MEDTAINER,
INC.
(FORMERLY
NAMED ACOLOGY, INC.)
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
September
30, 2018
|
|
December
31, 2017
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
57,759
|
|
|
$
|
22,656
|
|
Accounts Receivable
|
|
|
139,337
|
|
|
|
87,962
|
|
Inventories
|
|
|
199,443
|
|
|
|
211,652
|
|
Total
Current Assets
|
|
|
396,539
|
|
|
|
322,270
|
|
|
|
|
|
|
|
|
|
|
Property & equipment,
net of accumulated depreciation
|
|
|
73,469
|
|
|
|
76,049
|
|
Intangible Assets,
net of accumulated amortization of $50,708
|
|
|
2,501,608
|
|
|
|
—
|
|
Security
Deposits
|
|
|
8,560
|
|
|
|
7,489
|
|
TOTAL
ASSETS
|
|
$
|
2,980,176
|
|
|
$
|
405,808
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIENCY
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
255,727
|
|
|
$
|
243,353
|
|
Convertible notes payable
|
|
|
105,500
|
|
|
|
105,500
|
|
Notes Payable
|
|
|
275,000
|
|
|
|
375,000
|
|
Loan Payable - stockholder
|
|
|
257,750
|
|
|
|
122,994
|
|
Accrued expenses
|
|
|
247,116
|
|
|
|
214,583
|
|
Derivative Liability
|
|
|
24,244
|
|
|
|
25,275
|
|
Capital
Lease Payable
|
|
|
10,080
|
|
|
|
35,229
|
|
Total
Current Liabilities
|
|
|
1,175,417
|
|
|
|
1,121,934
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.00001 par value, 5,000,000
shares authorized
|
|
|
|
|
|
|
|
|
No shares
issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common Stock, $0.00001 par value, 6,000,000,000
shares authorized
|
|
|
|
|
|
|
|
|
5,524,636,434
and 5,249,511,270 shares issued and outstanding
|
|
|
|
|
|
|
|
|
at September 30, 2018, and December
31, 2017, respectively
|
|
|
55,246
|
|
|
|
52,495
|
|
Additional Paid-in
Capital
|
|
|
4,153,595
|
|
|
|
1,484,032
|
|
Accumulated
Deficit
|
|
|
(2,404,082)
|
|
|
|
(2,252,653
|
)
|
TOTAL
STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
1,804,759
|
|
|
|
(716,126
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
$
|
2,980,176
|
|
|
$
|
405,808
|
|
The
accompanying notes are an integral part of these financial statements
MEDTAINER,
INC.
(FORMERLY
NAMED ACOLOGY, INC.)
CONSOLIDATED
STATEMENTS OF OPEREATION
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|
Three Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
1,798,800
|
|
|
$
|
1,585,220
|
|
|
$
|
602,302
|
|
|
$
|
495,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
|
635,732
|
|
|
|
494,497
|
|
|
$
|
210,879
|
|
|
|
155,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,163,068
|
|
|
|
1,090,723
|
|
|
|
391,423
|
|
|
|
339,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,191,622
|
|
|
|
1,170,056
|
|
|
|
392,606
|
|
|
|
435,463
|
|
Amortization Expense
|
|
|
50,706
|
|
|
|
—
|
|
|
|
38,029
|
|
|
|
—
|
|
Advertising and marketing
|
|
|
44,349
|
|
|
|
42,971
|
|
|
|
9,047
|
|
|
|
2,143
|
|
Total Operating Expenses
|
|
|
1,286,677
|
|
|
|
1,213,027
|
|
|
|
439,682
|
|
|
|
437,606
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
|
(123,609
|
)
|
|
|
(122,304
|
)
|
|
|
(48,259
|
)
|
|
|
(98,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
28,852
|
|
|
|
50,909
|
|
|
|
8,909
|
|
|
|
17,029
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
245,391
|
|
|
|
—
|
|
|
|
245,391
|
|
(Gain) Loss on change in fair value of derivative
|
|
|
(1,031
|
)
|
|
|
(166,253
|
)
|
|
|
1,100
|
|
|
|
(1,738
|
)
|
Loss on sale of equipment
|
|
|
—
|
|
|
|
11,000
|
|
|
|
—
|
|
|
|
11,000
|
|
Total Other Expenses
|
|
|
27,821
|
|
|
|
141,047
|
|
|
|
10,009
|
|
|
|
271,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(151,430
|
)
|
|
|
(263,351
|
)
|
|
|
(58,268
|
)
|
|
|
(369,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(151,430
|
)
|
|
$
|
(263,351
|
)
|
|
$
|
(58,268
|
)
|
|
$
|
(369,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per common share, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
5,369,762,258
|
|
|
|
5,191,085,302
|
|
|
|
5,414,325,933
|
|
|
|
5,224,221,173
|
|
The
accompanying notes are an integral part of these financial statements
MEDTAINER,
INC.
