ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
BACKGROUND
We were incorporated on January 16, 2008 under the laws of the state of Nevada as Plethora Resources Inc. to commence operations in the business of consulting to oil & gas exploration companies interested in obtaining exploration and production licenses at auction for oil and gas properties in Russia. We were unable to fund our intended business and, on May 28, 2009 but effective February 1, 2009, we acquired a wholly owned subsidiary, Sync2 International Ltd, for the assumption of the debts of Sync2 Agency Ltd, a wholly owned subsidiary of Sync2 International Ltd. Sync2 Agency Ltd is an internet marketing and website development company.
On May 14, 2009 we changed our name to Sync2 Networks Corp. On December 15, 2009, we shut down the operations of Sync2 Agency Ltd. after incurring substantial operating losses, and subsequently wrote-off the investment in Sync2 Agency Ltd.
Domestication of Subsidiary
On April 7, 2014, our Board of Directors deemed it in our best interests and our shareholders to domesticate our subsidiary, Sync2 International Ltd., as a corporation formed under the laws of Malta to a corporation formed under the laws of the State of Nevada (the "Domestication"), which under Nevada statutory law involves the transfer of an existing corporation from one jurisdiction to another whereby Sync2 International Ltd. shall cease all operations in Malta. On May 1, 2014, we filed Articles of Domestication with the Nevada Secretary of State effecting the domestication of Sync2 International Ltd. as a corporate entity formed under the laws of the State of Nevada, which domestication provides that Sync2 International Ltd. as domesticated in the State of Nevada shall be the same entity as Sync2 International Ltd. organized under the laws of Malta.
Information Statement on Form 14C
On December 11, 2013, we filed an Information Statement on Form 14(c) with the Securities and Exchange Commission, which was furnished to all holders of our common stock as of October 9, 2013, in connection with the action taken by written consent of holders of a majority of the outstanding voting power of the Company to authorize the following: (i) ratification of an amendment to the articles of incorporation (the "Name Change Amendment") to change our name from "Sync2 Networks Corp." to "Trex Acquisition Corp." (the "Name Change"); and (vi) ratification of a reverse stock split of one for one thousand (1:1,000) of our shares of common stock (the "Reverse Stock Split").
The name of the shareholder of record who holds in the aggregate a majority of our total issued and outstanding common stock and who signed the written consent of stockholders was Warren Gilbert holding of record 62,863,800 shares of common stock (61%).
These actions were approved by written consent on October 9, 2013 by our Board of Directors and a majority of holders of our voting capital stock, in accordance with Nevada Revised Statutes. Our directors and majority of the shareholders of our outstanding capital stock, as of the record date of October 9, 2013.have approved the Name Change Amendment and the Reverse Split as determined were in the best interests of our Company and shareholders.
FINRA Corporate Action
On October 9, 2013, our Board of Directors and majority shareholders approved a reverse stock split of one for one thousand (1:1,000) of our total issued and outstanding shares of common stock (the “Stock Split”) and a change in our name from "Sync2 Networks Corp." to "Trex Acquisition Corp." (the "Name Change"). Pursuant to our Bylaws and the Nevada Revised Statutes, a vote by the holders of at least a majority of the Company’s outstanding votes was required to effect the Stock Split and the Name Change. Our articles of incorporation do not authorize cumulative voting. As of the record date of October 9, 2013, we had 103,046,175 voting shares of common stock issued and outstanding. The consenting stockholders of the shares of common stock were entitled to 62,863,800 votes, which represented approximately 61.0% of the voting rights associated with our shares of common stock. The consenting stockholders voted in favor of the Stock Split and the Name Change described herein in a unanimous written consent dated October 9, 2013. An information statement on Form 14(c) was filed with the Securities and Exchange Commission on December 11, 2013.
The Board of Directors had previously considered factors regarding their approval of the Stock Split including, but not limited to: (i) current trading price of our shares of common stock on the OTC QB Market and potential to increase the marketability and liquidity of our common stock; (ii) possible reluctance of brokerage firms and institutional investors to recommend lower-priced stocks to their clients or to hold in their own portfolios; (iii) desire to meet future requirements of per-share price and net tangible assets and shareholders’ equity relating to admission for trading on other markets; and (iv) posturing us and our structure in favorable position in order to effectively negotiate with potential acquisition candidates regarding assets. Our Board of Directors approved the Name Change and the Stock Split and recommended our majority shareholders review and approve the Name Change and the Stock Split.
The Stock Split was effected based upon the filing of appropriate documentation with FINRA. The Stock Split decreased our total issued and outstanding shares of common stock from approximately 103,046,175 shares to 103,046 shares of common stock. The common stock will continue to be $0.001 par value. Our trading symbol changed to "TRXA". The new cusip number for the Company is 89532J 108.
