Western Interior thereby owning 83% of Western Interior. The acquisition was closed on March 27, 2014 and became effective March 31, 2015. On March 31, 2015, the Company entered into an amendment to the Share Exchange Agreement whereby the Company assumed certain repurchase agreements between Schwaben Kapital GmbH, Western Interior and its dissident shareholders and as a result acquired the remaining 17% of Western Interior. As part of these agreements, the Company assumed certain promissory notes issued to the dissenting shareholders in the total amount of $1,770,047 that were secured by Western Interior assets. As a result, Western Interior became a wholly-owned subsidiary of the Company. See Note 2 – Summary of Significant Accounting Policies – Principles of Consolidation.

On January 15, 2016, T-Rex Oil LLC #3 entered into a Purchase and Sale Agreement with Blue Tip Energy Wyoming, Inc. and Cole Creek Recompletions LLC and acquired approximately 82% of the working interest in certain leases located in the state of Wyoming known as the Cole Creek properties in exchange for $1,200,000 in cash plus the assumption of liabilities in the amount of $833,382 for a total purchase price of $2,033,382. On April 20, 2016, the T-Rex Oil LLC #3 entered into a Purchase and Sale Agreement with Black Hills Exploration & Production, Inc. and acquired the remaining approximately 18% working interest in the Cole Creek properties in exchange for $250,000 in cash plus the assumption of liabilities in the amount of $182,938 for a total purchase price of $432,938. These leases are proved developed and undeveloped leaseholds and include producing crude oil wells totaling approximately 13,328 gross acres. See Note 2 – Principles of Consolidation.

Note 2 – Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated balance sheets at June 30, 2016 and 2015 and the consolidated statement of operations and cash flows for the three months ended June 30, 2016 include the accounts of Terex Energy Corporation, T-Rex Oil, Inc., Western Interior Oil and Gas Corporation and T-Rex Oil LLC #3. All intercompany balances have been eliminated during consolidation.

The Company owns a 14.29% equity interest in T-Rex Oil, LLC #3, the remaining 85.71% is held by a director and shareholder of the Company. The Company has identified T-Rex Oil LLC #3 as a Variable Interest Entity (VIE). We hold current rights that gives us the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance convened with provisions that give us the right to receive potentially significant benefits. As a result, we consolidate the accounts of T-Rex Oil, LLC #3, eliminating all intercompany balances during consolidation.

We continuously evaluate whether we have a controlling financial interest in T-Rex Oil LLC#3. Where we are a general partner, we consider substantive removal rights held by other partners in determining if we hold a controlling financial interest. We reevaluate whether we have a controlling financial interest in these entities when our voting or substantive participating rights change.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates include the fair value of assets and liabilities, oil and natural gas reserves, income taxes and the valuation allowances related to deferred tax assets, asset retirement obligations and contingencies.

Cash and Cash Equivalents

The Company considers all liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Cash and cash equivalents include demand deposits and money market funds carried at cost which approximates fair value. The Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (“FDIC”), although such deposits are in excess of the insurance coverage. At June 30, 2016, the Company did not have cash deposits in excess of FDIC insured limits.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Concentration of Credit Risk

The Company’s producing properties are primarily located in Wyoming and the oil and gas production is sold to various purchasers based on market index prices. The risk of non-payment by these purchasers is considered minimal and the Company does not generally obtain collateral for sales. The Company continually monitors the credit standing of the primary purchasers.

During the three months ended June 30, 2016 and 2015, one purchaser accounted for 100% and 88% of total revenues, respectively.

Accounts Receivable

Accounts receivable are stated at their cost less any allowance for doubtful accounts. The allowance for doubtful accounts is based on the management’s assessment of the collectability of specific customer accounts and the aging of the accounts receivable. If there is deterioration in a major customer’s creditworthiness or if actual defaults are higher than the historical experience, the management’s estimates of the recoverability of amounts due to the Company could be adversely affected. Based on the management’s assessment, there is no reserve recorded at June 30, 2016 and 2015.

Oil and Gas Producing Activities

The Company uses the successful efforts method of accounting for oil and gas activities. Under this method, the costs of productive exploratory wells, all development wells, related asset retirement obligation assets, and productive leases are capitalized and amortized, principally by field, on a units-of-production basis over the life of the remaining proved reserves. Exploration costs, including personnel costs, geological and geophysical expenses, and delay rentals for oil and gas leases are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery, and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties. There were capitalized costs of $11,754,817 and $10,281,659 at June 30, 2016 and 2015, respectively.

Unproved oil and gas properties are assessed annually to determine whether they have been impaired by the drilling of dry holes on or near the related acreage or other circumstances, which may indicate a decline in value. When impairment occurs, a loss is recognized. When leases for unproved properties expire, the costs thereof, net of any related allowance for impairment, is removed from the accounts and charged to expense. During the three months ended June 30, 2016 and 2015, there was no impairment to unproved properties. The sale of a partial interest in an unproved property is accounted for as a recovery of cost when substantial uncertainty exists as to the ultimate recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent that the sales price exceeds the carrying amount of the unproved property. A gain or loss is recognized for all other sales of unproved properties. There were capitalized costs of $4,754,620 and $4,745,917 at June 30, 2016 and March 31, 2016, respectively.

