ABVC BIOPHARMA, INC. - Quarter Report: 2012 December (Form 10-Q)

UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended December 31, 2012

For the transition period from                      to                     

Commission file number: 333-91436

ECOLOGY COATINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

8605 Santa Monica Blvd. Suite 41336, Los Angeles, CA  90069-4109

(Address of principal executive offices) (Zip Code)

(310) 598-7872

(Registrant’s telephone number)

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 o No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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 o No x

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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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of December 31, 2014, the number of shares of common stock of the registrant outstanding was 54,593,032 and the number of shares of convertible preferred stock outstanding was 271.

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ECOLOGY COATINGS, INC.

FORM 10-Q INDEX

FOR THE QUARTER ENDED DECEMBER 31, 2012

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ECOLOGY COATINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DDECEMBER 31, 2012 AND SEPTEMBER 30, 2012

Note 1 — Summary of Significant Accounting Policies

Description of the Company.   We were originally incorporated on March 12, 1990 in California (“Ecology-CA”).  Our current entity was incorporated in Nevada on February 6, 2002 as OCIS Corp. (“OCIS”).  OCIS completed a merger with Ecology-CA on July 26, 2007 (the “Merger”). In the Merger, OCIS changed its name from OCIS Corporation to Ecology Coatings, Inc.  The Company filed for Chapter 7 bankruptcy protection on May 15, 2013 and subsequently emerged on September 19, 2014 with all liabilities settled and the corporate shell as its only asset. The September 19, 2014 date will be 'fresh start" date used to reset the financial statements in subsequent filings. Any business description below is of the operating results reported in this filing which no longer apply to our Company.

Reclassifications.   Reclassifications have been made to the prior year financial statements to conform with the current year presentation.

Basis of Presentation. On February 7, 2011, our shareholders approved a 1-for-5 reverse stock split.  In accordance with U.S. Generally Accepted Accounting Principles, we have restated all share and per share related information to conform to this reverse split for all periods presented. This includes information related to stock options, warrants, and convertible preferred shares. See Note 6.

Principles of Consolidation.   The consolidated financial statements include all of our accounts and the accounts of our wholly owned subsidiary Ecology-CA.  All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates.   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition.   Revenues from licensing contracts are recorded ratable over the life of the contract.  Contingency earnings such as royalty fees are recorded when the amount can reasonably be determined and collection is likely.

Loss Per Share. Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period.  Diluted loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding during the period.  Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of stock options and warrants and the conversion of convertible debt and convertible preferred stock. Potentially dilutive shares are excluded from the weighted average number of shares if their effect is anti-dilutive.  None of the stock options or warrants outstanding or stock associated with the convertible debt or with the convertible preferred shares during each of the periods presented was included in the computation of diluted loss per share as they were anti-dilutive.  As of December 31, 2012 and December 31, 2011, there were 375,048 and 34,795,261 potentially dilutive shares outstanding, respectively.  

   Property and Equipment.   Property and equipment is stated at cost less accumulated depreciation.  Depreciation is recorded using the straight-line method over the following useful lives:

Repairs and maintenance costs are charged to operations as incurred. Betterments or renewals are capitalized as incurred.

Patents.   It is our policy to capitalize costs associated with securing a patent.  Costs consist of legal and filing fees.  Once a patent is issued, it will be amortized on a straight-line basis over its estimated useful life.  Seven patents were issued as of September 30, 2012 and are being amortized over 8 years.

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        Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Stock-Based Compensation.   Employee and director stock-based compensation expense is measured utilizing the fair-value method with expense charged to earnings over the vesting period on a straight-line basis.

We account for stock options granted to non-employees under the fair-value method with stock-based compensation expense being charged to earnings on the earlier of the date services are performed or a performance commitment exists.

Recent Accounting Pronouncements

We have reviewed all Accounting Standards Updates issued by the Financial Accounting Standards Board since we last issued financial statements and have determined none of them would have a material effect on the consolidated financial statements upon adoption.

 Note 2 — Concentrations

There were no material concentrations of revenues or risk during the quarter ending December 31, 2012.

Note 3 — Related Party Transactions

We have borrowed funds for our operations from certain major stockholders, directors and officers as disclosed below.

On October 2, 2012, we issued a note for $25,000 to Mr. Salpietra. The note bears interest at 5% per annum, is unsecured, and matures on January 2, 2013.

Note 4 — Judgments

 A judgment of $604,330 was entered against us on December 30, 2011 in a lawsuit brought by Mr. Shaheen which had the effect of converting the notes into the judgment. The judgment included amounts for principal, interest and attorney’s fees. Because the notes were converted into a judgment, they are no longer in default and the amount of the judgment is reflected on the December 31, 2012 balance sheet as “Judgment Payable”.  Accrued interest of $3,027 was owing on the judgment as of December 31, 2012. See Contingencies in Note 5 herein.

 Note 5 — Commitments and Contingencies

Employment Agreements.

