ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a technology company that develops and commercializes innovative solutions for the beekeeping community. We intend to operate on a global basis. We plan to manufacture and sell our patent-pending technology that dispenses and delivers our proprietary mixture of chemical compounds to the bee population in order to prevent the effects of colony collapse disorder, or CCD.

In connection with the closing of the Merger, we elected to report our financial results in accordance with generally accepted accounting principles in the U.S., or U.S. GAAP, and as such, to report our financial results in U.S. dollars. Following the Merger, we changed our fiscal year end to December 31st.

The operation and development of our business will require additional capital to fund our operations, the establishment of a research and development facility, and other initiatives.

Results of Operations

Since the Company is in its start up stage of development, we have no revenues and do not have prior periods for comparison purposes.

Period from August 4, 2011 (inception) to December 31, 2011

Research and development expenses

Research and development expenses consist primarily of fees paid to our Chief Scientist and other consultants for the continuing development of our patent, product dispenser and chemical compound Research and development expenses are expensed as they are incurred. For the period from August 4, 2011 (inception) to December 31, 2011, research and development expenses amounted to $213,750.

Merger expenses

Merger expenses consist primarily of fees paid to former shareholders of BeesFree-NV relating to the merger transaction for the period from August 4, 2011 (inception) to December 31, 2011.

General and administrative expenses

General and administrative expenses consist primarily of corporate support expenses such as legal and professional fees, investor relations and marketing expenses. For the period from August 4, 2011 (inception) to December 31, 2011, general and administrative expenses amounted to $426,974. We expect that our general and administrative expenses will continue to increase as we incur additional costs to support the growth in our business.

Net Cash Used in Operating Activities

We experienced negative cash flow from operating activities, for the period from August 4, 2011 (inception) to December 31, 2011, in the amount of $1,045,346.

The cash used in operating activities for the period from August 4, 2011 (inception) to December 31, 2011 was due primarily to cash used to fund a net loss of $1,055,724, as well as a change in accounts payable and accrued expenses of $22,053.

Net Cash Used in Investing Activities

The Company did not use any funds for investing activities.

Net Cash Provided by Financing Activities

Cash provided by financing activities, net of offering costs, for the period from August 4, 2011 (inception) to December 31, 2011, was $2,098,725 primarily from the issuance of common stock, convertible debentures and Series A preferred stock.

Critical Accounting Policies

Use of Estimates. The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The financial statements include estimates based on currently available information and our judgment as to the outcome of future conditions and circumstances. Significant estimates in these financial statements include the Company's deferred tax asset, including a full valuation allowance, fair value of the Company's stock and warrant liabilities, which were valued with the assistance of an independent valuation company. Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

Fair Value of Financial Instruments. The carrying amounts of cash, accounts payable, and accrued liabilities approximate fair value due to the short-term nature of these instruments.

We measure the fair value of financial assets and liabilities based on the guidance of Accounting Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures," which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 - quoted prices in active markets for identical assets or liabilities

Level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 - inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)

As of December 31, 2011, the Company did not have any Level 1 or Level 2 assets or liabilities. As of December 31, 2011, the Company's warrant liabilities were classified within Level 3 of the Valuation Hierarchy.

Plan of Operations

We believe that the net proceeds from the Private Placement will not be sufficient to cover our operating expenses for the next twelve months and that we may have to engage in additional capital raising. In the likely event that circumstances require us to raise additional capital, we may do so through the issuance of additional equity or debt securities, through bank loans or through any other method that is most advantageous to us given the accompanying circumstances.

During the next twelve months, we believe that our major expenditures will be directed towards the following activities:

· the registration and certification of our products in jurisdictions targeted for the sale of our products, in order to commence sales of our products in those jurisdictions;

· the procurement or establishment and running of satisfactory laboratory and manufacturing facilities for the manufacturing, testing and assembly of our products;

· the purchase and implementation of financial and operating systems to maintain proper controls, books and records;

· continuation of our research and development activities, with a focus on the development and improvement of product features and increased functionalities; and

· the hiring and retention of qualified personnel.

In addition, we believe it is unlikely but possible that in the next twelve months, extraordinary additional costs may arise from the following factors:

· longer than expected and more complicated product certification processes in individual jurisdictions;

· the establishment of additional local offices not otherwise planned for on account of jurisdiction-specific laws and practices in markets that we are targeting; and

· the introduction of new, unforeseen competitive technologies, which could require us to expend additional resources in research and development activities in order to improve or update our existing products.

With respect to the hiring and retention of personnel, we anticipate that we will hire an additional four to seven regional sales managers in various regions throughout the world within the next twelve months, who will join our current regional sales manager in Argentina. In addition, we may hire a product manager to oversee production of our products. Our estimated monthly cost with respect to the hiring of new personnel is between $25,000 and $40,000.

We anticipate that we will begin to generate revenue from sales once we obtain local product approval which we believe will be in certain targeted markets starting in the fourth quarter of 2012.

Liquidity, Capital Resources and Going Concern Matters

General. At December 31, 2011, we had cash and cash equivalents of $1.1 million. As a development stage company, we have not generated any revenues and incurred net losses of approximately $1.1 million during the period from August 4, 2011 (Inception) through December 31, 2011. The Company is currently in the development stage, and has not yet generated any revenues. The Company's primary source of operating funds since inception has been cash proceeds from the issuance of common shares to its founders, sale of convertible debentures and private placement of Cumulative Convertible Series A Preferred Stock. The Company intends to raise additional capital through private debt and equity investors, but there can be no assurance that these funds will be available, or will be sufficient to enable the Company to fully complete its development activities or sustain operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.

We believe we have addressed our immediate liquidity concerns through the Private Placement, pursuant to which we raised approximately $1.1 million in net proceeds through the issuance of equity securities, as well as the conversion of the Debentures in full into shares of Preferred Stock and Warrants to purchase shares of common stock. However, on a long term basis, until we develop a consistent source of revenue and achieve a profitable level of operations that generates sufficient cash flow, we will need additional capital resources to fund growth and operations. As such, if our operations over the next twelve months fail to generate sufficient cash flow, we may seek to raise capital through equity and/or debt offerings. However, there can be no assurance that we will be able to raise equity or debt capital on terms we consider reasonable and prudent, or at all. The availability of capital to us may be subject to the volatility in the financial markets, our future financial condition and credit rating, and whether sufficient assets are available to be used as debt collateral in connection with any future debt financing, among other factors. Future financings through equity investments are likely to be dilutive to the existing stockholders. Also, the terms of securities we issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other derivative securities, which may have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which may adversely impact our financial condition.

Factors That May Affect Future Operations

We believe that our future operating results will continue to be subject to quarterly variations based upon the following factors:

· the speed and ease with which we are able to obtain regulatory approval in jurisdictions where we intend to sell our products;

· our ability to establish regional sales offices and hire quality regional sales managers;

· our research and development focusing on the improvement of features and functionalities of our current products and the development of additional products;

· our ability to capitalize on manufacturing efficiencies;

· the cyclical nature of the ordering patterns from our distributors and customers; and

· the fluctuation of the Argentine peso and the Euro against the U.S. dollar and other international currencies.

We currently do not believe it is necessary for us to take any additional steps to address any of the aforementioned factors with respect to the possible impacts they could have on our future operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.