Costs associated with development wells that are unevaluated or are waiting on access to transportation or processing facilities are reclassified into developmental wells-in-progress (“WIP”). These costs are not put into a depletable field basis until the wells are fully evaluated or access is gained to transportation and processing facilities. Costs associated with WIP are included in the cash flows from investing as part of investment in oil and gas properties. At June 30, 2016 and March 31, 2016, no capitalized development costs were included in WIP.

Depreciation, depletion and amortization of proved oil and gas properties is calculated using the units-of-production method based on proved reserves and estimated salvage values. For the three months ended June 30, 2016 and 2015, the Company recorded depreciation, depletion and amortization expense on oil and gas properties in the amount of $35,123 and $127,046, respectively.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of its carrying value may have occurred. It estimates the undiscounted future net cash flows of its oil and natural gas properties and compares such undiscounted future cash flows to the carrying amount of the oil and natural gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and natural gas properties to fair value. There was no impairment to prove properties for the three months ended June 30, 2016 and 2015, respectively.

Other Property and Equipment

Other property and equipment, such as computer hardware and software, are recorded at cost. Costs of renewals and improvements that substantially extend the useful lives of the assets are capitalized. Maintenance and repair costs are expensed when incurred. When other property and equipment is sold or retired, the capitalized costs and related accumulated depreciation are removed from their respective accounts. Depreciation expense of other property and equipment for the three months ended June 30, 2016 and 2015 was $10,284 and $9,594, respectively.

Asset Retirement Obligations

The Company records estimated future asset retirement obligations (“ARO”) related to its oil and gas properties. The Company records the estimated fair value of a liability for ARO in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. The increased carrying value is depleted using the units-of-production method, and the discounted liability is increased through accretion over the remaining life of the respective oil and gas properties.

The estimated liability is based on historical industry experience in abandoning wells, including estimated economic lives, external estimates as to the cost to abandon the wells in the future, and federal and state regulatory requirements. The Company’s liability is discounted using management’s best estimate of its credit-adjusted, risk-free rate. Revisions to the liability could occur due to changes in estimated abandonment costs, changes in well economic lives, or if federal or state regulators enact new requirements regarding the abandonment of wells.

	For the Three Months Ended
	June 30,
	2016		2015
ARO - beginning of period	$	1,197,143	$	459,294
Additions		133,311		-
Deletions		-		(15,190	)
Accretion expense		22,323		15,887

		1,352,777		459,991

Less current portion		176,587		169,126

ARO - end of period	$	1,176,190	$	290,865

Impairment of Long-Lived Assets

In accordance with authoritative guidance on accounting for the impairment or disposal of long-lived assets, as set forth in Topic 360 of the ASC, the Company assesses the recoverability of the carrying value of its non-oil and gas long-lived assets when events occur that indicate an impairment in value may exist. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows is less than the carrying amount of the assets. If this occurs, an impairment loss is recognized for the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Revenue Recognition

The Company recognizes revenue when it is realized or realizable and earned. Revenue is realized or realizable and earned when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered to the customer, the price to the buyer is fixed or determinable and collectability is reasonably assured. For goods, this is the point at which title and risk of loss is transferred and when payment has either been received or collection is reasonably assured. Revenues for services are recorded when the services have been provided. Revenue that does not meet these criteria is deferred until the criteria are met.

Other Comprehensive Loss

The Company has no material components of other comprehensive loss and accordingly, net loss is equal to comprehensive loss for the period.

Income Taxes

The Company uses the liability method of accounting for income taxes under which deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the accounting bases and the tax bases of the Company’s assets and liabilities. The deferred tax assets and liabilities are computed using enacted tax rates in effect for the year in which the temporary differences are expected to reverse.

The Company’s deferred income taxes include certain future tax benefits. The Company records a valuation allowance against any portion of those deferred income tax assets when it believes, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred income tax asset will not be realized.

The Company has adopted ASC guidance regarding accounting for uncertainty in income taxes. This guidance clarifies the accounting for income taxes by prescribing the minimum recognition threshold an income tax position is required to meet before being recognized in the consolidated financial statements and applies to all income tax positions. Each income tax position is assessed using a two-step process. A determination is first made as to whether it is more likely than not that the income tax position will be sustained, based upon technical merits, upon examination by the taxing authorities. If the income tax position is expected to meet the more likely than not criteria, the benefit recorded in the consolidated financial statements equals the largest amount that is greater than 50% likely to be realized upon its ultimate settlement. At June 30, 2016, there were no uncertain tax positions that required accrual.

Business Combination

The Company accounts for acquisitions in accordance with guidance found in ASC 805, Business Combinations. The guidance requires consideration given, including contingent consideration, assets acquired and liabilities assumed to be valued at their fair values at the date of acquisition. The guidance further provides that acquisition costs will generally be expenses as incurred and changes in deferred tax asset valuations and income tax uncertainties after the acquisition date generally will affect income tax expense.

ASC 805 requires that any excess of purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether ass acquired assets and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Net Loss per Share

Basic net loss per common share of stock is calculated by dividing net loss available to common stockholders by the weighted-average number of common shares outstanding during each period.

Diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding, including the effect of other dilutive securities. The Company’s potentially dilutive securities consist of in-the-money outstanding options and warrants to purchase the Company’s common stock. Diluted net loss per common share does not give effect to dilutive securities as their effect would be anti-dilutive.