We entered into a new employment agreement with Sally J.W. Ramsey, our Vice President – New Product Development effective January 1, 2012. Ms. Ramsey is the founder of our company. The agreement will expire on December 31, 2014. Ms. Ramsey will receive an annual base salary of $100,000. The Compensation Committee of the Board of Directors may review Ms. Ramsey’s salary to determine what, if any, increases shall be made thereto. The agreement may be terminated prior to the end of the term by us for cause. If Ms. Ramsey’s employment is terminated without cause or for “good reason,” as defined in the agreement, she is entitled to 50% of salary that would have been paid over the balance of the term of the agreement. A termination within one year after a change in control shall be deemed to be a termination without cause.

Our employment agreement with Daniel V. Iannotti, our Vice President, General Counsel & Secretary, expires on September 17, 2012. Mr. Iannotti receives an annual base salary of $100,000. On April 22, 2011, Mr. Iannotti forfeited previously issued stock options and received options to purchase 300,000 shares of our common stock at a price of $.20 per share.  The agreement may be terminated prior to the end of the term for cause. If Mr. Iannotti’s employment is terminated without cause or for “good reason,” as defined in the agreement, he is entitled to 50% of the salary that would have been paid over the balance of the term of the agreement. Further, a termination within one year after a change in control shall be deemed to be a termination without cause.

Contingencies.

A judgment of $604,330 was entered against us on December 30, 2011 in a lawsuit brought by Mr. Shaheen, one of our note holders, which had the effect of converting the notes into a judgment. As of December 31, 2012, our balance sheet includes $3,027 in Interest Payable accruing from the date of this judgment.

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Lease Commitments.

Note 6 — Equity

There were no shares issued during this fiscal quarter..  

Note 7 — Stock Options

There were no stock options exercised from September 30, 2012 until we filed for bankruptcy on May 15, 2013. As part of our bankruptcy agreement approved on September 19, 2014 all common conversion rights of any kind including the equity compensation plan without limitation , warrants, options and convertible notes were cancelled and extinguished.

Note 8 – Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  For the quarter ended December 31, 2012, we incurred net losses.  We had working capital deficits and negative cash flows. On May 15, 2013 with no other options, the Company filed under chapter 7 for bankruptcy protection. Chapter 7 allowed the Company corporate shell to subsequently emerge as its only asset on September 19, 2014 with all liabilities settled. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Note 9 — Subsequent Events

We evaluated subsequent events for potential recognition and/or disclosure subsequent to the date of the balance sheet and have nothing to report.

The Company filed for chapter 7 bankruptcy protection with the United States Bankruptcy court on May 15, 2013. On September 10, 2014 the company settled all debts in excess of assets and the corporate shell as the only unencumbered asset.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Except for statements of historical fact, the information presented herein constitutes forward-looking statements. These forward-looking statements generally can be identified by phrases such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “foresees,” “intends,” “plans,” or other words of similar import.  Similarly, statements herein that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, our ability to: successfully commercialize our technology; generate revenues and achieve profitability in an intensely competitive industry; compete in products and prices with substantially larger  and better capitalized competitors; secure, maintain and enforce a strong intellectual property portfolio; attract additional capital sufficient to finance our working capital requirements, as well as any investment of plant, property and equipment; develop a sales and marketing infrastructure; identify and maintain relationships with third party suppliers who can provide us a reliable source of raw materials; acquire, develop, or identify for our own use, a manufacturing capability; attract and retain talented individuals; continue operations during periods of uncertain general economic or market conditions, and; other events, factors and risks previously and from time to time disclosed in our filings with the Securities and Exchange Commission, including, specifically, the “Risk Factors” enumerated herein.

Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  You should not place undue reliance on our forward-looking statements, which speak only as of the date of this report.  Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

“Ecology”, “we”, “us”, or “our” refer to Ecology Coatings, Inc. and its wholly-owned subsidiary, Ecology Coatings, Inc., a California corporation.

ITEM 1.   DESCRIPTION OF BUSINESS

The Company filed for Chapter 7 bankruptcy protection on May 15, 2013 and subsequently emerged on September 19, 2014 with all liabilities settled and the corporate shell as its only asset. The September 19, 2014 date will be 'fresh start" date used to reset the financial statements in subsequent filings. Any business description below is of the operating results reported in this filing which no longer apply to our Company.

Prior to our bankruptcy we had developed “clean tech”, EcoBloc™ enabled, ultra-violet (“UV”) curable coatings that are designed to drive efficiencies, reduce energy consumption, create new performance characteristics and virtually eliminate pollutants in the manufacturing sector.  We had created proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated clean technology products that reduce overall energy consumption.

Operating Results

Three Months Ended December 31, 2012 and 2011

Revenues.   We generated $7,026 and $2,049 in revenues from product sales for the three months ended December 31, 2012 and 2011, respectively. Revenues for the periods came from one customer.

Operating Expenses.   The decrease of approximately $317,000 in such expenses for the three months ended December 31, 2012 compared to the three months ended December 31, 2011 is the result of the decreases in salaries from our reduced staff and decreased professional fees.

