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EX-31.1 - I, CURTIS FAIRBROTHER, CERTIFY THAT: - ADVANCED CONTAINER TECHNOLOGIES, INC.acol10q051515ex31_1.htm
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EX-32.1 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ADVANCED CONTAINER TECHNOLOGIES, INC.acol10q051515ex32_1.htm

PictureUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 


FORM 10-Q

(Mark One)

 

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For The Quarterly Period Ended March 31, 2015 

 

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

 

For The Transition Period from __________ to _________ 

 

Commission file number:  000-29381 

 

ACOLOGY, INC.
(Exact name of registrant as specified in its charter)

Florida    65-0207200
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)

1620 Commerce St., Corona, CA     92880
(Address of principal executive offices)     (zip code)

 
(844) 226-5649
 (Registrant’s telephone number, including area code)

 

 (Former Name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [   ]    No [ X  ] 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

 

Large accelerated filer   [   ] Accelerated filer [   ]
Non-accelerated filer [   ] Smaller reporting company [X]
(Do not check if a smaller reporting company)      

 

Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes [ ] No [X]

 

   
 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court  Yes [   ]     No  [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 20, 2015, there were 4,546,014,785 shares of the Registrant's Common Stock outstanding.

   
 

ACOLOGY, INC.
For The Quarterly Period Ended March 31, 2015

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION     3  
           
Item 1. Financial Statements     3  
           
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations     10  
           
Item 3. Quantitative and Qualitative Disclosures about Market Risk     13  
           
Item 4. Controls and Procedures     13  
           
PART II - OTHER INFORMATION        
           
Item 1. Legal Proceedings     14  
           
Item 1A. Risk Factors     14  
           
Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.     14  
           
Item 4. (Removed and Reserved).     14  
           
Item 5. Other Information     14  

 

           
Item 6. Exhibits     14  
           
SIGNATURES     15  

 

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

   
 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

  

ACOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
       
   March 31, 2015  December 31, 2014
ASSETS          
           
CURRENT ASSETS:          
           
Cash  $162,802   $261,233 
Accounts Receivable   41,996    22,011 
Inventories   54,259    51,487 
Advance to supplier   83,268    66,128 
TOTAL CURRENT ASSETS   342,325    400,859 
           
Property and equipment,  net of accumulated depreciation of $10,879 and $6,576   29,139    32,380 
Security deposits   7,489    7,489 
           
TOTAL ASSETS  $378,953   $440,728 
           
LIABILITIES AND STOCKHOLDERS' DEFICIENCY          
           
CURRENT LIABILITIES:          
           
Accounts payable  $—     $18,543 
Convertible notes payable   234,500    234,500 
Notes payable   457,000    457,000 
Note payable - related party   360,000    360,000 
Loan payable - stockholder   71,847    68,347 
Accrued expenses   48,514    32,123 
TOTAL CURRENT LIABILITIES   1,171,861    1,170,513 
           
STOCKHOLDERS' DEFICIENCY          
Common Stock, $00001 par value, 6,000,000,000 shares authorized 4,546,014,334 and 3,846,000,000  shares issued and outstanding March 31, 2015 and December 31, 2014, respectively   45,460    45,460 
Additional Paid in Capital   —      —   
Accumulated Deficit   (838,368)   (775,245)
TOTAL STOCKHOLDERS' DEFICIENCY   (792,908)   (729,785)
           
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY  $378,953   $440,728 
           
The accompanying notes are an integral part of these financial statements.

 

 

 

ACOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
   Three months ended March 31,
   2015  2014
Sales  $299,675   $73,919 
           
Cost of Sales   97,358    20,344 
           
Gross Profit   202,317    53,575 
           
Operating expenses:          
   General and administrative   231,007    43,570 
   Advertising and marketing   20,419    9,198 
Total operating expenses   251,426    52,768 
           
Income (Loss) from operations   (49,109)   807 
           
Other expenses:          
  Interest expense   14,014    —   
           
Income (Loss) before income taxes   (63,123)   807 
           
Income tax provision   —      —   
           
Net Income (Loss)  $(63,123)  $807 
           
           
Income (Loss) per common share  $(0.00)  $0.00 
           
Weighted average common shares outstanding   4,546,014,334    4,058,363,899 
           
           
The accompanying notes are an integral part of these financial statements. 

