UNITED 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 September 30, 2014

 

[ ] 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)

 

(661) 510-0978
 (Registrant’s telephone number, including area code)

 

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]

 

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 [x]

 

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 September 30, 2014, there were 4,546,014,785 shares of the Registrant’s Common Stock outstanding. 

 

ACOLOGY, INC.
For The Quarterly Period Ended September 30, 2014

 

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements			3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			16
Item 4.	Controls and Procedures			16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings			17
Item 1A.	Risk Factors			17
Item 2.	Unregistered Sales Of Equity Securities And Use Of Proceeds.			17
Item 4.	(Removed and Reserved).			17
Item 5.	Other Information			17
Item 6.	Exhibits			17
SIGNATURES				18

 

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
		September 30, 2014				December 31, 2013
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	90,569			$	1,759
Inventories			44,987				37,660
Accounts Receivable			16,556
Advance to supplier			43,575				2,152
TOTAL ASSETS			195,687				41,571
Office equipment,  net of accumulated depreciation of $1,033 and $945			4,281				3,248
			199,968				44,819
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accrued expenses			9,499				7,000
Notes payable			232,000
Note payable - related party			492,869				—
TOTAL CURRENT LIABILITIES			734,368				7,000
STOCKHOLDERS' DEFICIENCY
Common Stock, 0.00001 par value, 6,000,000,000 shares authorized 4,546,014,334 and 3,846,000,000 shares issued and outstanding September 30, 2014, and December 31, 2013, respectively			45,460				38,460
Additional Paid in Capital			—				103,526
Accumulated Deficit			(579,860)				(104,167	)
TOTAL STOCKHOLDERS' DEFICIENCY			(534,400	)			37,819
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY		$	199,968			$	44,819
The accompanying notes are an integral part of these financial statements

ACOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
		Nine  months ended September 30, 2014 (Unaudited)				From Inception (January 29, 2013) to September 30, 2013 (Unaudited)				Three months ended September 30, 2014 (Unaudited)				Three months ended September 30, 2013 (Unaudited)
Sales		$	264,312			$	196,411			$	95,765			$	106,165
Cost of Sales			85,578				70,708				29,119				34,458
Gross Profit			178,734				125,703				66,646				71,707
COSTS AND EXPENSES:
General and administrative			355,707				172,659				197,806				97,251
Advertising and marketing			32,745				39,611				6,648				32,542
Interest expense			2,501							$	2,501				—
Total Cost and expenses			390,953				212,270				206,955				129,793
NET LOSS		$	(212,219	)		$	(86,567	)		$	(140,309	)		$	(58,086	)
Loss per common share			(0.00	)			(0.00	)			(0.00	)			(0.00	)
Weighted average common shares outstanding			4,386,452,243				3,846,000,000				4,546,014,334				3,846,000,000
The accompanying notes are an integral part of these financial statements

ACOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
		Nine months ended September 30, 2014 (Unaudited)				From Inception (January 29, 2013) to September 30, 2013 (Unaudited)
OPERATING ACTIVITIES:
Net loss		$	(212,219	)		$	(86,567	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation expense			876				—
Changes in operating assets and liabilities
Inventories			(7,327	)			(32,685	)
Accounts receivable			(16,556	)
Advance to supplier			(41,423	)			—
Accrued expenses			2,500				6,500
NET CASH USED IN OPERATING ACTIVITIES			(274,149	)			(112,752	)
INVESTING ACTIVITIES:
Acquisition of office equipment			(1,910	)			(2,529	)
NET CASH USED IN INVESTING ACTIVITIES			(1,910	)			(2,529	)
FINANCING ACTIVITIES:
Proceeds from issuance of private placement			40,000				—
Repayment of related party loan			(40,000	)			—
Proceeds from notes payable			232,000
Proceeds from related party loan			132,869
Capital contributions			—				141,986
NET CASH PROVIDED BY FINANCING ACTIVITIES			364,869				141,986
INCREASE IN CASH			88,810				26,705
CASH - BEGINNING OF PERIOD			1,759				—
CASH - END OF PERIOD		$	90,569			$	26,705
		$	—
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.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY
										Additional
		------COMMON STOCK------								Paid-In				Accumulated
		Shares				Amount				Capital				Deficit				Total
BALANCE – January 29, 2013 (Inception)			—			$	—			$	—			$	—				—
Common stock issued to founders			3,846,000,000				38,460				(38,460	)			—				—
Capital Contribution											141,986								141,986
Net Loss															(104,167	)			(104,167	)
BALANCE – December 31, 2013			3,846,000,000			$	38,460			$	103,526			$	(104,167	)		$	37,819
Effect of Reverse Merger			14,334				—				(136,526	)			(263,474	)			(400,000	)
Issuance of common stock in private placement			700,000,000				7,000				33,000								40,000
Net income															(212,219	)			(212,219	)
BALANCE – September 30, 2014 (Unaudited)			4,546,014,334			$	45,460			$	—			$	(579,860	)		$	(534,400	)
The accompanying notes are an integral part of these financial statements

