10-Q: T-REX Acquisition Corp. Reports Widening Losses Amid Strategic Acquisitions and Going Concern Warning

Sentiment:

Quarterly Report 6 June 2025 4:28 PM

T-REX Acquisition Corp. reported a significant increase in net loss for the nine months ended March 31, 2025, alongside a substantial working capital deficit, raising substantial doubt about its ability to continue as a going concern, despite recent strategic acquisitions and an OTCQB uplisting.

Capital raiseManagement explicitly states its intention to "raise additional funds by a private or public offering."The company received $10,000 in proceeds from a private investor on April 3, 2025, for 20,000 shares.The company received $50,000 in proceeds from a private investor on April 7, 2025, for 100,000 shares.The company received $150,000 in proceeds from a private investor on April 16, 2025, for 300,000 shares.The company received $100,000 in proceeds from a private investor on May 7, 2025, for 200,000 shares.The company received $100,000 in proceeds from a private investor on May 31, 2025, for 200,000 shares.The company's plan of operation and funding states that working capital requirements will continue to be funded through proceeds from stock sales and generation of revenues from acquisitions.

Worse than expectedThe net loss for the nine months ended March 31, 2025, significantly increased to $1,122,930 from $813,771 in the prior year, indicating deteriorating profitability.The company's working capital deficit widened substantially to $1,787,668, reflecting a severe liquidity crunch.Cash on hand is extremely low at $871, which is inadequate to support daily operations.The disclosure of 'substantial doubt about the Company’s ability to continue as a going concern' explicitly indicates a worse financial position and outlook.The identified material weaknesses in internal control over financial reporting suggest significant operational and financial control deficiencies.

Summary

T-REX Acquisition Corp. reported a net loss of $1,122,930 for the nine months ended March 31, 2025, a significant increase from $813,771 for the same period in 2024.
The company's total revenues for the nine months ended March 31, 2025, were $8,226, a decrease from $15,824 in the prior year, primarily from new mining and co-location operations.
As of March 31, 2025, T-REX had a working capital deficit of $1,787,668 and an accumulated deficit of $8,146,728.
Cash at the end of the period was critically low at $871.
The company acquired a data center and co-location facility in Orofino, Idaho, on March 4, 2025, for approximately $500,000, and also acquired proprietary software assets from Baoblock, Inc. for $210,000.
T-REX relies heavily on financing activities, with net cash provided by financing reaching $759,067 for the nine months ended March 31, 2025.
The company disclosed material weaknesses in internal control over financial reporting, specifically regarding segregation of duties and limited qualified accounting personnel.
Numerous convertible and non-convertible notes payable, including significant amounts to related parties, were outstanding, totaling $740,046 to related parties and $396,447 to unrelated parties as of March 31, 2025.
The company was approved for uplisting from the OTC Pink Market to the OTCQB Venture Market on May 12, 2025.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative due to the 'going concern' warning, significant and increasing net losses, severe working capital deficit, critically low cash balance, and disclosed material weaknesses in internal controls. While strategic acquisitions and an uplisting are positive developments, they are overshadowed by the fundamental financial instability and operational control issues.

Positives

T-REX Acquisition Corp. successfully acquired a data center and co-location facility in Orofino, Idaho, on March 4, 2025, expanding its operational footprint in the cryptocurrency hosting sector.
The company acquired proprietary software and technical know-how from Baoblock, Inc. for $210,000, aiming to support future business initiatives in software services.
T-REX was approved for uplisting from the OTC Pink Market to the OTCQB Venture Market on May 12, 2025, which enhances market visibility and transparency for investors.
The company generated $8,226 in revenue for the three months ended March 31, 2025, compared to $0 in the prior year period, indicating new operational activity from its Orofino facility.
Total assets increased significantly to $1,028,163 as of March 31, 2025, from $152,249 as of June 30, 2024, primarily due to the acquisition of plant and equipment and intangible assets.

