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





Overview

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

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

Impact of the Covid-19 Pandemic

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

Also, in connection with the pandemic:

? The Company's chief executive officer has waived current payment of his salary

since June 1, 2020; however, the Company is accruing it and is obligated to pay

the deferred amount, which was $276,250 as of December 31, 2021, at some future


   time.

? 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 has purchased from Polymation fewer Medtainers than required

under the Production Contract; while doing so has enabled 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 Small

Business Administration and other Federal agencies that are now or may become

applicable to the loan (the Cares Loan"). The loan bore interest at the rate of

1% per annum and, as provided in the CARES Act, no interest was accrued during

the first 6 months after the loan amount was disbursed. On August 5, 2021, this


   note was fully forgiven.




                                       15

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

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





Results of Operations

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

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





                                               Year Ended December 31,
                                                 2021            2020
Revenues                                     $  5,349,012     $ 2,227,668
Cost of goods sold                              4,243,053       1,205,965
Gross profit                                    1,105,959       1,021,703

Total operating expenses                        2,060,657       1,570,935

Loss from operations                             (954,698 )      (549,232 )

Non-operating income (expense):
EIDL grant                                              -          10,000
Forgiveness of PPP Loan and interest              138,567               -
Interest                                          (28,925 )       (39,799 )

Total non-operating income ( expense), net 109,642 (29,799 )



Loss before income tax                           (845,056 )      (579,031 )

Income tax provision                                    -               -

Net loss                                     $   (845,056 )   $  (579,031 )

Revenues and Cost of Goods Sold

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





Operating Expenses



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



                                  Year Ended December 31,
                                    2021            2020
Advertising and marketing       $     74,762     $    13,961
Bad debt                                 283          33,511
Depreciation and amortization        278,082         139,580
Professional fees                    201,063         202,251
Share-based compensation             270,000         298,076
Payroll                              899,770         646,870
General and administrative           336,697         236,686
Total                           $  2,060,657     $ 1,570,935

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





                                       16





Loss from Operations

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





Interest

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





Net Loss

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

Liquidity and Capital Resources

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

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





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



                                    Year Ended December 31,
                               2021          2020          2019
GrowPods and related items          40             -             -
Medtainers                     228,000       272,000       339,000
Humidity control packs         490,000       952,000       443,000
Other products                 429,000       234,000       134,815

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

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

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

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

Off-Balance-Sheet Arrangements

The Company has no off-balance sheet arrangements.





                                       17





Risks and Uncertainties

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

Critical Accounting Policies and Estimates





Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain estimates could be affected by external conditions, including those unique to its industry, and general economic conditions, which could affect the Company's estimates so as to cause actual results to differ materially from its estimates. The Company re-evaluates all of its accounting estimates at least quarterly, based on these conditions and records adjustments when necessary.

Significant estimates relied upon in preparing the consolidated financial statements contained in this report include revenue recognition, accounts receivable reserves, inventory and related reserves, valuations and purchase price allocations related to business combinations, expected future cash flows used to evaluate the recoverability of long-lived assets, estimated fair values of long-lived assets used to record impairment charges related to intangible assets and goodwill, amortization periods, accrued expenses, share-based compensation, and recoverability of the Company's net deferred tax assets and any related valuation allowances.





Fair Value Measurements

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

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

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

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

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

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

Goodwill and Intangible Asset Impairment

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

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





                                       18

The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that would indicate impairment and trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset or an adverse action or assessment by a regulator. If the carrying value of an intangible asset exceeds its undiscounted cash flows, the Company will write down its carrying value to its fair value in the period identified. The Company generally calculates fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate. If the estimate of an intangible asset's remaining useful life is changed, the Company will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life. The Company also evaluates intangible assets and long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. These changes include but are not limited to significant adverse changes in the business climate, market conditions, or other events, including the Covid-19 pandemic, that indicate an asset's carrying amount may not be recoverable. The recoverability of these assets is measured by comparing the carrying amount of each asset with the future undiscounted cash flows the asset is expected to generate. If the undiscounted cash flows used in the test of recoverability are less than the carrying amount of these assets, the carrying amount of such assets is reduced to fair value.

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

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

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





Revenue Recognition

Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net); ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that it expects to receive for them.

Under ASU No. 2014-09, as amended, the Company recognizes revenues when a customer obtains control of promised goods or services, or when they are shipped to a customer, in an amount that reflects the consideration that it expects to receive in exchange for them. The Company recognizes revenues following a five-step model: (a) it identifies contract(s) with a customer; (b) it identifies the performance obligations in the contract; (c) it determines the transaction price; (d) it allocates the transaction price to the performance obligations in the contract; and (e) it recognizes revenues when (or as) it satisfies its performance obligation.

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





Taxes

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





                                       19

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

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

Smaller Growth Company

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





Climate Change

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





Long-Term Obligations

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

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