OptiLeaf Incorporated
Balance Sheets
September 30, 2018 and December 31, 2017
(unaudited)
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September 30,
2018
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December 31,
2017
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ASSETS
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Current Assets:
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Cash
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$
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30,967
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$
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17,197
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Accounts receivable
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895
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6,150
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Inventory
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3,570
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4,397
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Total current assets
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35,432
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27,744
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Computer equipment, net
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-
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-
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Other Assets
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Employee advance
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2,255
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2,255
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Security deposit
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-
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1,144
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Total other assets
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2,255
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3,399
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$
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37,687
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$
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31,143
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities
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Accounts payable and accrued expenses
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$
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10,545
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$
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24,902
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Total current liabilities
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10,545
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24,902
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Long term loan-related parties
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85,000
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-
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Total Liabilities
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95,545
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24,902
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Commitments
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Stockholders’ Equity (Deficit):
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Common stock, no par value; 100,000,000 shares authorized, 21,777,086 and 21,443,752 issued and outstanding at September 30, 2018 and December 31, 2017, respectively.
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796,000
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746,000
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Treasury Stock, at cost, 1,000,000 shares at September 30, 2018 and December 31, 2017 respectively
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(40,000
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)
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(40,000
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)
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Accumulated deficit
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(813,858
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)
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(699,759
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)
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Total Stockholders’ Equity (Deficit)
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(57,858
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)
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6,241
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Total Liabilities and Stockholders’ Equity(Deficit)
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$
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37,687
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$
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31,143
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See accompanying notes to unaudited condensed financial statements.
OptiLeaf Incorporated
Statements of Operations
(unaudited)
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Three Months Ended
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Nine Months Ended
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September 30,
2018
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September 30,
2017
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September 30,
2018
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September 30,
2017
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Sales
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$
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11,158
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$
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10,554
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$
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29,712
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$
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12,855
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Cost of goods sold
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1,748
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6,790
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7,242
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6,790
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Gross income
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9,410
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3,764
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22,470
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6,065
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Expenses:
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Professional fees
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3,330
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7,266
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12,051
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25,653
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Payroll
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35,698
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27,268
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88,877
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96,191
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Rent
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3,939
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6,586
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16,057
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14,100
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Supplies
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4,540
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6,702
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10,104
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16,276
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Travel
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314
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877
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1,026
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4,105
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Other
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1,482
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10,459
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10,633
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20,370
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49,303
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59,158
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138,748
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176,695
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Net loss before other income and provision for income taxes
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(39,893
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)
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(55,394
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)
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(116,278
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)
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(170,630
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)
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Other income
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Other income
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-
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-
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2,175
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7,451
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Interest income
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2
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5
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4
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39
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Net loss before provision for income taxes
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(39,891
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)
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(55,389
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)
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(114,099
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)
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(163,140
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)
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Provision for income taxes
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-
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-
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-
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-
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Net loss
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$
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(39,891
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)
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$
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(55,389
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)
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$
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(114,099
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)
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$
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(163,140
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)
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Basic and diluted loss per share
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$
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(0.00
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)*
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$
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(0.00
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)*
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$
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(0.01
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)
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$
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(0.01
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)
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Basic and diluted weighted average number of shares outstanding
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21,556,071
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20,288,197
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21,518,233
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20,236,345
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* Less than $(0.01)
See accompanying notes to unaudited condensed
financial statements.
