SHELRON GROUP INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Glimpses |

OVERVIEW

Shelron Group, Inc. (the "Company", "we", "our", or "us") developed e-commerce advertising and comparative shopping software products and services. At the present time, we are currently focused on two sectors, internet and mining as well as strategic acquisitions that management believes will enhance our market positioning. We are also considering strategic acquisitions that management believes will enhance our market positioning.

On March 29, 2012, the Company formed a new subsidiary called Serena Gold, LLC ("Serena Gold") to acquire and hold gold exploration and production licenses in South America.

During April 2011, we executed a non-binding Memorandum of Understanding ("MOU") to acquire gold mining rights in Ghana. This MOU has expired and has been canceled.

During May 2011, the Company entered into an exclusive perpetual worldwide software license. The Company will utilize the software to create an affiliate network for online websites. The Company agreed to pay $900,000 for such license in cash or in shares of the Company based the average share price on the preceding 30 days before payment. Such payment is scheduled to be made on or about August 2015 and only if the Company achieves $1,250,000 in aggregate revenues from the use of the software prior to the payment date. If the aggregate revenues are below $1,250,000, the Company has a right to terminate the license agreement with no penalty or payment required. The Company is waiting for the completion of certain features of the software and is currently evaluating the existing technical aspects of the software.

During September 2011, the Company executed a non-binding Memorandum of Understanding with a local Tanzanian company for the acquisition of 51\% of the mineral rights of a property in the Geita district of Tanzania. This MOU has expired and has been canceled.

During September 2011, the Company executed a non-binding Memorandum of Understanding with a local Tanzanian company which has the rights to prospect for gold in the Kahama district. This MOU has expired and has been canceled.

During November 2011, the Company started investigating gold exploration opportunities in Chile based on Chile's potential, and the Company's strategy to explore gold in Africa and in the Americas. The Company is interested in more deals to increase its portfolio and opportunities. The focus of the Company is to adhere to its acquisition criteria and only acquire a prospecting license in Chile that can potentially be developed into proven reserves or productive metal resource mines. The Company continues to focus its efforts and search for gold opportunities in Chile.

During April 2012, the Company's newly formed subsidiary, Serena Gold, signed a binding MOU to acquire six gold exploration licenses on approximately 1,800 acres in Northern Chile. The acquisition of the licenses is subject to the satisfactory completion of due diligence by Serena Gold. Payment for the licenses was deferred for two years. After completion of the due diligence Serena Gold determined not to acquire the licenses and canceled the MOU. The Company is currently looking to acquire licenses directly from the Chilean government and plans to raise additional capital to fund any potential acquisitions for these licenses.

We do not participate in, nor have we created, any off-balance sheet special purpose entities or other off-balance sheet financing.

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

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Critical accounting policies and estimates:

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to US GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 2 of Notes to Unaudited Consolidated Financial Statements. While all these significant accounting policies impact its financial condition and results of operations, the Company views certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our results of operations, financial position or liquidity for the presented in this report.

RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2012 (the "2012 Period") and the three months ended September 30, 2011 (the "2011 Period"):

Revenues

The Company did not have any revenues for the three months ended September 30, 2012 and 2011. We are exploring new opportunities in the mining, media, internet, oil and gas and high-tech fields. We are also considering strategic acquisitions that management believes will enhance our market positioning.

Operating Expenses

Operating expenses consist of salaries, consulting expenses, professional fees and other expenses associated with the operations of our business. For the 2012 Period, operating expenses were $65,951, a decrease of $20,894 or 24.1\%, as compared to $86,845 for the 2011 Period. The decrease is primarily attributable to decreased costs related to consulting fees and office expenses in the 2012 Period as compared to the 2011 Period.

Employment Compensation

Our sole full-time employee is our Chairman of the Board, Eliron Yaron. Employment compensation totaled $39,000 for the 2012 and 2011 Periods.

Consulting Fees

Consulting fees consist primarily of outsourced consulting services. Consulting fees were $12,500 for the 2012 Period, a decrease of $13,000 or 51.0\% as compared to $25,500 for the 2011 Period.

Professional Fees

Professional fees consist primarily of legal, accounting and auditing. Professional fees totaled $6,300 for the 2012 Period an increase of $1,300 or 26.0\% as compared to $5,000 for the 2011 Period.