 

 

ACOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
       
   Three months ended March 31, 
   2015  2014
OPERATING ACTIVITIES:          
Net loss  $(63,123)  $807 
          
Adjustments to reconcile net loss to net cash used in operating activities:          
 Depreciation expense   4,303    188 
Changes in operating assets and liabilities          
  Accounts receivable   (19,985)     
  Inventories   (2,772)   (3,099)
  Accounts payable   (18,542)   —   
  Advance to supplier   (17,141)   1,221 
  Accrued expenses   16,391    2,500 
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   (100,869)   1,617 
           
INVESTING ACTIVITIES:          
  Acquisition of property and equipment   (1,062)   —   
NET CASH USED IN INVESTING ACTIVITIES   (1,062)   —   
           
           
FINANCING ACTIVITIES:          
     Proceeds from issuance of private placement   —      40,000 
     Repayment of related party loan   —      (40,000)
     Proceeds of loan from stockholder   3,500      
NET CASH PROVIDED BY FINANCING ACTIVITIES   3,500    —   
           
INCREASE (DECREASE) IN CASH   (98,431)   1,617 
           
CASH - BEGINNING OF PERIOD   261,233    6,962 
           
CASH - END OF PERIOD  $162,802   $8,579 
           
Supplemental disclosures of cash flow information:          
  Non-cash financing activities          
    Note issued to prior shareholder in connection with reverse merger  $—     $400,000 
           
The accompanying notes are an integral part of these financial statements.

 

Acology, Inc.

Notes to Financial Statements

March 31, 2015

(Unaudited)

 

NOTE 1 – Basis of Presentation and Business

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March 31, 2015 and the results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2015, are not necessarily indicative of the operating results for the full fiscal year or any future period. These unaudited financial statements should be read in conjunction with the financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on April 15, 2015.

 

Acology, Inc. (“the Company”) through its wholly owned subsidiary, D & C Distributors, LLC (“D&C”), is a wholesaler of proprietary polypropylene containers used for controlled dispensing, grinding and storage of pharmaceuticals and medicine. The Company sells its products through internet sites to end users and through a distributor.

 

D & C was formed under the laws of the State of California on January 29, 2013.

 

On March 4, 2014, the Company completed an agreement and plan of merger with D & C. In connection with the merger the holders of units of interest in D & C received 3,846,000,000 shares of the Company in exchange for their membership units in D & C. The merger was accounted for as a reverse merger, whereby D & C was the accounting acquirer.

 

NOTE 2 - Summary of Significant Accounting Policies

 

Principals of Consolidation

 

The consolidated financial statements represent the historical financial statements of D & C, which was considered the accounting acquirer in the reverse merger with Acology.

 

Acology is an inactive company and there have been no intercompany transactions or balances in any of the periods presented.

 

Use of Estimates

 

The preparation of the financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Certain of the Company’s estimates could be affected by external conditions, including those unique to its industry, and general economic conditions. It is possible that these external factors could have an effect on the Company’s estimates that could cause actual results to differ from its estimates. The Company reevaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

 

 

Cash

 

The Company considers all short-term highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents.

 

Revenue Recognition

 

The Company follows the guidance of the Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.” We record revenue when persuasive evidence of an arrangement exists, product delivery has occurred, the selling price to the customer is fixed or determinable and collectability of the revenue is reasonably assured. The Company has not experienced any significant returns from customers and accordingly, in management’s opinion, no reserve for returns has been provided.

 

Inventories

 

Inventories, which consist of the Company’s product held for resale, are stated at the lower of cost, determined using the first-in, first-out, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

 

If the Company identifies excess, obsolete or unsalable items, its inventories are written down to their realizable value in the period in which the impairment is first identified. Shipping and handling costs incurred for inventory purchases and product shipments are recorded in cost of sales in the Company's statements of operations.

