UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒   Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2021

☐  Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____________ to ____________

Commission file number: 000-29381

ADVANCED CONTAINER TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

Registrant’s telephone number, including area code: (951) 381-2555

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☐  No  ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No  ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   ☒  No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes  ☒  No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  ☐  No  ☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $45.7 million.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of the latest practicable date:

The number of shares of the Registrant’s common stock outstanding as of April 13, 2022, was 51,901,525.

(DOCUMENTS INCORPORATED BY REFERENCE)

List hereunder the following documents if incorporated by reference and the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.

None.

ADVANCED CONTAINER TECHNOLOGIES, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve a number of risks and uncertainties. The use of words such as “anticipates,” “expect,” “intend,” “strive,” “goals,” “plans,” “opportunity,” “future,” “achieve,” “grow,” “committed,” “believes,” “seeks,” “targets,” “estimated,” “continues,” “likely,” “possible,” “may,” “might,” “potentially,” “will,” “would,” “should,” “could,” “on track” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to uncertain events or assumptions – such as future responses to and effects of COVID-19; projections of our future financial performance; future business, social, and environmental performance, goals, and measures; our anticipated growth and trends in our business and operations; projected growth and trends in markets relevant to our businesses and especially the market for GrowPods and cannabis and related products; business and investment plans; future products and technology; laws and regulation, and especially those relating to cannabis; projected cost and yield trends; availability, uses, sufficiency, and cost of capital of capital resources; valuations; the future purchase, use, and availability of products, components, and services supplied by third parties – are based on management’s expectations as of the date of this report, unless an earlier date is specified, and involve many risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include those described throughout this report, particularly in Item 1A, Risk Factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. You are urged to review and consider carefully the various disclosures made in this report and in other reports and documents that we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”).

NOTE REGARDING THIRD-PARTY INFORMATION

This report includes information and estimates based on reports and other publications from industry analysts, market research firms, and other independent sources, in addition to management’s own good faith estimates and analyses. We believe that these reports and publications, which are generally available to the public and were not commissioned by us, are reliable, but have not independently verified them or their underlying data sources, methodologies or assumptions. They contain information and estimates based on estimates, forecasts, projections, market research, or similar methodologies and are inherently subject to uncertainties. Actual events or circumstances may differ materially from events and circumstances reflected in these reports.

NOTE REGARDING DESCRIPTIONS OF CONTRACTS

This report contains descriptions of contracts and instruments to which the Company or its officers and directors are parties or by which it is affected. Where such contracts or instruments are exhibits to this report, either because they are filed herewith or incorporated herein by reference, you are referred thereto and the descriptions herein are qualified in their entirety by such reference. These contracts and instruments are identified in Item 15, Exhibits, Financial Statement Schedules.

NOTE REGARD TRADEMARK 

“Medtainer” is a registered trademark owned by the Company. Its use in this report without the symbol “®” should not be considered as a disclaimer of such ownership or permission to any person to use “Medtainer” without such symbol.

PART I

Item 1. Business.

General Information

Advanced Container Technologies, Inc. (the “Company”) was incorporated under the laws of the state of Florida on September 5, 1997. It changed its corporate name to Acology, Inc. on January 9, 2014; on August 28, 2018, to Medtainer, Inc.; and on October 3, 2020, to its present name.

On October 9, 2020, the Company acquired all of the outstanding shares of Advanced Container Technologies, Inc., a California corporation (“ACT”), that has the same corporate name as the Company, from its shareholders pursuant to an Exchange Agreement, dated August 14, 2020, which was amended on September 9, 2020 (as so amended, the “Exchange Agreement”), in exchange for 50,000,000 shares of the Company’s common stock, par value $0.00001 per share (“Common Stock”). This exchange resulted in ACT’s becoming a wholly owned subsidiary of the Company. For information as to the business that the Company conducts through ACT, see Item 1, Business – Products and Services – GrowPods and for information as to the interests of certain persons in the Exchange Agreement, see Item 13, Exchange Agreement.

The acquisition of ACT represented a material change in the business strategy of the Company and an expansion of its product base. Since the inception of the Company in 2014, its intended growth strategy was to concentrate on increasing sales of Medtainers, while introducing related products and services, such as humidity control inserts and printing. This approach resulted in relatively flat revenues, increasing expenses and a history of losses. Management believes that this acquisition offered the prospect of substantially increased revenues, without a comparable increase in expenses an opportunity to expand its profits significantly. For further information respecting some of the bases for these expectations, see Item 1, Business – GrowPods – The Market for GrowPods. The Company has announced that it is exploring with GP the acquisition of its assets and the assumption of some or all of its liabilities in exchange for shares of Common Stock (the “GP Acquisition”). Discussions are in their preliminary stages and none of the terms and conditions of the acquisition has been determined, including the number of shares of Common Stock to be issued to GP in exchange for its assets or the liabilities of GP that the Company would assume. The Company intends to structure any transaction such that its board of directors and executive officers would not be changed and that voting control of the Company would not be affected.

The Company’s authorized capital is 100,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, par value $0.00001 per share. On October 3, 2020, the Company combined the outstanding shares of its Common Stock on the basis of one share for every 59 shares then outstanding; the number of authorized shares of Common Stock and preferred stock was unaffected. The effect of this combination has been applied to all periods covered by this report. The Company has also designated 1,000,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred”) and, on July 31, 2020, issued them to its chief executive officer in exchange for 305,085 shares of his Common Stock; these shares, together with the shares of Common Stock owned by him, confer voting control of the Company on him. See Item 10, Employment Agreement.

The Company’s principal place of business is located at 1620 Commerce St., Corona, CA 92878. The Company’s telephone number is (951) 381-2555. The Company has two corporate websites: www.advancedcontainertechnologies.com for GrowPods and related items and www.medtainer.com for Medtainers and related products and services. Common Stock is quoted on the OTC Pink tier of OTC Link, a quotation system operated by OTC Markets Group Inc. (“OTC Link”), under the trading symbol ACTX.

Products and Services

The Company markets and sells two principal products: (i) 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) Medtainers, 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 various products related to GrowPods and the Medtainer. GrowPods and their related products are described in Item 1, Business, Products and Services – GrowPods, and the Medtainer and its related products are described in Item 1, Business – Products and Services – The Medtainer. The Company also provides private labeling and branding services for purchasers of Medtainers and certain related products. For further details, see Item 1, Business – Printing.

Revenues from the Company’s products and services for the years ended December 31, 2021, and December 31, 2020, were as follows:

The Company markets its Medtainer products and services directly to businesses through its phone room, to the retail public through internet sales, and directly to wholesalers and other businesses who resell its products to other businesses and end-users, and sells GrowPods and related products through agents. See Item 1, Business – Sales and Distribution.

GrowPods and Related Products

Beginning January 1, 2021, the Company commenced sales of GrowPods and related products, and during the year, it sold 40 units for which it received revenues of $3,002,000. GrowPods are used to grow, farm and cultivate flowers, fruits, plants, vegetables, cannabis, grains and herbs hydroponically, in controlled-environment settings that allow end-users to control key farming variables, including temperature, humidity, carbon dioxide, light intensity spectrum, nutrient concentration and pH. The Company also sells branded growing media and nutrients. For further information respecting the Distributorship Agreement, see Item 1, Business – Products and Services – GrowPods and Related Products.

