The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
The accompanying notes are an integral part of
these financial statements.
Notes to Unaudited Consolidated Financial Statements
March 31, 2022
Note 1 – Description of Business and Organization
Advanced Container Technologies, Inc. (the “Company”)
markets and sells two principal products: (i) beginning in the first quarter of 2021, GrowPods, which are specially modified insulated
shipping containers manufactured by GP Solutions, Inc. (“GP”), in which plants, herbs and spices may be grown hydroponically
in a controlled environment (“GrowPods”) and (ii) the Medtainer, which may be used to store pharmaceuticals, herbs, teas and
other solids or liquids and can grind solids and shred herbs. The Company also markets and sells products related to GrowPods and the
Medtainer. The Company also provides private labeling and branding for purchasers of Medtainers, lighters and other products.
The Company was incorporated under the laws of
the state of Florida on September 5, 1997. It changed its corporate name to Acology, Inc. on January 9, 2014; to Medtainer, Inc. on August
28, 2018; and to its present name on October 3, 2020.
On October 9, 2020, the Company acquired all of
the outstanding shares of Advanced Container Technologies, Inc., a California corporation (“ACT”), from its shareholders pursuant
to an Exchange Agreement, dated August 14, 2020, and amended on September 9, 2020 (the “Exchange Agreement”), in exchange
for 50,000,000 shares of the Company’s common stock (“Common Stock”). This exchange resulted in ACT’s becoming
the wholly owned subsidiary of the Company. In connection with this exchange, the Company acquired a Distributorship Agreement, dated
August 6, 2020, by and between ACT and GP (the “Distributorship Agreement”), under which ACT has the exclusive right to purchase
GrowPods and related products from GP at prices to be agreed to from time to time and to sell and distribute them within the United States
and its territories for an initial term that will expire on December 31, 2025. ACT may renew the Distributorship Agreement indefinitely
as long as it purchases in the last calendar year of any term the lesser of (i) 100 GrowPods or (ii) GP’s total output of GrowPods.
On August 27, 2020, the Company incorporated Med
X Technologies Inc. (“Med X”) in the State of California, and acquired all of its shares, such that it is the Company’s
wholly owned subsidiary. The Company intends to transfer the assets used in its Medtainer and printing businesses to Med X, after which
it will conduct all of its operations through Med X and ACT.
Note 2 – Summary of Significant Accounting Policies
Accounting Principles
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange
Commission (the “SEC”). Accordingly, they do not contain all information and footnotes required by GAAP for annual financial
statements. In the opinion of the Company’s management, the accompanying unaudited consolidated financial statements contain all
the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March
31, 2022, and the results of operations and cash flows for the periods presented. The results of operations for the three months ended
March 31, 2022, are not necessarily indicative of the operating results for the full fiscal year or for any future period. These unaudited
consolidated financial statements should be read in conjunction with the financial statements and related notes thereto included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission
(the “SEC”) on April 18, 2022.
Principles of Consolidation
The unaudited consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are wholly owned. All intercompany balances and transactions have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. Actual results could differ from those estimates. Certain of these estimates could be affected by external
conditions, including those unique to the Company’s industries, and general economic conditions. These external conditions could
have an effect on the Company’s estimates that could cause actual results to differ materially from its estimates. The Company re-evaluates
all of its accounting estimates at least quarterly based on these conditions and records adjustments when necessary.
Significant estimates relied upon in preparing
these consolidated financial statements include revenue recognition, accounts receivable reserves, inventory and related reserves, valuations
and purchase price allocations related to business combinations, expected future cash flows used to evaluate the recoverability of long-lived
assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization
periods, accrued expenses, share-based compensation, and recoverability of the Company’s net deferred tax assets and any related
valuation allowance.
Cash and Cash Equivalents
The Company considers all short-term highly liquid
investments with an original maturity at the date of purchase of 3 months or less to be cash equivalents. The Company had no cash equivalents
at March 31, 2022, or December 31, 2021.
