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 June 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 June 30, 2018 we had approximately $45,000 of revenue and our net loss was approximately $774,000. As of June 30,
2018, we had total current assets of approximately $19,000 and total current liabilities of approximately $5,400.
Our Strategy
OptiLeaf will 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 are 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 $200,000 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 June 30, 2018. We generated revenue of approximately $45,000 during this period. We
had net losses of approximately $774,000 for the period from inception (August 11, 2014) to June 30, 2018.
Liquidity and Capital Resources
As of June 30, 2018, we had cash of $14,308. 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:
|
●
|
An increase in working capital requirements,
|
|
|
|
|
●
|
Addition of administrative and sales personnel as the business grows,
|
|
|
|
|
●
|
Increases in advertising, public relations and sales promotions as we commence operations,
|
|
|
|
|
●
|
Research and Development,
|
|
|
|
|
●
|
The cost of being a public company and the continued increase in costs due to governmental compliance activities.
|
The following summarizes the key components
of the Company’s cash flows for the six months ended June 30, 2018 and 2017.
|
|
2018
|
|
|
2017
|
|
Cash flows used by operating activities
|
|
$
|
(87,889
|
)
|
|
$
|
(118,084
|
)
|
Cash flows used by investing activities
|
|
|
0
|
|
|
|
(2,000
|
)
|
Cash flows -provided by financing activities
|
|
|
85,000
|
|
|
|
0
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(2,889
|
)
|
|
$
|
(120,084
|
)
|
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 June 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 June 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 June 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 June 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 June 30, 2018, the Company determined
that the following items constituted a material weakness:
|
●
|
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;
|
|
|
|
|
●
|
The Company’s accounting department, which consists of a limited number of personnel, does not provide adequate segregation of duties and timely information; and
|
|
|
|
|
●
|
The Company does not have effective controls over period end financial disclosure and reporting processes.
|
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 and second 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.