The treasury stock method is used to measure the dilutive impact of stock options and warrants. The following table details the weighted-average dilutive and anti-dilutive securities related to stock options and warrants for the periods presented:

	For the Three Months Ended
	June 30,
	2016		2015
Dilutive		-		-
Anti Dilutive		2,644,462		1,878,088

Equity Based Payments

The Company recognizes compensation cost for equity based awards based on estimated fair value of the award and records capitalized cost or compensation expense over the requisite service period. See Note 9 – Equity Based Payments.

Major Customers

During the three months ended June 30, 2016 and 2015, one purchaser accounted for 100% and 88% of total revenues, respectively.

Beneficial Conversion Feature and Deemed Dividend Related to Series A Shares

Pursuant to ASC 470-20, when the $558,171 of convertible Series A Shares of preferred stock were issued at a discount from the if-converted $682,989 fair value as of the issuance date, the Company recognized this difference between the fair value per share of its common stock and the conversion price, multiplied by the number of shares issuable upon conversion. This total Beneficial Conversion Feature of $124,818 will be recorded as additional paid-in-capital for common shares. The offsetting amount will be amortizable over the period from the issue date to the first conversion date or 9 months. Therefore, since the 409,019 Series A Shares of preferred stock are convertible between July and December of 2016, a deemed dividend of $37,805 to the Series A Shares of preferred stock has been recorded during the three months ended June 30, 2016 in its statement of operations and cash flows. As the Company is in an accumulated deficit position, the deemed dividend of $37,805 has been charged against additional paid-in-capital for common shares as there being no retained earnings from which to declare a dividend.

Off-Balance Sheet Arrangements

As part of its ongoing business, the Company has not participated in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. From its incorporation on February 11, 2014 through June 30, 2016, the Company has not been involved in any unconsolidated SPE transactions.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Recent Accounting Pronouncements

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic915) – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. This standard update is to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements for development stage entities, and as a result removes all incremental financial reporting requirements. This standard update also eliminates an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of the investment equity that is at risk. ASU 2014-10 is effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017. Entities are allowed to apply the guidance early for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued or made available for issuance. The Company adopted these standards and they did not have a material impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued Update No. 2014-15 - Presentation of Financial Statements – Going Concern that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the entity’s financial statements are issued, or within one year after the date that the entity’s financial statements are available to be issued, and to provide disclosures when certain criteria are met. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the provisions of this guidance and assessing its impact, but does not currently believe it will have a material effect on the Company’s consolidated financial statements or disclosures.

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes ASU 2015-17”). ASU 2015-17 is part of the FASB’s initiative to reduce the complexity in accounting standards. ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as non-current in a classified balance sheet. The amendments in this ASU simplify current guidance in ASC 740-10-45-4 that requires separate presentation of deferred tax assets and liabilities as current and non-current in a classified balance sheet based on the classification of the related asset or liability. ASU 2015-17 is effective for public companies for annual periods beginning after December 15, 2017 and interim periods beginning after December 15, 2018. Earlier application is permitted as of the beginning of an interim or annual reporting period. The Company adopted this ASU as of March 31, 2016. The adoption of this ASU did not have a material impact on our consolidated balance sheets as of March 31, 2016 and 2015.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize all leases, including operating leases, on the balance sheet as a lease asset or lease liability, unless the lease is a short-term lease. ASU 2016-02 also requires additional disclosures regarding leasing arrangements. ASU 2016-02 is effective for interim periods and fiscal years beginning after December 15, 2018, and early application is permitted. The Company is in the process of determining the method of adoption and the impact this guidance will have on its financial condition, results of operations and cash flows.

There were other accounting standards and interpretations issued during the three months ended June 30, 2016, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows.

Subsequent Events

The Company evaluates events and transactions after the balance sheet date but before the financial statements are issued.

Note 3 – Going Concern and Managements’ Plan

The Company’s consolidated financial statements for the three months ended June 30, 2016 and 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $786,161 and $690,953 for the three months ended June 30, 2016 and 2015, respectively, and an accumulated deficit of $27,505,329 as of June 30, 2016. At June 30, 2016, the Company had a working capital deficit of $(1,427,390).

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

The future success of the Company is dependent on its ability to attract additional capital and ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations. Management believes that actions presently being taken to revise the Company’s operating and financial requirements provide the opportunity for the Company to continue as a going concern.

Note 4 – Fair Value Measurements

The Company applies the authoritative guidance applicable to all financial assets and liabilities required to be measured and reported on a fair value basis, as well as to non-financial assets and liabilities measured at fair value on a non-recurring basis, including impairments of proved oil and gas properties and other long-lived assets and AROs initially measured at fair value. The fair value of an asset or liability is the amount that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Observable inputs are inputs that market participants would use in valuing the asset or liability based on market data obtained from sources independent of the Company. Unobservable input are inputs that reflect the Company’s assumptions of what market participants would use in valuing the asset or liability based on the information available in the circumstances.

Financial and non-financial assets and liabilities are classified within the valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The Company’s policy is to recognize transfers in and out of the fair value hierarchy as of the end of the reporting period in which the event or change in circumstances caused the transfer. The Company has consistently applied the valuation techniques discussed below in all periods presented. The hierarchy is organized into three levels based on the reliability of the inputs as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities; or

Level 2: Quoted prices in active markets for similar assets and liabilities and inputs, quoted prices for identical or similar assets or liabilities in markets that are not active and model-derived valuations whose inputs or significant value drivers are observable; or

Level 3: Unobservable pricing inputs in which there is little or no market data, which requires the reporting entity to develop its own assumptions.