(FORMERLY
NAMED ACOLOGY, INC.)
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(151,430
|
)
|
|
$
|
(263,351
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
15,000
|
|
|
|
16,800
|
|
Amortization Expense
|
|
|
50,706
|
|
|
|
0
|
|
Loss on extinguishment of debt
|
|
|
0
|
|
|
|
245,391
|
|
Gain on change in fair value of derivative
|
|
|
(1,031
|
)
|
|
|
(166,253
|
)
|
Non-cash interest expense
|
|
|
0
|
|
|
|
2,711
|
|
Loss on sale of equipment
|
|
|
0
|
|
|
|
11,000.00
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
(51,375
|
)
|
|
|
(8,736
|
)
|
Inventories
|
|
|
12,209
|
|
|
|
(118,904
|
)
|
Accounts Payable
|
|
|
12,374
|
|
|
|
47,445
|
|
Accrued expenses
|
|
|
32,534
|
|
|
|
42,829
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(81,013
|
)
|
|
|
(191,068
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment of loan from non-related party
|
|
|
—
|
|
|
|
150,000
|
|
Proceeds from sale of equipment
|
|
|
—
|
|
|
|
15,000
|
|
Acquisition of property and equipment
|
|
|
(12,420
|
)
|
|
|
(3,069
|
)
|
Payment of Security Deposit
|
|
|
(1,071
|
)
|
|
|
—
|
|
NET CASH RECEIVED FROM (USED IN) INVESTING
ACTIVITIES
|
|
|
(13,491
|
)
|
|
|
161,931
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
120,000
|
|
|
|
—
|
|
Repayment of notes payable and capital lease payable
|
|
|
(125,149
|
)
|
|
|
(31,224
|
)
|
Proceeds from related party loan
|
|
|
134,756
|
|
|
|
39,500
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
129,607
|
|
|
|
8,276
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
|
35,103
|
|
|
|
(20,861
|
)
|
|
|
|
|
|
|
|
|
|
CASH - BEGINNING OF PERIOD
|
|
|
22,656
|
|
|
|
37,533
|
|
|
|
|
|
|
|
|
|
|
CASH - END OF PERIOD
|
|
$
|
57,759
|
|
|
$
|
16,672
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Non-cash financing activities
|
|
|
|
|
|
|
|
|
Conversion of debt into common stock
|
|
$
|
—
|
|
|
$
|
373,100
|
|
Common stock issued in connection with conversion
|
|
$
|
—
|
|
|
$
|
1,232,313
|
|
Common stock issued for the acquisition of intangible assets
|
|
|
2,552,314
|
|
|
|
—
|
|
The
accompanying notes are an integral part of these financial statements
MEDTAINER,
INC.
(Formerly
Named Acology, Inc.)
Notes to
Consolidated Financial Statements
September
30, 2018
(Unaudited)
Note
1 – Business
Medtainer,
Inc. (the “Company”), through its wholly owned subsidiary, D&C Distributors, LLC (“D&C”) is in
the business of designing, manufacturing, branding and selling proprietary plastic medical grade containers that can store pharmaceuticals,
herbs, teas and other solids or liquids, some of which can grind solids and shred herbs, and through D&C’s wholly owned
subsidiary, D&C Printing LLC (“Printing”), is in the business of private labeling and branding for purchasers
of containers and other products. The Company changed its corporate name from Acology, Inc. to its present name on August 28,
2018.
D&C
and Printing were formed under the laws of the State of California on January 29, 2013, and April 14, 2015, respectively.