Accounts Receivable
Included in accounts receivable on the consolidated
balance sheets are amounts primarily related to customers. The Company estimates losses on receivables based on known troubled accounts
and historical experience of losses incurred. Receivables are considered impaired and written off when it is probable that all contractual
payments due will not be collected in accordance with the terms of the related agreement. Based upon experience and the judgment of management,
the allowance for doubtful accounts was $0 as of March 31, 2022, and December 31, 2021.
Inventories
Inventories, which consist of products held for
resale, are stated at the lower of cost (determined using the first-in first-out method) and net realizable value. Net realizable value
is the estimated selling price in the ordinary course of business, less estimated costs to complete and dispose of the product. If the
Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which
the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in
cost of sales in the Company’s consolidated statements of operations.
Property and Equipment
Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Furniture and fixtures
are depreciated over the useful life of 7 years. Machinery, equipment, and computers are depreciated over the useful life of 3 to 7 years.
Leasehold improvements are depreciated over 2 years and were fully depreciated as of March 31, 2022. Expenditures for additions and improvements
are capitalized and repairs and maintenance are expensed as incurred.
Goodwill and Intangible Assets
Goodwill and intangible assets that have indefinite
useful lives are not amortized but are evaluated for impairment annually or whenever events or changes in circumstances indicate that
their carrying value may not be recoverable. The Company records intangible assets at fair value when they are acquired and they are tested
for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment
test consists of a comparison of the fair value of the indefinite-lived intangible asset with its carrying amount. If the carrying amount
of an intangible asset exceeds its fair value, an impairment loss will be recorded in the consolidated statements of operations in an
amount equal to that excess. The Company amortizes its intangible assets that have finite lives using either the straight-line method
or based upon estimated future cash flows to approximate the pattern in which the economic benefit of the assets will be utilized. Amortization
is recorded over estimated useful lives ranging from 5 to 20 years. The Company records intangible assets at fair value, estimated using
a discounted-cash-flow approach.
The Company reviews intangible assets subject
to amortization at least annually to determine whether any adverse conditions exist or a change in circumstances has occurred that would
indicate impairment or a change in the remaining useful life. Conditions that would indicate impairment and trigger a more frequent than
quarterly impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that
could affect the value of an asset or an adverse action or assessment by a regulator. If the carrying value of an intangible asset exceeds
its undiscounted cash flows, the Company will write down the carrying value to its fair value in the period identified. The Company generally
calculates fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount
rate. If the estimate of an intangible asset’s remaining useful life is changed, the Company will amortize its remaining carrying
value prospectively over its revised remaining useful life. The Company has conducted its annual impairment test of goodwill during the
fourth quarter of each year. The estimation of fair value requires significant judgment. There was no impairment of intangible assets,
long-lived assets or goodwill during the three-month periods ended March 31, 2022, or March 31, 2021.
Any loss resulting from an impairment test
will be reflected in operating income in the Company’s consolidated statements of operations. The annual impairment testing
process is subjective and requires judgment at many points. If these estimates or their related assumptions change in the future,
the Company may be required to record impairment charges for these assets not previously recorded.
Revenue Recognition
The Company follows the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers
(Topic 606), as amended. This standard requires a company to recognize revenues when it transfers goods or services to customers in an
amount that reflects the consideration that it expects to receive for them.
Under ASC 606, Company recognizes revenue when
a customer obtains control of promised goods or services or when they are shipped to a customer, in an amount that reflects the consideration
that it expects to receive in exchange for them. The Company recognizes revenues following the five-step model prescribed under ASC 606:
(a) it identifies a contract with a customer; (b) it identifies the performance obligations in the contract; (c) it determines the transaction
price; (d) it allocates the transaction price to the performance obligations in the contract; and (e) it recognizes revenues when (or
as) it satisfies its performance obligation.
Revenues from product sales are recognized when
a customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. The
Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that
it would have been recognized is 1 year or less or the amount is immaterial.