OptiLeaf Incorporated
Statement of Cash Flows
(unaudited)
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Nine Months Ended
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September 30,
2018
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September 30,
2017
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Cash flows from operating activities:
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Net loss
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$
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(114,099
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)
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$
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(163,140
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation expense
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-
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2,629
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Decrease (increase) in:
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-
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-
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Account receivable
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5,256
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(5,352
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)
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Security deposits
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1,144
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-
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Inventory
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827
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(543
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)
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(Decrease) increase in:
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Accounts payable and accrued expenses
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(14,358
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)
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6,069
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Net cash used in operating activities
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(121,230
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)
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(160,337
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)
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Cash flows from investing activities:
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Employee Advance
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-
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(2,255
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)
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Net cash used in investing activities
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-
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(2,255
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)
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Cash flows from financing activities:
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Sale of common stock
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50,000
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35,000
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Proceeds from loan-related parties
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85,000
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-
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Net cash provided by financing activities
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135,000
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35,000
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Net increase (decrease) in cash
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13,770
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(127,592
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)
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Cash at beginning of period
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17,197
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194,778
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Cash at end of period
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$
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30,967
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$
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67,186
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Supplemental cash flow information:
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Cash paid during the period for:
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Interest
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$
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-
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$
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-
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Income taxes
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$
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-
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$
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-
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|
See accompanying notes to unaudited condensed
financial statements.
Note 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
OptiLeaf
Incorporated (“OptiLeaf” or the “Company”) was incorporated in Florida in August 2014. The Company has been
in the development stage since inception and has generated minimal sales to date. The Company plans to develop, market and sell
integrated software and hardware to the agriculture industry for the seamless tracking and management of growth, task automation
and sale of their clients’ products.
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting
principles for interim financial information. Certain information and footnote disclosures normally included in annual financial
statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to
such principles and regulations of the Securities and Exchange Commission for Form 10-Q. All adjustments, consisting of normal
recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results
of interim periods. The results of operations for such interim periods are not necessarily indicative of the results that may
be expected for a full year. The unaudited condensed financial statements contained herein should be read in conjunction with
the audited financial statements and notes thereto for the year ended December 31, 2017
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. At September
30, 2018 and December 31, 2017, the Company had no cash equivalents.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is provided over the estimated useful lives (3 years) of the related assets using
the straight-line depreciation method.
Maintenance
and repairs are charged to operations when incurred. Betterments and improvements are capitalized. When property and equipment
are sold or otherwise disposed of, the asset account and related accumulated depreciation account are reduced, and any gain or
loss is included in operations.
Capitalized
Software Development Costs
Software
development costs are expensed as incurred until technological feasibility of the product is established. Development costs incurred
subsequent to technological feasibility will be capitalized and amortized on a straight-line basis over the estimated economic
life of the product. Capitalization of computer software costs will be discontinued when the computer software product is available
to be sold, leased, or otherwise marketed. Amortization will begin when the product is available for release to customers. Management
has determined as of September 30, 2018 that the software has not yet reached the stage of technical feasibility.
Note 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
Recognition
Revenue
is recognized as the Company satisfies it performance obligation over time in the amount of consideration which the Company expects
it will be entitled in exchange for transferring promised goods or services to its customers. Revenue will be presented net of
returns.
Revenue
is recognized at the time the product is delivered or services are performed. Provision for sales returns will be estimated based
on the Company’s historical return experience. Revenue will be presented net of returns.
Allowance
for Doubtful Accounts
The
Company maintains an allowance for doubtful accounts which represents its best estimate of probable losses inherent in the accounts
receivable balance. The Company evaluates specific accounts when it becomes aware of a situation where a customer may not be able
to meet its financial obligations due to deterioration of its liquidity or financial viability, credit ratings, or bankruptcy.
The Company periodically adjusts this allowance based upon its review and assessment of each category of receivables. As of September
30, 2018, the allowance for doubtful accounts was $0.
Research
and Development
The cost
of research and development is charged to expense when incurred.
Net
Loss Per Common Share
Basic
net loss per common share is calculated using the weighted average common shares outstanding during each reporting period. Diluted
net loss per common share adjusts the weighted average common shares for the potential dilution that could occur if common stock
equivalents (convertible debt and preferred stock, warrants, stock options and restricted stock shares and units) were exercised
or converted into common stock. There were no common stock equivalents at September 30, 2018 and 2017.