Note
2 – Summary of Significant Accounting Policies
Basis
of Presentation and Principals of Consolidation
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 8 of Regulation S-X promulgated by the United States 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 September 30, 2018, and
the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended
September 30, 2018, are not necessarily indicative of the operating results for the full fiscal year or any future period. These
unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related
notes thereto included in the Form 10-K for the year ended December 31, 2017, filed with the SEC on April 2, 2018.
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated.
Use
of Estimates
The
preparation of the financial statements in conformity with GAAP 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 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 the Company’s estimates could be affected by external conditions, including those unique to its industry,
and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates
that could cause actual results to differ from its estimates. The Company re-evaluates all of its accounting estimates at least
quarterly based on these conditions and record adjustments when necessary.
Cash
The
Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or
less to be cash equivalents.
Revenue
Recognition
In May
2014 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “ASU” No. 20 l4-09, Revenue
from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry
specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers
in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently
issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue
from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 20l6-10, Revenue from Contracts with
Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers
(Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to
Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments (collectively, the “new revenue standards”)
with ASU 2014-09.
The
new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method.
The adoption of the new revenue standards as of January 1, 2018, did not change the Company’s revenue recognition as the
majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify
any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained
earnings was required upon adoption.
Under
the new revenue standards. the Company recognizes revenues when its customer obtains control of promised goods or services, in
an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues
following the five-step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance
obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations
in the contract; and (v) recognize revenues when (or as) the Company satisfies its performance obligation.
Revenues
from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in
time, typically upon delivery 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 recognized is one year or less or the amount is immaterial.
Inventories
Inventories,
which consist of the Company’s products held for resale, are stated at the lower of cost, determined using the first-in
first-out, 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 statements of operations.
Fair
Value Measurements
The
Company has adopted the provisions of ASC Topic 820,
Fair Value Measurements and Disclosures,
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 are carried at historical cost basis, which approximates their fair values because of the short-term nature
of these instruments. The carrying amounts of our 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
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)
The
derivative liability in connection with the conversion feature of the convertible debt, classified as a Level 3 liability, is
the only financial liability measure at fair value on a recurring basis.
The
change in the Level 3 financial instruments is as follows:
Balance,
January 1, 2018
|
|
$
|
25,275
|
|
·
Converted during the
period
|
|
|
—
|
|
·
Change
in fair value recognized in opearations
|
|
|
(1,031
|
)
|
Balance,
September 30, 2018
|
|
$
|
24,244
|
Property
and Equipment
Property
and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over
the useful lives of the assets. For furniture and fixtures the useful life is 5 years, Leasehold Improvements are depreciated
over the 2-year lease term. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed
as incurred. For patents, the useful life is the life of the patent.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815,
Derivatives
and Hedging Activities.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) as follows: The Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under
these arrangements are amortized over the term of the related debt to their stated date of redemption.
The
Company accounts for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment
standards. The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at
their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting
liabilities. During the nine months ended September 30, 2018, there were no conversions of convertible debt.
Advertising
Advertising
and marketing expenses are charged to operations as incurred.
Income
Taxes
The
Company use 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 the amount of: (i) taxes payable or refundable for the current year and (ii) 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 on deferred tax assets and
liabilities of a change in tax rates is recognized in the results 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 some portion or all of the deferred tax assets will not be realized.
ASC
Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’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.
Recent
accounting pronouncements
The
Company does not believe there are any 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
accompanying 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 September 30, 2018, the Company had a working capital deficit
of $778,878. In addition, the Company has generated operating losses since 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 while introducing additional products and services, controlling operation expenses,
negotiating extensions of existing loans and raising either debt or equity financing. There is no assurance that we will be able
to increase sales or to obtain or extend financing on terms acceptable to us or at all or successfully execute any of the
other measures set forth in the previous sentence.
Note 4
– Intangible Assets
On June
8, 2018, the Company acquired certain patents and patent applications, a trademark and an internet domain pursuant to an Asset
Purchase Agreement, dated as of April 16, 2018, and amended on June 8, 2018, by and between the Company and the owner of the entity
which is the Company’s main supplier in consideration of the issuance to him of 263,125,164 shares of the Company’s
common stock. The intangible assets acquired are being amortized over the remaining life of the specific patents and the estimated
useful life of the trademark and internet domain. Amortization expense for the three and nine months ending September 30, 2018
was $38,029 and $50,706, respectively.