Revenue from sales of items sold by the Company
for the three months ended March 31, 2022, and March 31, 2021, and the percentage of sales allocable to each item to the Company’s
total revenues were as follows:
| Schedule of revenue from sales of items sold | |
| | | |
| | | |
| | | |
| | |
| | |
Three Months Ended March 31, | |
| | |
2022 | | |
2021 | |
| | |
Revenues | | |
% | | |
Revenues | | |
% | |
| Lighters | |
$ | 270,061 | | |
| 29 | | |
$ | 82,259 | | |
| 4 | |
| Medtainers | |
| 222,242 | | |
| 24 | | |
| 224,831 | | |
| 12 | |
| GrowPods and related items | |
| 197,150 | | |
| 21 | | |
| 1,325,000 | | |
| 71 | |
| Humidity pack inserts | |
| 80,534 | | |
| 9 | | |
| 151,254 | | |
| 8 | |
| Plastic lighter holders | |
| 40,558 | | |
| 4 | | |
| 29,686 | | |
| 2 | |
| Printing | |
| 33,096 | | |
| 3 | | |
| 9,489 | | |
| <1 | |
| Mylar bags | |
| 27,836 | | |
| 3 | | |
| 761 | | |
| <1 | |
| Shipping charges | |
| 23,885 | | |
| 3 | | |
| 17,844 | | |
| 1 | |
| Others | |
| 23,086 | | |
| 3 | | |
| 23,694 | | |
| 1 | |
| Jars | |
| 7,700 | | |
| <1 | | |
| 8,140 | | |
| <1 | |
| Total revenues | |
$ | 926,148 | | |
| 100 | | |
$ | 1,872,958 | | |
| 100 | |
The table below presents the customer
deposits payable balance and the significant activity affecting customer deposits during the quarterly period ended March 31,
2022:
| Schedule of customer deposits | |
| | |
| Balance at December 31, 2021 | |
$ | 361,230 | |
| New customer deposits received | |
| 197,093 | |
| Revenue recognized from customer deposits | |
| (299,653 | ) |
| Balance at March 31, 2022 | |
$ | 258,670 | |
Share-Based Payments
ASC 718, Compensation – Stock Compensation,
prescribes accounting and reporting standards for all share-based payment transactions. The Company follows FASB guidance related to equity-based
payments, for both employees and non-employees, which requires that equity-based compensation be accounted for using a fair value method
and recognized as expense in the accompanying consolidated statements of operations. Equity-based compensation expense is recognized as
compensation expense over the applicable service or vesting period (see Note 7).
Fair Value Measurements
The Company has adopted ASC Topic 820, Fair
Value Measurements, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring
fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial
instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, is carried on an historical
cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s
short- and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual
interest rates taken together with other features, such as concurrent issuances of warrants and/or embedded conversion options, are comparable
to rates of returns for instruments of similar credit risk.
ASC Topic 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 Topic 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 Topic 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).
Advertising
Advertising and marketing expenses are charged
to operations as incurred. These expenses totaled $48,469 and $14,827 for the three months ended March 31, 2022, and March 31, 2021, respectively.
Income Taxes
The Company uses the asset and liability method
of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. Under this method, income tax expense is recognized
for (a) taxes payable or refundable for the current year and (b) deferred tax consequences of temporary differences resulting from matters
that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations
in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based
on the weight of the available positive and negative evidence, it is more likely than not that some portion or all the deferred tax assets
will not be realized.
ASC Topic 740.10.30 clarifies accounting for uncertainty
in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company has no material uncertain tax positions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist of cash accounts in financial institutions, which at times may exceed the federal deposit insurance coverage of
$250,000. The Company has not experienced losses on these accounts and believes that it is not exposed to significant risks on such accounts.
The Company has not experienced losses on accounts receivable and the Company believes that it is not exposed to significant risks with
respect to them.
