Form 10-K ADVANCED CONTAINER TECHN For: Dec 31

The Food and Drug Administration (^“FDA^”), in conjunction with the DEA, licenses cannabis research and drugs containing active ingredients derived from cannabis. If cannabis were to become legal under federal law, its sale and use could be regulated by these or another federal agencies, either exclusively or in addition to state authorities.

Other laws that may affect us directly or indirectly through Cannabis Industry Participants include:

On January 4, 2018, former U.S. Attorney General Jeff Sessions, who was appointed by former President Trump, issued a memorandum rescinding previous guidance directing U.S. Department of Justice and the U.S. Attorneys’ offices to focus their cannabis enforcement efforts under federal law only in identified priority areas, such as sale to minors, criminal enterprises, and interstate sales. Under this memorandum, local U.S. Attorneys’ offices retain discretion regarding the prosecution of cannabis activity authorized under state laws and regulations. Later, former U.S. Attorney General William Barr, who was also appointed by Mr. Trump, expressed support for the National Organization to Reform Marijuana Laws (NORML) during his testimony before the U.S. Senate on April 10, 2019. Federal authorities may decide to change the current posture and begin to enforce current federal cannabis law and, if they decide to ignore the principles set forth in the Cole Memorandum^” and begin to enforce such laws aggressively, it is possible that they could allege that we violated federal laws by selling products that are used in the cannabis industry.

Changes in the federal approach to enforcement, either by the Biden administration or any succeeding administration, 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 any U.S. federal laws and regulations 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 conducted by either the U.S. federal government or private citizens, or from 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. In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation of any such matters or their final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved; however, such time or resources could be substantial.

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 are 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 lease of 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 has a 1-year term that expires on March 31, 2022, and is renewable for a 1-year term at the same rent.

The Company 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 the OTC Pink tier OTC Link under the trading symbol ACTX; until October 8, 2020 it was so 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, 2020, and December 31, 2019, and during the current year up to a recent date. 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-100 and 1-for-59 stock combinations that occurred on March 22, 2019, and October 8, 2020, respectively.

As of April 13, 2021, there were 497 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.

Equity Compensation Plan Information

The Company adopted its 2018 Incentive Award Plan on December 1, 2018, and amended it on December 31, 2018 (as so amended, the ^“2018 Plan^”). Under the 2018 Plan, the Company may issue up to 33,898 shares of Common Stock as incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other forms of compensation to employees, directors and consultants. In addition, the 2018 Plan provides for the grant of performance cash awards to employees, directors and consultants. All these shares were reserved on that date.

On December 1, 2018, 22,882 shares of Common Stock were awarded to employees in the form of restricted shares and 5,678 shares of common stock were awarded to consultants as compensation. The fair value of these shares on the grant date was $0.59 per share. As of December 31, 2021, all of these shares had vested.

The Company made no awards in any other form during the years ended December 31, 2020, and December 31, 2019. The Company expensed $298,076 and $871,032 for share-based compensation in the years ended December 31, 2020, and December 31, 2019, respectively, for its employees and nonemployees in its consolidated statements of operations.

The following table summarizes vesting for financial reporting purposes under generally accepted accounting principles (“GAAP”) of the Common Stock shares issued under the 2018 Plan:

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.

On October 9, 2020, the Company issued 50,000,000 shares of Common Stock to the shareholders of Advanced, in exchange for all of their shares of the capital stock of Advanced, 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 – Employment Agreement.

Between October 13, 2020, and March 26, 2021, the Company issued 495,000 shares of Common Stock to seven unrelated persons. The aggregate purchase price of these shares was $625,000.

Item 6. Selected Financial Data.

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

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

The financial information discussed below are derived from the audited consolidated financial statements of the Company as at December 31, 2020, which were prepared and presented in accordance with 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 operations as 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 is dependent 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 certain 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 it 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.) In particular, the Company’s sales in 2020 were approximately $79,202 higher than for 2019, in spite of the Covid-19 pandemic. Its sales during the first quarter of 2021 were approximately $1,328,442, compared with $556,129 for the like period of 2020. Because the Company decreased its expenses, principally due to reductions in payroll, its operating loss for 2020 was $549,232 ($111,576 excluding noncash expenses), compared with $1,369,959 for 2019 ($389,800 excluding noncash expenses). The Company expects that its sales will increase in the second quarter of 2021 and beyond, principally because it expects to receive increasing revenues from sales of GrowPods and related products. 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 does not intend to restore its staffing to pre-pandemic levels, although it may add personnel depending on demand for GrowPods and related products.

To mitigate losses during the Covid-19 pandemic and the ensuing recovery period, the Company terminated most of the 18 employees that it had in early 2020, such that it now has 8 employees, including officers, which it believes is the minimum necessary to maintain its operations. The Company’s chief executive officer has waived his salary since from June 1, 2020. In addition, the Company is deferring employer payroll taxes, as permitted by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Company is also purchasing from Polymation fewer Medtainers^® than required under the Production Contract; while doing so enables the Company to preserve cash by reducing expenses, it also subjects it to claims for breach of that agreement.

