Notes
to Unaudited Consolidated Financial Statements
September
30, 2021
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, under the corporate name Synthetic Flowers of America, Inc. 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 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.
On
October 9, 2020, the Company acquired all of the outstanding shares of Advanced Container Technologies, Inc., a California
corporation (“Advanced”), 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 Advanced’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 Advanced and GP (the
“Distributorship Agreement”), under which Advanced 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 the lesser of (i) 100 GrowPods or (ii) GP’s total output of GrowPods in the last calendar year of any
term.
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 September 30, 2021, 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, 2021, 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, 2020, filed with
the SEC on April 16, 2021.
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.
It is possible that 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 September 30, 2021, or December 31, 2020.
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 on
experience and the judgment of management, there was no allowance for doubtful accounts as of September 30, 2021, and December 31, 2020.
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 September 30, 2021.
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, estimated
using a discounted cash flow approach. The Company amortizes 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 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 quarter ended September 30, 2021, or September 30, 2020.
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, 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. 20l4-09, Revenue from
Contracts with Customers (Topic 606). 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 ASU No. 2014-09, 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 ASU No. 2014-09: (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 or
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 been recognized is 1 year or less or the amount is immaterial.
Revenue from sales of items and
services sold by the Company for the three months ended September 30, 2021, and September 30, 2020, and the percentage of sales allocable
to each of them to the Company’s total revenues were as follows:
Schedule of revenues
|
|
|
Three Months Ended September 30,
|
|
|
|
2021
|
|
2020
|
|
|
|
Revenues
|
|
%
|
|
Revenues
|
|
%
|
|
GrowPods and related products
|
|
$
|
712,000
|
|
|
|
49
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Medtainers
|
|
|
343,010
|
|
|
|
24
|
|
|
|
353,958
|
|
|
|
53
|
|
|
Lighters
|
|
|
162,946
|
|
|
|
11
|
|
|
|
38,294
|
|
|
|
6
|
|
|
Humidity pack inserts
|
|
|
125,246
|
|
|
|
9
|
|
|
|
210,099
|
|
|
|
31
|
|
|
Shipping charges
|
|
|
37,017
|
|
|
|
3
|
|
|
|
16,448
|
|
|
|
2
|
|
|
Plastic lighter holders
|
|
|
28,670
|
|
|
|
2
|
|
|
|
19,388
|
|
|
|
3
|
|
|
Jars
|
|
|
22,626
|
|
|
|
2
|
|
|
|
14,789
|
|
|
|
2
|
|
|
Printing
|
|
|
12,615
|
|
|
|
<1
|
|
|
|
10,675
|
|
|
|
2
|
|
|
Other products
|
|
|
7,607
|
|
|
|
<1
|
|
|
|
8,201
|
|
|
|
1
|
|
|
Total revenues
|
|
$
|
1,451,737
|
|
|
|
100
|
|
|
$
|
671,853
|
|
|
|
100
|
|
Revenue from sales of items
and services sold by the Company for the nine months ended September 30, 2021, and September 30, 2020, and the percentage of sales allocable
to each of them to the Company’s total revenues were as follows:
|
|
|
Nine Months Ended September 30,
|
|
|
|
2021
|
|
2020
|
|
|
|
Revenues
|
|
%
|
|
Revenues
|
|
%
|
|
GrowPods and related products
|
|
$
|
2,182,000
|
|
|
|
53
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Medtainers
|
|
|
841,937
|
|
|
|
21
|
|
|
|
884,317
|
|
|
|
58
|
|
|
Lighters
|
|
|
374,805
|
|
|
|
9
|
|
|
|
80,192
|
|
|
|
5
|
|
|
Humidity pack inserts
|
|
|
362,909
|
|
|
|
9
|
|
|
|
402,470
|
|
|
|
26
|
|
|
Plastic lighter holders
|
|
|
94,038
|
|
|
|
2
|
|
|
|
47,251
|
|
|
|
3
|
|
|
Shipping charges
|
|
|
76,650
|
|
|
|
2
|
|
|
|
45,436
|
|
|
|
3
|
|
|
Other products
|
|
|
74,665
|
|
|
|
2
|
|
|
|
11,172
|
|
|
|
<1
|
|
|
Jars
|
|
|
39,666
|
|
|
|
<1
|
|
|
|
22,276
|
|
|
|
1
|
|
|
Printing
|
|
|
36,596
|
|
|
|
<1
|
|
|
|
27,908
|
|
|
|
2
|
|
|
Total revenues
|
|
$
|
4,083,267
|
|
|
|
100
|
|
|
$
|
1,521,022
|
|
|
|
100
|
|
The
following table presents the customer deposits payable balance and the significant activity affecting customer deposits during the
nine-month period ended September 30, 2021:
Schedule
of customer deposits
|
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
754,345
|
|
|
New customer deposits received
|
|
|
1,275,755
|
|
|
Revenue recognized from customer deposits
|
|
|
(1,530,482
|
)
|
|
Balance at
September 30, 2021
|
|
$
|
499,618
|
|
The Company follows ASU No. 2018-07 related
to equity-based payments, 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 is recognized as compensation expense over
the applicable service or vesting period. See Note 7.