Note 5
– Convertible Notes Payable
The
following is a description of convertible notes payable at September 30, 2018:
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·
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On
August 20, 2015, the Company made a convertible promissory note in the principal amount
of $400,000 to a then-related party, which was reduced to $360,000 as the result of a
prepayment. The note was subsequently reduced through payments and conversions to $250,000
at December 31, 2016. On July 5, 2017, the Company satisfied the principal of the note
and interest accrued therein in full for a payment of $100, resulting in a gain on extinguishment
of debt of $542,218, which included a removal of the associated derivative liability
relating to the conversion feature of $290,895.
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·
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The
Company made a convertible promissory note, dated December 15, 2015, in favor of the
unrelated party referred to above in the principal amount of $8,000. This note is convertible
into shares of the Company’s common stock at a conversion price equal to the average
of the daily closing price for a share of Common Stock for the 3 consecutive trading
days ending on the trading day immediately prior to the day on which a notice of conversion
is delivered. The note matured on December 27, 2016, and bears interest at the highest
lawful rate, but not more than 20% per annum. The Company is currently negotiating an
extension of the maturity date.
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·
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The
Company made two convertible promissory notes, one dated February 11, 2016, and the other
dated April 25, 2016, in favor of the unrelated party referred to above, each in the
principal amount of $7,500. Each note is due 1 year after the date on which it was made,
bears simple interest at the rate of 20 percent per annum and is convertible into shares
of Common Stock at a conversion price per share equal to 50% of the average daily closing
price for 3 consecutive trading days ending on the trading day immediately prior to the
conversion date. The Company is currently negotiating an extension of the maturity dates.
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·
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The
Company has determined that the conversion feature embedded in the notes described above
contain a potential variable conversion amount which constitutes a derivative which has
been bifurcated from the note and recorded as a derivative liability at fair value, with
a corresponding discount recorded to the associated debt. The excess of the derivative
value over the face amount of the note is recorded immediately to interest expense at
inception. The Company used the Black-Scholes-Merton valuation model to value the conversion
features using the expected life of each note, average volatility rate of approximately
121% and a discount rate of 1.29%.
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During
2014, the Company entered into a series of promissory note conversion agreements with
ten unaffiliated persons in the aggregate amount of $224,500. These notes are convertible
into shares of the Company’s common stock at a conversion price of $0.05 per share.
The loans under these agreements are noninterest-bearing and have no stated maturity
date. During the year ended December 31, 2016, the Company entered into agreements with
four of the individuals in which the Company agreed to pay to them an additional amount
equal to the current principal balance (which aggregated $32,000), which was recorded
as interest expense. The notes were amended such that the Company agreed to repay the
new balance over 10 monthly equal installments. The Company made payments of $25,900
during the year ended December 31, 2016, and $10,000 during the year ending December
31, 2017. During the year ended December 31, 2017, the Company and the noteholders agreed
to exchange $148,100 of the above notes for 15,376,296 shares of common stock. The conversions
were accounted for as an extinguishment of debt resulting in a loss of $81,213. There
was a balance of $82,500 relating to these notes at September 30, 2018. One of the exchanging
noteholders was Larry Neal, who, on June 7, 2017, exchanged a promissory note, dated
October 3, 2014, in the principal amount of $10,000 for 1,629,482 shares of common stock.
Mr. Neal paid the full principal amount of his note to the Company when it was made.
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Note
6 – Notes Payable
During
2014, the Company made a series of promissory notes with four unaffiliated persons in the original aggregate amount of $457,000.
During the year ended December 31, 2016, the Company repaid one of these notes in the original principal amount of $7,000. These
notes bear interest at rates ranging from 10% to 15% (with a weighted-average rate of 11.7%).
During
the year ended December 31, 2017, certain noteholders agreed to exchange $150,000 of principal and $73,027 of accrued
interest of the above notes for 20,000,000 shares of common stock. These exchanges were accounted for as an extinguishment of
debt resulting in a loss of $20,973. During the month ended June 30, 2018, the company paid a partial payment on the above
mentioned notes of $100,000. The Company had $200,000 of principal amount of these notes payable outstanding at September 30,
2018, all of which are past due.