Loss per Share
The basic loss per share is calculated by dividing
the Company’s net loss attributable to common stockholders by the weighted average number of common shares outstanding during the
year. The diluted loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the diluted
weighted average number of shares outstanding during the year. The potentially dilutive stock options on the Company’s common stock
were not considered in the computation of diluted net loss per share as they would be anti-dilutive. No dilutive effective was calculated
for the three months ended March 31, 2021, and March 31, 2020, as the Company reported a net loss for each period.
Recent Accounting Pronouncements
The Company follows ASU 2016-02, Leases (Topic
842), which requires recognition of lease liabilities, representing future minimum lease payments, on a discounted basis, and a corresponding
right-of-use asset on a balance sheet for most leases, along with requirements for enhanced disclosures to enable the assessment of the
amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company and a related party entered into a building
lease effective on September 1, 2018, which had a one-year term that expired on August 31, 2019, was renewed for a one-year term that
expired on August 31, 2020, was renewed for a one-year term that expired on August 31, 2021, and has been renewed for a one-year term
that expires August 31, 2022, at a monthly rent of $9,791. On March 23, 2021, the Company and an unrelated party entered into a lease
of premises in Tulsa, Oklahoma, having a monthly rental of $5,500. The lease has a one-year term that expired on March 31, 2022, and was
renewed for a one-year term at the same rent. The Company is obligated to pay all taxes, insurance, operating expenses, repairs and certain
maintenance costs and utilities. Because each of these leases has a term of 12 months or less and there is no assurance the Company will
remain in the building locations after the leases have expired, the Company has concluded that this ASU does not apply to these leases.
In August 2020, FASB issued ASU 2020-06, “Debt—Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” For convertible instruments,
FASB reduced the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting
models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP.
Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not
clearly and closely related to the host contract that meet the definition of a derivative, and that do not qualify for a scope exception
from derivative accounting and (2) those issued with substantial premiums for which the premiums are recorded as paid-in capital. FASB
decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based
accounting conclusions. FASB observed that the application of the derivatives scope exception guidance results in accounting for some
contracts as derivatives while accounting for economically similar contracts as equity. FASB also decided to improve and amend the related
earnings per share guidance. The amendments in this update are effective for public business entities that meet the definition of an SEC
filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December
15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years.
In December 2019, FASB issued ASU 2019-12, Income
Taxes, which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the
approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred
tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted
changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The
guidance is effective for fiscal years beginning after December 31, 2021, and interim periods within that year. The adoption did not have
any material impact on the Company’s consolidated financial statements.
In June 2016, FASB issued ASU 2016-13 regarding
ASC Topic 326, “Measurement of Credit Losses on Financial Instruments.” This pronouncement changes the impairment model
for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost.
Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance
to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the
financial asset. Subsequently, FASB issued an amendment to clarify the implementation dates and items that fall within the scope of this
pronouncement. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal
years. Management is currently evaluating the effect on the Company’s financial statements.
The Company does not believe there are any other
recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s financial position
or results of operations.
Note 3 – Going Concern
The consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. At March 31, 2022, the Company had a working capital deficit of $967,003 and an accumulated deficit of $6,532,567. In addition,
the Company has generated operating losses since its inception and has notes payable that are currently in default. These factors, among
others, raise substantial doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue
as a going concern is dependent on the successful execution of its operating plan, which includes increasing sales of existing products
and services, introducing additional products and services, controlling operating expenses, negotiating extensions of overdue notes payable
and raising either debt or equity financing. There is no assurance that the Company will be able to implement any of these measures.