Fair Value Measurements
The Company has adopted Accounting
Standards Codification 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
at 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.
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 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.
Profit (Loss) per Share
Basic profit (loss) per share
is calculated by dividing the Company’s net profit (loss) attributable to Common Stock by the basic weighted average number of
shares of Common Stock outstanding during the period. The diluted profit (loss) per share is calculated by dividing the Company’s
net profit (loss) attributable to Common Stock by the diluted weighted average number of shares outstanding during the 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
1-year term that expired on August 31, 2019, was renewed for a 1-year term that expired on August 31, 2020, and was renewed for a
1-year term that expired on August 31, 2021, and was renewed for a 1-year term that expires August 31, 2022. 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 1-year term that expires on March 31, 2022, and is renewable for a 1-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 building leases
has a term of 12 months or less and there is no assurance the Company will remain in the building locations after the
building’s leases have expired, the Company has concluded that this ASU does not apply to these building 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 (“ASU 2019-12”), 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. Early adoption is permitted. Management is currently evaluating the effect on the Company’s
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 September 30, 2021, the Company had a working capital deficit of $801,907 and an accumulated deficit of
$6,042,167. 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 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
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 date of acquisition. Goodwill relates to an Asset Purchase
Agreement, amended as of June 8, 2018. These intangible assets and goodwill are evaluated annually
for impairment based upon reports that the Company obtains from an independent valuation firm. The Company tested intellectual property
and goodwill for impairment in preparing its financial statements for the year ended December 31, 2020, and determined that no adjustment
was required. As of September 30, 2021, and December 31, 2020, there was no impairment of these assets, which appear in the tables below:
Intangible Assets
|
Intangible Assets and Goodwill at September 30, 2021
|
|
Description
|
|
Weighted Average
Estimated Useful Life
|
|
Gross
Carrying Value
|
|
Accumulated Amortization
|
|
Net Amount
|
|
Distributorship Agreement
|
|
5 years
|
|
$
|
900,000
|
|
|
$
|
(175,932
|
)
|
|
$
|
724,068
|
|
|
U.S. patents
|
|
15 years
|
|
|
435,000
|
|
|
|
(94,469
|
)
|
|
|
340,531
|
|
|
U.S. patents
|
|
16 years
|
|
|
435,000
|
|
|
|
(90,920
|
)
|
|
|
344,080
|
|
|
Canadian patents
|
|
20 years
|
|
|
260,000
|
|
|
|
(42,861
|
)
|
|
|
217,139
|
|
|
European patents
|
|
14 years
|
|
|
30,000
|
|
|
|
(6,915
|
)
|
|
|
23,085
|
|
|
Molds
|
|
15 years
|
|
|
150,000
|
|
|
|
(32,571
|
)
|
|
|
117,429
|
|
|
Trademark
|
|
Indefinite life
|
|
|
220,000
|
|
|
|
—
|
|
|
|
220,000
|
|
|
Domain name
|
|
Indefinite life
|
|
|
2,000
|
|
|
|
—
|
|
|
|
2,000
|
|
|
Intangible totals
|
|
|
|
$
|
2,432,000
|
|
|
$
|
(443,668
|
)
|
|
$
|
1,988,332
|
|
|
Goodwill
|
|
|
|
$
|
1,020,314
|
|
|
$
|
—