Negatives

The company incurred a net loss of $1,122,930 for the nine months ended March 31, 2025, an increase from $813,771 in the prior year, indicating worsening financial performance.
Total revenues for the nine months ended March 31, 2025, decreased to $8,226 from $15,824 in the same period of 2024.
T-REX has a substantial working capital deficit of $1,787,668 and an accumulated deficit of $8,146,728 as of March 31, 2025.
The company's cash position is extremely low, with only $871 in cash at the end of the period.
Cash used in operating activities increased to $506,679 for the nine months ended March 31, 2025, from $486,495 in the prior year, indicating a higher cash burn rate.
The company's Chief Executive Officer/Chief Financial Officer concluded that disclosure controls and procedures were not effective as of March 31, 2025.
Material weaknesses in internal control over financial reporting were identified, including deficiencies in segregation of duties and a limited number of qualified accounting personnel with public company SEC reporting and GAAP experience.
A significant portion of the company's debt consists of notes payable to related parties, totaling $740,046 as of March 31, 2025.

Risks

There is substantial doubt about the company's ability to continue as a going concern due to recurring net losses, accumulated deficit, and inadequate cash position.
The company's ability to meet its liquidity requirements and fund operations is dependent on its ability to raise additional capital through public or private offerings, which is not assured.
The cryptocurrency mining industry is subject to factors like the complexity of transaction verification, general availability of processing capacity, and rapid technological obsolescence, which can impact the company's ability to generate digital assets.
The recent Bitcoin halving on April 20, 2024, reduced the reward per block to 3.125 BTC, which could negatively impact mining revenue.
The company has material weaknesses in internal control over financial reporting, specifically deficiencies in segregation of duties and limited qualified accounting personnel, which could lead to material misstatements in financial statements.
The company has not filed tax returns since its 2015 filings and remains subject to potential examination by tax authorities.

Future Outlook

T-REX Acquisition Corp. expects its working capital requirements to increase with business growth and plans to fund these requirements, including capital expenditures and business expansion, through proceeds from the issuance of debt or equity. The company intends to further implement its business plan and generate revenues to sustain operations.

Management Comments

"Management intends to raise additional funds by a private or public offering and further implement its business plan to generate additional revenues."
"Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern."
Frank Horkey, President and CFO, certified that the report does not contain any untrue statement of a material fact and fairly presents the financial condition and results of operations, despite acknowledging ineffective disclosure controls and internal control over financial reporting.

Industry Context

T-REX Acquisition Corp. operates in the emerging and volatile cryptocurrency sector, specifically focusing on Bitcoin mining, co-location hosting services, and developing software for cryptocurrency operations. The industry is characterized by rapid technological advancements, significant energy consumption, and fluctuating cryptocurrency prices, as evidenced by the recent Bitcoin halving event which reduces mining rewards. The company's strategic pivot to acquiring a co-location facility and developing proprietary software aligns with a trend towards vertical integration and diversification within the digital asset space, aiming to control more aspects of the value chain from mining to infrastructure and software support.

Comparison to Industry Standards

The company's reliance on debt and equity financing for operations and growth is common for early-stage or rapidly expanding companies in the high-capital-expenditure cryptocurrency mining and hosting industry.
The reported net loss and accumulated deficit are indicative of a company in a growth or early operational phase, which is not uncommon in emerging technology sectors, but the 'going concern' warning suggests a more severe financial instability compared to established industry players.
The identified material weaknesses in internal control over financial reporting, particularly regarding segregation of duties and limited qualified accounting personnel, fall below industry best practices and regulatory expectations for publicly traded companies, regardless of size.
The early adoption of ASU No. 2023-08 for marking Bitcoin to market aligns with evolving accounting standards for digital assets, enhancing transparency in line with industry trends.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Board of Directors Member	Matthew Cohen	NA	2024-12-20	Resignation
Technical Consultant	James Marshall III	NA	NA	Contract not renewed
Technical Consultant	NA	Don Lopez	2025-03-31	Issuance of restricted common stock for services; consulting agreement not renewed following issuance.
Co-location Facility Manager	NA	Aubyn Honeysett	2025-01-01	Entered into service contract to manage Orofino facility.
Co-location Facility Manager	NA	Bryce Greenfield	2025-01-01	Entered into service contract to manage Orofino facility.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Internal Control Deficiencies	The Chief Executive Officer/Chief Financial Officer concluded that disclosure controls and procedures were not effective. Material weaknesses identified include deficiencies in segregation of duties and limited qualified accounting personnel with public company SEC reporting and GAAP experience.	2025-03-31	These deficiencies pose a risk of material misstatement in financial statements and indicate a lack of robust financial oversight, potentially impacting investor confidence and regulatory compliance.

