ITEM 2.
Management's discussion and analysis of financial condition and results of operations
GENERAL
Optec International, Inc. (formerly Green Meadow Products, Inc. ("the Company", "we", "us" or "our") was incorporated under the laws of the State of Wyoming on June 22, 2012.
The Company initially acquired a product for trucking fleets which it sold at a loss in order to focus on the pet product business. The Company now operates in the pet natural health supplement and related fields; with a focus on natural pet pain relief formulas and pet pain preventative products. We believe it will be able to successfully compete in today's natural supplement and related fields industry by controlling production costs and by limiting its distribution expenses using, primarily, online marketing tools to promote its products and to further develop its digital strategies.
Significant Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements which have been prepared in accordance with accounting principals generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Codification No. 605, "Revenue Recognition" ("ASC-605"), ASC-605 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.
The Company's revenues have been generated primarily through sublicense and distribution agreements related to our Paw Pal product and our pain relief products. The terms of these agreements generally consist solely of upfront, nonrefundable payments for licensing and distribution rights. Revenues from non-refundable licensing and distribution fees are recognized upon the completion of delivery of the license agreement and invoice to the customer and/or receipt of the payment if the license has stand-alone value and we do not have ongoing involvement or obligations.
For the year ended June 30, 2017 and the three month period ended September 30, 2017, all license payments met the above criteria or in the case of one contract, the only continuing involvement was to sell our products to the distributor at pricing that is consistent with market transactions, thereby allowing for the recognition of revenue for the licensing and distribution arrangements upon receipt.
When non-refundable license fees do not meet this criteria, the license revenues are recognized over the expected period of performance. We periodically review for any expected period of substantial involvement under the agreements that provide for non-refundable up-front payments and license fees. If ever applicable, we will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of our expected involvement.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.
Results of Operations
For The Three Months Ended September 30, 2017 Compared To The Three Months Ended September 30, 2016.
Revenue
During the quarter ended September 30, 2017 we had $94,650 in total sales of which $4,500 was attributed to sales to one customer for Green Meadow formula rights which equated to 5% of sales for the quarter, and $90,150 which was attributed to the sales of Optimize fuel technology units which equated to 95% of sales for the quarter.
During the quarter ended September 30, 2016 we had $7,100 in sales to Sandstone Enterprises for a sub license agreement for a dog treat formula which equated to 100% of sales for the quarter.
Cost of Sales
For the three month period ended September 30, 2017, we had cost of goods of $58,360 relating to the sale of
Optimized Fuel Technology units
.
For the three month period ended September 30, 2016, we had no cost of goods.
Gross Profit
For the three month period ended September 30, 2017, we recognized a gross profit of $36,290 from the sale of a
sub license agreement for a dog treat product formula and sale of Optimized Fuel Technology units.
For the three month period ended September 30, 2016, we recognized a gross profit of $7,100 from sale of a
sub license agreement for a dog treat formula
.
Operating Expenses
For the three month period ended September 30, 2017, we incurred total operating expenses of $10,750 consisting of professional fees of $8,573 which were attributable to expenses relating to our SEC filings and accounting costs, amortization of $1,019, consulting fees of $1,000
, which was paid for assistance in the marketing of the Optimized Fuel Technology Units,
and general and administrative fees of $158.
For the three month period ended September 30, 2016, we incurred total operating expenses of $9,022 consisting of professional fees of $8,000 which were attributable to expenses relating to our SEC filings and accounting costs, amortization of $1,019, consulting fees of $0 and general and administrative fees of $3.
Income Tax
For the three month
periods
ended September 30, 2017 and 2016, we did not recognize tax expense
.
Net Income (Loss)
For the three month period ended September 30, 2017, we recognized a net profit of $25,540 due to the factors discussed above.
For the three month period ended September 30, 2016, we recognized a net loss of $(1,922) due to the factors discussed above.
Liquidity and Capital Resources
For The Three Months Ended September 30, 2017 Compared To The Year Ended June 30, 2017.
As at September 30, 2017, the Company had cash on hand of $2,634, total assets of $105,161, total liabilities of $68,933 and stockholders' equity of $36,228 as compared to
June 30, 2017,
where
the Company had cash on hand of $342, total assets of $17,688, total liabilities of $7,000 and stockholders' equity of $10,688. The change in shareholders’ equity in the three months ended September 30, 2016 was largely attributable to operating income incurred in the period.
Operating Activities
For the three month period ended September 30, 2017, we generated
$
2,292 cash in operating activities compared to using
$
5,503 in cash
used
from operating activities for the three months ended September 30, 2016.
During the three months ended September 30, 2017, we incurred a net income of $25,540 which was reduced for cash flow purposes by $1,019 in non-cash expenses reduced further by a net increase in working capital liabilities of
$
24,267
.
By comparison, during the three months ended September 30, 2016, we incurred a loss of
$
1,922 which was reduced for cash flow purposes by $1,019 in non-cash expenses reduced further by a net increase in working capital liabilities of
$
4,600
.
Investing Activities
For the three month period ended September 30, 2017 we had no investing activities.
Financing Activities
During the three months ended September 30, 2017 and 2016 we neither generated nor used any funds in financing activities.
Our auditor's report states the following with regard to our ability to continue as a going concern, "has yet to establish a reliable, consistent and proven source of revenue to meet its operating costs on an ongoing basis and currently does not have sufficient available funding to fully implement its business plan. These factors raise substantial doubt about its ability to continue as a going concern".
The Company believes it may have sufficient cash resources available to fund its primary operation for the next twelve (12) months based on current sales. The Company has no agreements in place with its shareholders, officer and director or with any third parties to fund operations beyond the end of the Company's September 30, 2017 quarter. The Company has not negotiated nor has available to it any other third party sources of liquidity.
The Company has no, current, off balance sheet arrangements and does not anticipate entering into any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition.