UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549

 

FORM 10-Q

 

[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2018

 

[_] Transition report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________________to ________________

 

Commission file number 333-198993

 

OPTEC INTERNATIONAL, INC.

--------------------------------------------------------------

(Exact name of Registrant as specified in its charter)

2721 Loker Avenue West

Carlsbad, CA 92010

(760) 444-5566

www.OptecIntl.com

(Address and telephone number of registrant’s principal executive offices and principal place of business)

1010 Industrial Road, Suite 70

Boulder City, Nevada, 89005

702-769-4529

(Former address of principal executive offices)

 

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [_]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [_]

 

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2 of the Exchange Act). Yes [_] No [X]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Class	Outstanding at November 9, 2018
Common Stock, $0.001 par value per share	17,829,947

OPTEC INTERNATIONAL, INC.

TABLE OF CONTENTS

  INDEX

  

 

 

UNAUDITED FINANCIAL STATEMENTS

OPTEC INTERNATIONAL, INC.

TABLE OF CONTENTS

  

September 30, 2018

  

  

 

		September 30, 2018				June 30, 2018
Assets		(Unaudited)
Current Assets
Cash		$	31,265			$	30,799
Accounts Receivable-Royalties-related party			11,722				-
Loan to-Optimized Fuel Technologies-related party			218,900				-
Prepaid Salary			3,000				3,000
Inventory			80,600				85,000
Total Current Assets			345,487				118,799
Other Assets
License net of accumulated amortization of $12,562			489,938				502,500
Other intangible assets net of accumulated amortization of $5,949 and $5,680 respectively			4,801				5,070
Total Other Assets			494,739				507,570
Total Assets		$	840,226			$	626,369
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Payable and accrued expenses - related party			63,260				60,760
Derivative liability			2,587,833				1,265,394
Accrued Interest			24,589				3,221
Notes Payable net of discount			471,103				48,580
Notes Payable-License			-				391,000
Loan from related party			100				100
Total Current Liabilities		$	3,146,885			$	1,769,055
Total Liabilities			3,146,885				1,769,055
Commitments and Contingencies
Stockholders' Equity (deficit)
Common stock $0.001 par value 75,000,000 shares authorized 17,829,947 and 17,829,947 shares issued and outstanding at September 30, 2018 and June 30, 2018, respectively			17,830				17,830
Additional paid in capital			203,120				203,120
Accumulated earnings (deficit)			(2,527,609	)			(1,363,636	)
Total Stockholders' Equity (deficit)			(2,306,659	)			(1,142,686	)
Total Liabilities and Stockholders' Equity (deficit)		$	840,226			$	626,369

 

See accompanying notes to unaudited financial statements.

 

   

OPTEC INTERNATIONAL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

  

 

 * denotes income or (loss) of less than $0.01 per share

 

See accompanying notes to unaudited financial statements.

OPTEC INTERNATIONAL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

 

See accompanying notes to unaudited financial statements.

 

 

 

Note 1 – NATURE OF OPERATIONS

Optec International, Inc. (Formerly Green Meadow Products, Inc. "the Company", “GMP”, "Optec", "we", "us" or "our") was incorporated under the laws of the State of Wyoming on June 22, 2012.

Subsequent to acquiring the licensing rights for the Optimized Fuel Maximizer, the Company’s focus is on the expansion of the sales & marketing of the Optimized Fuel Maximizer, concentrating primarily in the North America region, followed by expansion into other geographic areas subsequent to locating and contracting with large distributors that already operate in the automotive aftermarket arena. In addition, the Company is focused on aiding the manufacturer in obtaining additional certifications from the California Air Resources Board (CARB) which, upon receiving should aid in the sales of the Optimized Fuel Maximizer units not only in California but nationally and internationally as well.