Income
Taxes
Deferred
income taxes are recognized for the tax consequences related to temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for tax purposes at each year end, based on enacted tax laws
and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation
allowance is recognized when, based on the weight of all available evidence, it is considered more likely than not that all, or
some portion, of the deferred tax assets will not be realized. Income tax expense is the sum of current income tax plus the change
in deferred tax assets and liabilities.
ASC
740, Income Taxes, requires a company to first determine whether it is more likely than not (which is defined as a likelihood
of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming
that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets
this more likely than not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty
percent likely to be realized upon effective settlement with a taxing authority.
The
Federal and state income tax returns of the Company for 2017, 2016 and 2015 are subject to examination by the internal Revenue
Service and state taxing authorities for three (3) years from the date filed.
Stock-Based
Compensation
The
Company accounts for equity instruments issued to employees in accordance with ASC 718, Compensation - Stock Compensation. ASC
718 requires all share-based compensation payments to be recognized in the financial statements based on the fair value using
an option pricing model. ASC 718 requires forfeitures to be estimated at the time of grant and revised in subsequent periods if
actual forfeitures differ from initial estimates.
Equity
instruments granted to non-employees are accounted for in accordance with ASC 505, Equity. The final measurement date for the
fair value of equity instruments with performance criteria is the date that each performance commitment for such equity instrument
is satisfied or there is a significant disincentive for non-performance.
Note 1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair
Value of Financial Instruments
Pursuant
to ASC No. 820, “Fair Value Measurement and Disclosures”, the Company is required to estimate the fair value of all
financial instruments included on its balance sheet as of September 30, 2018 and December 31, 2017. The Company’s financial instruments
consist of accounts payable and accrued expenses. The Company considers the carrying value of such amounts in the financial statements
to approximate their fair value due to the short-term nature of these financial instruments.
Recent
Pronouncements
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize most lease liabilities
on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. The update
states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for
the right to use the underlying asset for the lease term. The update is effective for interim and annual periods beginning after
December 15, 2018, and early adoption is permitted. The impact of this guidance will result in the recognition of assets and liabilities
for leases that the Company enters into in the future.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s financial position or results of operations.
Note 2.
GOING CONCERN
The
Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business.
The Company has experienced a loss from
operations during its development stage as a result of its investment necessary to achieve its operating plan, which is long-range
in nature. For the period from August 11, 2014 (inception) to September 30, 2018, the Company sustained cumulative losses of approximately
$814,000. In addition, the Company has just started revenue generating operations. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result
from this uncertainty.
The
ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations
or on the ability of the Company to obtain necessary financing to fund ongoing operations. Management believes that its current
and future plans enable it to continue as a going concern for the next twelve months.
To
meet these objectives, the Company continues to seek other sources of financing in order to support existing operations and expand
the range and scope of its business. However, there are no assurances that any such financing can be obtained on acceptable terms
and timely manner, if at all. The failure to obtain the necessary working capital would have a material adverse effect
on the business prospects and, depending upon the shortfall, the Company may have to curtail or cease its operations.
The
accompanying unaudited condensed financial statements do not include any adjustment to the recorded assets or liabilities that
might be necessary should the Company have to curtail operations or be unable to continue in existence.
Note 3.
COMPUTER EQUIPMENT (NET)
Equipment
is recorded at cost and consisted of the following:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Computer equipment
|
|
$
|
10,514
|
|
|
$
|
10,514
|
|
Less: accumulated depreciation
|
|
|
(10,514
|
)
|
|
|
(10,514
|
)
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Depreciation
expense was $0 and $2,629 for the month ended September 30, 2018 and 2017 respectively.
Note
4. LONG-TERM DEBT
The
Company received loans in the amount of $30,000 from its CEO, $15,000 from its CFO, and $40,000 from its director as of September
30, 2018. The respective loans carry a 3% interest rate. The interest accrues and is payable at maturity in March and May of 2020.