On
August 15, 2015, the Company made a promissory note in the amount of $150,000 in favor of an unrelated party. The note bears interest
at 0.48% per annum, provided that the note is paid on or before maturity date, or 2 percentage points over the Wall Street Journal
Prime Rate, if it is not repaid on or before the maturity date. This note matured on August 11, 2016. Upon an event of default,
as defined in the note, interest shall be compounded daily. The Company is currently negotiating an extension of the maturity
date for the balance. 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 the above mentioned notes for 50,000,000 shares of common stock. These exchanges were accounted
for as an extinguishment of debt resulting in a loss of $683,337. The Company had $75,000 relating to this payable outstanding
at September 30, 2018.
In each
of the years ended at December 31, 2017, and December 31, 2016, the Company entered into a capitalized equipment lease. Each of
these capital leases is payable in 24 monthly installments of $2,000, including interest at the rate of 19.87% per annum. The
equipment lease is held by a related party. The Company made its final lease payment for the first lease during the nine months
ended September 30, 2018.
Note 7
– Stockholders’ Equity
On
February 16
, 2018, the Company issued 12,000,000 shares of Common Stock for proceeds of $120,000. On June 8, 2018,
the Company issued 263,125,164 shares of common stock, valued at $2,552,314 for the purchase of certain patents and patent applications,
a trademark and an internet domain (see Note 4).
Note 8
– Loans Payable – Stockholders
The
Company received advances from one of its stockholders, who is a related party, to help finance its operations. These advances
are non-interest-bearing and have no set maturity date. The balance of these advances at September 30, 2018, and December 31,
2017, was $237,749 and $122,994, respectively. In the three months ending September 30, 2018, the Company received advances from
two stockholders, who are related parties, of $20,000 and $40,755 to help in financing its operations. The Company expects to
repay these loans, which have no fixed provisions, when cash flows become available.
Note 9
– Related-Party Transactions
The
Company purchases some of its products and leases its printers and property from a related party. During the nine months ended
September 30, 2018, the Company made capital lease payments of $30,000 to and purchased $46,337 of products from this related
party.
Note 10
– Concentrations
For
the nine months ended September 30, 2018, one of our customers accounted for approximately 11% of sales. During the nine months
ended September 30, 2017, one of our customers accounted for 11% of sales. For the three months ended September 30, 2018, one
of our customers accounted for approximately 11% of sales. During the three months ended September 30, 2017, one of our customers
accounted for 7% of sales.
For
the nine months ended September 30, 2018, and 2017, the Company purchased approximately 41% and 39% of its products from one distributor.
For the three months ended September 30, 2018, and 2017, the Company purchased approximately 43% and 42% of its products from
one distributor.
Note 11
– Commitments
The
Company is committed under an operating lease for its premises. The lease originally called for monthly payments of $6,300 plus
55% of operating expenses until May 31, 2015. The lease was amended to provide for monthly payments of $7,500 plus 100% of operating
expenses thereafter, until the lease was to have expired June 30, 2016. On June 1, 2016, the lease was amended to extend its term
until June 30, 2018, without changing its other terms. On September 1
, 2018, the Company entered into a new operating
lease with a related party calling for monthly payments of $8,640.50 plus 100% of the operating expenses.
In conjunction
with the Asset Purchase Agreement referred to in Note 4, the Company has agreed to purchase a minimum of 30,000 units of product
per month. The minimum purchase will increase by 10% every anniversary of the Effective Date. The agreement expires on April 30,
2031.
Note 12
– Subsequent Events
The
Company repaid an advance of $10,000 and received $30,000 from one of its stockholders, who is a related party, in October and
November 2018, respectively.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS
AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.
Introduction
Medtainer
has no material assets other than all of the outstanding membership units of its two subsidiaries and has no plans to conduct
any business activities other than obtaining or guaranteeing financing for the businesses conducted by its subsidiaries or assisting
them in obtaining such financing.
