T-REX Acquisition Corp. (TRXA) – Form 10-Q Report – December 31, 2024
Executive Summary
This report analyzes T-REX Acquisition Corp.’s Form 10-Q for the period ended December 31, 2024. The company, focused on cryptocurrency mining and related ventures, faces significant challenges, including a net loss, accumulated deficit, and working capital deficit. Revenue generation is minimal, and the company relies heavily on debt financing, particularly from related parties. There are significant concerns about the company’s ability to continue as a going concern. The company is transitioning its mining operations to a co-location facility, which has temporarily halted mining revenue. The report highlights the company’s dependence on raising additional capital and the risks associated with its business model. Given the current financial situation and reliance on debt, a SELL recommendation is warranted.
Company Overview
T-REX Acquisition Corp. is an emerging technology company focused on the cryptocurrency industry, primarily through its subsidiary, Raptor Mining LLC. The company is involved in cryptocurrency mining, specifically Bitcoin, and is exploring cryptocurrency co-location business models. The company’s mining operations were paused during the period due to the termination of contracts at previous locations and the transition to a new co-location facility in Orofino, Idaho. The company’s strategy involves securing Bitcoin distribution ledger platforms and researching other distributed ledger systems.
Detailed Analysis
Financial Statement Analysis
Consolidated Balance Sheets
| Metric |
December 31, 2024 (Unaudited) |
June 30, 2024 (Restated) |
Change |
Analysis |
| Cash |
$144 |
$36 |
+$108 |
Extremely low cash balance, indicating severe liquidity issues. |
| Total Current Assets |
$224,165 |
$152,249 |
+$71,916 |
Increase primarily due to prepaid expenses and other assets. |
| Total Current Liabilities |
$1,575,951 |
$1,259,861 |
+$316,090 |
Significant current liabilities, including amounts due to related parties and notes payable. |
| Working Capital (Deficit) |
$(1,351,786) |
$(1,107,612) |
-$(244,174) |
Substantial working capital deficit, indicating an inability to meet short-term obligations. |
| Total Stockholders’ Equity (Deficit) |
$(1,351,786) |
$(1,107,612) |
-$(244,174) |
Negative equity, reflecting accumulated losses. |
Consolidated Statements of Operations
| Metric |
Six Months Ended December 31, 2024 |
Six Months Ended December 31, 2023 |
Change |
Analysis |
| Total Revenues |
$0 |
$15,824 |
-$15,824 |
No revenue generated during the period, indicating a complete halt in mining operations. |
| Gross Profit (Loss) |
$0 |
$(13,286) |
+$13,286 |
No gross profit due to no revenue. |
| Net Loss |
$(729,242) |
$(568,058) |
-$(161,184) |
Significant net loss, driven by operating expenses and other expenses. |
| Basic and Dilutive Net Loss Per Share |
$(0.04) |
$(0.03) |
-$(0.01) |
Increasing loss per share, reflecting the company’s poor financial performance. |
Consolidated Statements of Cash Flows
| Metric |
Six Months Ended December 31, 2024 |
Six Months Ended December 31, 2023 |
Change |
Analysis |
| Net Cash Used in Operating Activities |
$(481,329) |
$(305,430) |
-$(175,899) |
Significant cash outflow from operations, indicating an unsustainable business model. |
| Net Cash Provided by Financing Activities |
$481,437 |
$282,723 |
+$198,714 |
Reliance on financing activities to maintain operations, primarily through debt issuance. |
| Net Increase in Cash |
$108 |
$(22,707) |
+$22,815 |
Minimal increase in cash, highlighting the company’s dependence on external funding. |
Management’s Discussion and Analysis (MD&A) Insights
- Management acknowledges the company’s significant net loss, accumulated deficit, and working capital deficit, raising substantial doubt about its ability to continue as a going concern.
- The company’s plan of operation relies heavily on raising additional funds through private or public offerings and generating revenues from acquisitions.
- The company is transitioning its mining operations to a co-location facility, which has temporarily halted mining revenue.
- The company is pursuing lease financing to acquire new ASIC miners, contingent on its financial ability and debt financing.
- Management identifies deficiencies in segregation of duties and staffing of the financial accounting department as weaknesses in internal control over financial reporting.
Red Flags and Uncommon Metrics
- Restatement of Prior Year Financial Statements: The restatement due to an omitted accrual indicates potential weaknesses in internal controls.
- Going Concern: The auditor’s note regarding the company’s ability to continue as a going concern is a significant red flag.
- Related Party Transactions: Significant amounts due to related parties, including management advisory fees and compensation, raise concerns about potential conflicts of interest.
- Convertible Debentures: The issuance of numerous convertible debentures with warrants indicates a reliance on debt financing and potential dilution for existing shareholders.
- Stock Subscription Payable: The obligation to issue shares for cash received creates a liability and potential dilution.
- Lack of Revenue: The absence of revenue during the period is a major concern, indicating a complete halt in mining operations.
- Internal Control Weaknesses: Identified deficiencies in segregation of duties and staffing of the financial accounting department raise concerns about the reliability of financial reporting.
Risk and Opportunity Assessment
Risks
- Liquidity Risk: The company’s low cash balance and working capital deficit pose a significant risk to its ability to meet short-term obligations.
- Going Concern Risk: The auditor’s note regarding the company’s ability to continue as a going concern is a major risk factor.
- Financing Risk: The company’s reliance on raising additional capital through private or public offerings is subject to market conditions and investor sentiment.
- Operational Risk: The transition to a new co-location facility and the acquisition of new ASIC miners are subject to operational challenges and delays.
- Regulatory Risk: The cryptocurrency industry is subject to evolving regulatory landscape, which could impact the company’s operations.
- Dilution Risk: The issuance of numerous convertible debentures with warrants could result in significant dilution for existing shareholders.
- Related Party Risk: Significant related party transactions raise concerns about potential conflicts of interest and the fairness of transactions.
- Internal Control Risk: Identified deficiencies in internal control over financial reporting could lead to material misstatements in the financial statements.
Opportunities
- Co-location Facility: The transition to a new co-location facility could provide cost savings and operational efficiencies.
- ASIC Miners: The acquisition of new ASIC miners could increase the company’s mining capacity and revenue potential.
- Cryptocurrency Market: The potential for growth in the cryptocurrency market could increase the value of the company’s assets and revenue potential.
Conclusion and Actionable Insights
T-REX Acquisition Corp. faces significant financial and operational challenges. The company’s low cash balance, working capital deficit, and reliance on debt financing raise substantial doubt about its ability to continue as a going concern. The transition to a new co-location facility and the acquisition of new ASIC miners are subject to operational challenges and delays. The company’s reliance on raising additional capital is subject to market conditions and investor sentiment. Given the current financial situation and reliance on debt, a SELL recommendation is warranted.
Recommendations:
- Investors should avoid investing in T-REX Acquisition Corp. due to its high-risk profile and uncertain future.
- Existing shareholders should consider selling their shares to mitigate potential losses.
- The company should focus on improving its financial performance, reducing its reliance on debt financing, and strengthening its internal controls.