The Name Change was effected to better reflect our future business operations.
Change in Control
On approximately August 14, 2013, there was a change in our control. In accordance with the terms and provisions of that certain escrow agreement dated March 31, 2012 (the "Escrow Agreement"), Warren Gilbert, who is the current President/Chief Executive Officer, Secretary, Treasurer/Chief Financial Officer and sole member of the Board of Directors, acquired in a private transaction an aggregate of 62,863,800 shares of our restricted common stock representing an equity interest of 61% of the total issued and outstanding shares. The amount of consideration paid was $325,000 and were outside funds from unrelated parties. The shares of common stock were acquired as follows: (i) 51,000,000 shares from Artur Etozov; and (ii) 11,863,800 shares from approximately ten separate shareholders each holding less than 5% of the total issued and outstanding.
BUSINESS OF ISSUER
We are engaged in the business of acquiring and developing internet marketing and web site development entities and/or their individual software programs to assist third-party clients in marketing their products and in maximizing the use of the internet to achieve those third-party clients' ultimate business objectives. More recently we expanded our on-line business consulting activities, by entering into a strategic alliance with prominent systems and infrastructure providers such as "IBM" (attaining IBM Business Partner Status), "Apple" (a part of the I-phone Developer Program), and more complex tri-partite business arrangements with Telus Communications Company and Cisco Systems developing specialized industry-specific software applications.
This new orientation compliments our existing on-line asset management, on-going maintenance and support endeavors, and on-line systems analysis business permitting us to broaden our business activities in turn creating the potential for the development of a more unique array of products and services in an industry with growth potential.
However, based upon the effective date of the Name Change, we anticipate that the nature of our business operations will change.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our unaudited 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. Our reviewed financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
We are a development stage company and have not generated any revenue. We have incurred recurring losses since inception. 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 believe 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.
Nine Month Period Ended March 31, 2014 Compared to Nine Month Period Ended March 31, 2013.
Our net loss for the nine month period ended March 31, 2014 was ($28,216) compared to a net profit of $516,245 during the nine month period ended March 31, 2012, an increase of $488,029. We generated no revenue for the nine month periods ended March 31, 2014 and March 31, 2013, respectively.
During the nine month period ended March 31, 2014, we incurred operating expenses of $28,216 compared to $-0- incurred during the nine month period ended March 31, 2013, an increase of $28,216. During the nine month period ended March 31, 2014, operating expenses consisted of: (i) professional fees of $7,320, which included legal, auditor and edgarizing; (ii) transfer agent fees of $10,116; and (iii) general and administrative fees of $10,780.
Loss from operations for the nine month period ended March 31, 2014 was ($28,216) compared to loss from operations of $-0- during the nine month period ended March 31, 2013. Operating expenses increased during the nine month period ended March 31, 2014 generally due to increased professional fees and general and administrative based upon the increase in scope and activity of business operations.
During the nine month period ended March 31, 2013, we realized net income from the write off of assets and liabilities of the subsidiaries compared to$-0- during the nine month period ended March 31, 2014.
Therefore, we realized a net loss of ($28,216) or ($0.27) for the nine month period ended March 31, 2014 compared to net profit of $516,245 or $5.01 for the nine month period ended March 31, 2013. The weighted average number of shares outstanding was 103,073 for both nine month periods ended March 31, 2014 and March 31, 2013.
Three Month Period Ended March 31, 2014 Compared to Three Month Period Ended March 31, 2013.
Our net loss for the three month period ended March 31, 2014 was ($12,712) compared to net income of $516,245 during the nine month period ended March 31, 2013, an increase of $503,533. We generated no revenue for the three month periods ended March 31, 2014 and March 31, 2013, respectively.
During the three month period ended March 31, 2014, we incurred operating expenses of $12,712 compared to $-0- incurred during the three month period ended March 31, 2013, an increase of $12,712. During the three month period ended March 31, 2014, operating expenses consisted of: (i) professional fees of $1,320, which included legal, auditor and edgarizing; (ii) transfer agent fees of $742; and (iii) general and administrative of $10,650.
Loss from operations for the three month period ended March 31, 2014 was ($12,712) compared to loss from operations of $-0- during the three month period ended March 31, 2013. Operating expenses increased during the three month period ended March 31, 2014 generally due to increased professional fees and general and administrative based upon the increase in scope and activity of business operations.