Through
D&C Distributors LLC and D&C Printing LLC, we are in the business of selling and distributing patented containers that
can store, grind and shred pharmaceuticals, herbs, teas and other solids or liquids. We provide custom printing of labeling for
our products and products manufactured by others. We have commenced sales of humidity control inserts, hydroponic grow towers,
smell-proof bags and lighters and are actively developing markets for them. Our principal product is the Medtainer®. Sales
of our Medtainer® products accounted for 86% of our revenue in 2016, as compared with 92% in 2015, 72% of our sales in the
quarter ended September 30, 2018, 70% of our sales in the quarter ended September 30, 2017, as compared with 84% of our sales
in the quarter ended September 30, 2016. The most significant components of revenues from our other products and services were
printing services, which comprised 5% of our revenue in 2016, and humidity control inserts, which we introduced in 2016, comprised
approximately about 5% of our revenue for that year. In the quarter ended September 30, 2018, sales of printing services and humidity
control inserts comprised 5% and 19% of our revenue respectively; in the quarter ended September 30, 2017, sales of printing services
and humidity control inserts comprised 6% and 17% of our revenue respectively and in the quarter ended September 30, 2016, sales
of printing services and humidity control were a combined 10% of our revenue. During the nine months ended September 30, 2018,
we obtained a U.S. Registered Trademark for our private-labeled “Med X 2-Way Humidity Control® Pack.”
We
market directly to businesses through our phone room and to the retail public through internet sales and, and to wholesalers and
other businesses who resell our products to other businesses and end users.
Some
of our products can be utilized for marijuana-related purposes. In light of the facts that the possession and use of marijuana
have been legalized, subject to varying restrictions, in many states and that several other states are considering such legalization,
we believe that our products may be of interest to a large number of users of marijuana in and we advertise our products on our
website and elsewhere as suitable for that purpose. However, since we do not seek information from our customers who are end users
as to how they intend to utilize our products and have no similar knowledge respecting end users of products sold through our
distributor, we are unable to determine the extent of its use in connection with the storage and grinding of marijuana or any
other purpose.
The
Company was incorporated on September 9, 1997, in the State of Florida and operated since 2014 under the corporate name Acology,
Inc. On August 28, 2018, the Company filed an amendment to its articles of incorporation changing its corporate name to Medtainer,
Inc. The Company has two operating subsidiaries, D&C Distributors LLC, which Medtainer acquired on March 28, 2014, and which
commenced operations on January 29, 2013, and D&C Printing LLC, which was formed and commenced operations on April 14, 2015.
RESULTS
OF OPERATIONS
Three Months Ended September 30, 2018,
Compared to Three Months Ended September 30, 2017
Sales:
Sales for the three months ended September 30, 2018, were $602,302 from which we earned a gross profit of $391,423. Our sales
for the three months ended September 30, 2017, were $495,185, from which we earned a gross profit of $339,412.
Operating
Expenses:
For the three months ended September 30, 2018, total operating expenses of $439,682 were incurred, including
$392,606 for general and administrative expenses, of which $34,275 was paid to each of Mr. Fairbrother and Mr. Heldoorn as officers’
compensation, $38,029 in amortization expense and $9,047 for advertising and marketing. For the three months ended September 30,
2017, total operating expenses of $437,606 were incurred, including $435,463 for general and administrative expenses, of which
$34,275 was paid to each Mr. Fairbrother and Mr. Heldoorn, respectively, as officers’ compensation, and $2,143 for advertising
and marketing. The principal reasons for the decrease in general and administrative expense of $42,857 in the later period was
due to a decrease in printing expense, payroll expense and travel expense. Advertising and marketing increased by $6,904 in the
later period because we invested in attending conventions.
Loss
from Operations.
Loss from operations decreased from a loss of $98,194 for the three months ended September 30, 2017,
to a loss of $48,259 for the three months ended September 30, 2018, mainly due to the increase in sales for that period of $52,011.
Other Expenses.
During
the three months ended September 30, 2018, and 2017, we incurred interest expense of $8,909 and $17,029, respectively. Interest
expense was lower in the later period because the accounting treatment of the excess of the fair value of the embedded conversion
feature of the note over its principal amount, which excess is charged as interest upon inception, was a higher amount in 2017
than for the amount of convertible debt issued in 2018, which contained an embedded conversion feature. We incurred a loss on
extinguishment of debt of $245,391 during the three months ended September 30, 2017 and no loss was recognized for the three months
ended September 30, 2018. We also recorded a loss on change in fair value of derivative during the three months ended September
30, 2018 of $1,100 versus a gain of $1,738 during the three months ended September 30, 2017.
Net
Loss:
For the reasons set forth above, we recognized a net loss of $58,268 for the three months ended September 30, 2018,
as compared with a net loss of $369,876 for the three months ended September 30, 2017.