On June 4, 2018 the Company entered into an Exclusive Licensing Agreement with Optimized Fuel Technologies for the right to exclusively distribute and sell the Optimized Fuel Maximizer internationally, with the exception of the United States and Canada. Consideration of $501,500 was paid for the licensing right in the form of one million five hundred thousand (1,500,000) shares of the Company’s common shares valued at $.001 per share which were authorized to be issued to Optimized Fuel Technologies; in addition to a five hundred thousand dollars ($500,000) note payable to be paid over the course of 24 months.  As of September 30, 2018, the $500,000 note payable was paid off in full.

On June 20, 2018 the Company entered into an Exclusive Licensing Agreement Addendum with Optimized Fuel Technologies for the right to exclusively sell the Optimized Fuel Maximizer worldwide. On June 4, 2018, the Company had entered into an Exclusive Licensing Agreement with Optimized Fuel Technologies for the right to exclusively sell the Optimized Fuel Maximizer internationally, with the exception of the United States and Canada; this agreement extends exclusive marketing right to include North America and Canada. Consideration of $1,000 was paid for the licensing rights under the addendum in the form of one million (1,000,000) shares of the Company’s common shares valued at $.001 per share which were authorized to be issued to Optimized Fuel Technologies.  (For further information on Optec Products acquired-www.optecmpg.com)

On August 8, 2018 Optimized Fuel Technologies, a related party, entered into a contract with a company that desired to purchase the Optimized Fuel Maximizer on a manufacturer direct basis As the Company owns the exclusive licensing rights to sales of the Optimized Fuel Maximizer; per the Royalty agreement dated August 27, 2018 the Company agreed to the acceptance of royalty revenue generated by sales which are made on a manufacturer direct basis.

Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

 

BASIS OF PRESENTATION

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company's year-end is June 30.

 

ESTIMATES

 

The preparation of the financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

The Company maintains a cash balance in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. There were no cash equivalents as of September 30, 2018 or 2017.

 

CUSTOMER AND PURCHASE CONCENTRATION 

During the three months ended September 30, 2018 and 2017, the following customers represented more than 10% of the Company’s sales: 

During the three months ended September 30, 2018 and 2017, the following vendors represented more than 10% of the Company’s Purchases:

 

*100% represents product purchased from Optimized Fuel Technologies.

INVENTORY

 

Inventory is recorded at lower of cost or market; cost is computed on a first-in first-out basis. At September 30, 2018 and June 30, 2017 we had inventory of $80,600 and $85,000 respectively, consisting of Optimized Fuel Maximizer units.

 

 

FINANCIAL INSTRUMENTS

 

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Accounting Standards Codification ("ASC") 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs which reflect a reporting entity's own assumptions about the assumptions that market participants would use for pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

 

The recorded amounts of financial instruments, comprising cash, accounts payable and income tax payable, approximate their market values as of September 30, 2018 due to the short term maturities of these financial instruments.

 OTHER INTANGIBLE ASSETS

Under ASC 350-50-1, costs incurred in the acquisition of an intangible asset are capitalized by the Company. Our intangible assets are related to the acquisition of the Licensing rights for the Optimized Fuel Maximizer which is being amortized to expense over the licensing rights estimated useful life or period of benefit which is estimated to be 10 years using straight-line method; annual amortization will be approximately $50,250 per year. In addition, the purchase of our Green Meadow PR formula for natural pain relief for animals is being amortized to expense over the formula's estimated useful life or period of benefit which is estimated to be 10 years using straight-line method. As of September 30, 2018 and June 30, 2018, the balances of our intangible assets net of accumulated amortization were $494,739 and $507,570 respectively.

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

The Company evaluates the recoverability of long-lived assets and intangible assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in useful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed. At the three months ended September 30, 2018 there is no impairment of long-lived assets or intangible assets.

 

INCOME TAXES

 

We account for income taxes in accordance with FASB ASC 740, Income Taxes which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. The effect on the deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

REVENUE RECOGNITION

 

 

The adoption of this guidance did not have a material impact on the Company’s consolidated statement of operations, cash flows, and balance sheet as of the adoption date or for the three months ended September 30, 2018.