The following shows several views of GrowPods and their components:

GrowPod Cross Section

GrowPod Interior View	GrowPod Interior View

Proprietary Air and Water Filtration System	Control Panel 3

Hydroponics is a method of growing plants without soil, by using nutrients that are dissolved in water. Plants may be grown with only their roots exposed to nutrients or roots may be physically supported by an inert growing medium such as perlite and gravel. The spaces in which plants may be grown range from mason jars at one extreme to large warehouses and covered terrain at the other. There are several growing techniques, including (i) static solution culture, in which plants are grown in smaller containers of nutrient solution, (ii) continuous-flow solution culture, in which the nutrient solution constantly flows past the root, which facilitates automation because sampling and adjustments to the temperature, pH, and nutrient concentrations, (iii) agroponics and fogoponics, in which roots are kept in an environment saturated with fine drops or a mist of nutrient solution, (iv) “run to waste,” in which a nutrient solution is applied one or more times per day to a container of inert growing media and which may be automated with a delivery pump, a timer and irrigation tubing to deliver nutrient as appropriate in light of plant size, plant growing stage, climate, substrate, and substrate conductivity, pH, and water content and (v) deep-water culture, in which suspended roots are fed a solution of nutrient-rich, oxygenated water.

GrowPods

GrowPods are 20- or 40-foot insulated food-grade containers that GP modifies to add climate control, aqueous or soil-based platforms, LED lighting, a nutrient tank, an irrigation system, a reverse-osmosis water purification system, air and water filters, and remote monitoring. Optionally, GP adds prep stations, additional sensors and controls, solar and natural gas energy solutions, security systems, custom colors and graphics, multiple pod connections, means of stacking GrowPods, modular additions, clean rooms and specialized shelf systems.

GrowPods use both indoor organic hydroponic and soil-based systems to provide plants with nutrients, water and oxygen. LED lights installed in GrowPods are adjustable and can create the specific spectrum and intensity that is optimal for the growth of a particular crop. Automated monitoring equipment enables maintenance of the proper level and mixture of nutrients and a precise growing environment. A GrowPod can grow some plants up to five times faster than traditional farming.

Using GrowPods, growers can use physical space, water and other resources more efficiently, while enjoying year-round and more rapid growth cycles, as well as more predictable and abundant yields, compared with traditional farming.

Some of GrowPods’ advantages over traditional farming are:

While GrowPods offer savings in labor, material and space, they require a substantial amount of electrical energy, the cost of which is sometimes higher than that of petroleum-based power that is commonly utilized in traditional farming. We believe that this is offset by the fact that plants may be grown in urban areas and in inhospitable climates, thereby reducing transportation times and costs and enhancing freshness. High energy costs tend to increase the cost of commonly grown crops, such as lettuce, herbs and spices; however, as the value of a crop increases, the cost of energy tends to become a less important consideration.

Growing Media and Nutrients

In 2021, we began to sell products that are used to improve the efficiency of the agricultural growing and the cultivation process. Growing media consists of premium soils and soil alternatives, such as perlite, gravel, rock wool, coconut coir or clay pebbles, used in hydroponic cultivation. We sell some of these products under the names “Prolific Soilless Growth Medium” and “Prolific Fertilizer.”

Other Supplies

In 2021, we began to sell high-efficiency LED lighting, electronically controlled irrigation systems, humidifiers and growing panels as replacement parts and upgrades.

The Market for GrowPods

The Expanding Hydroponics Market

Hydroponics is an increasingly significant and fast-growing component of the expanding global commercial agriculture sector. The Company believes that hydroponics will be used increasingly as a farming technique, especially for cannabis. According to the USDA, farm output was $136.1 billion in the U.S. alone in 2019, and according to New Frontier Data, the market for legal cannabis in the U.S. in that year was $13.2 billion, with an additional $13.5 billion of illegal cannabis. As indicated below, we expect the market for legal cannabis to grow dramatically.

According to industry publications, revenue for the global hydroponics industry, of which container-based systems such as GrowPods are a significant part, totaled approximately $65 billion in 2019 and is expected to grow at a compound annual growth rate of 16% from 2019 to 2023. According to these publications, the global wholesale hydroponic equipment and supplies industry totaled approximately $8 billion in 2019 and is expected to grow at a compound annual growth rate of 12.8% from 2019 to 2025. The Company believes that rapid growth in demand for hydroponically grown crops will increase demand for GrowPods.

We believe that the growth in the demand for GrowPods and related products will be driven by a broad array of factors, including:

Significant Growth in the Cannabis Industry

We believe that a majority of GrowPods and supplies is purchased by participants in the cannabis industry. The U.S. cannabis industry is massive and growing, driven mainly by state-level legalization efforts, which are discussed below. Management believes that these legalization efforts and increasing popular support will continue to increase the size of the U.S. cannabis market for many years: according to an industry publication, legal cannabis sales in the United States grew approximately 30% over $18 billion in 2020, and are expected to surpass $28 billion in 2022 and reach approximately $46 billion in 2026. We believe that the current and expected growth in the size of the cannabis market has had and will continue to have a very significant positive impact on sales of our hydroponic equipment and supplies.

Several developments have contributed to an increase in cannabis availability and use, including the proliferation of cannabidiol (“CBD”) and other cannabis-infused products, including edibles, oils, tinctures, and topical treatments. We believe that the historical stigmatization of cannabis use has diminished significantly, as the result of a more supportive legislative environment, a change in sociopolitical views and greater consumer awareness of possible health benefits of cannabis. According to industry publications, real and perceived health benefits extend into areas including cancer treatment, pain management, the treatment of neurological and mental conditions, and sleep management.

Significant growth in the U.S. cannabis market is expected to continue due to (i) further initiatives for adult use and/or medical-use programs in additional U.S. states, (ii) expanded access for patients or consumers in existing state medical or adult-use cannabis programs, and (iii) increased consumption driven by greater product diversity and choice, reduced stigma, and real and perceived health benefits in states with existing adult-use or medical use programs.

Initiatives for new adult-use or medical-use programs.

As of the date of this report, 18 U.S. states and the District of Columbia had legalized cannabis for adult and medical use; 10 states had legalized cannabis for medical use and decriminalized its adult use; nine states had legalized cannabis for medical use only; two states had decriminalized it, at least in small amounts; and its possession and use was illegal in four states. In contrast, in 1996 and 2004, cannabis was legal for medical use in one and four states, respectively, and otherwise unlawful, and in 2014, was lawful for adult use in four states and for medical use in 18 states.

We believe support for cannabis legalization in the U.S. is gaining momentum. According to a November 2019 poll by Pew Research Center, public support for the legalization of cannabis in the U.S. increased from approximately 41% in 2010 to approximately 67% in 2019. According to a 2019 poll by Quinnipiac University, 93% of Americans support patient access to medical-use cannabis if recommended by a doctor. Furthermore, due to recent socioeconomic changes across the U.S. since early 2020, many state governments are seeking additional revenue sources, such as potential revenue streams from the taxation and job creation that state-legalized adult-use cannabis may offer. Accordingly, several states are considering implementing laws permitting cannabis use or further liberalizing their existing laws permitting such use. A number of bills that, to varying extents, would legalize the cultivation, use and possession of cannabis at the federal level have been introduced in the U.S. Congress, but none has been adopted by both of its houses.