Legal Proceedings

The company is not presently involved in any legal proceedings which, in the opinion of management, are likely to have a material adverse effect on its consolidated financial position or results of operations.

Related Party Transactions

The company leases office space from its President for $250 per month, with $2,250 accrued as of March 31, 2025.
As of March 31, 2025, the company owed $250,000 to related parties for management advisory fees, $208,405 for compensation payable, and $83,000 for board of director fees.
Related party notes payable totaled $740,046 in principal and $18,564 in accrued interest as of March 31, 2025, including various convertible and non-convertible notes with Frank Horkey, Lazarus Asset Management LLC, and Sparta Road Ltd.
Frank Horkey and Lazarus Asset Management LLC received Senior Secured Convertible Promissory Notes as compensation for unpaid management services, with incentives including warrants and share issuances.
Frank Horkey also received Senior Secured Promissory Notes for cash proceeds and for advances made to purchase the Orofino facility.
Various shareholders, including related parties, advanced funds for operating expenses, reported as 'Due to related party advances' totaling $13,306 as of March 31, 2025; these amounts are non-interest bearing, unsecured, and due on demand.
The acquisition of Baoblock, Inc.'s assets for $210,000 involved the issuance of 600,000 restricted shares and $10,000 cash, where the seller, Baoblock, Inc., is owned by the company's Chief Technology Officer.

Stakeholder Impact

**Shareholders**: Face significant dilution risk from ongoing share issuances for debt conversion, compensation, and capital raises. The 'going concern' warning indicates a high risk of value impairment or potential business failure. The uplisting to OTCQB may offer increased liquidity and transparency but does not mitigate fundamental financial risks.
**Employees/Management**: Management and advisors are receiving significant compensation in the form of shares and notes, indicating a reliance on equity-based incentives given the company's cash constraints. The identified internal control weaknesses could impact operational efficiency and accountability.
**Creditors**: Related and unrelated noteholders face risks given the company's substantial accumulated deficit and working capital deficit, raising questions about the company's ability to repay its debts, especially the $267,555 note due May 15, 2025.
**Customers (Co-location)**: The acquisition of the Orofino facility and plans for advanced software suggest an intent to improve service offerings, but the company's financial instability could pose risks to service continuity or quality.

Next Steps

The company intends to raise additional funds through private or public offerings to support operations and growth.
Management plans to further implement its business plan to generate additional revenues.
The company will continue to operate its newly acquired Orofino co-location facility and develop its software services through Deinodon.
The Sabretooth subsidiary is expected to commence operations in the future, focusing on modular container fabrication for off-site cryptocurrency mining.