On May 4, 2020, the Company made a note in favor of Customers Bank in the principal amount of $137,690 pursuant to the terms of the CARES Act and pursuant to all regulations and guidance promulgated or provided by the SBA and other Federal agencies that are now, or may become, applicable to the loan (the Cares Loan”). The loan bears interest at the rate of 1% per annum. No interest or principal will be required during the first 6 months after the loan amount was disbursed, although interest will continue to accrue over this deferral period. After the deferral period and after taking into account any loan forgiveness applicable to the loan pursuant to the program, as approved by SBA, any remaining principal and accrued interest will be payable in substantially equal monthly installments over the remaining 18-month term of the loan, in the amount and according to the payment schedule provided by lender. The loan will be forgiven if its proceeds are used for payroll, mortgage interest, rent, and utilities during the 8-week period beginning on May 4, 2020. However, the amount of loan forgiveness will be reduced if less than 75% of the funds is expended for payroll over that period. The regulations relating to loan forgiveness have not yet been adopted, as the result of which the Company has not applied for loan forgiveness, but the Company believes that when they are adopted and forgiveness is applied for, the entire loan will be forgiven.

The Company tested intellectual property and goodwill for impairment in preparing its financial statements for the year ended December 31, 2020, and determined that no adjustment was required.

Results of Operations

Comparison of the Years Ended December 31, 2020, and December 31, 2019

The following table sets forth information from the consolidated statements of operations for the years ended December 31, 2020, and December 31, 2019.

Revenues and Cost of Goods Sold

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. Revenues for the year ended December 31, 2019, were $2,148,466, from which the Company earned a gross profit of $1,021,703, or 45.9% of sales. The decrease in gross profit was due to an increase in revenues without a corresponding decrease in cost of goods sold. This reduction was due primarily to a reduction in revenues from Medtainers^® and printing. The increase in cost of goods sold was due primarily to an increase in the cost of goods sold for humidity pack inserts, lighters and payment processing fees. The increase in cost of goods sold was partially offset by a decrease in the cost of goods sold for Medtainers^® and shipping expenses.

Operating Expenses

Operating expenses for the years ended December 31, 2020, and December 31, 2019, were as follows:

Operating expenses for the years ended December 31, 2020, and December 31, 2019 were $1,570,935 and $2,497,678, respectively, a difference of $926,743 that was attributable to a $70,479 reduction in advertising and marketing expense, primarily due to a decreased attendance at trade shows and conferences, a $572,956 decrease in share-based compensation due to amortization of share-based compensation awards from the 2018 Plan that commenced in 2018 and a $523,959 decrease in payroll. The decrease in operating expenses was partially offset by a $26,361 increase in bad debt, a $89,422 increase in professional fees due principally to increased auditing and legal expenses incurred in the exchange on October 9, 2020, a $94,415 increase in general and administrative expenses and a $30,453 increase in depreciation and amortization.

Loss from Operations

Loss from operations decreased from $1,369,959 for the year ended December 31, 2019, to $549,232 for the year ended December 31, 2020, due to a decrease of $926,743 in operating expenses from the year ended December 31, 2019, to the year ended December 31, 2020, which is discussed above. This decrease was partially offset by an increase in revenues with a corresponding increase in cost of goods sold, resulting in a decrease in the gross profit percentage from 52.5% for the year ended December 31, 2019, to 45.9% for the year ended December 31, 2020.

Interest Expense

Interest expense incurred in the years ended December 31, 2020, and December 31, 2019, was $39,799 and $38,491, respectively.

Net Loss

Net loss decreased from $1,408,450 for the year ended December 31, 2019, to $579,031 for the year ended December 31, 2020, due principally to the decrease in gross profit and the decrease in operating expenses, which are discussed above.

Liquidity and Capital Resources

As of December 31, 2020, the Company had $338,368 in cash and $130,104 in accounts receivable. During the year ended December 31, 2020, the Company borrowed $195,478 from and repaid $352,455 to its officers and directors. 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, 2021, the Company had $444,177 in cash and $201,725 in accounts receivable, which is insufficient for it to meet its current obligations.

The number of items of the Company’s products sold for 2020, 2019 and 2018 were approximately as follows:

As of December 31, 2020, the Company had inventory of approximately 43,000 Medtainer^® products and approximately 218,000 units of other products and no inventory of GrowPods and related products.

In addition to the Cares Loan, the Company received $210,000 from the sale of shares of Common Stock to private investors during the year ended December 31, 2020, and has received $615,000 from the sale of Common Stock to private investors during 2021. The Company believes that it will require approximately $1,000,000 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; however, the Company believes, but cannot assure, that it will attain an operating profit in 2021. The Company is seeking extensions of these loans, and if it is successful in doing so, the amount of such funding will be reduced, but assurance can be given as to the extent that 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 significantly, or discontinue, its operations. 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, 2020, 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 operation expenses, negotiating extensions of existing loans and raising either debt or equity financing.

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.

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 Measurement

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 at 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, estimated using a discounted cash flow approach. The Company amortizes its intangible assets that have finite lives using either the straight-line method or based upon estimated future cash flows to approximate the pattern in which the economic benefit of the assets will be utilized. Amortization is recorded over estimated useful lives ranging from 5 to 20 years.

The Company 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 business climate, market conditions, or other events, including the Covid-19 pandemic, that indicate an asset’s carrying amount may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to 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.

In January 2017, FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (^“ASU No. 2017-04^”), which simplifies accounting for goodwill impairment. This ASU requires a hypothetical purchase price allocation, which is mandatory for fiscal years beginning after December 14, 2019. As permitted, the Company adopted No. ASU No. 2017-04 for fiscal periods beginning January 1, 2018. Pursuant to 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 test 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 segment with one reporting 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 each of December 31, 2020, and December 31, 2019, 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 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 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, 2020, and December 31, 2019.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (^“FASB^”) issued Accounting Standards Update (ASU) No. 20l4-09, Revenue from Contracts with Customers (Topic 606), which superseded all existing revenue recognition requirements, including most industry specific guidance. This standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that it expects to receive for them. FASB subsequently issued the following amendments to ASU No. 2014-09 concerning its adoption and clarification that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 20l6-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments (collectively, the ^“new revenue standards^”) when it adopted ASU No. 2014-09.

The new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method. Adoption of the new revenue standards did not change the Company’s revenue recognition, as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption of the new revenue standards.

Under the new revenue standards, 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 the five-step model prescribed under ASU No. 2014-09: (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 or delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that it would have been recognized is 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, 2020, 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 valuation allowance on other tax assets not generated through the year ended December 31, 2020. 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 the Exchange Act. 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.

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.

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, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2020, 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, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, 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 Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were 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 communication of the critical audit matters below, providing separate opinions on the critical audit matters 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, 2020, the Company’s goodwill was $1,020,314 and intangible assets were $1,324,870, excluding the distribution rights intangible asset acquired in 2020 as discussed below. 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, 2020.

Auditing management’s impairment tests of goodwill and intangible assets was complex and highly judgmental due to the significant measurement uncertainty in determining the fair values. In particular, the fair value estimates were sensitive to changes in significant assumptions such as discount rates, revenue growth rates, operating margins, estimated spend on capital expenditures, terminal growth rates and market multiples. These assumptions are affected by 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. Additionally, we obtained a copy of an appraisal prepared by an independent valuation specialist obtained by management as part of their process to evaluate goodwill and intangible assets.

To test the fair values of the goodwill and intangible assets, our audit procedures included assessing valuation methodologies and testing the reasonableness of significant assumptions and underlying data used by the Company including forecasted revenue. We compared the significant assumptions used in the Company’s long range plan, including forecasted revenue and operating margins, to current industry and economic trends, giving consideration to the impact of COVID-19, while also considering changes in the Company’s business model, customer base and product mix. We assessed the historical accuracy of management’s estimates by comparing past projections to actual performance and assessed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the goodwill and intangible assets resulting from changes in the assumptions. We evaluated management’s reconciliation of the fair value of the reporting unit to the market capitalization of the Company and concurred with management that there was no impairment of goodwill or intangible assets as of the December 31, 2020 evaluation date.

Acquisition of Advanced Container Technologies, Inc. – Refer to Note 4 to the Consolidated Financial Statements

Critical Audit Matter Description

As described in Note 4 to the consolidated financial statements the Company completed the acquisition of Advanced Container Technologies, Inc. (“ACT”) on October 9, 2020 for 50,000,000 shares of the Company’s common stock, issued to the previous shareholders of ACT on a pro-rata basis. The Company applied the acquisition method of accounting for business combinations. Accordingly, the assets acquired and liabilities assumed were recorded at their acquisition date fair values. Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities assumed was recorded as goodwill. Assets acquired included cash and distribution rights intangibles. The fair value of assets acquired in the acquisition totaled $986,293, including $86,293 in cash and $900,000 ascribed to distribution rights as an intangible asset value. The Company estimated the fair value of the distribution rights intangible asset using a discounted cash flow model. Management determined multiple assumptions for which there was limited observable market information and required significant estimates and judgment such as discount rates, revenue growth rates, operating margins, estimated spend on capital expenditures, terminal growth rates and market multiples.

We have identified the valuation of the distribution rights intangibles from the ACT acquisition as a critical audit matter because auditing the fair value involved significant auditor judgment and increased audit effort because of the estimation required by management.

How the Critical Audit Matter was Addressed in the Audit

We obtained an understanding of the relevant controls over the Company’s accounting for an acquisition. Additionally, we obtained a copy of an appraisal prepared by an independent valuation specialist obtained by management as part of their process to record the net assets acquired at fair value.

To test the fair values of the net assets acquired, our audit procedures included assessing valuation methodologies and testing the reasonableness of significant assumptions and underlying data used by the Company including forecasted revenue. We compared the significant assumptions used in the Company’s long range plan, including forecasted revenue and operating margins, to current industry and economic trends, giving consideration to the impact of COVID-19, while also considering changes in the Company’s business model, customer base and product mix. Additionally, we compared the fair value of the common stock shares exchanged in the transaction to the valuation of the net assets acquired and determined the valuation to be reasonable.