Expanded access for patients and consumers in existing state medical and adult-use programs.

We believe that the cannabis business in states that have legalized cannabis will continue to grow, creating jobs and opportunities for workers and entrepreneurs, and that cultivators, manufacturers, dispensaries, delivery providers, labs and other cannabis-related businesses will continue to grow in these regions. As these businesses proliferate, we believe that demand for GrowPods will increase.

Greater product diversity and choice, reduced stigma and real and perceived health benefits in states with existing adult-use or medical use programs.

Several key developments have contributed to increased cannabis product availability and breadth, including the proliferation of CBD and other cannabis-infused products, such as edibles, oils, tinctures, and topical treatments. As stated above, we believe that the historical stigmatization of cannabis has diminished significantly. According to industry publications, real and perceived health benefits extend into areas including cancer treatment, pain management, the treatment of neurological and mental conditions, and sleep management. According to industry publications, the use of cannabis in the U.S. by adults aged over 65 has increased from 0.4% in 2006 and 2.9% in 2015 to 4.2% in 2018.

Acceleration of Hydroponics Use

Both the commercial agriculture and cannabis industries are increasingly adopting more advanced agricultural technologies in order to enhance productivity and efficiency. This trend continues to increase globally, driven by the factors listed above as well as growth in fruit and vegetable farming, consumer gardening and the continued adoption of vertical farming. Vertical farming, which involves the stacking of GrowPods, has gained popularity mainly due to its advantage of maximizing yield per unit of ground area by growing crops in layers. Industry publications project that the global vertical farming market will reach approximately $6 billion in 2023, up from $3 billion in 2019, representing a 24% CAGR.

We believe that hydroponics is and will continue to be the primary method of growing cannabis, driving demand for our GrowPods and related products. The movement toward the legalization of cannabis in the U.S. comes with a corresponding increase in regulatory oversight and statutory requirements for growers and their products. These regulations not only enhance product safety and transparency to consumers, but also usually necessitate the use of hydroponics in cannabis cultivation in order to meet mandated THC content or impurity tolerances.

Strong Demand for Hemp for CBD Production

Hemp cultivation in the United States has grown significantly since the passage of the U.S. Farm Bill in December 2018. Consumers are increasingly using hemp-derived products such as CBD for their therapeutic benefits. According to industry publications, the U.S. CBD market is expected to grow from $1.2 billion in 2019 to $6.9 billion in 2025, representing a 6-year CAGR of 33.8%. We believe that there is a market for GrowPods from growers of hemp.

Competitive Strengths

We believe that we are an increasingly successful seller of container-based hydroponic systems in the U.S. We believe that there are approximately 20 companies that sell or resell products similar to GrowPods in the United States, including manufacturers of such systems who sell their products directly, but we are unable to ascertain our relative position among them. We serve several attractive end markets, including hemp and indirectly, the cannabis industry. GP is an independent producer of container-based hydroponic systems. The Company believes that it is positioned to become a leading competitor by market share in the market for container-based hydroponic growing spaces, which it believes is a unique category of such spaces. Its mission is to provide small- to medium-sized growers, farmers and cultivators with a product that enables greater quality, efficiency, consistency and speed in growing their crops than traditional farming.

We believe that we can take advantage of favorable trends in hydroponics, including increased adoption of vertical farming methods to increase yields, are projected to drive a 24% CAGR for the vertical farming market through 2023, according to industry publications. Similarly, growers’ increasing preference to reduce water and energy usage, limit pesticide use and risk of environmental runoff and reduce labor costs coupled with growing consumer demand for fruits and vegetables are expected to drive significant growth in hydroponic. Furthermore, hydroponic growing allows farms to be located closer to their consumers, greatly reducing the costs and waste related to transportation and resulting in an overall smaller carbon footprint. We expect to see the most significant growth in cannabis. We believe that increased support for cannabis legalization at the federal level in the U.S., an increase in U.S. states’ legalization of adult-use and medical cannabis and consumer and commercial awareness of the benefits associated with hemp-derived products will drive continued growth.

Growers can benefit from macroeconomic factors that we believe will drive demand for GrowPods – as single units or stacked – as well as the growth in cannabis, hemp and other end-markets. As the population grows and urbanizes, we expect vertical farming to be increasingly used to meet the demand for these crops. Industry publications estimate that the global vertical farming market will expand at a 24% CAGR from 2019 to 2023. In addition, the U.S. and Canadian markets for legal cannabis had an estimated value of approximately $14 billion in 2019 and are projected to grow to approximately $37 billion by 2024. The hemp market has benefited from consumer adoption of hemp-derived CBD products. According to industry publications, the U.S. hemp-derived CBD market is expected to grow from $1.2 billion in 2019 to $6.9 billion in 2025, representing a six-year CAGR of 33.8%. We expect that these favorable growth trends will continue to increase demand for GrowPods.

The Distributorship Agreement

Under the Distributorship Agreement, ACT has the exclusive right to 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, and ACT is obligated to use its best efforts to sell them. The Distributorship Agreement has 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. GrowPods and related items are shipped directly to our purchasers by GP. In the event that ACT fails to pay GP’s invoices within 30 days of ACT’s receipt of GP’s products and such default continues unremedied for 15 days after ACT’s receipt of written notice thereof, GP may terminate the Distributorship Agreement on written notice. In the event that GP is in default of its obligations to deliver its products and such default continues unremedied for 15 days after its receipt of written notice thereof, ACT may terminate the Agreement on written notice. GP provides a limited warranty that its products will be free of defects in materials and workmanship upon their delivery and for 1 year thereafter.

ACT began purchasing GrowPods from GP in the first quarter of 2021. During the year ended December 31, 2021, ACT purchased 40 GrowPods from GP, which was its total output during that year.

The Company believes that the Covid-19 Pandemic has not affected GP’s ability to perform its obligations under the Distributorship Agreement.

The Medtainer and Related Products

Medtainers are manufactured from medical-grade polypropylene resin. They can store pharmaceuticals, herbs, teas and other solids or liquids, can grind solids and shred herbs and are air- and water-tight. The Company sells the original 20-dram version, a 20-dram version that has received child safety certification, and a 40-dram version. The Company is focusing its marketing of Medtainers on the drug stores and drug store chains, cannabis/CBD markets, veterinarians and veterinary distributors and other distributors and end-users.

During the years ended December 31, 2021, and December 31, 2020, the Company received revenues of $1,016,548 and $1,172,278, respectively, from sales of Medtainers and related products.