The Company's revenues have been generated primarily through the sales of the Optimized Fuel Maximizer units and sublicense and distribution agreements related to our PawPal 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 receipt of the payment if the license has stand-alone value and we do not have ongoing involvement or obligations. 

 

For the three months ended September 30, 2018 and 2017, all sales and 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.

 

TRADE RECEIVABLES

Trade Receivables are the amount of billed or unbilled claims or other similar items subject to uncertainty concerning their determination or ultimate realization under contracts that are expected to be collected in the next rolling twelve months following the latest balance sheet presented. Our policies on receivables varies per customer, but in no case do we allow for a receivable to be outstanding for more than 12 months. As of September 30, 2018, we had no open trade receivables, we had royalty receivables of $11,722 and other receivables from Optimized Fuel Technologies in the amount of $218,900. In the year ended June 30, 2018 we expensed $85,100 to bad debt as uncollectable receivables.

ADVERTISING COSTS

The Company's policy regarding advertising is to expense advertising when incurred. The Company incurred advertising and marketing expense of $3,774 during the three months ended September 30, 2018 and $0 during the three months ended September 30, 2017.

 

NET INCOME (LOSS) PER SHARE OF COMMON STOCK

 

The Company computes net income (loss) per share in accordance with ASC 105, "Earnings per Share" which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. Basic income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period.  Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive. For the three months ended September 30, 2018, 789,126  shares, (386,626 from convertible notes and 402,500 from warrants), were potentially dilutive common shares and for the three months ended September 30, 2017 there were no diluted shares.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

 

Note 3 – GOING CONCERN

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As of September 30, 2018, the Company had yet to establish a proven, reliable, recurring source of revenue to fund its ongoing operating costs and with insufficient funds to fully implement its proposed business plan. This raises substantial doubt about the Company's ability to continue as a going concern.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. The Company is contemplating conducting an offering of its debt or equity securities to obtain additional operating capital. The Company is dependent upon its ability, and will continue to attempt, to secure equity and/or debt financing. There are no assurances that the Company will be successful and without sufficient financing it would be unlikely for the Company to continue as a going concern.

On November 1, 2017 the board of Directors approved a revolving loan receivable with a three year maximum term and a limit of $250,000 to Optimized Fuel Technologies, a related party and the manufacturer of the Fuel Maximizer units we sell. The loan is intended to have various advances at a 0% interest rate for the first 90 days with the interest rate subject to adjustment thereafter. Through June 30, 2018 $109,000 in loans were made to facilitate the additional CARB (California Air Resources board) certifications, Patents expanded, and other certifications needed, which are required for both domestic and international markets. The $109,000 was paid in full by being credited against a $500,000 note payable for licensing rights. On August 31, 2018 another payment was made to Optimized Fuel Technologies in the amount of $391,000 which was also credited against the $500,000 note payable resulting in the $500,000 note being paid in full. At September 30, 2018 there was a loan receivable from Optimized Fuel Technologies for $218,900.

 

Note 5 - CONVERTIBLE LOANS

At September 30, 2018 and 2017, convertible loans consisted of the following:

During the three months ended September 30, 2018 and 2017, the Company recognized amortization of debt discount, included in interest expense, of $187,440 and $0 respectively.

Promissory Notes and Warrants – Issued for the three months ended September 30, 2018

During the three months ended September 30, 2018, the Company issued a total of $913,000 promissory notes (“Notes”) with the following terms:

·

Terms ranging from 9 months to 37 months.

·

Annual interest rates of 0% to 12%.

·

Certain notes are convertible at the option of the holders at issuance, 90 days, or 180 days from issuance.

·

Conversion prices are typically based on the discounted (38% to 50% discount) average closing prices or lowest trading prices of the Company’s shares during various periods prior to conversion.