Note 5.
STOCKHOLDERS’ EQUITY
Common
stock
The Company has authorized shares of no
par value common stock. At September 30, 2018, the number of shares of common stock issued and outstanding was 21,777,086.
The company issued 333,334 shares of common
stock during the three months ended September 30,2018 for $50,000.
Treasury
stock
On
September 20, 2016, the Board of Directors authorized the Company to repurchase one million shares of common stock for $40,000.
These treasury stock shares may at any time be canceled upon the Board of Directors approval. The Board has not made such election.
Note 6.
CONCENTRATION CREDIT RISK
The
Company maintains its cash balances in a local financial institution which at times may exceed the $250,000 amount insured by
the Federal Deposit Insurance Corporation (FDIC).
Note 7.
COMMITMENTS AND CONTINGENCIES
The
Company leases its offices in a month to month arrangement. The monthly minimum lease payments are $1,144 plus a pro rata share
of operating expenses.
Note 8.
INCOME TAXES
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes. The sources and tax effects of the differences are as follows:
Income tax provision at the federal statutory rate
|
|
|
21
|
%
|
Effect of operating losses
|
|
|
(21
|
)%
|
|
|
|
0
|
%
|
At
September 30, 2018, the Company has a net operating loss carryforward of approximately $814,000 for Federal and state purposes.
This loss will be available to offset future taxable income. If not used, this carryforward will begin to expire in 2034. The
deferred tax asset relating to the operating loss carryforward has been fully reserved at September 30, 2018 and December 31,
2017. The principal difference between the operating loss for income tax purposes and reporting purposes is disallowed meals and
entertainment and a temporary difference in depreciation expense.
Utilization
of the Company’s net operating losses may be subject to substantial annual limitation if the Company experiences a 50% change
in ownership, as provided by the Internal Revenue Code and similar state provisions. Such an ownership change would substantially
increase the possibility of net operating losses expiring before complete utilization.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
information and financial data discussed below is derived from our unaudited financial statements, herein, for the period from
inception, August 11, 2014 through September 30, 2018. The unaudited financial statements were prepared and presented
in accordance with generally accepted accounting principles in the United States. The information and financial data discussed
below is only a summary and should be read in conjunction with the related notes contained elsewhere in this prospectus. The financial
statements contained elsewhere in this prospectus fully represent our financial condition and operations; however, they are not
indicative of our future performance.
Overview
We
were incorporated under the laws of the State of Florida on August 11, 2014. OptiLeaf, Inc. was formed to provide a world-class
fully integrated turn-key growth management system for the cannabis industry to help dispensary owners, grow operations and caregivers
increase their sales and reduce costs, increase their company’s productivity and profitability and reduce or eliminate the
need for manual labor while maximizing yield. We are presently a development stage company with minimal customers, sales, suppliers,
or inventory as of this filing.
OptiLeaf’s
target market includes dispensaries and grow operations.
OptiLeaf has completed the development
of its Grow Pro and POS management software. Both products are being beta tested in the state of Colorado and we are currently
looking for beta testers in the states of Washington and Oregon. OptiLeaf has completed integration with Metric in the State of
Colorado and Oregon and with BioTrack in the state of Washington.
OptiLeaf plans on commencing the development
of its wireless network censors in the latter half of 2018. We believe our integrated hardware will be capable of monitoring and
adjusting light, soil moisture, CO2, temperature, ventilation, nutrients, and humidity as needed, in real time and around-the-clock.
Our
Product
Once
developed, the heart of our system will be the innovative multi-purpose growth management software suite. OptiLeaf plans to add
proprietary hardware components, which we believe, together with software, will provide a turn-key growth management system. The
system, once developed and implemented, will potentially allow growers to realize significant labor savings as common grow house
tasks are fully automated. Once developed, we believe our integrated hardware is capable of monitoring and adjusting light, soil
moisture, CO2, temperature, ventilation, nutrients, and humidity as needed, in real time and around-the-clock. Once developed,
we believe our user interface, data tracking, and remote access capabilities could potentially allow growers to monitor, adjust,
and manage their facilities as needed from anywhere in the world, however, none of our products are fully developed or available
for sale or use at this time, and there can be no assurance that our products will ever become fully developed, or will gain market
acceptance when and if fully developed.