Note 4 – Intangible Assets and Goodwill
Intangible assets, including patents and patent
applications, a trademark and an internet domain related to Medtainer and distribution rights under a Distributorship Agreement dated
August 6, 2020, are recorded at cost or estimated fair value at the date of acquisition. Goodwill relates to an Asset Purchase Agreement,
amended as of June 8, 2018. The Company tested intellectual property and goodwill for impairment in preparing its financial statements
for the year ended December 31, 2021, and determined that no adjustment was required. As of March 31, 2022, and December 31, 2021, there
was no impairment of these assets, which are included in the tables below:
| Schedule of intangible assets and goodwill | |
| |
| | | |
| | | |
| | |
| Intangible Assets and Goodwill at March 31, 2022 |
| Description | |
Weighted Average Estimated Useful Life | |
Gross Carrying Value | | |
Accumulated Amortization | | |
Net Amount | |
| Distributorship Agreement | |
5 years | |
$ | 900,000 | | |
$ | (265,932 | ) | |
$ | 634,068 | |
| U.S. patents | |
15 years | |
| 435,000 | | |
| (108,725 | ) | |
| 326,275 | |
| U.S. patents | |
16 years | |
| 435,000 | | |
| (104,642 | ) | |
| 330,358 | |
| Canadian patents | |
20 years | |
| 260,000 | | |
| (49,329 | ) | |
| 210,671 | |
| European patents | |
14 years | |
| 30,000 | | |
| (7,959 | ) | |
| 22,041 | |
| Molds | |
15 years | |
| 150,000 | | |
| (37,485 | ) | |
| 112,515 | |
| Trademark | |
Indefinite life | |
| 220,000 | | |
| – | | |
| 220,000 | |
| Domain name | |
Indefinite life | |
| 2,000 | | |
| – | | |
| 2,000 | |
| Intangible totals | |
| |
$ | 2,432,000 | | |
$ | (574,072 | ) | |
$ | 1,857,928 | |
| Goodwill | |
| |
$ | 1,020,314 | | |
$ | – | | |
$ | 1,020,314 | |
| Intangible Assets and Goodwill at December 31, 2021 |
Description | |
Weighted
Average Estimated Useful Life | |
Gross
Carrying
Value | | |
Accumulated Amortization | | |
Net
Amount | |
| GP distribution agreement | |
5 years | |
$ | 900,000 | | |
$ | (220,932 | ) | |
$ | 679,068 | |
| U.S. patents | |
15 years | |
| 435,000 | | |
| (101,597 | ) | |
| 333,403 | |
| U.S. patents | |
15 years | |
| 435,000 | | |
| (97,781 | ) | |
| 337,219 | |
| Canadian patents | |
20 years | |
| 260,000 | | |
| (46,095 | ) | |
| 213,905 | |
| European patents | |
14 years | |
| 30,000 | | |
| (7,437 | ) | |
| 22,563 | |
| Molds | |
15 years | |
| 150,000 | | |
| (35,028 | ) | |
| 114,972 | |
| Trademark | |
Indefinite life | |
| 220,000 | | |
| – | | |
| 220,000 | |
| Domain name | |
Indefinite life | |
| 2,000 | | |
| – | | |
| 2,000 | |
| Intangible totals | |
| |
$ | 2,432,000 | | |
$ | (508,870 | ) | |
$ | 1,923,130 | |
| Goodwill | |
| |
$ | 1,020,314 | | |
$ | – | | |
$ | 1,020,314 | |
Note 5 – Convertible Notes Payable and
Promissory Notes Payable
As of March 31, 2022, and December 31, 2021,
the Company had outstanding the following convertible notes payable and notes payable:
| Schedule of convertible notes payable and notes payable outstanding | |
| | | |
| | | |
| | | |
| | |
| | |
March 31, 2022 | | |
December 31, 2021 | |
| | |
| | |
Accrued | | |
| | |
Accrued | |
| | |
Principal | | |
Interest | | |
Principal | | |
Interest | |
| Convertible Notes Payable | |
| | | |
| | | |
| | | |
| | |
| July 2014 $75,000 note, convertible into common stock at $5.00 per share, 10% interest, in default (a) | |
$ | 66,172 | | |
$ | 38,600 | | |
$ | 66,172 | | |
$ | 36,496 | |
| July 2014 $15,000 note, convertible into Common Stock at $5.00 per share, 10% interest, in default (a) | |
| 15,000 | | |
| 13,000 | | |
| 15,000 | | |
| 12,625 | |
| | |
$ | 81,172 | | |
$ | 51,600 | | |
$ | 81,172 | | |
$ | 49,571 | |
| Notes Payable | |
| | | |
| | | |
| | | |
| | |
| February 2018 $298,959 note, due February 2019, 10% interest, in default (b) | |