Certain notes allow the Company to redeem the notes at rates ranging from 135% to 150% depending on the redemption date provided that no redemption is allowed after the 180^th day. Likewise, the note includes original issue discounts and financing costs totaling to $179,750 and the Company received cash of $733,250.

 

 

The Company identified conversion features embedded within certain notes and warrants issued during the three months ended September 30, 2018 and the year ended June 30, 2018. The Company has determined that the conversion feature of the Notes represents an embedded derivative since the conversion price is variable and the Notes include a reset provision which could cause adjustments upon conversion. Accordingly, the Notes are not considered to be conventional debt and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. During the three months ended September 30, 2018 the 68,530 warrants issued with convertible notes, are exercisable into 68,530 shares of common stock, for a period of five years from issuance, at a price of $7.00 to $8.40 per share. As a result of the reset features for these warrants, at September 30, 2018, the warrants increased by 245,244 and the total warrants are now exercisable into 313,774 shares of common stock at $1.71 per share. The reset feature of warrants associated with this convertible note was effective at the time that a separate convertible note with lower exercise price was issued. We accounted for the issuance of the Warrants as a derivative (see Note 6).

Warrants

A summary of activity during the three months ended September 30, 2018 regarding warrants issued as follows:

The following table summarizes information relating to outstanding and exercisable warrants as of September 30, 2018:

 

 

Note 6 - DERIVATIVE LIABILITIES

The Company analyzed the conversion option for derivative accounting consideration under ASC 815, Derivatives and Hedging, and hedging, and determined that the instrument should be classified as a liability since the conversion option becomes effective at issuance resulting in there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

Fair Value Assumptions Used in Accounting for Derivative Liabilities.

ASC 815 requires we assess the fair market value of derivative liability at the end of each reporting period and recognize any change in the fair market value as other income or expense item.

The Company determined our derivative liabilities to be a Level 3 fair value measurement and used the Black-Scholes pricing model to calculate the fair value as of September 30, 2018. The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration, the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend rate. Changes to these inputs could produce a significantly higher or lower fair value measurement. The fair value of each convertible note is estimated using the Black-Scholes valuation model.

At September 30, 2018 and June 30, 2018, the estimated fair values of the liabilities measured on a recurring basis are as follows:

The following table summarizes the changes in the derivative liabilities during the three months ended September 30, 2018:

 

 

The aggregate loss on derivatives during the three months ended September 30, 2018 and 2017 was as follows:

 

Note 7 –LICENSING AND SERVICE AGREEMENTS 

 

On June 4, 2018 the Company entered into an Exclusive Licensing Agreement with Optimized Fuel Technologies, a related party, for the right to exclusively sell the Optimized Fuel Maximizer internationally, with the exception of the United States and Canada. Consideration of $1,500 was paid for the licensing right in the form of one million five hundred thousand (1,500,000) shares of the Company’s common shares valued at $.001 per share which were authorized to be issued to Optimized Fuel Technologies; in addition, five hundred thousand dollars ($500,000) was to be paid over the course of 24 months which was paid as of September 30, 2018.

On June 20, 2018 the Company entered into an Exclusive Licensing Agreement Addendum with Optimized Fuel Technologies, a related party, for the right to exclusively sell the Optimized Fuel Maximizer worldwide. On June 4, 2018, the Company had entered into an Exclusive Licensing Agreement with Optimized Fuel Technologies for the right to exclusively sell the Optimized Fuel Maximizer internationally, with the exception of the United States and Canada; this agreement extends exclusive marketing right to include North America and Canada. Consideration of $1,000 was paid for the licensing rights under the addendum in the form of one million (1,000,000) shares of the Company’s common shares valued at $.001 per share which were authorized to be issued to Optimized Fuel Technologies.

On August 8, 2018 Optimized Fuel Technologies, a related party, entered into a contract with a company that desired to purchase the Optimized Fuel Maximizer on a manufacturer direct basis As the Company owns the exclusive licensing rights to sales of the Optimized Fuel Maximizer; per the Royalty agreement dated August 27, 2018 the Company agreed to the acceptance of royalty revenue generated by sales which are made on a manufacturer direct basis.