ACOLOGY, INC.

Notes to Consolidated Financial Statements

September 30, 2014

(Unaudited)

  

NOTE 1 – Business

 

On March 4, 2014 Acology, Inc. (“Acology”) completed an agreement and plan of merger with D&C Distributors, LLC (“D&C”), collectively (the “Company”). In connection with the merger the shareholders of the D&C received 3,846,000,000 shares of Acology in exchange for their shares of D&C. The merger was accounted for as a recapitalization of Acology, whereby D&C is the accounting acquirer and surviving reporting company. In connection with the merger, the president and sole director of the Company exchanged 35,000,000 shares of common stock of Acology owned by him and $151,269 of indebtedness to him for a convertible promissory note in the amount of $400,000 and the proceeds from a private placement.

D&C was formed under the laws of the State of California on January 29, 2013. The Company is a wholesaler of proprietary polypropylene containers used for controlled dispensing and storage of pharmaceuticals and medicine.

 

NOTE 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s S-1 Amendment No. 5 filed with the SEC on August 6, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year ending December 31, 2014, or any other period.

 

Principals of Consolidation

 

The Consolidated financial statements represent the historical financial statement of D&C, which was considered the accounting acquirer in the recapitalization of 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 re-evaluates 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.

 

Office Equipment

 

Office equipment is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

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.

 

The Company has not recognized a provision for income taxes due to D&C being an LLC whereby, until the closing of the merger referred to above, is treated as a partnership and the income or loss is passed through to its members.

 

NOTE 3 – Note Payable – Related Party

 

In connection with the merger, 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 is 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.

 

During the quarter ending September 30, 2014, a shareholder of the company loaned an aggregate amount of $132,869 to the Company. The loan is non-interest bearing and with no specific repayment terms.

 

NOTE 4 – Notes Payable

 

At September 30, 2014, notes payable consisted of:

 

Various convertible notes payable to non-related individuals in the aggregate amount of $132,000. 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.

 

Note payable of $100,000 to a non-related individual, bearing interest at 15% per annum. The entire principal balance and accrued interest shall be paid as a balloon payment due no later than May 19, 2015.

 

NOTE 5 – Stockholders’ Deficiency

 

On January 9, 2014, Acology amended its articles of incorporation to increase its authorized common stock to 6 billion shares with a par value of $0.00001 per share.

 

In connection with the merger referred to in Note 1, the unitholders of D&C received 3,846,000,000 shares of Acology’s common stock in exchange for their membership units in D&C.

In connection with the merger, the former president and sole director of the 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 below.

 

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

 

NOTE 6 – Related Party

 

The Company uses office space from a family member of a stockholder of the Company at no rent.

 

The Company made sales to a company in which two shareholders of the Company are members of the board of directors for the amount of $48,945 during the nine months ended September 30, 2014.

 

NOTE 7 – Concentrations

 

For the nine months ended September 30, 2014, and for the period January 29, 2013 (inception), to September 30, 2013, the Company’s largest customer accounted for approximately 58% and 44% of sales. In addition during the period from January 29, 2013 (inception), to September 30, 2013, one other customer accounted for approximately 19% of sales.