$ | 134,692 | | |
$ | 738 | | |
$ | 162,274 | | |
$ | 889 | |
| August 2015 $75,000 note, with one-time interest charge of $75,000 (c) | |
| 53,020 | | |
| 36,980 | | |
| 53,020 | | |
| 36,980 | |
| Related party obligation (d) | |
| 62,193 | | |
| – | | |
| 72,193 | | |
| – | |
| | |
$ | 249,905 | | |
$ | 37,718 | | |
$ | 287,487 | | |
$ | 37,869 | |
| Total | |
$ | 331,077 | | |
$ | 89,318 | | |
$ | 368,659 | | |
$ | 87,440 | |
| |
(a) |
The Company entered into promissory note conversion agreements in the aggregate amount of $90,000 and made payments of $8,828 on them as of March 31, 2021. These notes are convertible into shares of the Common Stock at a conversion price of $295 per share. The loans under these agreements are non-interest-bearing and have no stated maturity date; however, the Company is accruing interest at a 10% annual rate. |
| |
(b) |
On February 22, 2018, the Company made a promissory note in the principal amount of $298,959 in favor of an unrelated party, which comprised the unpaid principal amount of $200,000 due on a prior note in favor of that party and $98,959 of accrued interest thereon. At March 31, 2021, there was no accrued interest. The balance of this note was $134,692 and $162,274 at March 31, 2022, and December 31, 2021, respectively. The Note was due on February 22, 2019. The Company is negotiating an extension. |
| |
(c) |
On August 15, 2015, the Company made a promissory note in the principal amount of $150,000 in favor of an unrelated party. The note bears interest at 0.48% per annum, provided that the note was paid on or before its maturity date, or 2 percentage points over the Wall Street Journal Prime Rate, if not so repaid. Upon an event of default, as defined in the note, interest will be compounded daily. This note matured on August 11, 2016. During the year ended December 31, 2017, the holder of this note agreed to exchange $75,000 of principal and $663 of accrued interest on this note for 500,000 shares of common stock. This exchange was accounted for as an extinguishment of debt resulting in a loss of $683,337. In connection with this exchange, the Company agreed to pay the holder a fee of $75,000 in consideration of his waiving the default under the promissory note, as additional consideration for his agreeing to the exchange and as compensation for his foregoing the interest that would have accrued on the promissory note at the default rate but for the waiver. During the three months ended March 31, 2022, and the year ended December
31, 2021, the Company made payments of $0 and $11,227, respectively, on the principal and $0 and $33,775, respectively, on the interest accrued on this note. At March 31, 2022, and December 31, 2021, the balance of the note was $53,020, respectively, and accrued interest, including the $75,000 fee included therein, was $36,980, respectively. The Company is negotiating an extension. |
| |
(d) |
On June 15, 2020, the Company and a related party entered into a Separation Agreement, dated June 15, 2020, under which, commencing on January 1, 2021, the Company agreed to repay $145,844 that the Company owed him in 24 monthly payments of $6,093, including interest at the Applicable Federal Rate. During the three months ended March 31, 2022, and the year ended December 31, 2021, the Company made payments of $10,000 and $90,000, respectively. At March 31, 2022, and December 31, 2021, the balance of the note was $62,193 and $72,193, respectively. |
Note 6 – Stockholders’ Equity
On October 8, 2020, the Company combined the outstanding
shares of its common stock on the basis of 1 share of common stock for each 59 shares of common stock. The effects of this combination
have been retroactively applied to all periods presented in the unaudited consolidated financial statements.
