Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our consolidated unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this quarterly report.
Unless otherwise specified in this quarterly report, all dollar amounts are expressed in United States dollars and all references to “common stock” refer to shares of our common stock.
As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean TRON Group Inc., unless otherwise indicated.
Corporate Overview
We were incorporated under the name Plush Corporation on October 20, 2015, under the laws of the State of Nevada. Our business consisted of designing, marketing and selling luxury accessories for men online. Management has decided not to pursue this line of business, and has discontinued operations involving luxury accessories.
November 3, 2016, a majority of stockholders of our company and our board of directors approved a change of name of our company from Plush Corp. to TRON Group Inc., an increase to authorized capital from 75,000,000 shares of common stock, par value $0.001 to 500,000,000 shares of common stock, par value $0.001 and a forward stock split of our issued and outstanding shares of common stock on a basis of one (1) old share for twenty (20) new shares of common stock.
A Certificate of Amendment increasing our authorized capital and changing the name of our company was filed with the Nevada Secretary of State with an effective date of December 6, 2016.
The name change and forward stock split became effective with the OTC Markets at the opening of trading on December 28, 2016, and our trading symbol was changed to “TGRP”.
On January 26, 2018, TRON Group Inc. entered into a Share Exchange Agreement to acquired 6,401,500 shares of capital stock of Talk Focus Sdn Bhd (“Talk Focus”) and in exchange issued 3,329,385 restricted shares of its Common Stock at $0.25 per share in acquiring 64.015% in the equity shares of Talk Focus (the “Reverse Merger”) from Eric Yap, the director of TRON Group Inc. Upon completion of the Share Exchange Transaction, the Company’s major shareholder, Eric Yap, also the prior shareholder of Talk Focus then owned approximately 51.05% of the Common Stock of TGRP.
The acquisition of Talk Focus was accounted for as a recapitalization effected by a share exchange, wherein Talk Focus is considered the acquirer for accounting and financial reporting purposes (legal acquiree) with no adjustment to the historical basis of its assets and liabilities. Talk Focus’s Shareholders become the majority shareholders and have control of the Company. TRON Group Inc. was a non-operating public shell prior to the acquisition and as a result of the acquisition of Talk Focus, the Company is no longer a shell company. Pursuant to Securities and Exchange Commission (“SEC”) rules, the merger or acquisition of a private operating company into a non-operating public shell with nominal net assets is considered a capital transaction in substance, rather than a business combination. The historical financial statements for periods prior to December 31, 2017 are those of Talk Focus, except that the equity section and earnings per share have been retroactively restated to reflect the recapitalization.
The Company is organized for investment holding and its principal place of operation is located at K-2-8, 2
nd
floor, Jalan Kuchai Maju 10, Kuchai Entrepreneurs Park, Jalan 1/127 Kuchai Lama, 58200 Kuala Lumpur.
Currently, the Company, through its subsidiaries, is principally engaged in the provision of telecommunication related services in Malaysia.
Summary of the Company’s subsidiaries
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Effective interests
owned by the Company
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Name of entities
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Place of
incorporation
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Date of
incorporation
|
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Issued
capital
|
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Nature of
business
|
|
Sep
2018
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Dec
2017
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1.
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Talk Focus Sdn. Bhd.
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Malaysia
|
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November 10, 2006
|
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10,000,000 issued shares of ordinary shares of MYR 1 each
|
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Provision of telecommunication related services
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|
|
64.015
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%
|
|
|
64.015
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%
|
|
|
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|
|
|
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Subsidiaries of Talk Focus
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1.
|
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Technology Revolution On Net Distribution Sdn. Bhd.
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Malaysia
|
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July 11, 2011
|
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100 issued shares of ordinary shares of MYR 1 each
|
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Dormant
|
|
|
64.015
|
%
|
|
|
64.015
|
%
|
|
|
|
|
|
|
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2.
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Technology Revolution On Net Marketing Sdn. Bhd.
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Malaysia
|
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July 11, 2011
|
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100 issued shares of ordinary shares of MYR 1 each
|
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Dormant
|
|
|
64.015
|
%
|
|
|
64.015
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
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3.
|
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Technology Revolution On Net System Sdn. Bhd.
|
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Malaysia
|
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December 12, 2011
|
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100 issued shares of ordinary shares of MYR 1 each
|
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Dormant
|
|
|
64.015
|
%
|
|
|
64.015
|
%
|
|
|
|
|
|
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4.
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TF Learning Centre Sdn. Bhd.