Key Dates

Date	Description
2008-01-16	T-REX Acquisition Corp. incorporated in Nevada.
2021-07-09	Raptor Mining LLC formed as a Florida corporation.
2022-02-17	Company began earning Bitcoin mining rewards.
2022-05-05	Company issued shares and warrants related to Securities Purchase Agreement dated November 10, 2021.
2022-05-26	Company issued Class C warrants to Frank Horkey, Squadron Marketing LLC, and Lazarus Asset Management LLC.
2022-06-01	Company changed its name from TREX Acquisition Corp. to T-REX Acquisition Corp.
2022-06-12	Messrs. Horkey and Christiansen, Squadron Marketing LLC, and Lazarus Asset Management LLC were issued Class C warrants.
2022-07-01	Megalodon Mining and Electric LLC formed as a Florida corporation.
2022-07-28	An investor purchased 400,001 Units consisting of common stock and Class C warrants.
2022-08-24	Company entered into a contract to purchase 20 Bitmain XJ S19 Pro 110 TH miners.
2023-01-01	Company issued 100,000 restricted common stock shares to John Bennett, then CFO, for future services.
2023-01-30	Entities affiliated with Timothy B. Ruggiero and Peter Chung cancelled 900,000 and 1,000,000 shares, respectively.
2023-03-24	Company issued a $50,000 Convertible Promissory Note to a private investor.
2023-05-15	Company issued a $19,375 Convertible Promissory Note to a private investor.
2023-07-01	Company issued Frank Horkey and Lazarus Asset Management LLC $75,000 Senior Secured Convertible Promissory Notes as compensation for unpaid management services.
2023-09-25	Company issued a $20,000 Senior Secured Convertible Promissory Note to a private investor.
2023-09-29	Company issued a $25,000 Senior Secured Convertible Promissory Note to a private investor.
2023-12-06	Company agreed to sell 20,000 Units to a private investor for $15,000.
2024-01-01	Frank Horkey and Lazarus Asset Management LLC notes were cancelled and replaced with new notes.
2024-02-08	Entities belonging to Peter S. Chung and Timothy B. Ruggiero accepted a Pre-Funded Common Stock Purchase Warrant.
2024-02-09	Company issued Sparta Road Ltd a $50,000 Senior Secured Convertible Promissory Note.
2024-03-12	Company issued a $10,000 Secured Convertible Promissory Note to a private investor.
2024-04-01	Company issued Frank Horkey and Lazarus Asset Management LLC $75,000 Senior Secured Convertible Promissory Notes as compensation for unpaid management services.
2024-04-20	Last Bitcoin halving occurred, reducing reward per block to 3.125 BTC.
2024-05-23	Company issued a $10,000 Secured Convertible Promissory Note to a private investor.
2024-07-01	Company issued Frank Horkey and Lazarus Asset Management LLC $15,000 Senior Secured Convertible Promissory Notes as compensation for unpaid management services.
2024-07-01	Company issued Matthew Cohen and Antonio Oliveira restricted common stock shares and warrants for board/advisory positions.
2024-09-09	Company entered into a non-binding agreement with Veterans Capital Corp. to lease ASIC crypto miners.
2024-09-19	Company entered into an agreement with Del Cielo LLC for introduction of potential leasing companies.
2024-09-25	A private investor purchased 150,000 restricted common stock shares for $150,000.
2024-10-01	Frank Horkey and Lazarus Asset Management LLC notes were cancelled and renewed.
2024-10-02	Company entered into an agreement with Clearwater Power Company for electric power and facilities in Orofino, Idaho.
2024-10-05	A private investor purchased 100,000 restricted common stock shares for $100,000.
2024-10-11	A private investor purchased 100,000 restricted common stock shares for $100,000.
2024-10-15	A private investor purchased 50,000 restricted common stock shares for $50,000.
2024-12-20	Matthew Cohen resigned from the Board of Directors.
2025-01-01	Company issued various restricted common stock shares for prior obligations and services.
2025-01-09	Company issued a $10,000 Senior Secured Convertible Promissory Note to a private investor.
2025-02-03	Company issued Frank Horkey a $70,000 Senior Secured Promissory Note.
2025-02-07	Sabretooth Mining Containers LLC formed as a Florida corporation.
2025-03-04	Megalodon acquired a data center and co-location facility in Orofino, Idaho.
2025-03-05	Company issued Frank Horkey a $35,000 Senior Secured Promissory Note and a $207,630 Senior Secured Promissory Note.
2025-03-05	Company issued to the seller of the Orofino facility a $267,555 Secured Promissory Note.
2025-03-27	Numerous warrants were redeemed through cashless redemption into restricted common stock shares.
2025-03-29	Deinodon Mining Solutions LLC formed as a Florida corporation.
2025-03-31	Deinodon acquired the assets of Baoblock, Inc. for $210,000.
2025-04-03	Company received $10,000 in proceeds from a private investor for 20,000 common stock shares.
2025-04-07	Company received $50,000 in proceeds from a private investor for 100,000 common stock shares.
2025-04-16	Company received $150,000 in proceeds from a private investor for 300,000 common stock shares.
2025-05-07	Company received $100,000 in proceeds from a private investor for 200,000 common stock shares.
2025-05-12	Company was approved for uplisting from the OTC Pink Market to the OTCQB Venture Market.
2025-05-31	Company received $100,000 in proceeds from a private investor for 200,000 common stock shares.
2025-06-06	Date of filing of the 10-Q report.

Recommendation

strong sell

Keywords

Cryptocurrency, Bitcoin mining, Co-location facility, SEC filing, 10-Q, Financial reporting, Going concern, Digital assets, Blockchain, Software services, Modular containers, Related party transactions, Internal controls, OTC Markets

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