Nine Months Ended September 30, 2018,
Compared
to Nine Months Ended September 30, 2017
Sales:
Sales for the nine months ended September 30, 2018, were $1,798,800, from which we earned a gross profit of $1,163,068. Sales
for the nine months ended September 30, 2017, were $1,585,220 from which we earned a gross profit of $1,090,723.
Operating
Expenses:
For the nine months ended September 30, 2018, total operating expenses of $1,286,677 were incurred, including
$1,191,622 for general and administrative expenses, of which $102,285 was paid to each of Mr. Fairbrother and Mr. Heldoorn as
officers’ compensation, $50,706 in amortization expense and $44,349 for advertising and marketing. For the nine months ended
September 30, 2017, total operating expenses of $1,213,027 were incurred, including $1,170,056 for general and administrative
expenses, of which $102,285 was paid to each of Mr. Fairbrother and Mr. Heldoorn, respectively, as officers’ compensation,
and $42,971 for advertising and marketing. The principal reasons for the increase in general and administrative expense of $21,566
in the later period was due to legal expenses in conjunction to the Asset Purchase. Advertising and marketing increased by $1,378
in the later period because we invested in attending conventions.
Loss
from Operations.
Loss from operations increased from $122,304 for the nine months ended September 30, 2017, to $123,609
for the nine months ended September 30, 2018, mainly due to the increase in amortization expenses of $50,706.
Other Expenses.
During
the nine months ended September 30, 2018, and 2017, we incurred interest expense of $28,852 and $50,909, respectively. Interest
expense was lower in the later period because the accounting treatment of the excess of the fair value of the embedded conversion
feature of the note over its principal amount, which excess is charged as interest upon inception, was higher in 2017 than in
2018, which contained an embedded conversion feature. We incurred a loss on extinguishment of debt of $245,391 during the nine
months ended September 30, 2017 and did not realize a loss for the nine months ended September 30, 2018. In addition, we recorded
a gain of $2,131 on change in fair value of derivative during the nine months ended September 30, 2018, as the result of a change
in the fair value of the embedded conversion feature of a note over its principal amount versus $166,253 during the nine months
ended September 30, 2017.
Net
Loss.
For the reasons set forth above, we recognized a net loss $151,430 for the nine months ended September 30, 2018,
as compared with net loss of $263,351 for the nine months ended September 30, 2017.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
and Capital Resources
As
of December 31, 2017, we had $22,656 in cash and accounts receivable of $87,962, and as of September 30, 2018, we had $57,759
in cash and accounts receivable of $139,337. We commenced business in January 2013. Our sales grew over the course of 2013, averaging
11,500 units per month for 2013. During the year ended December 31, 2014, we sold approximately 180,000 units. During the year
ended December 31, 2015, we sold an approximately 314,000 units. During the year ended December 31, 2016, we sold approximately
419,000 units of our Medtainer® products and 160,000 units of our other products. During the year ended December 31, 2017,
we sold approximately 381,000 units of our Medtainer® products and 631,000 units of our other products. We sold approximately
99,000 units of our Medtainer® products and approximately 170,000 units of our other products during the three months ended
September 30, 2018. Revenues from printing services were $37,000 in the year ended December 31, 2015, $112,208 in the year ended
December 31, 2016, and $116,000 in the year ended December 31, 2017; revenues were $46,273 during the three months ended September
30, 2017, and $32,978 during the three months ended September 30, 2018, compared with $79,449 during the nine months ended September
30, 2017, and $84,400 during the nine months ended September 30, 2018.. Sales of humidity control inserts were $107,077 during
the three months ended September 30, 2018, compared with $84,625 during the three months ended September 30, 2017.
We
have a current inventory of approximately 120,000 containers, which we believe will be sold for approximately $500,000 and an
inventory of 170,000 units of our other products, which we believe will be sold for approximately $200,000.
In
July 2017, the Company exchanged $412,600 of debt, including accrued interest, for 76,635,407 shares of Common Stock and retired
a convertible promissory note on which $250,000 was outstanding, thereby reducing its obligations to $627,616, of which $380,500
is convertible notes and notes payable, all of which are past due, and of which $247,116 is accrued expenses. As a result
, the Company’s funding requirements have decreased. The Company believes that, to meet the above and additional obligations,
it will require approximately $800,000 in funding during the next 12 months, assuming that its operating loss remains at the same
level. The Company plans to seek extensions of overdue loans, in which case the amount of such funding will be reduced, but cannot
give assurances as to the extent that it will be successful. The Company plans to fund its activities, during the balance of 2018
and beyond through loans from banks and other financial institutions and the sale of debt or equity securities to private investors.