Medtainers have three components. The top component is a cap, the middle component is a storage cup with grinding/shredding teeth projecting downward from its bottom and the bottom component is a grinding/shredding cup with teeth projecting upward from its bottom. Material is transferred from the storage cup into the grinding/shredding cup, the storage cup is inserted into the grinding/shredding cup, forming a space in which the two sets of teeth intermesh, and the two cups are then rotated manually such that the material passes between the two sets of teeth and is ground or shredded. The ground or shredded material may then be returned to the storage cup for storage or used or dispensed in another manner. The cap attaches to the grinding/shredding cup such that the storage cup is held between them, forming a compact unit that is air- and water-tight between the cap and the storage cup, as well as between the storage cup and the bottom cup. The pictures below show exploded views of the non-childproof and childproof configurations of the Medtainer.

On June 8, 2018, the Company acquired the patents and patent applications relating to the Medtainer patents, the trademark “Medtainer” and a related domain name from Polymation, LLC (“Polymation”), agreed with Polymation to terminate the agreement under which the Company purchased Medtainers from Polymation, licensed Polymation to manufacture Medtainers solely for purchase by the Company under these patents and entered into a production contract, dated June 8, 2018, which was amended on March 27, 2019, under which Polymation manufactures and the Company purchases Medtainers (as so amended, the “Production Contract”). The Production Contract requires the Company to purchase at least 30,000 units per month, increasing by 1% on each anniversary of its effective date, and sets prices for the products purchased thereunder, subject to periodic increases for changes in the local consumer-price index. Its term expires on April 30, 2031, unless the Company exercises a termination option, under which it may terminate the Production Contract upon payment to Polymation of $400,000, less any amount that its owner agrees that he owes to the Company or that he owes to it under a final and unappealable judgment, provided that the shares of Common Stock issued to him in the transaction in which the Company acquired the patent and trademark may be publicly sold under the exemption from registration under the Securities Act of 1933 (the “Securities Act”) afforded by Rule 144 promulgated thereunder or another exemption from such registration.

Because the Company owns the patent for the Medtainer, to the extent that it can sell more Medtainers than it is required to purchase under the Production Contract, it will be able to manufacture them in-house or acquire them from a third party, possibly at prices lower than under the Production Contract, but unless the number of Medtainers that the Company is not required to purchase under the Production Contract is substantial, doing so may not be cost-effective. The Company intends to continue its efforts to sell Medtainers globally, which, if successful, would increase demand for Medtainers and could increase sales volume, with the result that the Company might produce them at its facilities or seek out a third party to manufacture them, instead of purchasing them from Polymation, if doing either were cost-effective. The Company presently has no suppliers other than Polymation for Medtainers.

The Company believes that the raw materials used by Polymation in manufacturing Medtainers are readily available.

The Company believes that the Covid-19 Pandemic has not affected Polymation’s ability to perform its obligations under the Production Agreement.

Other Products

In addition to Medtainers, the Company sells and is actively developing markets for the following products, all of which it purchases from their manufacturers and resells:

During the years ended December 31, 2021, and December 31, 2020, the Company received revenues of $921,383 and $829,875, respectively, from sales of these products.

Printing

The Company entered the custom labeling business in 2015 because some of its customers desired to have custom labels imprinted on the products that they purchased from the Company and the Company found that the cost of doing so through third parties raised the price that it charged to customers for imprinted products to levels that it believed would impede sales. Labeling is performed using five specialized printers that can print on nonporous plastic. Currently, about 2,000 square feet are devoted to printing. The Company is seeking additional business from companies that require labeling on their products.

During the years ended December 31, 2021, and December 31, 2020, the Company received revenues of $48,999 and $44,409, respectively, from this business.

Sales and Distribution

The Company sells all GrowPods and related products to end-users. Approximately 98% of Medtainers and related products are sold to wholesalers and distributors, who resell them to businesses and consumers, with and without custom labeling; the remainder are sold directly to retail consumers through internet sales and at trade shows. The Company has a showroom for GrowPods in Tulsa, Oklahoma.

The Company believes that social media are important to marketing its products and it maintains a presence on Instagram, Facebook, Twitter and other social media.

The Company believes that it is important to maintain strong relationships with its direct customers and its distributors, and, where possible, their customers, and takes measures to do so.

Backlog

As of March 31, 2022, the Company’s backlog of orders that it believed to be firm was $574,650 for GrowPods and related products and $86,495 for Medtainers and related products, all of which the Company expects to fill during the current fiscal year. As of April 7, 2021, its backlog was $62,373 for Medtainers and related products, which was filled during 2021, and as of that date, its backlog of orders for GrowPods and related products was $362,500, which was filled during 2021.

Patents, Trademarks and Other Intellectual Property

GrowPods and Related Products

GP has not registered “GrowPod” or the names of related products as trademarks under federal or state law. The Company does not believe that these names are material to its success in selling these products.

The Medtainer

The Company owns patents and patent applications relating to the Medtainer, the trademark “Medtainer” and a related internet domain. While the Medtainer is patented, similar products are being manufactured and sold, and the Company has not determined whether these products conflict with the Medtainer patents; however, if it determines that a conflict exists, it takes measures to enforce its patents. The Company does not know to what extent these products have affected its business.

The Company may license the Medtainer patents and trademark to, and future patents, trademarks, trade secrets and similar proprietary rights to and from, third parties.

The Company employs various methods, including confidentiality and nondisclosure agreements with third parties, employees and consultants, to protect its trade secrets and know-how. As it develops new products, the Company will rely on a combination of patents, trade secrets, unpatented know-how, trademarks, copyrights and other intellectual property rights, nondisclosure agreements and other protective measures to protect its proprietary rights. The Company cannot presently ascertain the extent to which other intellectual property that it may develop, or license will be important to it.

Our ability to compete effectively depends in part on our rights to trademarks, patents and other intellectual property rights we own or license. We have not sought to register every one of our trademarks, patents and other intellectual property in every country in which we sell Medtainers. Furthermore, because of the differences in foreign trademark, patent and other intellectual property or proprietary rights, we may not receive the same protection in other countries as we would in the United States with respect to our patents and trademarks. Litigation may be necessary to enforce our intellectual property and proprietary rights and protect our proprietary information or to defend against claims by third parties that our products or services infringe, misappropriate or otherwise violate their intellectual property or proprietary rights. Any litigation or claims brought by or against us could result in substantial costs and diversion of our resources.

We may need to obtain licenses to patents and other intellectual property and proprietary rights held by third parties to develop, manufacture and market our products, if, for example, we seek to develop our products, in conjunction with any patented technology. If we are unable to timely obtain these licenses on commercially reasonable terms (or at all) and maintain these licenses, our ability to commercially market our products may be inhibited or prevented.

Employees

Before the Covid-19 pandemic, the Company had, in addition to its two executive officers, nine sales personnel, three administrative personnel and four print technicians and warehouse personnel in connection with its Medtainer business. Due to the pandemic, the Company reduced its employees, in addition to its two executive officers, to one print technician and three sales personnel. The Company does not expect to increase staffing for its Medtainer business in the foreseeable future. The Company sells GrowPods through independent contractors who receive commissions based on sales. The Company believes that it needs to offer competitive salaries and incentives to attract and retain personnel who will enable it to expand its business and provide internal services. While it is exploring ways of doing so, its ability to offer attractive compensation is dependent upon its attaining profitability.