The following table presents the Company’s non-financial assets and liabilities that were measured at fair value on a non-recurring basis at June 30, 2016 by level within the fair value hierarchy:

Description	Level 1		Level 2		Level 3		Total
Assets
Oil and gas properties	$	-	$	930,238	$	-	$	930,238

Effective January 1, 2016, the Company acquired approximately 82% of the working interest in certain leases located in the state of Wyoming known as the Cole Creek properties and recorded the oil and gas properties at a fair value of $2,033,382. Thus, due to the significance of this event, the oil and gas properties were tested under ASC 360 as to its recoverability. Therefore, the oil and gas properties were recorded at fair value if impairment is required under the accounting guidance. The Company uses Level 2 inputs and the income valuation techniques of undiscounted oil and gas future net cash flows to measure the fair value of the oil and gas properties and thus the model forecast including discount rates and commodity prices were selected by the independent engineers of Netherland, Sewell & Associates, Inc. As such, there was an impairment to the oil and gas properties during the year ended March 31, 2016, the amount of $1,103,144.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

The following table presents the Company’s non-financial assets and liabilities that were measured at fair value on a non-recurring basis at March 31, 2016 by level within the fair value hierarchy:

Description	Level 1		Level 2		Level 3		Total
Assets
Oil and gas properties	$	-	$	930,238	$	-	$	930,238

Fair value in the initial recognition of other equipment is determined based on the quoted fair value of the vehicle using inputs from valuation techniques used by industry participants. Accordingly, the fair value is based on observable pricing inputs and is considered a Level 2 value measurement. During the three months ended June 30, 2016 and 2015 there was no impairment.

Note 5 – Significant Acquisition

Effective January 1, 2016, the Company acquired approximately 82% of the working interest in certain leases located in the state of Wyoming known as the Cole Creek properties.

The following table presents the allocation of the consideration given to the assets acquired and liabilities assumed, based on their fair values at January 1, 2016:

Consideration Given
Cash	$	1,200,000

Total purchase price	$	1,200,000

Allocation of Consideration Given
Oil and gas properties Proved	$	2,033,382

Total assets		2,033,382

Current liabilities		111,522
Long-term liabilities		721,860

Total liabilities		833,382

Net assets acquired	$	1,200,000

Effective April 29, 2016, the Company acquired the remaining 17% of the working interest in the leases known as the Cole Creek properties.

The following table presents the allocation of the consideration given to the assets acquired and the liabilities assumed,

Consideration Given
Cash	$	250,000

Total purchase price	$	250,000

Allocation of Consideration Given
Oil and gas properties
Proved	$	383,311

Total assets		383,311

Current liabilities		-
Long-term liabilities		133,311

Total liabilities		133,311

Net assets acquired	$	250,000

As a result the Company owns approximately 100% of the WI in the Cole Creek properties.

Note 6 – Debt

Promissory Notes

The Company during the year ended March 31, 2016 paid $341,405 in principal towards the repayment of promissory notes relative to the repurchase of 18,717 shares of Western Interior common stock owned by dissident shareholders as part of agreements effective March 31, 2015 to repurchase a total of 33,085 shares of Western Interior common stock. The Company at June 30, 2016 owes a balance in the amount of $488,298 on one of the promissory notes plus accrued interest of $17,043.60 with the remaining three promissory notes being paid in full.

On August 1, 2015, the Company, relative to the repurchase by the Company on March 31, 2015 of the remaining 14,368 shares of Western Interior common stock entered into an agreement with the note holder to settle the amount owed under the promissory note. As such, the parties agreed the amount owed on such promissory note by the Company would be reduced from $768,715 to $393,795 and the difference of $374,920 be considered a reduction in the purchase price by the Company of the 14,368 shares of Western Interior common stock. In addition, the $393,795 was paid in full effective August 1, 2015 by the transfer to the note holder of certain oil and gas properties owned by Western Interior which resulted in the Company reporting a gain on disposal of assets in the amount of $44,100.

On January 14, 2016, the Company borrowed $50,000 each from two directors in exchange for secured promissory notes including interest at the rate of 5% per annum with accrued and unpaid interest and principal due at September 30, 2016. The promissory notes are collateralized by certain oil and gas properties located in the State of Wyoming. Holders may, at any time prior to payment of the promissory notes elect to convert all or any portion of the promissory notes, including accrued interest, into common shares of the Company at a price determined by the average ten consecutive day trading closing price less 30%. The Company at June 30, 2016 owes $100,000 on the two promissory notes plus accrued interest of $2,298.50.

Line-of-Credit

The Company has a line-of-credit with a bank in the amount of $350,000 collateralized by certain oil and gas properties of the Company. The line-of-credit matures in November 2016. Annual interest is at prime plus 2.50% with a floor of 7%). The Company owes $130,52 on the line-of-credit at June 30, 2016.

Installment Notes

The Company during the year ended March 31, 2016, borrowed $34,374 from unrelated parties to finance their insurance policies. The unsecured notes are repaid during the year ended March at $3,437 per month including interest at the rate of 5.81% per annum. The Company owed $9,810.94 at June 30, 2016, respectively.