|
|
|
$
|
1,020,314
|
|
|
Intangible Assets and Goodwill at December 31, 2020
|
|
|
Description
|
|
Weighted Average
Estimated Useful Life
|
|
Gross Carrying Value
|
|
|
Accumulated
Amortization
|
|
|
Net Amount
|
|
|
Distribution Agreement
|
|
5 years
|
|
$
|
900,000
|
|
|
$
|
(40,932
|
)
|
|
$
|
859,068
|
|
|
U.S. patents
|
|
15 years
|
|
|
435,000
|
|
|
|
(73,085
|
)
|
|
|
361,915
|
|
|
U.S. patents
|
|
15 years
|
|
|
435,000
|
|
|
|
(40,337
|
)
|
|
|
364,663
|
|
|
Canadian patents
|
|
20 years
|
|
|
260,000
|
|
|
|
(33,159
|
)
|
|
|
226,841
|
|
|
European patents
|
|
14 years
|
|
|
30,000
|
|
|
|
(5,349
|
)
|
|
|
24,651
|
|
|
Molds
|
|
15 years
|
|
|
150,000
|
|
|
|
(25,200
|
)
|
|
|
124,800
|
|
|
Trademark
|
|
Indefinite life
|
|
|
220,000
|
|
|
|
—
|
|
|
|
220,000
|
|
|
Domain name
|
|
Indefinite life
|
|
|
2,000
|
|
|
|
—
|
|
|
|
2,000
|
|
|
Intangible totals
|
|
|
|
$
|
2,432,000
|
|
|
$
|
(248,062
|
)
|
|
$
|
2,183,938
|
|
|
Goodwill
|
|
|
|
$
|
1,020,314
|
|
|
$
|
—
|
|
|
$
|
1,020,314
|
|
Note 5 - Convertible Notes Payable
and Promissory Notes Payable
As of September 30, 2021, and December
31, 2020, the Company had the following convertible notes payable and notes payable outstanding:
Schedule of Convertible Notes Payable and
Promissory Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
Principal
|
|
|
Interest
|
|
|
Principal
|
|
|
Interest
|
|
|
Convertible Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2014 $75,000 note convertible into common stock at $295 per share, 10% interest, currently in default (a)
|
|
$
|
66,172
|
|
|
$
|
33,292
|
|
|
$
|
66,172
|
|
|
$
|
30,329
|
|
|
July 2014 $15,000 note convertible into common stock at $295 per share, 10% interest, currently in default (a)
|
|
|
15,000
|
|
|
|
12,250
|
|
|
|
15,000
|
|
|
|
10,625
|
|
|
|
|
$
|
81,172
|
|
|
$
|
47,542
|
|
|
$
|
81,872
|
|
|
$
|
40,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2018 $298,959 note due February 2019, 10% interest, currently in default (b)
|
|
|
198,645
|
|
|
|
1,088
|
|
|
|
282,969
|
|
|
|
—
|
|
|
August 2015 $75,000 note, with a one-time interest charge of $75,000, currently in default (c)
|
|
|
53,020
|
|
|
|
36,980
|
|
|
|
64,246
|
|
|
|
71,356
|
|
|
May 2020 Paycheck Protection Note (d)
|
|
|
—
|
|
|
|
—
|
|
|
|
137,960
|
|
|
|
698
|
|
|
|
|
$
|
251,665
|
|
|
$
|
36,980
|
|
|
$
|
485,175
|
|
|
$
|
72,054
|
|
|
Total
|
|
$
|
332,837
|
|
|
$
|
85,610
|
|
|
$
|
566,347
|
|
|
$
|
113,008
|
|
|
|
(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 September 30, 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 favor of an unrelated party in the principal amount of $298,959, 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 September
30, 2021, and December 31, 2020, the balance of the note was $198,645 and $282,969, respectively,
and accrued interest was $1,088 and $0, 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 is paid on or before maturity date, or 2 percentage points over the Wall Street Journal
Prime Rate, if not repaid on or before the maturity date. 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 nine months
ended September 30, 2021 and the year ended December 31, 2020, the Company made payments
of $11,227 and $10,754, respectively, on the principle and $33,775 and $4,246, respectively,
on interest accrued on this note. At September 30, 2021, and December 31, 2020, the balance
of the note was $53,020 and $64,246, respectively, and accrued interest, including the $75,000
fee included therein, was $36,980 and $71,356, respectively.