 

Fair Value Measurements

 

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

 

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

 

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

 

Level 1 quoted prices in active markets for identical assets or liabilities

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

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

 

The Company does not have any assets or liabilities measured at fair value on a recurring basis.

 

 

Property and Equipment

 

Property and equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. For furniture and fixtures the useful life is five years, Leasehold Improvements are depreciated over the two year lease term. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

Convertible Instruments

 

We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities.” Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

Advertising

 

Advertising and marketing expenses are charged to operations as incurred.

 

Income Taxes

 

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

 

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

 

NOTE 3 – Going Concern

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company had a stockholders’ deficit of $792,908 and a working capital deficit of $829,536 at March 31, 2015, and has generated operating losses since inception. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue raising capital from third parties.

 

 

NOTE 4 –Convertible Notes payable

 

During 2014, the Company entered into a series of promissory note conversion agreements with ten unaffiliated individuals in the aggregate amount of $224,500. These notes are convertible into shares of the Company’s common stock at a conversion price of $.05 per share. The loans are non-interest bearing and have no stated maturity date.

 

During October 2014 the Company entered into an additional promissory note conversion agreement with an unaffiliated individual in the amount of $10,000. This note is convertible into shares of the Company’s common stock at a conversion price of $.05 per share. The loan bears interest at 15% per annum and matures April 3, 2015.

 

On February 15, 2015, the Company and the noteholders referred to above entered into agreements to change the conversion price of the notes to shares of the company convertible at the current market price at the conversion date plus a twenty percent increase in the number of shares.

 

NOTE 5 – Notes payable

 

During 2014, the Company entered into a series of promissory notes with four unaffiliated individuals in the aggregate amount of $457,000. These notes bear interest at rates ranging from 10% to 15% per annum (with a weighted-average rate of 11.7% per annum) and mature as follows:

 

 April 10, 2015   $300,000 
 May 19, 2015    150,000 
 September 30, 2015    7,000 

 

NOTE 6 – Note payable – Related Party

 

In connection with the merger referred to in Note 1, the Company issued a promissory note in the amount of $400,000 to Acology’s former president and sole director. The note bears interest at 0.28% per annum and was due March 4, 2015. The note is subject to acceleration in the event of certain events of default, contains certain restrictive covenants and is secured by a pledge of all the share of common stock of D & C. If an event of default occurs, the unpaid principal amount and interest accrued thereon will be convertible into shares of the Company’s common stock at a conversion price per share equal to 50% of the average daily closing price for three consecutive trading days ending on the trading day immediately prior to the conversion date.

 

NOTE 7 – Loan payable - shareholder

 

Since its inception, the Company received advances from one of its stockholders to help finance its operations. The loan is non-interest bearing and has no set maturity date. The Company expects to repay the loan when cash flows become available.

 

NOTE 8 – Stockholders’ Deficiency

 

On January 9, 2014, Acology amended its Articles of Incorporation to raise its authorized common stock to 6 billion shares with a par value of $.00001 per share.

 

In connection with the merger referred to in Note 1, the holders of units of interest in D & C received 3,846,000,000 shares of Acology in exchange for their shares of D & C.

 

In connection with the Merger, the Company completed a private placement. 700,000,000 shares of common stock were issued for proceeds of $40,000.

 

 Also in connection with the merger, the former president and sole director of Acology exchanged 35,000,000 shares of common stock of Acology owned by him and indebtedness owed to him for a convertible promissory note in the amount of $400,000 and the proceeds from the private placement referred to above, which we applied to the convertible promissory note.

 

NOTE 9 – Concentrations

 

For the three month periods ended March 31, 2015, and March 31, 2014, the Company’s largest customer accounted for approximately 12% and 70% of sales.

 

For the three month periods ended March 31, 2015, and March 31, 2014, the Company purchased approximately 99% and 100% and of its products from one distributor.

 

NOTE 10 – Commitments

 

The Company is committed under an operating lease for its premises. The lease calls for monthly payments of $6,300 plus 55% of the operating expenses, as defined in the lease. The lease expires August 31, 2016.

 

NOTE 11 – Subsequent events

 

Management has evaluated subsequent events through the date which the financial statements were available to be issued. Based on the evaluation no material events have occurred that require recognition in or disclosure to the financial statements.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT. 