During the three month period ended March 31, 2013, we realized net income from the write off of assets and liabilities of the subsidiaries compared to$-0- during the three month period ended March 31, 2014
Therefore, we realized a net loss of ($12m712) or ($0.12) for the three month period ended March 31, 2014 compared to net income of $516,245 or $5.01 for the three month period ended March 31, 2013. The weighted average number of shares outstanding was 103,073 for both three month periods ended march 31, 2014 and March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2014, our current assets were $-0- and our current liabilities were $682,439, which resulted in a working capital deficit of $682,439. As of March 31, 2014, current liabilities were comprised of: (i) $680,723 due to related parties; and (ii) $1,716 in cash overdraft.
As of fiscal year ended June 30, 2013, our total assets were $-0- and our total liabilities were $654,223 comprised entirely of current liabilities. The increase in liabilities during the nine month period ended March 31, 2014 from fiscal year ended June 30, 2013 was primarily due to the increase in amounts due to related parties of $28,216.
Stockholders’ deficit decreased from $1,120,982 at June 30, 2013 to $682,439 as of March 31, 2014.
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities due to a lack of a source of revenues. For the nine month period ended March 31, 2014, net cash flows used in operating activities was $1,716 compared to $-0- used during the nine month period ended March 31, 2013. Net cash flows used in operating activities for the nine month period ended March 31, 2014 consisted primarily of a net loss of $28,216, which was changed by an increase in amounts due to related parties of $26,500. Net cash flows used in operating activities was $-0- during the nine month period ended March 31, 2013 consisting primarily of net profit of $516,245 which was changed by a decrease of $516,245 in accrued expenses.
Cash Flows from Investing Activities
For the nine month periods ended March 31, 2014 and March 31, 2013, net cash flows related to investing activities was $0.
Cash Flows from Financing Activities
We have financed our prior operations primarily from debt or the issuance of equity instruments. For the nine month period ended March 31, 2014, net cash flows provided from financing activities was $1,716 based on cash overdraft. For the nine month period ended March 31, 2013, net cash flows provided from financing activities was $-0-.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through a combination of our existing funds and generation of revenues. Our working capital requirements are expected to increase in line with the growth of our business.
Our principal demands for liquidity are to increase capacity, inventory purchase, sales distribution, and general corporate purposes. We intend to meet our liquidity requirements, including capital expenditures related to the purchase of equipment and/or inventory, and the expansion of our business, through cash flow provided by operations and funds raised through proceeds from the issuance of debt or equity.
Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. We may finance expenses with further issuances of securities and debt issuances. Any 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.
MATERIAL COMMITMENTS
Convertible Debentures
As of December 31, 2013, we have a convertible debenture dated June 30, 2010 in the principal amount of $1,253,095 of which $603,095 has been either converted or paid. The convertible debenture accrues interest at the rate of 5% per annum and is convertible into shares of our common stock at the rate of $0.001 per share.
PURCHASE OF SIGNIFICANT EQUIPMENT
We do not intend to purchase any significant equipment during the next twelve months.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report, we do not have any 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, capital expenditures or capital resources that are material to investors.
GOING CONCERN
The independent auditors' report accompanying our June 30, 2013 and June 30, 2012 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a working capital deficit and are currently in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue as a going concern.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective.
Management’s report on internal control over financial reporting.
Our chief executive officer and our chief financial officer are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our 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 generally accepted accounting principles and includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
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Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
Our chief executive officer and our chief financial officer assessed the effectiveness of our internal control over financial reporting as of March 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control — Integrated Framework.
Based on our assessment, our chief executive officer and our chief financial officer believe that, as of March 31, 2014, our internal control over financial reporting is not effective based on those criteria, due to the following:
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Deficiencies in Segregation of Duties. Lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the disbursements related thereto due to our very limited staff, including our accounting personnel.
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Deficiencies in the staffing of our financial accounting department. The number of qualified accounting personnel with experience in public company SEC reporting and GAAP is limited. This weakness does not enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. There is a risk that a material misstatement of the financial statements could be caused, or at least not be detected in a timely manner, by this shortage of qualified resources.
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In light of this conclusion and as part of the preparation of this report, we have applied compensating procedures and processes as necessary to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that (1) this report does not contain any untrue statement of a material fact or omit to state a material face necessary to make the statements made not misleading with respect to the period covered by this report, and (2) the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the years and periods then ended.
This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this report.
Changes in internal control over financial reporting.
There were no significant changes in our internal control over financial reporting during the third quarter of the fiscal year ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
AUDIT COMMITTEE
Our board of directors has not established an audit committee. The respective role of an audit committee has been conducted by our board of directors. We intend to establish an audit committee during the fiscal year 2014. When established, the audit committee's primary function will be to provide advice with respect to our financial matters and to assist our board of directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee's primary duties and responsibilities will be to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management's establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our Board of Directors.