 

For the nine months ended September 30, 2014 and for the period January 29, 2013 (inception), to September 30, 2013, the Company purchased approximately 100% of its products from one manufacturer.

 

NOTE 8 – Subsequent Events

 

Management has evaluated subsequent events through the date on which these financial statements were available to be issued.

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 Distributors LLC (“D&C”). Acology has no material assets other than all of the outstanding membership units in 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 in obtaining such financing.

 

As a result of the merger described below, we are in the business of designing, manufacturing, branding and selling proprietary plastic medical grade containers that can store, and grind and shred, pharmaceuticals, herbs, teas and other solids or liquids. Our sole product is the “TSOS Container.”

 

Our principal market is one distributor, to whom we sell approximately 40% of our products, and two wholesalers, to whom we sell respectively 15% and 10% of our products for resale to other businesses that will in turn sell them to end users. We offer the remaining 35% of our products over our website, www.themedtainer.com and directly to drug stores and drug store chains, veterinarians and veterinary distributors and other distributors and end users. We are seeking additional distributors.

 

Our products can store and grind many substances. We have manufactured our products 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 unable to market for these purposes because we did not have child safety certification and because of limitations in manpower. We recently received such certification and can devote more time to marketing. Accordingly, we intend to focus on marketing our products for the foregoing purposes.

 

We indicated in our Registration Statement on Form S-1, which was declared effective on August 6, 2014, that, while some of our marketing had related to the use of our products for marijuana-related purposes, we planned to focus our marketing efforts on drug stores and drug store chains, veterinarians and veterinary distributors and other distributors and end users. We are now so focused and no longer advertise our products for marijuana-related use. In common with innumerable manufacturers of small containers, including those who produce pill containers for drugstores, our products may be used for storing marijuana, among many other purposes, and like other manufacturers of containers, we have no way of controlling how our prooducts may be utilized by end-users. We are not and have never been in the business of growing or distributing marijuana, nor are we promoting or recommending its use.

 

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 SEPTEMBER 30, 2014
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2013

 

Revenues.

 

Revenues for the three months ended September 30, 2014, were $95,765 compared to $106,165 for the three months ended September 30, 2013, and our gross profit for those periods was respectively $66,646 and $71,107. The decrease in revenues and gross profit in the later period was due to decreased sales.

 

Costs and Expenses. 

 

Costs and expenses for the three months ended September 30, 2014, were $206,955 compared to $129,793 for the three months ended September 30, 2013. These costs and expenses increased in the later period because general and administrative expenses increased by $100,552 and interest expense increased by $2,501, although advertising costs decreased by $25,894. The principal components in the increase in general and administrative expenses were approximately $39,000 for rent, insurance and lessee improvements on our new offices, approximately $22,000 for payroll, approximately $11,000 for legal fees, $11,250 for obtaining child-resistant certification for our 20-dram Medtainer and $10,000 to obtain quotation of our common stock on OTC Market Group Inc.’s OTCQB tier.

 

Net Loss.

 

We had a net loss of $140,309 for the three-month period ended September 30, 2014, as compared to $58,086 for the three-month period ended September 30, 2013.

 

NINE MONTHS ENDED SEPTEMBER 30, 2014
COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2013

 

Revenues. 

 

Revenues for the nine months ended September 30, 2014, were $264,312 compared to $196,411 for the period from our inception on January 19, 2013 to September 30, 2013, and our gross profit for those periods was respectively $174,734 and $125,703. The increase in revenues and gross profit for the later period was due to increased sales.

Operating Expenses. 

 

Operating expenses for the nine months ended September 30, 2014, were $390,953 compared to $212,270 for the period from our inception on January 19, 2013 to September 30, 2013. Operating expenses increased in the later period because general and administrative expenses increased for the reasons described above and because interest expense increased by $2,501, although advertising costs decreased by $6,866.

 

Net Loss.