On July 30, 2020, the Company filed articles of
amendment with the Secretary of State of the State of Florida, pursuant to which, a series of 1,000,000 of its 10,000,000 authorized shares
of preferred stock was created, which series is named Series A Convertible Preferred Stock (“Series A Preferred”). Each share
of Series A Preferred is convertible into 0.3051 shares of Common Stock, has the dividend and distribution rights and redemption rights
of the shares of Common Stock into which it is convertible, is not redeemable and has voting power equal to the combined voting power
of all other of classes and series of the Company’s capital stock. On June 24, 2020, the Company issued all of the shares of this
series to a related party in exchange for 305,085 shares of Common Stock.
On October 9, 2020, the Company issued 50,000,000
shares of Common Stock to the shareholders of ACT in exchange for their shares in ACT pursuant to the Exchange Agreement. See Note 1.
As a result, ACT became the wholly owned subsidiary of the Company and the Company acquired the Distributorship Agreement, which has been
valued as an intangible asset at $900,000 (see Note 4) and $86,293 in cash. Under the Distributorship Agreement, ACT has the exclusive
right to purchase GrowPods and related products at prices to be agreed to from time to time and to sell and distribute them within the
United States and its territories for an initial term that will expire on December 31, 2025. ACT may renew the Distributorship Agreement
indefinitely as long as it purchases the lesser of (i) 100 GrowPods or (ii) GP’s total output of GrowPods in the last calendar year
of any term.
On January 1, 2021, the Company issued 120,000
shares of Common Stock to one of the Company’s directors, as compensation pursuant to a Director Agreement between the Company and
him, dated as of that date.
During the three months ended March 31, 2022,
the Company issued 280,001 shares of Common Stock to four individuals. The aggregate purchase price of these shares was $210,000.
During the year ended December 31, 2021, the Company issued 485,000 shares of Common Stock to eight individuals. The aggregate purchase
price of these shares was $615,000.
Note 7 – Share-Based Compensation
The Company’s 2018 Incentive Award Plan
(the “2018 Plan”) became effective on December 1, 2018, under which the Company may issue up to 33,898 shares of common stock
as incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards,
and other forms of compensation to employees, directors and consultants. In addition, the 2018 Plan provides for the grant of performance
cash awards to employees, directors and consultants.
On December 1, 2018, 22,882 shares of common
stock were awarded to employees in the form of restricted shares and 5,678 shares of common stock were awarded to consultants as compensation.
The fair value of these shares on the grant date was $0.59 per share. As of December 31, 2020, all of these shares had vested. The following
table shows vesting for financial reporting purposes under GAAP of the shares issued under the 2018 Plan:
| Schedule of share based compensation | |
| | | |
| | |
| | |
Shares of Common Stock | |
| Vesting Dates | |
Employees | | |
Consultants | |
| December 31, 2018 | |
| – | | |
| 3,136 | |
| January 1, 2019 | |
| 12,712 | | |
| – | |
| March 31, 2019 | |
| – | | |
| 2,542 | |
| June 30, 2019 | |
| 5,085 | | |
| – | |
| June 30, 2020 | |
| 5,085 | | |
| – | |
| Total vested at March 31, 2021 | |
| 22,882 | | |
| 5,678 | |
The Company made no awards in any other form during
the three months ended March 31, 2022, and March 31, 2021.
The Company expensed $0 for share-based compensation
under the 2018 Plan in the three months ended March 31, 2022, and March 31, 2021, respectively, for its employees and consultants in the
accompanying consolidated statements of operations.
On January 1, 2021, the Company issued 120,000
shares of Common Stock to one of its directors, as compensation pursuant to a Director Agreement, dated as of that date and, in the three
months ended March 31, 2021, the Company expensed $270,000 for share-based compensation in respect of these shares (see Note 6), based
on their fair market value of $2.25 per share on their date of issuance.
Note 8 – Income Taxes
As of December 31, 2021, the Company had approximately
$2,351,000 and $1,649,000 of net operating loss carryforwards (“NOLs”) available to reduce future Federal and California,
respectively, taxable income, which will begin to expire in 2031. In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based on the assessment, management has established a full valuation allowance against all the deferred tax assets
for every period because it is more likely than not that the deferred tax assets will not be realized.