 

Introduction

 

Acology is the parent of D&C. Acology has no material assets other than all of the outstanding shares of D&C and has no plans to conduct any business activities other than obtaining or guaranteeing financing for the business conducted by D&C or assisting D&C and its subsidiary in obtaining such financing.

 

Through D&C, we are in the business of designing, manufacturing, branding and selling containers that can store, grind and shred pharmaceuticals, herbs, teas and other solids or liquids. The sole product that we are selling is the TSOS Container.

 

We market approximately 55% of our products directly to businesses and 5% to the retail public, through internet sales and a phone room, and market the remaining 40% of our products through a wholesaler who resells our products to other businesses that in turn sell them to end users. When we commenced business in 2013 and continuing through the first 3 quarters of 2014, we sought distributors as the principal means for the distribution of our products, but have determined to pursue direct sales to end users. Accordingly, we are not seeking additional distributors.

 

Our products can store and grind many substances. Our products are manufactured using medical-grade resin because we intended to market them for use in grinding pills for administration to children and other persons who have difficulty swallowing and to pets. We were initially unable to market products for these purposes because we did not have child safety certification and because of limitations in manpower. During 2014, we received such certification for our 20 dram TSOS Container and we are now marketing our products for that purpose, among others.

 

In light of the facts that the possession and use of marijuana have been legalized, subject to varying restrictions, in at least 23 states and that several other states are considering such legalization, we believe that our products may be of interest to a large number of users of marijuana in and we advertise our products on our website and elsewhere as suitable for that purpose. However, since we do not seek information from our customers who are end users as to how they intend to utilize our products and have no similar knowledge respecting end users of products sold through our distributor, we are unable to determine the extent of its use in connection with the storage and grinding of marijuana or any other purpose. We believe that marketing our products to users of marijuana subject us to the following risks. 

 

The use of marijuana for medical and recreational use is lawful in many states and the District of Columbia, but under United States federal law and the laws of the other states, the possession, use, cultivation, storage, processing and/or transfer of marijuana is illegal. Federal and state law enforcement authorities have prosecuted persons engaged in these activities. While we do not believe that we engage in any of these activities, any of these law enforcement authorities might bring an action against us in connection with the engagement of others in them, including, but not limited, to a claim of aiding and abetting their criminal activities. Such an action would have a material and adverse effect on our business and operations.

 

Under United States federal law, it is unlawful to sell or offer for sale, to use the mails or any other facility of interstate commerce to transport or to import or export drug paraphernalia. The term “drug paraphernalia”i ncludes any equipment, product or material of any kind which is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing, processing, preparing, injecting, ingesting, inhaling, or otherwise introducing into the human body a controlled substance. One of the factors that these authorities may consider in determining whether our products are drug paraphernalia are our national and local advertising concerning its use and we have advertised our products as usable for marijuana-related purposes. However, we do not believe that our products were designed or are intended for any of these purposes or that our products are drug paraphernalia, as defined in federal law, and we are promoting our products primarily to be used for other purposes. If federal authorities were to take a different view, they might bring a criminal action against us. Such an action would have a material and adverse effect on our business and operations.

 

Our History

 

Prior to the Merger

 

Acology was incorporated on September 9, 1997, in the State of Florida under the name of Synthetic Flowers of America, Inc. (“Synthetic Flowers”) for the purpose of producing and selling silk flowers.

 

On February 15, 1999, Acology amended its articles of incorporation to (i) change its corporate name to Pinecrest Investment Group, Inc., (ii) to increase the aggregate number of shares of common stock that it was authorized to issue be increased to 100,000,000 shares, $.001 par value per share, and (iii) to authorize 25,000,000 shares of preferred stock, $.001 par value per share.

 

On January 10, 2000, Acology’s Board of Directors approved a 5-for-4 forward stock split for shareholders of record on December 31, 1999, with any fractional shares being rounded up to the next whole share.