/s/ HASKELL & WHITE LLP

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

Irvine, California

April 15, 2021  

ADVANCED CONTAINER TECHNOLOGIES, INC.

(formerly named Medtainer, Inc.)

CONSOLIDATED BALANCE SHEETS

Share-Based Payments

ASC 718, “Compensation – Stock Compensation”, prescribes accounting and reporting standards for all share-based payment transac In June 2018, FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for share-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance became effective for the Company as of January 1, 2019. Based on completed analysis, the Company has determined that the adoption of this guidance will not have a material impact on its financial statements. The Company follows FASB guidance related to equity-based payments, which requires that equity-based compensation be accounted for using a fair value method and recognized as expense in the accompanying consolidated statements of operations. Equity-based compensation expense is recognized as compensation expense over the applicable service or vesting period (see Note 8).

Fair Value Measurements

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

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, is carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of the Company’s short- and long-term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC Topic 820 also establishes a fair-value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC Topic 820 describes three levels of inputs that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable.

Level 3 – Inputs that are unobservable (for example cash flow modeling inputs based on assumptions).

Advertising

Advertising and marketing expenses are charged to operations as incurred. These expenses totaled $13,961 and $84,440 for the years ended December 31, 2020, and December 31, 2019, respectively.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, Income Taxes. Under this method, income tax expense is recognized for (a) taxes payable or refundable for the current year and (b) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the consolidated statements of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if, based on the weight of the available positive and negative evidence, it is more likely than not some portion or all the deferred tax assets will not be realized. 

ASC Topic 740.10.30 clarifies accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company has no material uncertain tax positions.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in financial institutions, which at times, may exceed the federal deposit insurance coverage of $250,000. The Company has not experienced losses on these accounts and that it is not exposed to significant risks on such accounts. The Company has not experienced losses on accounts receivable and the Company believes that it is not exposed to significant risks with respect to them.

Loss per Share

The basic loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the weighted average number of common shares outstanding during the year. The diluted loss per share is calculated by dividing the Company’s net loss attributable to common stockholders by the diluted weighted average number of shares outstanding during the year. The potentially dilutive stock options on the Company’s common stock were not considered in the computation of diluted net loss per share as they would be anti-dilutive. No dilutive effective was calculated for the years ended December 31, 2020 and 2019 as the Company reported a net loss for each period.

Recent accounting pronouncements

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), which requires recognition of lease liabilities, representing future minimum lease payments, on a discounted basis, and a corresponding right-of-use assets on a balance sheet for most leases, along with requirements for enhanced disclosures to enable the assessment of the amount, timing and uncertainty of cash flows arising from leasing arrangements. This ASU became effective for the Company on January 1, 2019, and the Company has determined that the impact of this ASU is immaterial. The Company entered into a building lease effective on September 1, 2018, which had a 1-year term that expired on August 31, 2019, was renewed for a 1-year term that expired on August 31, 2020, and was renewed for a 1-year term that will expire on August 31, 2022. Because the building lease has a term of 12 months or less and there is no assurance the Company will remain in the building location after the lease has expired, the Company has concluded that this ASU does not apply to this building lease.

In August 2020, FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. For convertible instruments, FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance. The amendments in this update are effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Management is currently evaluating the effect on the Company’s financials if and when future convertible securities are issued. This update does not affect the Company’s current financial statements.

In December 2019, FASB issued ASU 2019-12, Income Taxes (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for fiscal years beginning after December 31, 2021 and interim periods within that year. Early adoption is permitted. Management is currently evaluating the effect on the Company’s financials. This update does not affect the Company's current financial statements.

In June 2016, FASB issued ASU 2016-13 regarding ASC Topic 326, “Measurement of Credit Losses on Financial Instruments.” This pronouncement changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Subsequently, the FASB issued an amendment to clarify the implementation dates and items that fall within the scope of this pronouncement. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating the effect on the Company’s financials. This update does not affect the Company's current financial statements.

The Company does not believe there are any other recently issued, but not yet effective, accounting standards that would have a significant impact on the Company’s financial position or results of operations.

Note 3 – Going Concern

The consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At December 31, 2020, the Company had a working capital deficit of $1,208,780 and an accumulated deficit of $5,514,394. In addition, the Company has generated operating losses since its inception and has notes payable that are currently in default. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The ability of the Company to continue as going concern is dependent on the successful execution of its operating plan, which includes increasing sales of existing products and services, introducing additional products and services, controlling operating expenses, negotiating extensions of overdue notes payable and raising either debt or equity financing. There is no assurance that the Company will be able to implement any of the measures set forth in the previous sentence.