In the period from inception (August 11,
2014) through September 30, 2018 we had approximately $45,000 of revenue and our net loss was $814,000. As of September 30, 2018,
we had total current assets of $35,432 and total current liabilities of approximately $10,545.
Our
Strategy
OptiLeaf
offer a complete line of hardware and software technological solution for the cannabis industry.
Our
software is a seed-to-sale growth management system, designed to not only offer a complete grow automation system, but to enhance
every aspect of the medical cannabis business.
Our
wireless sensor networks will include an array of products that control, monitor, and automate all aspects of the grow house operations.
Our principal product, OptiLeaf GrowPro Elite, provides a complete, robust state-of-the-art hardware and software solution for
large cultivation operations with multiple locations.
The
heart of our system will be a multi-purpose growth management software suite. OptiLeaf will add proprietary hardware components,
which, together with software, will provide a turn-key growth management system. The system will potentially allow growers to
realize significant labor savings as common grow house tasks are fully automated. Our integrated hardware is capable of monitoring
and adjusting light, soil moisture, CO2, temperature, ventilation, nutrients, and humidity as needed, in real time and around-the-clock.
Our user interface, data tracking, and remote access capabilities allow growers to monitor, adjust, and manage their facilities
as needed from anywhere in the world.
Our
products will be manufactured in the USA, managed by a team possessing years of experience with domestic and overseas production.
OptiLeaf does not directly distribute, sell, grow, harvest cannabis or any substances that violate United States law or the Controlled
Substances Act, nor does it intend to do so in the future.
While
individual components of our system are available from our main competitors, OptiLeaf believes it will have the first and only
system to completely integrate all aspects of growth automation and management into one system.
Marketing
OptiLeaf
will focus its sales and marketing efforts in the states of Colorado, Oregon, Oklahoma, and Washington at this point. Once the
rules and regulations for the state of California are introduced, we plan to expand our marketing efforts into that state as well.
We have decided to focus our efforts with the most developed and broadest customer base at this point.
We
are currently in the process of interviewing and hiring for full time marketing and sales personnel in Colorado, Oregon and Washington.
There
is a total of 8,100 potential customers in the states of Colorado, Oregon, Oklahoma, and Washington.
Operations
OptiLeaf’s
operational strategies behind the development of our products and services are based on design, innovation, and added value. When
developing a new product, we want to be the leader by introducing innovative features that will allow cannabis cultivators to
lower their costs, boost yields, and maximize production capacity. Furthermore, when OptiLeaf develops new goods or services,
we will package them with support services as well as immediate observable and psychological benefits. Our focus is on how our
products and services stand against the competition and how our technical measures relate to the customers’ needs.
Over
the next twelve months, we anticipate expenses of up to $175,000 including general, administrative and corporate expenses. The
extent of such expenses will depend upon the successful implementation of our financing strategy and the acceleration of our business
plan accordingly.
We
expect to finance our operations primarily through our existing cash, our operations and any future financing. If we
do not obtain additional funding, we will continue to operate on a reduced budget until such time as more capital is raised. We
believe that we could operate with our current cash on hand while satisfying any shortfall in cash flow with income that will
be generated after the launch of our sales and marketing programs. However, to effectively implement our business plan,
we will need to obtain additional financing in the future.
If
we obtain financing, we would expect to accelerate our business plan and increase our advertising and marketing budget, hire additional
staff members, and increase our office space and operations all of which we believe would result in the generation of revenue
and profit for our company.