 

On January 26, 2000, Acology amended its Articles of Incorporation (i) to reduce the number of the authorized shares of common stock to 50,000,000, (ii) reduce the number of authorized shares of preferred stock to 10,000,000 shares, (iii) provide that shares of preferred stock would have no par value and (iv) provide that the preferred stock would be issuable in series.

Acology ceased doing business in 2002.

 

On or about October 23, 2008, Acology, was placed in receivership by order of the Circuit Court of the 13th Judicial Circuit in and for Hillsborough County, Florida. As a result, (i) Brian K. Goldenberg was appointed receiver

 

of Acology and (ii) pursuant to his powers as receiver, he appointed Mark Rentschler as its president and sole director, replacing its existing president and directors, who had abandoned their duties as such for several years. The receivership was closed on February 10, 2009. Mr. Rentschler received 35,000,000 shares of Acology’s common stock for his services in these capacities.

 

On October 27, 2009, Mr. Rentschler resigned as President and sole director of the Acology and appointed Mark Astrom, the son of Richard S. Astrom, as its president and sole director.

 

On or about February 17, 2009, Green Fusion Corp., a corporation all of whose shares are owned by Richard S. Astrom, who served as president and sole director of the Acology from January 1, 2012, until March 4, 2014, acquired the above mentioned 35,000,000 shares of common stock from Mr. Rentschler, which gave Mr. Astrom control of Acology.

 

On January 1, 2012, Mark Astrom resigned as President and sole director of Acology and appointed Richard S. Astrom as its President and sole director.

 

On July 5, 2012, Acology amended its Articles of Incorporation to increase the number of the authorized shares of its common stock to 3,000,000,000.

 

Immediately prior to the merger described below, Acology was a nonreporting shell company.

 

The Merger

 

December 24, 2013, Acology, PNCR, Acquisition, LLC, a California limited liability company and the wholly-owned subsidiary of Acology (“Merger Sub”), and D&C entered into an Agreement and Plan of Merger under which, among other things, Merger Sub would be merged with and into D&C, with the result that D&C would be the surviving entity and become the wholly owned subsidiary of Acology.

 

On March 4, 2014, the closing under the Merger Agreement took place and on March 28, 2014, D&C and Merger Sub filed the merger certificate with the Secretary of State of the State of California. As a result of the Merger, Acology is no longer a shell company. In connection with the Merger, Acology issued 3,846,000,000 shares of Common Stock to Curtis Fairbrother and Douglas Heldoorn, the holders of all of the membership units in D&C, who thereby became Acology’s controlling shareholders. Upon the closing of the Merger, Richard Astrom resigned as Acology’s sole director and president and Messrs. Fairbrother and Heldoorn became its officers and directors.

 

Also in connection with the Merger:

 

On March 4, 2014, Acology completed a private placement with 3 investors (the “Private Placement”) of 700,000,000 shares of Common Stock for proceeds of $40,000 in cash. The price paid by each investor was $0.000571429 per share. Acology also entered into Registration Rights Agreements with these investors, under which Acology was obligated to file, and did file, a registration statement under the Securities Act of 1933 (the “Securities Act”) relating to the shares issued in the Private Placement (the “Registration Statement”) and to use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible. The Registration Statement was made effective on August 6, 2014.

Prior to the Merger, Richard S. Astrom, Acology’s president and sole director, entered into an Exchange Agreement with Acology, under which 35,000,000 shares of the Common Stock owned by Green Fusion Corp. and $151,269 of Acology’s indebtedness to him were exchanged for the proceeds of the Private Placement and a secured convertible promissory note of Acology payable to him in the principal amount of $400,000 and bearing interest at the rate of 0.28% per annum. The convertible promissory note is due March 4, 2015, is subject to acceleration in the event of certain events of default, contains certain restrictive covenants and is secured by a pledge of all of the shares of common stock of D&C. If an event of default, including failure to pay the convertible promissory note when due, occurs, the unpaid principal amount of the convertible promissory note and the interest accrued thereon will be convertible as a whole or in part from time to time into an indeterminate number of shares of Common Stock at a conversion price per share equal to 50% of the average of the daily closing prices for a share of Common Stock for the three (3) consecutive trading days ending on the trading day immediately prior to the day on which the convertible promissory note is delivered for conversion.
On January 9, 2014, Acology amended its Articles of Incorporation (i) to change its corporate name to Acology, Inc., (ii) to increase the number of the authorized shares of common stock to 6,000,000,000 and (iii) to reverse split its common stock on the basis of 1 new share for 1,000 existing shares. The reverse stock split was applicable to shares held by shareholders of record on February 14, 2014, and was implemented on that date.