Competition

The Company operates in highly competitive industries. There are numerous manufacturers, distributors and resellers of small containers, which include metal, glass, resin, plastic, paper and other packaging materials, while the Company believes that there are about 20 manufacturers, distributors and resellers of container-based hydroponic systems. These competitors are of varying sizes and include Freight Farms, Inc., Micro Lab Farms, Vertical Harvest LLC Freight Farms, Inc. and Greentech Agro LLC with respect to GrowPods; and national and local distributors and manufacturers of hydroponic equipment, nutrients and growing media, such as Maxigrow Ltd., Hydrotek Hydroponics Ltd., Hydrofarm Holdings Group, Inc., The Scotts Miracle-Gro Company and Wholesale Hydroponic Supplies. We also face competition from smaller regional competitors who operate in many of the areas where we compete. Most of the Company’s existing and potential competitors have greater brand name recognition and their products may enjoy greater market acceptance among its potential customers. In addition, many of these competitors have significantly greater financial, technical, sales, marketing, distribution, service and other resources than does the Company and may be more able to adapt quickly to customers’ changing demands and changes in technology, to enhance existing products, to develop and introduce new products and new production technologies and to respond timely changing market conditions and customer demands. If the Company is not able to compete successfully in the face of its competitors’ advantages, its ability to gain market share or market acceptance for its products could be limited, its revenues and profit margins could suffer and it might never become profitable. Additionally, if demand for our products continues to increase due to the growth of the cannabis and industrial hemp industries, new competitors may enter the market. The Company believes that the barriers to entry to distributing products similar to those that it resells and to their manufacture are relatively low.

Competitive factors for the products that we market are product quality, brand awareness, product performance, value, reputation, price and advertising. The Company believes that it currently competes effectively with respect to each of these factors.

Government Regulation

The Company’s GrowPod business is affected by laws and regulations relating to cannabis, as set forth in Item 1A, Risk Factors. The Company sells products that may be used for cannabis-related purposes. While there is no national governmental regulation relating to the sale of hydroponics equipment, certain products included in our growing media and nutrients product line are subject to certain registration requirements with some U.S. state regulators and federal regulations. The Company intends to obtain the requisite licenses to sell these where required. Its products include growth media and nutrients that contain ingredients that are subject to regulation by various agencies in some jurisdictions. A decision by a regulatory agency to significantly restrict the use of such products could have an adverse impact on firms from which the Company purchases these products and on the end-users of these products, and as a result, limit its ability to sell them.

The Food and Drug Administration (the “FDA”) regulates the material content of Medtainers, including the medical-grade polypropylene resin used in their manufacture, pursuant to the Federal Food, Drug and Cosmetic Act, and the Consumer Product Safety Commission (the “CPSC”) regulates certain aspects of these products pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act. The FDA and the CPSC can require the manufacturer of defective products to repurchase or recall these products and may also impose fines or penalties on the manufacturer. Similar laws exist in some states, cities and other countries in which the Company sells or intends to sell its products. In addition, certain state laws restrict the sale of packaging with certain levels of heavy metals and impose fines and penalties for noncompliance. Although FDA-approved resins and pigments are used in its products that directly contact food and drugs and the Company believes that Medtainer products are in material compliance with all applicable regulatory requirements (although the Company is not required to submit these or any other products to the FDA or the CPSC for review), the Company is subject to the risk that these products could be found not to be compliant with these and/or other requirements. A recall of any of these products or any fines and penalties imposed in connection with noncompliance could have a materially adverse effect on the Company.

The Company and its expenditures, earnings and competitive position have not been materially affected by compliance with the above or other governmental regulations, including those relating to climate change. See also Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Climate Change.

The Company believes that it is in compliance with all material government regulations.

Cybersecurity

The Company does not believe that it is subject to material cybersecurity risks and does not expect to incur material costs in connection with cybersecurity. The Company does not believe that it has been the object of any cyberattack.

Information About Our Executive Officers

The names and ages of the Company’s executive officers and their positions with the Company are as follows:

There are no family relationships between any of the officers named above and there is no arrangement or understanding between any of the officers named above and any other person pursuant to which he was selected as an officer. The board of directors elected each of the officers named above to hold office until his successor is elected and qualified or until his earlier resignation or removal.

Further information about the Company’s officers and directors appears in Part III of this report.

Item 1A. Risk Factors.

While the Company is a smaller reporting company as defined by Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”) and is not required to provide information under this item, it calls attention to the following risks, which it believes are especially significant:

If the Company cannot raise capital, it may have to curtail its operations or could fail.

As described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, the Company requires substantial additional capital for its existing operations and would require a greater amount if the GP Acquisition were consummated. In the event that it cannot raise such capital, it may have to curtail its operations or it could fail.

The Company’s business, financial condition, results of operations and liquidity may be substantially and adversely affected by the Covid-19 pandemic.

Due to the Company’s measures to reduce operating expenses, principally payroll costs, the COVID-19 pandemic did not have a material impact on its results of operations in 2020, 2021 and the first quarter of 2022. Nevertheless, the federal and local governmental restrictions that were implemented to control the spread of the virus, including quarantines, travel restrictions, business shutdowns and restrictions on the movement and gathering of people, affected the Company during these periods. During these periods, the cost-saving actions that the Company took to address and mitigate the effects of COVID-19 among other things reduced its ability to market its products at trade shows, led to disruptions in its business, reduced its ability to grow, resulted in the termination of many employees and increased the workload for the employees that were retained. These measures may have affected the ability of the Company to raise capital and may have created risks to the effectiveness of the Company’s internal controls. Although many restrictions are being lifted or decreased, remaining restrictions may continue to affect the Company. The Company has resumed normal operations and expects to operate normally as long as infections continue to remain at their current level. If, however, the pandemic were to intensify, the risks to which the Company is subject, including, but not limited to, those arising because of its inability to raise capital, the ability of its customers to pay the Company on a timely basis or at all and the execution of its strategy, could increase.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Impact of the Covid-19 Pandemic for further information.

The Company sells products that may be used for cannabis-related purposes.

Cannabis is a Schedule I controlled substance under the Controlled Substances Act and accordingly, its cultivation, sale, or possession is unlawful under federal law, as is its advertisement for sale and the sale of paraphernalia designed or intended primarily for its use, unless such paraphernalia is authorized by federal, state, or local law. The Controlled Substances Act is enforced by the Drug Enforcement Administration (the “DEA”). The United States Supreme Court has ruled that the federal government has the right to regulate and criminalize cannabis, even for medical purposes. The illegality of cannabis under federal law preempts state laws that legalize its use and therefore, federal law and enforcement may adversely impact the implementation and effect of state laws permitting adult use of cannabis or its use for medical purposes.

Because cannabis is illegal under federal law, certain of our customers and suppliers involved in the cannabis business (collectively, “Cannabis Industry Participants) and we are subject to a number of risks. If any of the events described below in connection with these risks were to occur, our business, results of operations and financial condition could be materially and adversely affected. We do not believe that we are a Cannabis Industry Participant.

While we are not engaged in the cultivation or sale of cannabis, we sell our products to persons who may be Cannabis Industry Participants. Accordingly, laws and regulations governing the cultivation, sale and possession of cannabis and related products could affect our business. Such laws and regulations have been enacted on both the state and federal government levels and are subject to change. New laws and regulations and enforcement actions by state and federal authorities could indirectly reduce demand for our products and could materially and adversely affect our business, results of operations and financial condition.