Note 4 – Intangible Assets

Intangible assets, including patents and patent applications, a trademark and an internet domain related to Medtainer^® and distribution rights under a Distributorship Agreement dated August 6, 2020, are recorded at cost or estimated fair value at date of acquisition. Goodwill relates to an Asset Purchase Agreement, amended as of June 8, 2018. These intangible assets and goodwill are evaluated annually for impairment based upon reports the Company obtains from an independent valuation firm. As of December 31, 2020, and December 31, 2019, there was no impairment of these assets, which are included in the tables below:

Note 5 – Property and Equipment

Property and equipment consisted of:

Note 6 – Convertible Notes Payable and Promissory Notes Payable

As of December 31, 2020, and December 31, 2019, the Company had the following convertible notes payable and notes payable outstanding:

Note 7 – Stockholders’ Equity

On March 22, 2019, the Company combined the outstanding shares of its common stock on the basis of 1 share of common stock for each 100 shares of common stock. Also, on that date, the Company reduced the number of shares of its authorized common stock from 6,000,000,000 to 100,000,000. The number of authorized shares of preferred stock remained 10,000,000. On October 8, 2020, the Company combined the outstanding shares of its common stock on the basis of 1 share of common stock for each 59 shares of common stock. The effects of these combinations have been retroactively applied to all periods presented in the consolidated financial statements.

On May 21, 2020, the Company issued 338,983 shares of Common Stock to an unrelated party in consideration of $200,000.

On July 30, 2020, the Company filed a certificate of amendment with the Secretary of State of the State of Florida, pursuant to which a series of 1,000,000 of its 10,000,000 authorized shares was created, which series is named Series A Convertible Preferred Stock (^“Series A Preferred^”). Each share of Series A Preferred is convertible into 0.3051 shares of Common Stock, has the dividend and distribution rights and redemption rights of the shares of Common Stock into which it is convertible, is not redeemable and has voting power equal to the combined voting power of all other of classes and series of the Company’s capital stock. On June 24, 2020, the Company issued all of the shares of this series to a related party in exchange for 305,085 shares of Common Stock.

On October 9, 2020, the Company issued 50,000,000 shares of Common Stock to the shareholders of Advanced in exchange for their shares in Advanced pursuant to the Exchange Agreement. See Note 1. As a result, Advanced became the wholly owned subsidiary of the Company and the Company acquired a Distributorship Agreement, which has been valued as an intangible asset at $900,000 (see Note 4) and $86,293 in cash. Under the Distributorship Agreement, Advanced has the exclusive right acquire GrowPods and related products at prices to be agreed to from time to time and to sell and distribute them within the United States and its territories at prices that Advanced and GP agree to from time to time Advanced has the exclusive right to acquire GrowPods at prices agreed to from time to time and to sell and distribute them and related products within the United States and its territories for an initial term that will expire on December 31, 2025. ACT may renew the Distributorship Agreement indefinitely as long as it purchases the lesser of (i) 100 GrowPods or (ii) the manufacturer’s total output of GrowPods in the last calendar year of any term.

On October 13, 2020, the Company issued 10,000 shares of Common Stock to an unrelated party in consideration of $10,000.

Note 8 – Share-Based Compensation

The Company’s 2018 Incentive Award Plan (the ^“2018 Plan^”) became effective on December 1, 2018, under which the Company may issue up to 33,898 shares of common stock as incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other forms of compensation to employees, directors and consultants. In addition, the 2018 Plan provides for the grant of performance cash awards to employees, directors and consultants. All these shares were reserved on that date.

On December 1, 2018, 22,882 shares of common stock were awarded to employees in the form of restricted shares and 5,678 shares of common stock were awarded to consultants as compensation. The fair value of these shares on the grant date was $0.59 per share. As of December 31, 2020, all of these shares had vested. The following table shows vesting for financial reporting purposes under GAAP of the shares issued under the 2018 Plan:

The Company made no awards in any other form during the years ended December 31, 2020, and December 31, 2019. The Company expensed $298,076 and $871,032 for share-based compensation in the years ended December 31, 2020, and December 31, 2019, respectively, for its employees and nonemployees in the accompanying consolidated statements of operations.

Note 9 – Income Taxes

As of December 31, 2020, the Company had approximately $1,800,000 and $1,700,000 of net operating loss carryforwards (“NOLs”) available to reduce future Federal and California, respectively, taxable income which will begin to expire in 2031. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against all the deferred tax assets for every period because it is more likely than not that the deferred tax assets will not be realized.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the ^“2017 Tax Act^”) was signed into law, making significant changes to the Internal Revenue Code. Changes include a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company has estimated its provision for income taxes in accordance with the 2017 Tax Act and the guidance available and, based thereon, has determined that the 2017 Tax Act does not change the determination that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has kept the full valuation allowance. As a result, the Company recorded no income tax expense during the year ended December 31, 2020.

The reconciliation of the effective tax rate to the federal statutory rate is as follows:

The components of deferred tax assets were:

Note 10 – Capital Leases

During each of the years ended December 31, 2017, and December 31, 2016, the Company entered a capitalized equipment lease. Each of these leases was payable in 24 monthly installments of $2,000, including interest at the rate of 19.87% per annum. The lessor under these leases was a related party. The Company made its final payments for these leases during June 2018 and May 2019, respectively.