On December 22, 2017, the Tax Cuts and Jobs Act
of 2017 (the “2017 Tax Act”) was enacted, making significant changes to the Internal Revenue Code. Changes include a federal
corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation
from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings.
The Company has estimated its provision for income taxes in accordance with the 2017 Tax Act and the guidance available and, based thereon,
has determined that the 2017 Tax Act does not change the determination that it is more likely than not that the deferred tax assets will
not be realized. Accordingly, the Company has kept the full valuation allowance. As a result, the Company recorded no income tax expense
during the three months ended March 31, 2022, and March 31, 2021.
Note 9 – Related-Party Transactions
Loans
The Company has received loans from its officers
and directors from time to time since its inception. During the three months ended March 31, 2022, the Company received $64,839 in loans
from one of its officers and directors and repaid $65,000 of these loans. During the three months ended March 31, 2021, the Company received
no such loans and repaid $60,793 of these loans. The balance of these loans at March 31, 2022, and December 31, 2021, was $320,250 and
$320,411, respectively. All of these loans are non-interest-bearing and have no set maturity date. The Company expects to repay these
loans when cash flows become available.
Contracts
The Company makes building lease payments and
purchases products for resale from entities owned by a related party, who is also one of its executive officers.
Payments made to related parties for the three
months ended March 31, 2022, and March 31, 2021, were as follows:
| Schedule of related party transactions | |
| | | |
| | |
| | |
Three Months Ended March 31, | |
| | |
2022 | | |
2021 | |
| Building lease payments | |
$ | 28,197 | | |
$ | 27,201 | |
| Purchase of products for resale | |
| 152,923 | | |
| 74,126 | |
| Total | |
$ | 181,120 | | |
$ | 101,327 | |
Director Compensation
On January 1, 2021, the Company issued 120,000
shares of Common Stock to one of its directors, as compensation pursuant to a Director Agreement, dated as of that date. (See Note 7.)
Note 10 – Concentrations
For the three months ended March 31, 2022,
two of the Company's customers accounted for approximately 15%
and 14%,
respectively, of total revenues. For the three months ended March 31, 2021, two of the Company's customers accounted for 46%
and 25%,
respectively, of total revenues.
For the three months ended March 31, 2022, and
March 31, 2021, the Company purchased approximately 42% and 82%, respectively, of its products for cost of goods sold from one distributor.
As of March 31,
2022, two of the Company's customers accounted for 37%
and 34%,
respectively, of its accounts receivables. As of December 31, 2021, two of the Company’s customers accounted for 43%
and 34%,
respectively, of its accounts receivable.
Note 11 – Commitments
On September 1, 2018, the Company entered into
an operating lease with an entity owned by a related party calling for monthly payments of $8,641, plus 100% of operating expenses, for
a term expiring on August 31, 2019. On September 1, 2019, this lease was amended such that it expired on August 31, 2020, and the rent
thereunder was increased to $8,967 per month. On September 1, 2020, this lease was amended such that its term will expire on August 31,
2021, and the rent thereunder was increased to $9,007 per month. On September 1, 2021, the lease was amended such that its term will expire
on August 31, 2022, and the rent thereunder was increased to $9,791 per month.
The Company leases premises of 6,000 square feet,
which it uses as a showroom, in Tulsa, Oklahoma, at a monthly rental of $5,500 for a term that will expire on March 31, 2023.
Under an agreement with the supplier of Medtainers
entered into in 2018, the Company agreed to purchase a minimum of 30,000 units of product per month. Under the terms of this agreement,
the minimum purchase quantity increases by 1% on every anniversary of its effective date and is now 30,909 units per month. The purchase
price for units is subject to periodic adjustment for changes in the consumer price index. This agreement will expire on April 30, 2031;
however, it can be terminated upon payment of $400,000.
Note 12 – Subsequent Events
Management has evaluated all other subsequent
events when the consolidated financial statements were issued and determined that none of them requires this disclosure herein.