State laws permitting the cultivation, possession, and of cannabis for adult and medical uses conflict with federal laws that prohibit such activities for any purpose. Many states have legalized or decriminalized the cultivation, use and possession of cannabis for adult use, while other states have enacted legislation specifically permitting the cultivation, use and possession of cannabis for medicinal purposes only If cannabis were to become legal under federal law, its cultivation, use and possession could be regulated by the FDA and the DEA (which now licenses cannabis research and drugs containing active ingredients derived from cannabis) or other federal agencies, either exclusively or in addition to state authorities.

Federal and state laws and regulations affecting the U.S. cannabis industry, which are broad in scope and subject to evolving interpretations, are continually changing, and these changes could adversely affect our growth, revenues, results of operations and success generally. As a result, users of our products and certain of our suppliers could incur substantial costs associated with compliance, which could in turn materially and adversely affect our business, results of operations and financial condition. In addition, violations of these laws by these users and suppliers, or allegations of such violations, could have a like effect. Demand for our products may be negatively impacted, depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations and consumer perceptions develop. We cannot predict the nature of such developments or the effect, if any, that they could have on our business, results of operations and financial condition.

Other laws that could affect us directly, if, contrary to our belief, we were found to be a Cannabis Industry Participant, or indirectly through Cannabis Industry Participants with whom we do business, include:

We believe that most US. attorneys are not prioritizing the prosecution of cannabis-related offenses and medical cannabis is currently protected against enforcement by enacted legislation, which, if true, lowers, but does not eliminate, our cannabis-related risk. However, changes in the federal approach to enforcement could negatively affect the industry, potentially ending it entirely or causing significant direct or indirect financial damage to us. The legal uncertainty and possible future changes in law could negatively and substantially affect our business, results of operations and financial condition.

Violations of laws relating to cannabis could result in significant fines, penalties, administrative sanctions, convictions or settlements, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture, arising from civil proceedings or criminal charges. This could have a material and materially adverse effect on our business, including our reputation and ability to conduct business, the listing or quotation of our securities on stock exchanges and quotation services, the settlement of trades of our securities, our ability to obtain banking services, our financial position, operating results, profitability or liquidity or the market price of our publicly traded shares. It is difficult for us to estimate the time, expenditures and resources that would be required in the event of such a proceeding.

We may encounter difficulty in marketing and selling GrowPods and related products.

The Company began selling GrowPods and related products in 2021, and may not be able to hire, manage and retain the staff, or develop the skills and capacity necessary to do so or raise the capital necessary to market and sell them.

Item 1B. Unresolved Staff Comments.

The Company is not an accelerated filer or a large accelerated filer, as defined in Rule 12b-2 promulgated under the Exchange Act, or a well-known seasoned issuer, as defined in Rule 405 promulgated under the Securities Act and is not required to provide information under this item. However, there are no unresolved staff comments.

Item 2. Properties.

The Company’s headquarters is located at 1620 Commerce St., Corona, California. Its wholly owned subsidiary, Med X Technologies Inc. (“Med X”), subleases this property from an entity owned by one of the Company’s officers and directors. For further information regarding this and prior subleases, see Item 13, Certain Relationships and Related Transactions, and Director Independence – Real Property Lease.

The Company leases premises of 6,000 square feet, which it uses as a showroom, at 579 N. 151st East Ave, Tulsa, Oklahoma, at a monthly rental of $5,500. The Company is obligated to pay all taxes, insurance, operating expenses, repairs and certain maintenance costs and utilities. The lease had a 1-year term that expired on March 31, 2022, and was renewable for a 1-year term at the same rent. On April 1, 2022, the lease was amended such that the term will expire on March 31, 2023.

The Company believes that its properties are suitable and adequate for its purposes.

Item 3. Legal Proceedings.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.

The Common Stock is quoted on OTC Link under the trading symbol ACTX; until October 8, 2020, it was quoted under the trading symbol MDTR.

The following table reflects the high and low closing bid information for the Common Stock for each quarter during the years ended December 31, 2021, and December 31, 2020, and during the year ending December 31, 2022, up to April 13, 2022. The bid information was obtained from OTC Markets Group Inc. and reflects prices between dealers, without retail markup, markdown or commission, and may not represent actual transactions.

Prices in the above table have been adjusted to reflect the 1-for-59 stock combinations that occurred on October 8, 2020.

On April 13, 2022, the closing price for the Common Stock was $0.76.

As of April 13, 2022, there were 506 holders of record of Common Stock.

The Company has never declared or paid cash dividends on Common Stock or the Series A Preferred. The Company intends to retain all available funds and any future earnings for use in the operation and expansion of its business and does not anticipate paying cash dividends in the foreseeable future.

Sales of Unregistered Securities

On May 21, 2020, the Company issued 338,983 shares of Common Stock to an unrelated investor in consideration of $200,000, without registration under the Securities Act, in reliance upon the exemptions from registration afforded by Section 4(a)(2) thereof and Rule 506 promulgated thereunder.

On June 24, 2020, the Company issued 1,000,000 shares of Series A Preferred to Douglas P. Heldoorn, its chief executive officer and a director, without registration under the Securities Act, in reliance upon the exemptions from registration afforded by Section 4(a)(2) thereof and Rule 506(c) promulgated thereunder. For further information, see Item 10, Employment Agreement – Douglas P. Heldoorn.

On October 9, 2020, the Company issued 50,000,000 shares of Common Stock to the shareholders of ACT, in exchange for all of their shares of the capital stock of ACT, pursuant to the Exchange Agreement, in reliance upon the exemptions from registration afforded by Section 4(a)(2) thereof and Rule 506 promulgated thereunder.

On January 1, 2021, the Company issued 120,000 shares of Common Stock to Eric Horton, one of the Company’s directors, without registration under the Securities Act, in reliance upon the exemptions from registration afforded by Section 4(a)(2) thereof and Rule 506(c) promulgated thereunder. For further information, see Item 10, Director Compensation.

During the year ended December 31, 2021, the Company issued 485,000 additional shares of Common Stock to 8 unrelated persons for the aggregate purchase price of $615,000, without registration under the Securities Act, in reliance on such exemptions.

Between January 1, 2022, and April 15, 2022, the Company issued 280,001 shares of Common Stock to 4 unrelated persons for the aggregate purchase price of $210,000, without registration under the Securities Act, in reliance upon the exemptions from registration afforded by Section 4(a)(2) thereof and Rule 506(c) promulgated thereunder.

Item 6. Reserved.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The financial information discussed below is derived from the Company’s audited consolidated financial statements at December 31, 2021, which were prepared and presented in accordance with generally accepted accounting principles (“GAAP”). This financial information is only a summary and should be read in conjunction with the audited financial statements and related notes contained herein, which more fully present the Company’s financial condition and results of operations at that date. The results set forth in these consolidated financial statements are not necessarily indicative of the Company’s future performance. This section and other parts of this report contain forward-looking statements that involve risks and uncertainties. Actual results may differ significantly from the results discussed in forward-looking statements.