Results
of Operations
We have conducted minimal operations during
the period from inception (August 11, 2014) to September 30, 2018. We generated revenue of approximately $45,000 during this period. We
had net losses of approximately $814,000 for the period from inception (August 11, 2014) to September 30, 2018.
Liquidity
and Capital Resources
As
of September 30, 2018, we had cash of $30,967. Our primary uses of cash were for employee compensation and working
capital. The main sources of cash were from our Founders and Private Placement of securities. The following trends are reasonably
likely to result in a material decrease in our liquidity over the near to long term:
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An
increase in working capital requirements,
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Addition
of administrative and sales personnel as the business grows,
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Increases
in advertising, public relations and sales promotions as we commence operations,
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Research
and Development,
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The
cost of being a public company and the continued increase in costs due to governmental compliance activities.
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The following summarizes the key components
of the Company’s cash flows for the nine months ended September 30, 2018 and 2017 .
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2018
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2017
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Cash flows used by operating activities
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$
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(121,230
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)
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$
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(160,337
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)
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Cash flows used by investing activities
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0
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(2,255
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)
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Cash flows -provided by financing activities
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135,000
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35,000
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Net decrease in cash and cash equivalents
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$
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13,770
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$
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(127,592
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)
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We plan to fund our activities during and beyond
2018 through our existing cash on hand and through revenue generated through the sale of our product, and through additional debt
or equity financing if available. We cannot be certain that such funding will be available on acceptable terms, or available at
all. To the extent that we raise additional funds by issuing debt or equity securities or through bank financing, our stockholders
may experience significant dilution. If we are unable to raise funds when required or on acceptable terms, we may have to significantly
scale back, or discontinue, our operations.
Off-Balance
Sheet Arrangements
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,
sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment
in our securities.
Critical
Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
At September 30, 2018, the Company had no cash equivalents.
Recently
Issued Accounting Pronouncements
We
do not expect that other recently issued accounting pronouncements will have a material impact on our financial statements.
Going
Concern
Our
financial statements have been prepared on a going concern basis. As of September 30, 2018, we have not generated significant
revenues since inception. We expect to finance our operations primarily through our existing cash, our operations and any future
financing. However, there is no assurance we will be able to obtain such capital, through equity or debt financing,
or any combination thereof, or on satisfactory terms or at all. Additionally, no assurance can be given that any such financing,
if obtained, will be adequate to meet our capital needs. If adequate capital cannot be obtained on a timely basis and on satisfactory
terms, our operations would be materially negatively impacted.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation,
with the participation of the Company’s management, including the Company’s President, Chief Financial Officer, Secretary,
Treasurer and Director, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule
13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s
CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information
required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, 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 the Company’s management, including the Company’s CEO and CFO, as appropriate,
to allow timely decisions regarding required disclosure for the reasons discussed below.
The
management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management
and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, 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
management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2018.
The framework used by management in making that assessment was the criteria set forth in the document entitled ” Internal
Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
that assessment, our President and Chief Financial Officer have determined and concluded that, as of September 30, 2018, the Company’s
internal control over financial reporting were not effective.
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented
or detected on a timely basis. In its assessment of the effectiveness of internal control our financial reporting as of September
30, 2018, the Company determined that the following items constituted a material weakness:
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The
Company does not have an independent audit committee in place, which would provide oversight of the Company’s officers,
operations and financial reporting function;
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The
Company’s accounting department, which consists of a limited number of personnel, does not provide adequate segregation
of duties and timely information; and
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The
Company does not have effective controls over period end financial disclosure and reporting processes.
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Management
believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee,
will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. Management plans
to take action and implementing improvements to our controls and procedures when our financial position permits.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm pursuant to the permanent exemption of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Changes
in Internal Control over Financial Reporting
No
change in our system of internal control over financial reporting occurred during the period covered by this report (i.e. the
first, second quarter, and third quarter of the fiscal year ended December 31, 2018) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.