Note 7 – Stockholders’ Equity

The Company’s capital stock at June 30, 2016 consists of 325,000,000 authorized shares of which 50,000,000 shares are $0.001 par value preferred stock and 275,000,000 shares are $0.001 par value common stock.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Preferred Shares

At June 30, 2016 and 2015, there are a total of 409,019 and 0 shares of preferred stock issued and outstanding, respectively.

On October 28, 2015, the Company filed an Amendment to its Articles of Incorporation to designate a class of preferred stock as the Series A Convertible Preferred Stock.

The Amendment sets aside 5,000,000 shares of the authorized 50,000,000 shares of the Company’s $0.001 par value preferred stock as the Series A Convertible Preferred Stock (“the Series A Shares.”) The Series A Shares are convertible at the option of the Holder into common shares of the Company’s stock 9 months after the date of issuance. Further, the Series A Shares have a conversion price based upon 80% of the 10 day average of the Company’s closing market price at the time of conversion.

In October 2015, the Company commenced a private placement financing of $7,000,000 in Units, a Unit consisting of one share of its Series A Shares and an Unit Warrant. The Unit Warrant has an exercise price of $3.00 per share and a term of 3 years. The Unit Warrant is exercisable 9 months after issuance and is callable by the Company upon the Company’s common stock closing at a market price of $5.00 or above for a period of 10 days.

During the year ended March 31, 2016, the Company received $818,038, including cash of $793,037, in exchange for the issuance of 409,019 shares of its Series A Preferred Stock and Unit Warrants exercisable for 419,019 shares of common stock.

We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred shares. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as equity. At all other times, we classified our preferred shares in stockholders’ equity.

We have applied the guidance of ASC 470 “Debt” in accounting for the unit warrants and as such have valued the Unit Warrants using the Black-Scholes option pricing model. The option-pricing model requires a number of assumptions, of which the most significant are the stock price at the valuation date that was at a range of $1.10 to $1.50 per share as well as the following assumptions:

Volatility	82% - 134	%
Expected Option/Warrant Term	3 years
Risk-free interest rate	.25	%
Expected dividend yield	0.00	%

The expected term of the Unit Warrants granted were estimated to be the contractual term. The expected volatility was based on an average of the volatility disclosed based upon comparable companies who had similar expected option and warrant terms. The risk-free rate was based on the one-year U.S. Treasury bond rate.

As a result, the Unit Warrants exercisable for 409,019 shares of our restricted common stock were valued at $135,049 and as such $67,830 was credited to additional paid in capital during the year ended March 31, 2016.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

Common Shares

At June 30, 2016 and March 31, 2016, there are a total of 15,866,099 and 15,480,882 shares of common stock issued and outstanding, respectively.

During the three months ended June 30, 2016, the Company as part of a private placement sold 99,378 shares of its restricted common stock for $74,613 in cash and 235,839 shares for $353,719 in cash.

During the three months ended June 30, 2016, the Company issued 50,000 shares of common stock in connection with the cash exercise of options at an exercise price $0.10 per share.

Additional Paid-in Capital

During the year ended March 31, 2016, as the Company is in an accumulated deficit position, the deemed dividend in the amount of $37,805 was charged against additional paid-in-capital as there being no retained earnings from which to declare a dividend.

During the year ended June 30, 2016, the Company realized additional paid in capital relative to the fair value of equity based payments in the amount of $207,200 of which $11,520 was expensed and $195,680 was capitalized. See Note 9 – Equity Based Payments.

Note 8 – Equity Based Payments

The Company accounts for equity based payment accruals under authoritative guidance as set forth in the Topics of the ASC. The guidance requires all equity based payments to employees and non-employees, including grants of employee and non-employee stock options and warrants, to be recognized in the consolidated financial statements based at their fair values.

The Black-Scholes option-pricing model is used to estimate the option and warrant fair values. The option-pricing model requires a number of assumptions, of which the most significant are the stock price at the valuation date that ranged from $0.01 to $3.50 per share as well as the following assumptions:

Volatility	82.00% - 134.00	%
Expected Option/Warrant Term	9 months - 3 years
Risk-free interest rate	.12% - .25	%
Expected dividend yield	0.00	%

The expected term of the options and warrants granted were estimated to be the contractual term. The expected volatility was based on an average of the volatility disclosed based upon comparable companies who had similar expected option and warrant terms. The risk-free rate was based on the one-year U.S. Treasury bond rate.

Warrant

During May 2016, the Company issued a warrant exercisable for 350,000 shares of the Company’s common stock in exchange for business development services pursuant to a Consulting Agreement. The warrant has a term of 3 years and an exercise price of $2.00 per share.

Using the Black-Scholes option-pricing model, the warrant was found to have a fair value of $207,200. Assumptions used in the pricing were:

Volatility	89.00	%
Expected Option/Warrant Term	1 year
Risk-free interest rate	.25	%
Expected dividend yield	0.00	%

As the warrant was issued for services to be rendered under a 3 year Consulting Agreement, the Company is amortizing the warrant over the life of the Consulting Agreement.