Overview

As indicated in Note 3 of the Notes to Consolidated Financial Statements set forth in Item 8, Financial Statements and Supplementary Data, there is substantial doubt as to the ability of the Company to continue as a going concern. The Company has generated material operating losses since inception and its ability to continue as a going concern depends on the successful execution of its operating plan, which includes increasing sales of existing products – and in particular GrowPods and related products – while introducing additional products and services, controlling cost of goods sold and operation expenses, negotiating extensions of existing loans, and raising either debt or equity financing.

The Company needs a substantial amount of additional capital to fund its business, including expansion of its operations, and for repayment of its debts. No assurance can be given that any additional capital can be obtained or, if obtained, will be adequate to meet its needs and the Company may need to take measures to remain a going concern. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, the Company’s operations could be materially negatively impacted, or it could be forced to terminate operating.

Impact of the Covid-19 Pandemic

The Covid-19 pandemic, its disruption of the Company’s business and its effect on the economy generally have not adversely impacted the Company, due principally to its cost-saving measures. See Item 1A, Risk Factors – The Company’s business, financial condition, results of operations and liquidity may be substantially and adversely affected by this pandemic for a detailed discussion of matters relating to this pandemic.

Also, in connection with the pandemic:

The Company believes that, owing to the effect of the pandemic on its customers, receivables have been and may continue to be collected more slowly than prescribed by their payment terms and some may prove to be uncollectible.

The Company tested intellectual property and goodwill for impairment in preparing its financial statements for the year ended December 31, 2021, and determined that no adjustment was required.

Results of Operations

Comparison of the Years Ended December 31, 2021, and December 31, 2020

The following table sets forth information from the consolidated statements of operations for the years ended December 31, 2021, and December 31, 2020.

Revenues and Cost of Goods Sold

Revenues for the year ended December 31, 2021, were $5,349,012, from which the Company earned a gross profit of $1,105,959, or 20% of sales. Revenues for the year ended December 31, 2020, were $2,227,668, from which the Company earned a gross profit of $1,021,703, or 45.9% of sales. The increase in revenues was primarily due to a $3,002,000 increase in revenues from sales of GrowPods (which the Company did not sell prior to January 1, 2021) and a $270,421 increase in revenues of lighters. The increase in revenues was partially offset by a decrease of $194,969 in humidity pack inserts and a $155,730 decrease in Medtainer sales. The increase in cost of goods sold was primarily due to a $2,876,530 increase in the cost of GrowPods (which the Company did not sell prior to January 1, 2021). Overall, gross profit declined from 45.9% in the year ended December 31, 2020, to 20.0% in 2021, because, in the later year, gross profit for GrowPods and related products (which were first sold in 2021) was 5%, based upon revenues of $3,002,000, while operating profit for Medtainers and related products and services was 41%, based upon revenues of $2,347,012.

Operating Expenses

Operating expenses for the years ended December 31, 2021, and December 31, 2020, were as follows:

Operating expenses for the years ended December 31, 2021, and December 31, 2020, were $2,060,657 and $1,570,935, respectively. The difference of $489,722 was mainly attributable to a $252,900 increase in payroll driven by increase in payroll for ACT. The $138,502 increase in depreciation and amortization was attributable to a full fiscal year amortization of the GP Distribution Agreement. General and administrative expenses increased by $100,011 mainly attributable to a $55,000 rent expense for the Oklahoma location. The increase in operating expenses was partially offset by a $33,228 decrease in bad debt and a $28,076 decrease in share-based compensation.

Loss from Operations

Loss from operations increased from $549,232 for the year ended December 31, 2020, to $954,698 for the year ended December 31, 2021, due to an increase of $405,466 in operating expenses, which is discussed above.

Interest

Interest incurred in the years ended December 31, 2021, and December 31, 2020, was $28,925 and $39,799, respectively.

Net Loss

Net loss increased from $579,031 for the year ended December 31, 2020, to $845,056 for the year ended December 31, 2021, due principally to the increase in operating expenses that is discussed above.

Liquidity and Capital Resources

As of December 31, 2021, the Company had $59,367 in cash and $229,941 in accounts receivable. During the year ended December 31, 2021, the Company borrowed $190,986 from, and repaid $178,568 to, one of its officers. For further information, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8, Financial Statements and Supplementary Data.

On March 31, 2022, the Company had $103,638 in cash and $207,666 in accounts receivable, which is insufficient for it to meet its current obligations.

The numbers of items of the Company’s products sold for 2021, 2020 and 2019 were approximately as follows:

As of December 31, 2021, the Company had inventory of approximately 118,000 Medtainer units and approximately 218,000 units of other products and inventory of $125,000 GrowPods and related products.

In addition to the Cares Loan, the Company received $210,000 from sales of shares of Common Stock to private investors during the year ended December 31, 2020, and received $615,000 from sales of Common Stock to private investors during 2021; it has received $210,000 from such sales in 2022. The Company believes that it will require approximately $765,000 in additional funding for the next 12 months, including approximately $600,000 to repay loans and interest that are past due, assuming that the Company’s operating loss remains at the same level and that it does not acquire the assets of GP, as it announced it may do on February 28, 2022; if it does consummate this acquisition, the Company believes that it would require approximately $2,300,000 in additional funding for the next 12 months, owing to increased expenses associated with operating and integrating the acquired business. The Company is seeking extensions of its overdue loans, and if it is successful in doing so, the amount of such funding will be reduced, but no assurance can be given as to the extent to which it will be successful. The Company plans to fund its activities principally through the sale of debt or equity securities to private investors. There is no assurance that such funding will be available on acceptable terms or available at all. If the Company is unable to raise sufficient funds when required or on acceptable terms, it may have to reduce its operations significantly or discontinue them. To the extent that funds are raised by issuing equity securities or securities that are convertible into the Company’s equity securities, its stockholders may experience significant dilution.

The Company had no material commitments for capital expenditures as of December 31, 2021, or as of the date of this report.

The Company intends to devote its manpower and capital resources to increasing revenues while working to reduce the cost of goods sold and operating expenses. Doing so depends on the successful execution of its operating plan, which includes increasing sales of existing products, introducing additional products and services, controlling cost of goods sold and operating expenses, negotiating extensions of existing loans, raising either debt or equity financing and, if the GP Acquisition were consummated, integrating the related business into the Company.

Off-Balance-Sheet Arrangements

The Company has no off-balance sheet arrangements.

Risks and Uncertainties

See Item 1A, Risk Factors, for information as to certain significant risks. Also, the Company may be affected by inflation, increasing energy costs, increasing transportation costs and increasing rates of interest to an extent that management cannot predict.

Critical Accounting Policies and Estimates

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 estimates could be affected by external conditions, including those unique to its industry, and general economic conditions, which could affect the Company’s estimates so as to 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 the consolidated financial statements contained in this report 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 allowances.

Fair Value Measurements

The Company has adopted the provisions of ASC Topic 820, Fair Value Measurements, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, is carried on a historical cost basis, which approximates their fair value 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).