 

We had a net loss from continuing operations of $212,219 for the nine month period ended September 30, 2014, as compared to a loss from continuing operations of $86,567 for the nine month period ended September 30, 2013.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity and Capital Resources

 

We commenced business in January 2013. Our sales grew over the course of 2013, averaging 11,500 units per month for 2013 (ranging from 8,000 units to 30,000 units per month) for a total of 125,000 units. During the first three quarters of 2014, we sold approximately 76,000 units. Gross sales for 2013 were $254,992 and for the first three quarters of 2014 were $264,312. We have an inventory of 90,000 containers valued at $44,987 on our books, which we believe will be sold to our distributor and to customers over our website for approximately $400,000.

 

As of December 31, 2013, and September 30, 2014, we had respectively $1,759 and $90,569 in cash. We financed our operations from the inception of our business on January 19, 2013, through September 30, 2014, through capital contributions of $141,986 made by our officers, loans of $232,000 from unrelated parties and a related-party loan of $132,869.

 

The Company believes that it will require approximately $1,200,000 in additional funding for its operations for the next 12 months. The Company plans to fund its activities, including those of D&C, during the balance of 2014 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 is 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.

 

While we are not in default under the convertible promissory note that we issued to or the pledge agreement that we entered into with Mr. Astrom, we do not presently have funds available to pay the convertible promissory note when due. The amount of the funds required to pay the convertible promissory note to Mr. Astrom is included in the $1,200,000 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. In the event that we are unable to pay Mr. Astrom when required, we intend to ask for an extension of the due date, but Mr. Astrom is not obligated to grant any extension. Further, we have no information as to whether or on what terms any such extension would be granted.

 

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.

Plan of Operations

 

Our significant objectives for the next 12 months are as follows:

 

 

·		Secure funding of $1,200,000 to support our operations over the next 12 months. This activity has commenced through personal contacts by our officers and will ongoing; to date we have secured funding of $364,869. We can give no assurance that $1,200,000 or any lesser amount will be available on acceptable terms, or available at all. The costs associated with this activity, which would arise principally from travel and legal expenses, are estimated to be $15,000. We cannot predict when we will obtain funding in whole or in part, but as indicated below, we cannot begin to attain several of our other objectives until we reach the levels of funding set forth below.
		Hire sales, administrative personnel and technical personnel. We will continue to fill positions as necessary in accordance with our ability to pay salaries and benefits. The compensation and other costs associated with these personnel are estimated to be $40,000 per month if all of these employees are hired. We have interviewed candidates for certain positions, but have not yet hired or committed to hire any of them.
·		Obtain additional distributors with sales force of at least 100 full time employees and obtain firm orders from them. We estimate the costs associated with this activity to be approximately $5,000 per month. Our officers are presently engaged in these activities and absorbing their costs and have advised us that they intend to continue doing so whether or not funding is offered. Although we have previously indicated that we would be seeking international distributors, we have determined that, in light of our limited manpower, we will concentrate on obtaining additional domestic distributors.
·		Increase retail sales by attending trade shows, expos and conferences. We estimate the costs associated with this activity to be approximately $10,000 per month. Our officers are presently engaged in these activities and absorbing their costs and they have advised us that they intend to continue doing so whether or not financing is obtained.
·		Begin a marketing and advertising campaign. We will commence this activity, which will continue throughout the 12-month period, when we have attained financing of at least $200,000. This activity, which includes updating our websites, brochures and other advertising materials and attending industry events, is estimated to be $35,000. We have begun this activity by improving our websites and by initiating efforts to market directly to drug stores and drug stores chains, veterinarians and veterinary distributors and other distributors and end users.
·		Pay a promissory note in the principal amount of $360,000 to Richard S. Astrom on March 4, 2015 (see above).
·		Pay officers’ salaries of $10,000 per month to each of our two officers on a regular basis after the other goals are completed.

 

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. We raised $232,000 in the quarter ended June 30, 2014, and an additional $132,869 in the quarter ended September 30, 2014, but we cannot fully implement our plan of operations until we raise a further $1,200,000.

 

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 September 30, 2014, management had not 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. Tran has not taken action to further this claim. 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		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: November 14, 2014		Name: Curtis Fairbrother
		Title: Chief Executive Officer, Principal Accounting Officer, Director