2014 Stock Incentive Plan

Effective October 1, 2014, the Company’s 2014 Stock Option and Award Plan (the “2014 Stock Incentive Plan”) was approved by its Board of Directors. Under the 2014 Stock Incentive Plan, the Board of Directors may grant options or purchase rights to purchase common stock to officers, employees, and other persons who provide services to the Company or any related company. The participants to whom awards are granted, the type of awards granted, the number of shares covered for each award, and the purchase price, conditions and other terms of each award are determined by the Board of Directors, except that the term of the options shall not exceed 10 years. A total of 2 million shares of the Company’s common stock are subject to the 2014 Stock Incentive Plan. The shares issued for the 2014 Stock Incentive Plan may be either treasury or authorized and unissued shares.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

The following table summarizes the non-qualified stock option and warrant activity at June 30, 2016:

	2016
	Number of			Weighted
	Options/			Average
		Warrants			Exercise Price
Outstanding at
beginning of year
Options		1,127,750		$	0.039
Warrants		1,351,877		$	1.462

Granted
Options		-		$	-
Warrants		350,000		$	2.000

Exercised
Options		(50,000	)	$	0.100
Warrants		-		$	-

Cancelled
Options		-		$	-
Warrants		-		$	-

Outstanding at June 30,
Options		1,077,750		$	0.316
Warrants		1,701,877		$	1.980

Exercisable at June 30,
Options		1,077,750		$	0.316
Warrants		1,701,877		$	1.980

Weighted average			Aggregate
remaining contractual			Intrinsic
life	Life		Value
Options		0.85	$	1,115,084
Warrants		1.70	$	511,500

The aggregate intrinsic value of outstanding securities is the amount by which the fair value of underlying (common) shares exceed the amount paid for and the exercise price of the options and warrants issued and outstanding.

Note 9 – Commitments and Contingencies

Operating Lease

The Company leases an office space in Colorado at the rate of $4,572 per month and the lease expires in August 2017. In addition, the Company leases an office space in Wyoming at the rate of $5,838 per month and the lease expires in June 2019. In addition, the Company leases a corporate apartment at a rate of $1,990 per month and the lease will expire May 2017. Total rent expense under these leases for June 30, 2016 is $35,527.

T-REX OIL, INC. AND SUBSIDIARIES

Notes To The Consolidated Financial Statements

June 30, 2016

(Unaudited)

The following is a schedule of minimum future rental annual payments under the operating lease for the stated fiscal year ends:

3/31/2017		147,333
3/31/2018		83,111
3/31/2019		62,940
3/31/2020		15,735
	$	309,119

Employment Agreements

In August 2014, Terex entered into an Employment Agreement for services with its Chief Executive Officer, President and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $204,000 and a monthly car allowance of $600. It also provides for an annual bonus as determined by the board of directors.

In November 2014, Terex entered into an Employment Agreement for services with its Vice President of Operations and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual bonus as determined by the board of directors.

In November 2014, Terex entered into an Employment Agreement for services with its Vice President of Geology and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual bonus as determined by the board of directors.

In January 2015, T-Rex entered into an Employment Agreement for services with its Vice President of Operations and director. The Employment Agreement has a term of 3 years and provides for an annual compensation of $150,000. It also provides for an annual bonus as determined by the board of directors.

Consulting Agreement

The Company entered into a three-year agreement effective September 1, 2014 with a consultant to perform services at the base rate of $150,000 per year under certain terms and conditions including with an auto allowance of $600 per month. In addition, the consultant has been granted cashless options to acquire up to 500,000 shares of T-Rex’s common stock at an option price of $0.10 per share for a period of three years from April 1, 2014. The options vested ratably over the year ended March 31, 2015. See Note 8 – Equity Based Payments.

Note 10 – Related Party Transactions

T-Rex Oil LLC #1

The Company is the manager of T-Rex Oil LLC #1 that was formed during December 2014 for the purpose of drilling and producing oil and gas wells. During the year ended March 31, 2015, the Company loaned the LLC $50,000 and at March 31, 2016 and 2015, the Company is owed $0 and $50,000, respectively.

The Company in December 2014 entered into put agreements with the members of T-Rex #1 whereby the Company granted a right to put the purchase of their interest of T-Rex #1 in the amount of $425,000 back to the Company at an exercise price of $2.00 per share or a total of 212,500 shares of the Company’s common stock.

In August 2016, the members exercised the put at $1.00 per share and a total of 425,000 shares of restricted common stock were issued.

T-Rex Oil LLC #3

The Company is the manager of T-Rex Oil LLC #3 that was formed in January 2016 for the purpose of acquiring and developing oil and gas leases known as the Cole Creek properties in Wyoming. T-Rex Oil LLC #3 is included as part of the consolidated financial statements as of and for the year ended March 31, 2016. See Note 1 – Organization and History.

Note 11 – Subsequent Events

Sale of Common Shares

During the period of July 1, 2016 through August 15, 2016, the Company sold 142,670 shares of its common stock in exchange for $213,443 in cash or at $1.50 per share as part of a private placement.

Exercise of Option

During the period of July 1, 2016 through August 15, 2016, an option holder exercised his option for a total of 50,000 shares of restricted common stock.

T-Rex Oil, LLC #3

On August 15, 2016, T-Rex Oil, LLC #3 was erroneously dissolved with the Secretary of State of Colorado, the entity was re-instated upon discovery of this on August 25, 2016.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward-looking statements.

Unless the context requires otherwise, references in this document to “T-Rex Oil”, “we”, “our”, “us” or the “Company” are to T-Rex Oil, Inc. and our subsidiaries.

The independent registered public accounting firm’s report on the Company’s financial statements as of March 31, 2016, and for each of the years in the two-year period then ended, includes a “going concern” explanatory paragraph, that describes substantial doubt about the Company’s ability to continue as a going concern.