While the Company believes that the reduction in debt makes it more attractive to lenders and investors, it can give no assurance
that it will be successful in so doing or that such funding, if available, can be obtained on acceptable terms.
The
Company has devoted, and Management believes that the Company should continue to devote, manpower and capital to increasing its
sales to the extent that it is available and prudent. For this reason, it has increased its sales staff from two 2 in 2013 to
11 today. Management further believes that increased sales will ultimately exceed operating expenses. The Company expects the
reduction in indebtedness and the associated reduction in gain in fair value of derivative will improve its net income, but this
will be offset by a gain on extinguishment of debt associated with $250,000 of retired indebtedness. However, as indicated in
Note 3 of the Notes to Financial Statements, there are substantial doubts as to the ability of the Company to continue as a going
concern and Management recognizes that the Company can take measures to increase sales only within the parameters set forth therein.
Our ability to continue as a going concern is dependent on the successful execution of our operating plan, which includes increasing
sales of existing products while introducing additional products and services, controlling operation expenses, negotiating extensions
of existing loans and raising either debt or equity financing. During 2017 and during the nine months ended September 30, 2018,
we increased sales of our Medtainer
®
products increased sales of printing services and introduced new
products, resulting in increased revenues.
The
Company’s revenues have grown every year since in commenced business. In 2013, our sales were $254,992; in 2014, they were
$460,756; in 2015, they were $1,441,441; in 2016, they were $1,975,923; and in 2017, they were $2,210,470. We recorded a net profit
of $3,704 for the three months ended September 30, 2016, net loss of $369,876 for the three months ended September 30, 2017 and
a net loss of $58,268 for the three months ended September 30, 2018. We hope that we can improve these results in the balance
of 2018 and beyond, but cannot assure that we will be able to do so.
We
can give no assurance that any of the funding described above will be available on acceptable terms, or available at all. If we
are unable to raise funds in sufficient amount, when required or on acceptable terms, we may have to significantly reduce, or
discontinue, our operations. To the extent that we raise additional funds by issuing equity securities or securities that are
convertible into the Company’s equity securities, its shareholders may experience significant dilution.
Off-Balance
Sheet Arrangements.
We
currently do not have any off-balance sheet arrangements.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
information under this item.
Item
4. Control and Procedures
Evaluation
of Internal Controls
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Principal
Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the criteria in
Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013)
as of the end of the period covered by this report. Based on that evaluation,
our Principal Executive Officer and Principal Financial Officer concluded that there was a material weakness in our disclosure
controls and procedures as of the end of the period covered by this report because the information required to be disclosed by
us in reports filed under the Exchange Act was not being (i) recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Principal Executive Officer
and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. We are a growing company and we
currently lack documented procedures included documentation related to testing of processes, data validation procedures from the
systems into the general ledger, testing of systems, validation of results, disclosure review, and other analytics. Furthermore,
we lacked sufficient personnel to properly segregate duties. A controls system cannot provide absolute assurance, however, that
the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within a company have been detected.
Remediation
Plan
Management
has been actively engaged in developing a remediation plan to address the above mentioned material weakness. Implementation of
the remediation plan is in process and consists of establishing a formal review process As of September 30, 2018, management had
not yet completed these remediation efforts. Management believes the foregoing efforts will effectively remediate the material
weakness. As we continue to evaluate and work to improve our internal control over financial reporting, management may execute
additional measures to address potential control deficiencies or modify the remediation plan described above. Management will
continue to review and make necessary changes to the overall design of our internal control.
Changes
in Internal Control over Financial Reporting
There
was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934) during our 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
None.
Item 1A. Risk Factors
We
are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide
information under this item.
Item 2.
Unregistered Sale of Equity Securities and Use of Proceed
None
Item 3. Defaults
Upon Senior Securities
None.
Item 4. (Removed
and Reserved)
Item 5. Other
Information
None.
Item 6. Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: November 13, 2018
By:
/s/ Curtis Fairbrother
Name: Curtis Fairbrother
Title: Chief Executive Officer,
Principal
Accounting and Financial Officer,
Director