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Malaysia
|
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March 18, 2016
|
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2 issued shares of ordinary shares of MYR 1 each
|
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Dormant
|
|
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64.015
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%
|
|
|
64.015
|
%
|
|
|
|
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|
|
|
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5.
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Tronexus Global Sdn. Bhd.
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Malaysia
|
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April 13, 2016
|
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1,000 issued shares of ordinary shares of MYR 1 each
|
|
Sales of prepaid sim-cards, reload coupons and other related products through a referral program module
|
|
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64.015
|
%
|
|
|
64.015
|
%
|
Results of Operations
Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
The following comparative analysis on results of operations was based primarily on the comparative audited consolidated financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our revenues are derived mainly from our active company, Talk Focus Sdn Bhd’s mobile telecommunication services.
Three months ended September 30, 2018 compared to three months ended September 30, 2017.
|
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Three Months Ended
|
|
|
|
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|
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|
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September 30,
|
|
|
Change
|
|
|
|
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2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
Revenue
|
|
$
|
315,819
|
|
|
$
|
338,394
|
|
|
$
|
(22,575
|
)
|
|
|
(7
|
%)
|
|
Cost of revenues
|
|
$
|
(148,280)
|
|
|
$
|
(192,935)
|
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|
$
|
44,655
|
|
|
|
(23
|
%)
|
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Operating expenses
|
|
$
|
(247,151)
|
|
|
$
|
(255,144)
|
|
|
$
|
7,993
|
|
|
|
(3
|
%)
|
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Net loss
|
|
$
|
(78,186)
|
|
|
$
|
(100,969)
|
|
|
$
|
22,783
|
|
|
|
(23
|
%)
|
Revenue has dropped by 7% to $315,819 in the quarter three months ended September 30, 2018 as compared to $ 338,394 in the quarter three months ended September 30, 2017 in prior year due to a drop in sales in 2018 as compared to 2017.
Cost of revenue has dropped significantly by 23% to $148,280 in the quarter three months ended September 30, 2018 from $192,935 in the quarter three months ended September 30, 2017, due to a promotion which gave out free data and voice calls to our subscribers which was going on in 3
rd
Quarter of 2017 but not in the 3
rd
Quarter of 2018.
For the three months ended September 30, 2018, our net loss has reduced to $78,186 from $100,969 due to reduced cost of revenue caused by the lack of free data and voice calls for the 3
rd
Quarter of 2018.
Nine months ended September 30, 2018 compared nine months ended September 30, 2017.
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Nine Months Ended
|
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|
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|
|
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|
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September 30,
|
|
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Change
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|
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2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
Revenue
|
|
$
|
903,754
|
|
|
$
|
1,375,276
|
|
|
$
|
(471,522
|
)
|
|
(34
|
%)
|
|
Cost of revenues
|
|
$
|
(475,018
|
)
|
|
$
|
(1,131,755
|
)
|
|
$
|
656,737
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|
(58
|
%)
|
|
Operating expenses
|
|
$
|
(947,854
|
)
|
|
$
|
(869,033
|
)
|
|
$
|
(78,821
|
)
|
|
|
9
|
%
|
|
Net loss
|
|
$
|
(512,406
|
)
|
|
$
|
(617,474
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)
|
|
$
|
105,068
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(17
|
%)
|
Revenue has dropped significantly by 34% to $903,754 in nine months ended September 30, 2018, as compared to $1,375,276 in the nine months ended September 30, 2017 in prior year mainly due to substantially lower sales in 2018.
Cost of revenue has dropped significantly by 58% to $475,018 in nine months ended September 30, 2018 from $1,131,755 in the nine months ended September 30, 2017, due to signing a new agreement with much lower cost with the main supplier on June 1, 2017, and priority which gave out free data and voice calls to our subscribers in 3
rd
Quarter of 2017
Operating expenses has increased by $78,821 due to increase in professional fee and licensed fees.
For the nine months ended September 30, 2018, our net loss has reduced slightly compared to September 30, 2017 due to reduced cost of revenue caused by signing a new agreement with much lower cost with the main supplier on June 1, 2017 but it is offset by the lowered sales for the three months period ended September 30, 2018.
Liquidity and Capital Resources
The following table provides selected financial data about our company as of September 30, 2018 and September 30, 2017, respectively.