Goodwill and Intangible Asset Impairment

Goodwill and intangible assets that have indefinite useful lives are not amortized, but are evaluated for impairment annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The Company records intangible assets at fair value when they are acquired and they are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of the indefinite lived intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss will be recorded in the consolidated statements of operation in an amount equal to that excess. The Company amortizes its intangible assets that have finite lives using either the straight-line method or based upon estimated future cash flows to approximate the pattern in which the economic benefit of the assets will be utilized. Amortization is recorded over estimated useful lives ranging from 5 to 20 years.

Significant judgment is required in evaluating whether an intangible asset has an indefinite useful life and in testing for impairment. This judgment includes developing cash flow projections, selecting appropriate discount rates, identifying relevant market comparables, and incorporating general economic and market conditions.

The Company reviews intangible assets subject to amortization quarterly to determine if 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 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 its 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 the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. The Company also evaluates intangible assets and long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These changes include but are not limited to significant adverse changes in the business climate, market conditions, or other events, including the Covid-19 pandemic, that indicate an asset’s carrying amount may not be recoverable. The recoverability of these assets is measured by comparing the carrying amount of each asset with the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test of recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.

Pursuant to ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”), the Company evaluates and tests the recoverability of its goodwill for impairment at least annually during the fourth quarter of each fiscal year or more often if circumstances indicate that goodwill may not be recoverable. The Company has conducted annual impairment tests of goodwill during the fourth quarter of each year, commencing in the year ended December 31, 2018, in which year it first acquired intangible assets. The annual impairment testing process is subjective and requires judgment at many points. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded. The Company operates as a single operating unit and consequently evaluates goodwill for impairment based upon an evaluation of the fair value of the Company as a whole. The estimation of fair value requires significant judgment. The goodwill recorded in the consolidated balance sheets at December 31, 2021, and December 31, 2020, was $1,020,314. Goodwill was due entirely to the Company’s acquisition of intangible property relating to Medtainers in 2018. Various future events, including changes in demand for the Company’s products and the Covid-19 pandemic, could result in an impairment of goodwill. Any adjustments resulting from an impairment test will be reflected in operating income in the Company’s consolidated financial statements.

The fair value of acquired technology and patents, as well as acquired technology that the Company may develop, is determined at their acquisition date primarily using the income approach, which discounts expected future cash flows to present value. The discount rates used in the present value calculations are typically derived from a weighted-average cost-of-capital analysis and then adjusted to reflect risks inherent in the development life cycle as appropriate. Any loss resulting from an impairment test will be reflected in operating income in the Company’s consolidated statements of income. The annual impairment testing process is subjective and requires judgment at many points. If these estimates or their related assumptions change in the future, the Company may be required to record impairment charges for these assets not previously recorded.

There was no impairment of intangible assets, long-lived assets or goodwill during the years ended December 31, 2021, and December 31, 2020.

Revenue Recognition

Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, 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, 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, as amended, the Company recognizes revenues 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 a five-step model: (a) it identifies contract(s) with a customer; (b) it identifies the performance obligations in the contract; (c) it determines the transaction price; (d) it allocates the transaction price to the performance obligations in the contract; and (e) it recognizes revenues when (or as) it satisfies its performance obligation.

Revenues from product sales are recognized when a customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have been recognized is one year or less or the amount is immaterial.

Taxes

The Company accounts for income taxes under FASB ASC Topic 740, Accounting for Income Taxes, under which the Company is required to recognize a current tax liability or asset for current taxes payable or refundable and a deferred tax liability or asset for the estimated future tax effects of temporary differences and carry forwards to the extent they are realizable.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that it were to determine that it would be able to realize deferred tax assets in the future in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period in which such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of a net deferred tax asset in the future, an adjustment to that asset would be charged to income in the period in which such determination was made. In the year ended December 31, 2021, the Company recorded a deferred tax liability related to intangible assets that are amortized under GAAP but are not deductible for tax purposes. The remaining change in valuation allowance is attributable to the decrease in the valuation allowance on other tax assets not generated through the year ended December 31, 2021. The Company believes that it is more likely than not that these tax assets will not be realized. Based on annual evaluations of tax positions, the Company believes that it has appropriately filed its tax returns and accrued for possible exposures. As part of the process of preparing the Company’s consolidated financial statements, it is required to estimate its income tax provision or benefit in each of the jurisdictions in which it operates. This process involves estimating current income tax provision or benefit, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences have resulted in deferred tax assets and liabilities, which are included in the consolidated balance sheets.

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.

Smaller Growth Company

We are a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K. As such, we may take advantage of certain of the scaled disclosures available to smaller reporting companies as long as (i) the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter. As a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and have reduced disclosure obligations regarding executive compensation; and, as long as we remain a smaller reporting company with less than $100 million in annual revenue, we will not be required to obtain an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

Climate Change

The Company’s business, financial condition, and results of operations have not been materially impacted by federal and state legislation and regulation and international accords regarding climate change, but it cannot predict how they may be impacted in the future. The Company has had no material past capital expenditures for climate-related projects and, unless there are regulatory changes, does not expect to incur them in the future.

Long-Term Obligations

The Company has no long-term obligation that it expects to have a material impact on its liquidity or capital resources.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and is not required to provide information under this item.

Item 8. Financial Statements and Supplementary Data.

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Advanced Container Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Advanced Container Technologies, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has a working capital deficit, continued operating losses since inception, and has notes payable that are currently in default. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.

Impairment Assessment for Goodwill and Intangible Assets – Refer to Notes 2 & 4 to the Consolidated Financial Statements

Critical Audit Matter Description

As reflected in the Company’s consolidated financial statements at December 31, 2021, the Company’s goodwill was $1,020,314 and net intangible assets were $1,923,130. As disclosed in Notes 2 and 4 to the consolidated financial statements, goodwill and intangible assets are tested for impairment at least annually or more frequently if indicators of impairment require the performance of an interim impairment assessment. As a result of these assessments, the Company concluded that there was no impairment to goodwill or the Company’s intangible assets during the year ended December 31, 2021. Auditing management’s impairment tests of goodwill and intangible assets was complex and highly judgmental due to the significant measurement uncertainty used by management in their impairment assessments. These assumptions are affected by the expected future market or economic conditions, including the impact of COVID-19.

How the Critical Audit Matter was Addressed in the Audit

We obtained an understanding of the relevant controls over the Company’s goodwill and intangible assets and management’s process to assess impairment.

To test the fair values of the goodwill and intangible assets, our audit procedures included testing the reasonableness of significant assumptions and underlying data used by the Company in their qualitative impairment assessments. This assessment included consideration that current year losses were not indicative of future expected results and that future results were not expected to produce continuing losses. Furthermore, we compared the consolidated carrying value of the Company to overall market capitalization of the Company, noting that the market capitalization exceeded the consolidated carrying value of the Company. Management determined no indicators of impairment on the Company’s existing goodwill and net intangible assets as of the December 31, 2021 evaluation date based on their qualitative assessments and we concurred with such conclusion. 

We have served as the Company’s auditor since 2019.

Irvine, California

April 15, 2022

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements.

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements.

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

The accompanying notes are an integral part of these financial statements.

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

Notes to Consolidated Financial Statements

December 31, 2021