|
|
|
(d)
|
|
The
Company made this note (the “Paycheck Protection Note”) pursuant to the terms
of the Paycheck Protection Program authorized by the Coronavirus Aid, Relief, and Economic
Security (CARES) Act and pursuant to all regulations and guidance promulgated or provided
by the Small Business Administration (the “SBA”) and other Federal agencies that
are now, or may become, applicable to the loan. The Paycheck Protection Note bore interest
at the rate of 1% per annum.
On August 5, 2021, the Company received full forgiveness of this note.
|
Note 6 - Stockholders’ Equity
On March 22, 2019, the Company
combined the outstanding shares of its common stock on the basis of 1 share of common stock for each 100 shares of common stock. Also,
on that date, the Company reduced the number of shares of its authorized common stock from 6,000,000,000 to 100,000,000. The number of
authorized shares of preferred stock remained 10,000,000. 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 these combinations 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 Advanced in exchange for their shares in Advanced pursuant to the Exchange
Agreement. See Note 1. As a result, Advanced 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,
Advanced has the exclusive right acquire 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. Advanced 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.
Between January 1, 2021, and
September 30, 2021, the Company issued 485,000 shares of Common Stock to eight unrelated persons. 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 was authorized to 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. All these shares were reserved on that date.
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 September 30, 2021,
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 September 30, 2021
|
|
|
22,882
|
|
|
|
5,678
|
|
The
Company made no awards under the 2018 Plan during the nine months ended September 30, 2021, and September 30, 2020.
The Company expensed $0 and
$298,077, for share-based compensation under the 2018 Plan in the nine months ended September 30, 2021, and September 30, 2020, 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 nine months ended September 30, 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 their date of issuance.
Note 8 - Income Taxes
As of December
31, 2020, the Company had approximately $1,800,000 and $1,700,000 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 and nine months ended September 30, 2021, and September 30, 2020.
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 nine months ended September 30, 2021, the Company received
loans of $26,753 from its officers and directors and repaid $79,942 of these loans. During the nine months ended September 30, 2020,
the Company received loans of $168,868 from its officers and directors and repaid $247,637. The balance of these loans at September 30,
2021, and December 31, 2020, was $326,996 and $383,152, 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 to 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 and nine months ended September 30, 2021, and September
30, 2020, were as follows:
Schedule of related party transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Building lease payments
|
|
$
|
27,805
|
|
|
$
|
27,613
|
|
|
$
|
81,847
|
|
|
$
|
81,495
|
|
|
Purchase of products for resale
|
|
|
130,910
|
|
|
|
21,419
|
|
|
|
313,443
|
|
|
|
49,411
|
|
|
Equipment purchase
|
|
|
—
|
|
|
|
40,000
|
|
|
|
—
|
|
|
|
40,000
|
|
|
Total paid to related party
|
|
$
|
158,715
|
|
|
$
|
89,032
|
|
|
$
|
395,290
|
|
|
$
|
170,906
|
|
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 September
30, 2021, one of the Company’s customers accounted for approximately 25%, of total revenues. For the three months ended September
30, 2020, one of the Company’s customers accounted for 13% of total revenues.
For the nine months ended September
30, 2021, one the Company’s customers accounted for approximately 33% of total revenues. For the nine months ended September 30,
2020, one of the Company’s customers accounted for 8% of total revenues.
For the three
months ended September 30, 2021, and September 30, 2020, the Company purchased approximately 62% and 57%, respectively, of its products
for cost of goods sold from one distributor.
For the nine months ended September
30, 2021, and September 30, 2020, the Company purchased approximately 70% and 55%, respectively, of its products for cost of goods sold
from one distributor.
As
of September 30, 2021, one of the Company’s customers accounted for 45% of its accounts receivables. As of December 31, 2020, one
of the Company’s customers accounted for 87% 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 expired 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 the term will expire on August 31, 2022, and the rent thereunder was increased to $9,791 per month.
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
evaluated all subsequent events when these unaudited consolidated financial statements were issued and determined that none of
them requires disclosure herein.