Working Capital
|
|
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September 30,
|
|
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December 31,
|
|
|
Change
|
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|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
Cash
|
|
$
|
62,761
|
|
|
$
|
99,730
|
|
|
$
|
(36,969
|
)
|
|
(37
|
%)
|
|
|
|
|
|
|
|
|
|
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|
|
Total current assets
|
|
$
|
532,971
|
|
|
$
|
408,110
|
|
|
$
|
124,861
|
|
|
|
31
|
%
|
|
Total current liabilities
|
|
$
|
9,998,331
|
|
|
$
|
9,618,637
|
|
|
$
|
379,694
|
|
|
|
4
|
%
|
|
Working capital deficit
|
|
$
|
(9,465,360
|
)
|
|
$
|
(9,210,527
|
)
|
|
$
|
(254,833
|
)
|
|
(2
|
%)
|
On September 30, 2018, our Company’s cash balance was $62,761 and total current assets were $532,971. On December 31, 2017, our Company’s cash balance was $99,730 and total current assets were $408,110. Current assets increase mainly due to increase in trade and other receivables amounting to $206,666 and reduction in cash and inventories amounting to $36,969 and $46,123 respectively.
On September 30, 2018, our Company had current liabilities of $9,998,331 compared with total liabilities of $9,618,637 as at December 31, 2017. The increase is due mainly to the increase in other payable and accrued liabilities by $303,712 and amount due to directors by $76,052.
On September 30, 2018, our Company had working capital deficiency of $9,465,360 compared with working capital deficiency of $9,210,527 as at December 31, 2017. The increase in working capital deficiency was primarily attributed to an increase in liabilities as explained above.
Cash Flows
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Change
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
%
|
|
|
Net cash used in operating activities
|
|
$
|
(274,008
|
)
|
|
$
|
(493,550
|
)
|
|
$
|
219,542
|
|
|
(44
|
%)
|
|
Net cash used in investing activities
|
|
$
|
(3,907
|
)
|
|
$
|
(16,842
|
)
|
|
$
|
12,935
|
|
|
(77
|
%)
|
|
Net cash provided by financing activities
|
|
$
|
53,611
|
|
|
$
|
699,889
|
|
|
$
|
(646,278
|
)
|
|
|
92
|
%
|
|
Foreign currencies translation adjustment
|
|
$
|
187,335
|
|
|
$
|
(466,692
|
)
|
|
$
|
654,027
|
|
|
(59
|
%)
|
|
(Decrease)/Increase in cash
|
|
$
|
(36,969
|
)
|
|
$
|
(277,195
|
)
|
|
$
|
240,226
|
|
|
(87
|
%)
|
Cash Flow from Operating Activities
During the nine months ended September 30, 2018, our Company used $274,008 in operating activities, compared to $493,550 net cash generated from operating activities during the nine months ended September 30, 2017. The cash used in operating activities for the nine months ended September 30 2018, was attributed to a loss of 512,406 offset by positive cash flow from working capital changes.
Cash Flow from Investing Activities
During the nine months ended September 30, 2018, the cash used in investing activities decreases mainly attributable to reduced purchase of equipment during the period.
Cash Flow from Financing Activities
During the nine months ended September 30, 2018, our Company received $53,611 from financing activities compared to $699,889 received from financing activities during the nine months ended September 30, 2017. The cash flow for financing activities for the nine months ended September 30, 2018 was due to lower repayment to a related party compared to advances from a related party for the current period.
Plan of Operation and Funding
We expect that working capital requirements will continue to be funded through a combination of our existing funds, loans from officers, and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next twelve months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We have and will continue to seek to obtain short-term loans from our officers and directors, although no future arrangement for additional loans has been made. We do not have any agreements with our officers and directors concerning these loans. We do not have any arrangements in place for any future equity financing.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our senior management, including our Chief Executive Officer, and our Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934
, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of September 30, 2018 that our disclosure controls and procedures were not effective such that the information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports: (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) is accumulated and communicated to our management, including our chief executive officer to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
|
|
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
|
|
|
|
|
|
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
|
|
|
|
|
|
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2018, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework – 2013 (COSO 2013 Framework)
and SEC guidance on conducting such assessments.
Based upon such evaluation, our management concluded that we did not maintain effective internal control over financial reporting as of September 30, 2018, based on the COSO framework criteria, as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of majority of independent members of our board of directors; (2) lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives affecting authorization, recordkeeping, custody of assets, and reconciliations; (4) ineffective controls over year-end financial disclosure and reporting processes; and (5) management dominated by two individuals without adequate compensating controls. The aforementioned material weaknesses were identified by our Chief Executive Officer and Chief Financial Officer in connection with the review of our financial statements as of September 30, 2018.
Management believes that the material weaknesses set forth above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.