PLAN OF OPERATIONS

We are an energy company, focused on the acquisition, exploration, development and production of oil and natural gas. We have acquired oil and natural gas properties located in the western United States, mainly in the Rocky Mountain region. Our goal is to drill and produce oil and gas cost effectively by concentrating our efforts in proven oil rich areas where we have in-house geologic and operating experience.

We are focusing on the acquisition of proven properties that we believe can be economically enhanced in this current commodity price environment. In certain market conditions, we believe there could be additional upside realized through the development of deeper productive horizons, or applying tertiary recovery applications to these acquired fields.

To date, we have focused our activities in Eastern Wyoming along the Salt Creek/Big Muddy trend. Starting with the Salt Creek field in Natrona County, following the Salt Creek/Big Muddy trend down to the South Glenrock field in Converse County, we believe there are a series of analogous fields that could provide ideal targets for us to execute this business strategy.

Our acquisition strategy includes taking older wells that are shut in or have lower production results and applying new and existing technologies to work-over and/or recomplete those wells so as to increase production and ultimate recovery. Technologies to be deployed include 3-D seismic imaging to target undeveloped areas of the reservoir that contain remaining primary reserves and horizontal drilling to increase recoveries, as well as secondary and tertiary recovery methods to increase produced reserves.

We will require substantial additional capital to support our existing and proposed future operations. We have no committed source for any additional funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sales or royalty income and could fail in business as a result of these uncertainties.

RESULTS OF OPERATIONS

For the Three Months Ended June 30, 2016 and June 30, 2015

Overview. During the three months ended June 30, 2016, the Company recognized a net loss of $786,161 compared to a net loss of $690,953 for the three months ended June 30, 2015. The increase of $95,208 is primarily the result of an increase in oil sales offset by an increase in operational activities. Discussions of individually significant line items follow:

Revenues: During the three months ended June 30, 2016, the Company recognized revenues of $320,011 compared to $163,911 during the three months ended June 30, 2015. Management expects to see continued increases in its production numbers as it begins to institute re-work plans during the year and from the Company’s purchase of outstanding working interests in these properties during April 2016.

Operating Expenses: During the three months ended June 30, 2016, the Company had an increase of $260,592 in total operating expenses as a result of the following:

An increase in costs of $79,735 related to its oil and gas operational activities as a result of its take over of the operations of the T-Rex Oil LLC#3 properties. General and administrative expenses increased by $126,401 primarily as a result of increases in staffing and costs associated with reporting requirements. Depletion, depreciation, amortization and accretion decreased by $99,241and production taxes increased by $36,793.

LIQUIDITY

We have incurred a net loss of $786,161 for the three months ended June 30, 2016 and have had a limited operating history.

During the three months ended June 30, 2016, the Company as part of a private placement sold 99,378 shares of its restricted common stock for $74,613 in cash and 235,839 shares for $353,719 in cash. During the three months ended June 30, 2016, the Company issued 50,000 shares or restricted common stock in connection with the cash exercise of $2,500.

The Company will need substantial additional capital to support its proposed future energy operations. We only began to recognize revenues in the first quarter of this fiscal year and they are not sufficient to support operations. The Company has no committed source for any funds but as of June 30, 2016, we have $136,977 in cash. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan and we may never achieve sales sufficient to support our operations.

Decisions regarding future participation in oil and gas development or geophysical studies or other activities will be made on a case-by-case basis. We may, in any particular case, decide to participate or decline participation. If participating, we may pay our proportionate share of costs to maintain our proportionate interest through cash flow or debt or equity financing. If participation is declined, we may elect to farmout, non-consent, sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect.

The Company used cash flows in operations of $662,938 during the three months ended June 30, 2016 that was adjusted by non-cash items including: depreciation, depletion, amortization and accretion of $45,407 and equity based compensation of $11,511.

The Company used cash flows in investing activities of $261,621 during the three months ended June 30, 2016 that was primarily comprised of: additions to oil and gas properties of $261,583 and additions to other assets of $38.

The Company was provided cash flows from financing activities of $633,332 during the three months ended June 30, 2,016 through $433,332 from the sale of restricted common stock and the cash exercise of an option and the cash contribution of a director and shareholder of $200,000.

Promissory Notes

Line-of-Credit

Short Term

On a short-term basis, we have not generated revenues sufficient to cover operations. Based on prior history, we will continue to have insufficient revenue to satisfy current and recurring liabilities as the Company continues exploration activities.

Capital Resources

The Company has only equity as its capital resource.

We have no material commitments for capital expenditures within the next year; however, our plans to develop our existing oil properties are capital intensive and capital will be needed to pay for participation, investigation, exploration, acquisition and working capital.

Need for Additional Financing

We do not have capital sufficient to meet our cash needs. The Company will have to seek loans or equity placements to cover such cash needs. Recompletions and re-works on existing wells, along with exploration activities will spur the need for additional financing is likely to increase substantially.

No commitments to provide additional funds have been made by the Company’s management or other shareholders. Accordingly, there can be no assurance that any additional funds will be available to us to allow us to cover the Company’s expenses as they may be incurred.