Note 8 - COMMON STOCK

 

The Company is authorized to issue seventy five million shares of common stock with $0.001 par value.

 As of September 30, 2018, there were 17,829,947 shares of common stock issued and outstanding. As of June 30, 2017, there were 17,829,947 shares of common stock issued and outstanding.

No shares of common stock were issued during the three months ended September 30, 2018 and 2017.

 

 

Note 9 – RELATED PARTY TRANSACTIONS

On August 8, 2018 Optimized Fuel Technologies, a related party, entered into a contract with a company that desired to purchase the Optimized Fuel Maximizer on a manufacturer direct basis. As the Company owns the exclusive licensing rights to sales of the Optimized Fuel Maximizer; per the Royalty agreement dated August 27, 2018 the Company agreed to the acceptance of royalty revenue generated by sales which were made on a manufacturer direct basis.

We have a loan receivable from Optimized Fuel Technologies, a related party, at September 30, 2018 totaling $218,900.

Note 10 – COMMITMENTS AND CONTINGENCIES

We have a twelve month lease for office space at 2721 Loker Avenue West, Carlsbad, CA 92010 for $2,500 per month with Optimized Fuel Technologies, a related party. During the three months ended September 30, 2018 total rent expense paid was $7,500 and no rent was paid in 2017.

We pay our CEO a salary of $3,000 per month. During the three months ended September 30, 2018 total salary paid was $9,000 and no salary was paid during the three months ended September 30, 2017.

Note 11 – SUBSEQUENT EVENTS

Management has reviewed events between September 30, 2018 to the date that the financials were issued, and other than the following there were no other significant events identified for disclosure.

On October 3, 2018 a note payable was issued to EMA Financial, LLC in the amount of $83,500 with an interest rate of 10% and maturity date of July 3, 2019.

On October 30, 2018 a note payable was issued to Power Up Lending Group LTD in the amount of $95,000 with an interest rate of 12% and maturity date of August 15, 2019.

On November 1, 2018 a note payable was issued to Carebourn Capital, L.P. in the amount of $258,570 with an interest rate of 12% and maturity date of November 1, 2019.

On October 23, 2018 we sold our remaining inventory for  $78,300  back to Optimized Fuel Technologies, a related party at our original cost.

 

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 principles 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

Effective July 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) standard update ASU 2014-09, “Revenue from Contracts with Customers,” (“Topic 606”) which provides a principles-based, five-step approach to measure and recognize revenue from contracts with customers. Revenue is recognized when the following criteria are met:

The adoption of this guidance did not have a material impact on the Company’s consolidated statement of operations, cash flows, and balance sheet as of the adoption date or for the three months ended September 30, 2018.

 

 

 

The Company's revenues have been generated primarily through sales of the Optec Fuel Maximizer devices. 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, 2018 and the three months period ended September 30, 2018, 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, 2018 Compared to the Three Months Ended September 30, 2017.

 

Revenue

During the quarter ended September 30, 2018 we had $3,526 in total sales attributed to the sales of Optimized Fuel Maximizer units which equated to 100% of sales for the quarter. During the quarter ended September 30, 2018 we also had royalty revenue of $11,722.

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.

Cost of Sales

 

For the three months period ended September 30, 2018, we had cost of goods relating to the sale of Optimized Fuel Maximizer units of $4,400.

 

For the three months period ended September 30, 2017, we had cost of goods of $58,360 relating to the sale of Optimized Fuel Technology units.

 

 

 

Gross Profit

For the three months period ended September 30, 2018, we recognized a gross profit of $10,848 from the sale of Optimized Fuel Maximizer units which included  $3,526 less cost of goods of $4,400, and royalty income of $11,722.

 

For the three months 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.