Note 11 – Related-Party Transactions

Loans

The Company has received loans from its officers and directors from time to time since its inception. During the year ended December 31, 2020, the Company received loans of $195,478 from its officers and directors and repaid $352,455 of these loans. During the year ended December 31, 2019, the Company received loans of $610,393 from its officers and directors and repaid $368,891 of these loans. The balance of these loans at December 31, 2020, and December 31, 2019, was $470,185 and $627,162, respectively. All of these loans are non-interest-bearing and have no set maturity date. The Company expects to repay these loans when cash flows become available.

Contracts

The Company makes capital lease payments for equipment, building lease payments, and products for resale to an entity owned by a related party, who is also one of its executive officers.

Payments made to related parties for the years ended December 31, 2020, and December 31, 2019, were as follows:

Note 12 – Concentrations

For the year ended December 31, 2020, and December 31, 2019, one of the Company’s customers accounted for approximately 12% and 10%, respectively, of total revenues.

As of December 31, 2020, the Company purchased approximately 52% of its products for cost of goods sold from one distributor. For the year ended December 31, 2019, the Company purchased approximately 36%, respectively, of its products for cost of goods sold from one distributor.

As of December 31, 2020, one of the Company’s customers accounted for 87% of its accounts receivable. As of December 31, 2019, three of the Company’s customers accounted for 34%, 21% and 18% of its accounts receivable.

Note 13 – Commitments

The Company was committed under an operating lease for its premises, under which it made monthly payments of $7,500, plus 100% of operating expenses, until the lease expired June 30, 2018. On September 1, 2018, the Company entered a new operating lease with an entity owned by a related party calling for monthly payments of $8,641, plus 100% of operating expenses, for a term expiring on August 31, 2019. On September 1, 2019, this was amended such that it will expire on August 31, 2020, and the rent thereunder was increased to $8,967 per month. On September 1, 2020, this lease was amended such that its term will expire on August 31, 2021, and the rent thereunder was increased to $9,007 per month.

Under an agreement with the supplier of Medtainers^® entered into in 2018, the Company agreed to purchase a minimum of 30,000 units of product per month. Under the terms of this agreement the minimum purchase quantity increases by 1% on every anniversary of its effective date and is now 30,603 units per month. The purchase price for units is subject to periodic adjustment for changes in the consumer price index. This agreement will expire on April 30, 2031; however, it can be terminated upon payment of $400,000.

Note 14 – Subsequent Events

On January 1, 2021, the Company issued 120,000 shares of Common Stock to Eric Horton, one of the Company’s directors, as compensation pursuant to a Director Agreement, dated as of that date.

Between January 1, 2021, and March 18, 2021, the Company issued 485,000 shares of Common Stock to seven unrelated persons. The aggregate purchase price of these shares was $615,000.

On March 23, 2021, the Company and an unrelated party entered into a lease of premises in 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 has a 1-year term that expires on March 31, 2022, and is renewable for a 1-year term at the same rent.

Management has evaluated all other subsequent events when these financial statements were issued and determined that none of them requires this disclosure herein.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the principal executive officer and principal accounting officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as the term is defined in Rule 13a-15(e) promulgated under the Exchange Act, as of December 31, 2020. Based on this evaluation, the principal executive officer and principal accounting officer concluded that these disclosure controls and procedures were not effective as of that date, at a reasonable level of assurance, in ensuring that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is (a) accumulated and communicated to the Company’s management, including its the principal executive officer and principal accounting officer, in a timely manner to allow timely decisions regarding required disclosure, and (b) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on its financial statements.

Under the supervision and with the participation of management, including the principal executive officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)(^“COSO^”). Based on this evaluation, management concluded that internal control over financial reporting was not effective as of December 31, 2020. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. As defined in Rule 12b-2 promulgated under the Exchange Act, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company’s evaluation of its internal control over financial reporting identified the following material weaknesses in internal control over financial reporting as of December 31, 2020:

Because of the material weaknesses noted above, the Company has concluded, based on COSO, that it did not maintain effective internal control over financial reporting as of December 31, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Attestation Report of the Independent Registered Public Accounting Firm

This report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting because it is not required for the Company pursuant to the rules of the SEC.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The following individuals served as executive officers and directors in the following positions on December 31, 2020:

Douglas Heldoorn cofounded the Company in 2014. He is a control person with respect to the Company by reason of his holdings of Common Stock. He has served as a member of the Company’s board of directors and its President and Chief Operating Officer since 2014. He has over 20 years of management and executive experience. From 2009 to 2012, he served as the Executive General Manager at Nissan Motor Corporation, overseeing management training as well as specializing in turning distressed dealerships into profitable businesses. Overseeing multimillion-dollar advertising budgets, he ran dealerships that consistently netted $20 million per month in income. He became one of the top Executive Managers for automotive retail in North America. Mr. Heldoorn is a master motivational speaker and sales trainer and specializes in business acquisition and turn-arounds. He is recognized for his advertising, branding and communications acumen. His franchises have consistently landed in the top 5% in the nation. The prior experience of Mr. Heldoorn in management, together with his willingness to spend substantially all of his time as an officer of the Company and his willingness to provide capital to the Company, led to the conclusion that he was a desirable person to serve as a director.