The Company will need substantial additional capital to support its proposed future energy operations. We have insufficient revenues to cover our corporate costs. The Company has no committed source for any funds as of the date hereof. No representation is made that any funds will be available when needed. In the event funds cannot be raised when needed, we may not be able to carry out our business plan, may never achieve sufficient sales or royalty income and could fail in business as a result of lack of capital.

Decisions regarding future participation in exploration wells or geophysical studies or other activities will be made on a case-by-case basis. The Company may, in any particular case, decide to participate or decline participation. If participating, we may pay the proportionate share of costs to maintain the Company’s proportionate interest through cash flow or debt or equity financing. If participation is declined, the Company may elect to farmout, non-consent, sell or otherwise negotiate a method of cost sharing in order to maintain some continuing interest in the prospect.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements nor do we have any unconsolidated subsidiaries.

Critical Accounting Policies

Critical accounting policies and estimates are provided in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 – Financial Statements and Supplementary Data. Additional disclosures are provided in Notes to Consolidated Financial Statements (unaudited) which are included in Item 1 – Consolidated Financial Statements to this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

Item 4. Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We identified multiple material weaknesses in our internal control over financial reporting and, as a result of this material weakness, we concluded as of June 30, 2016, that our disclosure controls and procedures were not effective.

Internal Control-Integrated Framework

A material weakness is a control deficiency, or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. As of June 30, 2016 and as determined in the fiscal year ended March 31, 2016, the Company identified the following material weakness:

The Company did not adequately segregate the duties of different personnel within our accounting department due to an insufficient complement of staff and inadequate management oversight.

We have limited accounting personnel with sufficient expertise in generally accepted accounting principles to enable effective segregation of duties with respect to recording journal entries and to allow for appropriate monitoring of financial reporting matters and internal control over financial reporting. Specifically, the Acting Chief Accounting Officer has involvement in the creation and review of journal entries and note disclosures without adequate independent review and authorization. This control deficiency is pervasive in nature and impacts all significant accounts. This control deficiency also affects the financial reporting process including financial statement preparation and the related note disclosures. Other significant control deficiencies at this time are lack of independent review and approval of journal entries before they are entered into the general ledger, not effectively implementing comprehensive entity-level controls, and the Company has not implemented procedures for timely review and approval of bank reconciliations.

As a result of the aforementioned material weakness, management concluded that the Company’s internal control over financial reporting as of June 30, 2016 was not effective.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There is no ongoing litigation to which the Company is subject.

ITEM 1A. RISK FACTORS

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item. However, our current risk factors are set forth in our Annual Report on Form 10-K for the year ended March 31, 2016, which risk factors are incorporated herein by this reference.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period of April 1, 2016 through June 30, 2016, the Company made the following issuances of its equity securities.

DATE OF SALE

TITLE OF SECURITIES

NO. OF SHARES

CONSIDERATION

CLASS OF PURCHASER

April 2016 (1)

Common Shares

99,378

74,613

Business Associates

May 2016 (1)

Common Shares

116,668

175,002

Business Associates

May 2016 – June 2016 (2)

Common Shares

119,172

178,756

Business Associates

Exemption from Registration Claimed

(1)

The above issuances by the Company of its unregistered securities were made by the Company in reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"). The parities that purchased the unregistered securities was known to the Company and its management, through pre-existing business relationships and as a long standing business associate. The purchasers were provided access to all material information, which they requested, and all information necessary to verify such information and was afforded access to management of the Company in connection with their purchase. The purchasers of the unregistered securities acquired such security for investment and not with a view toward distribution, acknowledging such intent to the Company. The certificate or agreement representing such securities that was issued contained a restrictive legend, prohibiting further transfer of the certificate or agreement representing such security, without such security either being first registered or otherwise exempt from registration in any further resale or disposition.

(2)

The above issuance by the Company of its unregistered securities was made by the Company in reliance upon Regulation S of the 1933 Act. The party that purchased the unregistered securities was known to the Company and its management, through a pre-existing business relationship. The purchaser was provided access to all material information, which they requested and all information necessary to verify such information and was afforded access to management of the Company in connection with their purchase. The purchasers of the unregistered securities acquired such security for investment and not with a view toward distribution, acknowledging such intent to the Company. The certificate or agreement representing such securities that was issued contained a restrictive legend, prohibiting further transfer of the certificate or agreement representing such security, without such security either being first registered or otherwise exempt from registration in any further resale or disposition.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE.

ITEM 4. MINE AND SAFETY DISCLOSURE

NOT APPLICABLE.

ITEM 5. OTHER INFORMATION

NONE.

ITEM 6. EXHIBITS

The following is a complete list of exhibits filed as part of this Form 10-Q. Exhibit numbers correspond to the numbers in the Exhibit Table of Item 601 of Regulation S-K.

Exhibit No		Description of Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*
31.2		Certification of Chief Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act.*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S. C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.*
32.2		Certification of Chief Accounting Officer pursuant to 18 U.S. C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act.*
101.INS		XBRL Instance Document^(*)
101.SCH		XBRL Taxonomy Extension Schema Document^(*)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document^(*)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document^(*)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document^(*)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document^(*)

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	T-REX OIL, INC.

Dated: August 31, 2016	By:	/s/ Donald Walford
		Donald Walford,
		Chief Executive Officer

	By:	/s/ Kristi J. Kampmann
		Kristi J. Kampmann,
		Chief Accounting Officer

T-REX OIL, INC. - FORM 10-Q - August 31, 2016

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T-REX OIL, INC. Reports