Operating Expenses

 

For the three months period ended September 30, 2018, we incurred total operating expenses of $76,330 consisting of professional fees of $39,680 which were attributable to expenses relating to our SEC filings and accounting costs, amortization of formulas of $269, amortization of license of $12,562, consulting fees of $9,000, which was paid for assistance in the marketing of the Optimized Fuel Technology Units, legal fees of $1,000, travel expense of $2,000, advertising of $3,774, rent expense of $7,500 and general and administrative fees of $545.

For the three months 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.

Non-Operating Expenses

Other expenses incurred for the three-month period ended September 30, 2018 included a change in fair value of derivative liabilities of $889,439 and interest on convertible notes $209,052 for a total non-operating expense of $1,098,491.

Income Tax

For the three months period ended September 30, 2018 and 2017, we did not recognize tax expense.

Net Income (Loss)

For the three months period ended September 30, 2018, we recognized a net loss of $1,163,973 due to the factors discussed above. 

For the three months period ended September 30, 2017, we recognized a net profit of $25,540 due to the factors discussed above. 

 

 

 

Liquidity and Capital Resources

 

For the Three Months Ended September 30, 2018 Compared To the Year Ended June 30, 2018.

As at September 30, 2018, the Company had cash on hand of $31,265, total assets of $840,226 total liabilities of $3,146,885 and stockholders' deficit of $2,306,559 as compared to June 30, 2018, where the Company had cash on hand of $30,799, total assets of $626,369, total liabilities of $1,769,055 and stockholders' deficit of $1,142,686. The change in shareholders’ equity in the three months ended September 30, 2018 was largely attributable to operating income incurred in the period.

 

Operating Activities

For the three months period ended September 30, 2018, we used $57,717 cash in operating activities compared to $2,192 in cash provided from operating activities for the three months ended September 30, 2017. 

During the three months ended September 30, 2018, we incurred a loss of $1,163,973 which was reduced for cash flow purposes by $1,089,710 in non-cash expenses and reduced further by a net increase in working capital liabilities of $16,546.  During the three months ended September 30, 2017, we incurred a profit of $25,540 which was increased for cash flow purposes by $1,019 in non-cash expenses and reduced  by a net increase in working capital liabilities of $24,267.

 

Investing Activities

 

For the three months period ended September 30, 2018,we had a loan receivable of $609,900 which was made to Optimized Fuel Technologies and for the three months period ended September 30, 2017 we had no investing activities.

 

Financing Activities

  

During the three months ended September 30, 2018 we had proceeds from issuance of notes payable for $733,250, and principal payments on debt of $65,167. We had a note payable of $500,000 for licensing rights to Optimized Fuel Technologies, a related party, of which $109,000 was offset by a note payable to us by Optimized Fuel Technologies and the balance of $391,000 which was subsequently paid to Optimized Fuel Technologies. For the three months period ended September 30, 2017 we had no financing activities.

  

The Company 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 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, 2018 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.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

 

 

 

Item 4. Controls and Procedures

   

Evaluation of Disclosure Controls and Procedures

 

An evaluation was performed under the supervision of our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report. Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that, as of September 30, 2018, our disclosure controls and procedures were not effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms due to material weaknesses in our internal controls as described in the June 30, 2018 annual report..

 

Changes in internal controls

We have made no change in our internal control over financial reporting during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company was not subject to any legal proceedings during the three and three months periods ended September 30, 2018 or 2017 and to the best of our knowledge and belief no proceedings are currently threatened or pending.

 

Item 1A. Risk Factors

 

 As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

No unregistered equity securities were issued during the three months ended September 30, 2018. 

 

Item 3. Defaults upon Senior Securities

 

No senior securities were issued and outstanding during the three and three months ended September 30, 2018.

 

Item 4. Mining Safety Disclosures

 

Not applicable to our Company.

 

Item 5. Other Information

 

None.

 

ITEM 6. EXHIBITS

 

** Filed Herewith

 

SIGNATURES