 

RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2015
COMPARED TO THREE MONTHS ENDED MARCH 31, 2014

 

Results of Operations

 

Revenues 

 

Revenues for the three months ended March 31, 2015, were $299,675, compared to $73,919 for the three months ended March 31, 2014, and our gross profit for those periods were respectively $202,317 and $53,575. The increase in revenues and gross profits for the later period were due to increased sales.

 

Operating Expenses 

 

Operating expenses for the three months ended March 31, 2015, were $251,426 compared to $52,768 for the three months ended March 31, 2014. Operating expenses increased in the later period because general and administrative expenses increased, primarily due to salaries and other costs associated with increased staffing and because we incurred higher advertising and marketing costs.

 

Net Loss

 

We had a loss from operations of $49,109 for the three-month period ended March 31, 2015, as compared to a profit from operations of $807 for the three-month period ended March 31, 2014.

 

Interest expense

 

Interest for the three-month period ended March 31, 2015, was $14,014, compared to no interest for the three-month period ended March 31, 2014.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

As of December 31, 2014, and March 31, 2015, we had respectively $261,233 and $162,802 in cash. We financed our operations from the inception of our business on January 19, 2013, through December 31, 2014, through capital contributions of $141,986 made by our founders in 2013, and a $40,000 private placement and loans of $759,847 during the year ended December 31, 2014. During the three-month period ended March 31, 2015, we obtained $3,500 through a stockholder loan.

 

We began commenced business in January 2013. Our sales grew over the course of 2013, averaging 11,500 units per month for 2013 and ranging from 8,000 to 30,000 units, for a total of 125,000 units. During the year ended December 31, 2014, we sold an average of 15,000 units per month, ranging from approximately 4,000 to 20,000 units per month, totaling approximately 180,000 units. In the first quarter of 2015, we sold approximately 69,500 units or average of approximately 23,000 units per month.

 

We have a current inventory of approximately 90,000 containers, which we believe will be sold to our distributors for approximately $450,000.

 

The Company believes that it will require approximately $1.5 million in additional funding for its operations for the next 12 months. The Company plans to fund its activities during the balance of 2015 and beyond through loans from banks and other financial institutions and the sale of debt or equity securities to private investors. The Company can give no assurance that it will be successful in so doing or that such funding, if available, can be obtained on acceptable terms.

 

On March 4, 2014, the Company issued a convertible promissory note payable to Richard S. Astrom in the principal amount of $400,000, which was reduced to $360,000 by virtue of a prepayment of $40,000 on that date. This convertible promissory note was due on March 4, 2015, bears interest at the rate of 0.28% per annum and is secured by a Pledge Agreement, dated as of March 4, 2014, between the Company and Mr. Astrom, under which the Company pledged all of its membership interests in D&C to Mr. Astrom.

 

We are in default under the convertible promissory note and we do not presently have funds available to pay it. Accordingly, Mr. Astrom may foreclose under the pledge agreement. We intend to ask for an extension of the due date and for a waiver of our default, but Mr. Astrom is not obligated to grant any extension or waiver. Further, we have no information as to whether or on what terms any such extension or waiver would be granted.

 

The amount of the funds required to pay the convertible promissory note to Mr. Astrom is included in the $1,500,000 that we will require to fund our operations for the next 12 months. We plan to obtain such funds through the sale of debt or equity securities.

 

We can give no assurance that any of the funding described above will be available on acceptable terms, or available at all. If we are unable to raise funds in sufficient amount, when required or on acceptable terms, we may have to significantly reduce, or discontinue, our operations. To the extent that we raise additional funds by issuing equity securities or securities that are convertible into Acology’s equity securities, its shareholders may experience significant dilution.

