Item 2.
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Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
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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, 2017. 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 no 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 2017. 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.
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 and Asia, 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 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 7,300 potential customers in the states of Colorado, Oregon 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 $225,000 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 development operations during the period from inception (August 11, 2014) to June 30, 2017. We have generated $9,751
in revenue during this period. We experienced a net loss during the fiscal quarter ending June 30, 2017 of $55,152 compared to
a net loss of $90,849 for the fiscal quarter ending June 30, 2016.We had net losses of $599,000 for the period from inception
(August 11, 2014) to June 30, 2017.
Liquidity
and Capital Resources
As
of June 30, 2017, we had cash of $74,695, compared to $194,778 as of December 31, 2016. Our primary uses of cash were for employee
compensation and working capital. The main sources of cash were from our founders and investors. 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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As
the Company has experienced a decrease in its available capital during each of the past 2 fiscal years, and we expect this trend
to continue in the current year, the Company will likely need to raise additional capital in the current fiscal year to continue
to finance its business plans and activities. There can be no assurance that the Company will be able to raise such capital, or
on such terms as our acceptable to management. If the Company fails to raise additional capital, the Company could be unable to
execute on its business plans.
We
plan to fund our activities during and beyond 2017 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 March 31, 2017, 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, 2017, 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.
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Controls and Procedures
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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, 2017. 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, 2017, 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,
2017, 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 quarter of the fiscal year ended December 31, 2017) that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.