Mr. Carlson has served in his present offices since October 9, 2020. Prior thereto he served as the Company, Controller for more than 5 years. He also served as a director of the Company from July 19, 2020, until his resignation on October 9, 2020.

Mr. Salinas has served as the president and sole director of Advanced since its incorporation on June 2, 2020. Since August 2019, he has been Director of Operations with Grassfire, LLC, a company engaged in medical cannabis cultivation, where he is responsible for its management. From January 2017 to August 2018, he was managing partner of 918 Transport Trucking Company, a company engaged in the trucking business, where he was responsible for its day-to-day operations. From January 2016 to December 2016, Mr. Salinas was the General Sales Manager of Toyota of Lawton, Oklahoma. His leadership and sales abilities, together with the fact that he is responsible for the operations of Advanced, led to the conclusion that he was a desirable person to serve as a director.

Mr. Horton has served since March 2018 as President of C&S Advisors, Inc., a company engaged in advising its clients and providing assistance respecting obtaining investment capital, investor and public relations, strategic planning and public company regulatory compliance. From January 2009 to March 2018, he was President of Smallcap Advisory, Inc., a company engaged in similar activities. His experience with counselling public companies, especially in the area of regulatory compliance, led to the conclusion that he was a desirable person to serve as a director.

Messrs. Heldoorn, Salinas and Horton will serve as directors until their successors are elected and qualified or until their earlier resignation or removal. Officers hold their positions at the pleasure of the board of directors, absent any employment agreement. There was and is no arrangement or understanding between any director or officer of the Company and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and, to the Company’s knowledge, there is no arrangement, agreement, plan or understanding (a) as to whether non-management stockholders will exercise their voting rights to continue to elect the current directors to the Company’s board and or (b) between non-management stockholders and management under which non-management stockholders may directly or indirectly participate in or influence the management of its affairs.

Curtis Fairbrother resigned as an officer and director of the Company on June 24, 2020.

Family Relationships

There are no family relationships between any of the directors and officers named above and there is no arrangement or understanding between any of them and any other person pursuant to which he was selected as a director or officer.

Employment Agreement

The Company and Douglas P. Heldoorn, its chief executive officer, are parties to an Employment Agreement, dated July 31, 2020 (the ^“Employment Agreement^”), which has a 5-year term that began August 1, 2020, and under which he will receive an initial salary of $195,000 per year; will be entitled to an annual incentive based on the Company’s performance and other criteria determined by the Board of Directors, not to exceed 20% of the sum of the Company’s net income plus certain non-cash expenses for each year; and will be eligible for long-term compensation and other benefits to the same extent as other senior executives of the Company.

In the event that Mr. Heldoorn’s employment is terminated by him for Good Reason or by the Company otherwise than for Cause, he will be entitled to receive 2.99 times his then current salary as severance pay, pro rata annual incentive, vesting of awards under long-

term plans and certain heathcare benefits. In the event of his disability, he will be entitled to benefits similar to those described in the previous sentence, but not to severance pay. The Employment Agreement defines ^“Good Reason^” as any of the following events: (i) the Board’s materially and adversely changing his duties, authority or responsibilities, otherwise than as permitted by this Employment Agreement, (ii) the Board’s requiring him to report to any person or body other than the Board, (iii) the Board’s or the Company’s reducing his base salary or incentive opportunities, (iv) the Company’s relocating its principal place of business so as to result in an increase in Mr. Heldoorn’s one-way commute of more than thirty (30) miles, (v) prior to August 1, 2021, the Company’s failure to pay his base salary to the extent that it is able to do while meeting its current trade obligations or (vi) on and after August 1, 2021, the Company’s failure to pay his base salary earned on and after that date as and when due. The events described in clauses (i)-(iv) of the previous sentence may be cured, but those described in clauses (v) and (vi) may not be cured. The Employment Agreement defines ^“Cause^” as (i) Mr. Heldoorn’s conviction of or entry of a plea of guilty or nolo contendere to any felony involving moral turpitude, fraud, theft, breach of trust or other similar acts, that has a substantial and adverse effect on his qualifications or ability to perform his duties, (ii) his engaging in conduct constituting willful misconduct, gross negligence or fraud that results in significant economic harm to the Company or (iii) after February 28, 2021, his continued failure substantially to perform his duties, if such failure is not remedied within 45 days after he receives from the Board written notice thereof, specifying in reasonable detail the particulars of such continued failure.

Pursuant to the Employment Agreement, the Company exchanged 305,085 of Mr. Heldoorn’s shares of Common Stock for 1,000,000 shares of Series A Preferred, each share of which is convertible into 0.3051 shares of Common Stock, has the dividend and distribution rights and redemption rights of the shares of Common Stock into which it is convertible, is not redeemable and has voting power equal to the combined voting power of all other of classes and series of the Company’s capital stock. Mr. Heldoorn’s shares of Series A Preferred, together with the 5,120,848 shares of common stock held by him after the consummation of the exchange, give him voting control of the Company.

For information regarding compensation paid to Mr. Heldoorn, see Item 11 – Executive Compensation.

There are no other employment agreements between the Company and its officers and directors.