 

In August 2014, we announced our significant objectives for the next 12 months. The following sets forth our progress in meeting those objectives:

 

We planned to secure funding of $1.5 million to support our operations. Of that amount, we have obtained approximately $700,000, which has enabled us to commence with the attainment of our other objectives. We can give no assurance that any or all of the remaining portion of such funding will be available on acceptable terms, or available at all.
We planned to hire additional personnel and have hired 9 new employees. The compensation and other costs associated with these personnel are approximately $24,000. We plan to hire additional sales, administrative personnel and technical personnel as needed.
Increasing sales volume to 50,000 containers per month. During 2014, we sold an average of 15,000 units per month and during the first quarter approximately 23,000 nits per month. Our ability to reach this goal, as indicated above, is limited by the manufacturing capacity of Polymation, which is only 20,000 units per month.
We announced that we intended to lease a building for our operations, including administrative and warehouse space and acquire office furniture, equipment and materials (forms, corporate stationary and business cards). We attained this objective.
We announced that we would seek additional international distributors meeting certain criteria. In light of our decision to concentrate on direct sales to customers, we have determined not to pursue this objective.
We have attended trade shows, expos and conferences and believe that this activity in part accounts for our increased sales.
We have initiated a marketing and advertising campaign, which includes maintaining and periodically updating our websites, brochures and other advertising materials and attending industry events.
We announced that we would attempt to pay a promissory note in the principal amount of $360,000 to Richard S. Astrom on March 4, 2015. We have not attained this goal and the note is in default.
We announced that we desired to pay salaries of $10,000 per month to each of Messrs. Fairbrother and Heldoorn on a regular basis after the other goals are completed. We are now doing so, although some of objectives have not been attained.

 

We cannot give firm dates for the attainment of any goal that depends on financing or a firm date for the receipt of revenues from orders because these dates depend on our obtaining financing and we cannot predict when, if or in

what amount we will obtain it.

Off-Balance Sheet Arrangements.

 

We currently do not have any off-balance sheet arrangements. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

  

ITEM 4. CONTROLS AND PROCEDURES 

 

Evaluation of Internal Controls

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission as of the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that there was a material weakness in our disclosure controls and procedures as of the end of the period covered by this report because the information required to be disclosed by us in reports filed under the Exchange Act was not being (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. We are a growing company and we currently lack documented procedures included documentation related to testing of processes, data validation procedures from the systems into the general ledger, testing of systems, validation of results, disclosure review, and other analytics. Furthermore, we lacked sufficient personnel to properly segregate duties. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Remediation Plan

 

Management has been actively engaged in developing a remediation plan to address the above mentioned material weakness. Implementation of the remediation plan is in process and consists of establishing a formal review process As of March 31, 2015, management had not yet completed these remediation efforts. Management believes the foregoing efforts will effectively remediate the material weakness. As we continue to evaluate and work to improve our internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of our internal control.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS 

 

We have received a threat of litigation by Nam Tran dba Life of Leisure LLC (“Tran”) against Acology, D&C and Curtis Fairbrother for an unspecified amount for damages, fraud and other related claims under a Brand Activation Agreement, dated September 1, 2013, between Tran and “Medtainer.” We believe that the claims are without merit, that if any were found meritorious, we have meritorious defenses against them and that if Tran were to prevail on any claim, the damages would not be material. We are not a party to nor do we expect the institution of any other litigation by or against us.

 

ITEM 1A. RISK FACTORS 

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item. 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES 

 

None. 

 

ITEM 4. (REMOVED AND RESERVED). 

 

ITEM 5. OTHER INFORMATION 

 

None.

 

ITEM 6. EXHIBITS

 

EXHIBIT NUMBER   DESCRIPTION
     
31.1   Certification of Principal Executive Officer pursuant to Sarbanes-Oxley Section 302
     
32.1   Certification of Chief Executive Officer pursuant to Sarbanes-Oxley Section 906

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

  By: /s/ Curtis Fairbrother               
Date: May 20, 2015   Curtis Fairbrother  
    Chief Executive Officer, Principal Accounting Officer, Director