Office and General Expenses

Office and general expenses consist primarily of computer maintenance, marketing materials, website design, travel, rent, corporate fees and telephone expenses. Office and general expenses totaled $7,356 for the 2012 Period a decrease of $9,688 or 56.8\% as compared to $17,044 for the 2011 Period.

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Comparison of the nine months ended September 30, 2012 (the "2012 Period") and the nine months ended September 30, 2011 (the "2011 Period"):

Revenues

The Company did not have any revenues for the nine months ended September 30, 2012 and 2011. We are exploring new opportunities in the mining, media, internet, oil and gas and high-tech fields. We are also considering strategic acquisitions that management believes will enhance our market positioning.

Operating Expenses

Operating expenses consist of salaries, consulting expenses, professional fees and other expenses associated with the operations of our business. For the 2012 Period, operating expenses were $198,984, an increase of $20,064 or 11.2\%, as compared to $178,920 for the 2011 Period. The increase is primarily attributable to increased office and general expenses in the 2012 Period as compared to the 2011 Period.

Employment Compensation

Our sole full-time employee is our Chairman of the Board, Eliron Yaron. Employment compensation totaled $117,000 for the 2012 and 2011 Periods.

Consulting Fees

Consulting fees consist primarily of outsourced consulting services. Consulting fees were $28,750 for the 2012 Period, a decrease of $750 or 25\% as compared to $29,500 for the 2011 Period.

Professional Fees

Professional fees consist primarily of legal, accounting and auditing. Professional fees totaled $16,300 for the 2012 Period and increase of $1,300 or 8.7\% as compared to $15,000 for the 2011 Period.

Office and General Expenses

Office and general expenses consist primarily of computer maintenance, marketing materials, website design, travel, rent, corporate fees and telephone expenses. Office and general expenses totaled $35,247 for the 2012 Period an increase of $18,203 or 106.8\% as compared to $17,044 for the 2011 Period.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have financed our operations primarily from cash generated through the sale of our Common Stock in private placements as well as from cash earned from our operations.

As of September 30, 2012, we had cash of $1,264 and a working capital deficit of $576,736.

Cash used in operating activities was $85,920 for the 2012 Period compared to $11,959 for the 2011 Period. The increase in cash used in operating activities for the 2012 Period is primarily attributable to the cash needed to fund the loss for the 2012 Period.

Cash provided by financing activities in the 2012 Period was $86,999 compared to $25,000 for the 2011 Period. The 2012 Period consisted of the proceeds from the issuance of shares related to investments in the Company and from an unsecured non-interest bearing note issued by the Company for working capital purposes. The Note matured on May 17, 2012. As of September 30, 2012, the Company is in default with respect to the remaining outstanding principal on the note plus the accrued interest thereon.

The focus of the Company's efforts is to acquire or develop an operating business. Despite limited active operations at this time, management intends to continue in business and has no intentions to liquidate the Company. The Company has considered various business alternatives including the possible acquisition of an existing business. During the year ended December 31, 2013 and the period January 1, 2014 through June 24, 2014, the Company raised additional capital and issued 7,775,000 and 4,485,000 common shares, respectively. The money raised will be used to assist the Company to achieve its strategy with respect to its search for potential acquisitions in the mining and energy sectors.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As shown in the accompanying unaudited consolidated financial statements, the Company has incurred recurring losses, is dependent on debt and equity financing to fund its operations and has an accumulated deficit of approximately $6.7 million, all of which raises substantial doubt about the Company's ability to continue as a going concern.

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The Company is currently dependent on its President, Mr. Yaron, to continue to fund the Company. If the Company is unable to grow its affiliate network business or to acquire or develop an operating business the Company will be unable to fund itself. There is no guarantee that Mr. Yaron will continue to fund the Company.

Management believes the Company will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. The Company's continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required. The outcome of this uncertainty cannot be assured. Our independent registered public accounting firm, in their reports on our financial statements for the years ended December 31, 2011 and 2010, expressed substantial doubt about our ability to continue as a going concern. These circumstances could complicate our ability to raise additional capital. Our financial statements do not include any adjustments to the carrying amounts of our assets and liabilities that might result from the outcome of this uncertainty.

The accompanying unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company's operating results.

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