Director Compensation

The Company and Eric Horton, one of the Company’s directors, have entered into a Director Agreement, dated as of January 1, 2021 (the ^“Director Agreement^”), under which Mr. Horton, who has served as a director since October 9, 2020, will continue so to serve. The provisions of the Director Agreement are as follows:

Services and Fees

Mr. Horton is required to provide the services required of a director under the Company’s articles of incorporation and bylaws, as amended from time to time, and under the Florida Business Corporations Act, the federal securities laws and other state and federal laws and regulations and the rules and regulations of the United States Securities and Exchange Commission and any stock exchange or quotation system on which the Company’s securities may be listed or traded from time to time; and to serve on the Compensation Committee of the Board, or a committee performing equivalent functions, if it be created, and on such other committees as he and the Board shall mutually agree.

Fees

In the Director Agreement, the Company agreed to pay to Mr. Horton, in consideration of his services from October 9, 2020, to the date of the Agreement, a fee of $300 and a fee of $100 for every month, or fraction of a month, during which he serves as a director for the period beginning on January 1, 2021, and ending on October 8, 2021. In the event that Mr. Horton continues to serve as a director after October 8, 2021, the Company has agreed to pay to him for his services as the Company and he shall agree. If he serves as the chairperson or sole member of any committee, he is entitled to additional cash compensation of $1,500 per year.

Issuance of Shares

The Director Agreement provides that, solely in consideration of Mr. Horton’s agreement to continue to serve on the Board, he shall be issued 120,000 shares of the Company’s common stock.

Indemnification, Contribution and Insurance

The Company is required to indemnify Mr. Horton and hold him harmless to the full extent permitted by law and the Company’s organizational instruments if he becomes a party to, or is threatened to be made a party to, any suit, action, proceeding, including any governmental or regulatory investigation (a ^“Proceeding^”), or if a claim or demand is brought or asserted against him because he is or was a director of the Company, from and against any and all losses, claims, damages, expenses and liabilities, including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of such Proceeding (collectively ^“Liabilities^”).

Without limiting the generality of the previous paragraph, (a), the Company is required to indemnify Mr. Horton and hold him harmless from and against any and all Liabilities that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement filed with the SEC under the Securities Act of 1933 (a ^“Registration Statement^”), or material utilized in selling or exchanging the Company’s securities under the exemptions from registration under the Securities Act afforded by Section 4(a)(1) thereof or Regulation D promulgated thereunder (^“Private Placement Materials^”) caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the prospectus forming part of such Registration Statement (or any amendment or supplement thereto), any preliminary prospectus, any issuer free writing prospectus, any ^“issuer information^” filed or required to be filed pursuant to Rule 433(d) promulgated under the Securities Act, any road show as defined in said Rule 433(h)(a ^“road show^”) or any pricing disclosure package (including any that has subsequently been amended) or any Private Placement Materials, or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to the Director that he furnished to the Company in writing expressly for use therein.

In the event that the Company has given the undertaking set forth in Item 512(h) of Regulation S-K promulgated under the Securities Act of 1933, or the Company believes in good faith that indemnification of the Mr. Horton may be unenforceable as against public policy, the Company shall not be obligated to indemnify him, unless in the opinion of independent counsel, the matter has been settled by controlling precedent or a court of appropriate jurisdiction shall have determined by the final adjudication that indemnification may be made.

If the indemnification provided for in the Director Agreement is unavailable to Mr. Horton or insufficient in respect of any Liabilities, the Company, in lieu of indemnifying him, is required to contribute to the amount paid or payable by him in respect of such Liabilities in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Mr. Horton as a result of the events and/or transactions giving cause to such Proceeding, (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Mr. Horton in connection with such events and/or transactions and/or the relative good faith of the Company and Mr. Horton in actions or omissions that gave rise to the Proceeding.

In the event that the Company obtains a policy of directors’ and officers’ liability insurance, which it shall not be obligated to do, it is required to provide Mr. Horton with coverage thereunder.

Confidentiality

Mr. Horton is required to maintain in trust and confidence and not disclose to any third party or use for any unauthorized purpose any of the Company’s proprietary information, which he may use only to the extent required to accomplish the purposes of his position as a director of the Company.

Term

The Director Agreement shall be in effect from until Mr. Horton ceases to serve as a director for any reason or upon his inability to perform his services under the Director Agreement for a period of at least 45 consecutive days.

Employment Agreement

Commencing in April 2021, Advanced has employed Daniel Salinas at a salary of $2,600 per month, plus a discretionary bonus, under an agreement that has not yet been reduced to writing.

Except as described above, the Company is not paying any cash or other compensation to its directors for their services as such. In the future, the Company may consider appropriate forms of compensation, including cash compensation and the issuance of Common Stock and share-based compensation.

Involvement in Certain Legal Proceedings

On August 10, 2020, Eric L. Horton, one of the Company’s directors, and his wife filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (Case No. 20-04042-LA7); an Order of Discharge was entered on October 30, 2020. Otherwise, none of the Company’s directors and executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past 5 years that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws.

Committees