 Income From Forgiveness of Payables and Debt.  There was no debt forgiveness reported in the three months ended December 31, 2012. For the prior period this income--$228,802-- for the nine months ended June 30, 2012 came from the conclusion of a settlement with one of our law firms with whom we have an ongoing working relationship as well as the settlement of a number of notes owed to related parties. The latter amounts were settled through the issuance of shares at a price of $.50 per share. Our stock was trading at $.06 per share at the time the shares were issued. This income for the nine months ended June 30, 2011 stems from settlements reached with certain debt holders and vendors during that time period as well as the write off of certain payables that will not be paid due to non-performance by the vendors. The amount - $872,861 - is the difference between what was owed prior to the settlement and the amounts of the settlements paid.

Interest Expense.  The decrease of approximately $30,000 for the three months ended December 31, 2012 compared to the three months ended December 31, 2011 results from a decrease in average outstanding debt in the current period.

Income Tax Provision .  No provision for income tax benefit from net operating losses has been made for the three months ended December 31, 2012 and 2011 as we have fully reserved the asset until realization is more likely than not.

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Net Loss.    The decrease in the net loss of approximately $311,000 for the three months ended December 31 2012 compared the three months ended December 31, 2011 is explained in the foregoing discussions of the various expense categories as well as in the discussion of Income From Forgiveness of Payables and Debt.

Basic and Diluted Loss per Share.  The change in basic and diluted net loss per share for the three months ended December 31, 2012 reflects the change in net loss position discussed above as well as by the increase in weighted average shares outstanding during the three months ended December 31, 2012.

Liquidity and Capital Resources

Cash as of December 31, 2012 and September 30, 2012 totaled $2,036 and $13,386, respectively.  Subsequent to the period end of these statements and before the issuance of this report the company filed bankruptcy under chapter 7 of the United States Bankruptcy Code. Our liabilities exceeded our assets by approximately $1,900,000 and our corporate shell which trades on the OTC market was sold unencumbered. New management has arranged for the filing of our 10K and 10Q reports through small working capital loans until a new direction can be determined for the company.

Off-Balance Sheet Arrangements

See Note 5 – Commitments and Contingencies - to the Consolidated Financial Statements in this Form 10-Q.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a discussion of what we feel are the most critical estimates that we must make when preparing our financial statements.   

Revenue Recognition.   Revenues from product sales are recognized on the date that the product is shipped. Revenues from licensing contracts are recorded ratably over the life of the contract. Contingency earnings such as royalty fees are recorded when the amount can reasonably be determined and collection is likely.

Income from forgiveness of payables and debt.    Income from the forgiveness of payables and debt is recognized when all of the conditions associated with the forgiveness have been met.

Income Taxes and Deferred Income Taxes.    We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences in the bases of assets and liabilities as reported for financial statement purposes and income tax purposes and for the future use of net operating losses. We have recorded a valuation allowance against our net deferred income tax asset. The valuation allowance reduces deferred income tax assets to an amount that represents management’s best estimate of the amount of such deferred income tax assets that more likely than not will be realized.

Property and Equipment.    Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the following useful lives:

Repairs and maintenance costs are charged to operations as incurred. Betterments or renewals are capitalized as incurred.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

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Patents.   It is our policy to capitalize costs associated with securing a patent. Costs consist of legal and filing fees. Once a patent is issued, it is amortized on a straight-line basis over its estimated useful life. For purposes of the preparation of the audited, consolidated financial statements, we have recorded amortization expense associated with the patents based on an eight-year useful life.

Stock-Based Compensation.   We have a stock incentive plan that provides for the issuance of stock options, restricted stock and other awards to employees and service providers.  Employee and director stock-based compensation expense is measured utilizing the fair-value method with stock-based compensation expense being charged to earnings on the earlier of the date services are performed or a performance commitment exists. Our valuation method uses a Black-Scholes option pricing model. In so doing, we estimate certain key assumptions used in the model. There was no stock based compensation issued in the quarter.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not applicable since we are a smaller reporting company under applicable SEC rules.   

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act:”) as of the end of the period covered by this report.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.  Our Chief Executive Officer and Chief Financial Officer have reached this conclusion due to the lack of segregation of duties in financial reporting as a result of the small size of our financial staff.

Changes in Internal Control Over Financial Reporting

During the three months ended December 31, 2012, we did not make any changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Exchange Act 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

On October 26, 2010, Mitch Shaheen, one of our note holders, filed suit in the United States District Court for the Eastern District of Michigan seeking repayment of principal, interest and attorney fees for amounts under promissory notes we issued to him in the original principal amount of $250,000 with 25% interest.  As of September 30, 2011, Mr. Shaheen claims he is owed approximately $590,000.  This resulted in a judgment claim against the Company for $604,330.

ITEM 1A. RISK FACTORS

Prospective and existing investors should carefully consider the following risk factors in evaluating our business.  The factors listed below represent the known material risks that we believe could cause our business results to differ from the statements contained herein.

The Company has filed for chapter 7 bankruptcy with the United States Bankruptcy Court

On May 15, 2013 the Company filed for chapter 7 bankruptcy protection. The Company emerged from bankruptcy protection on September 19, 2014 with its only asset the corporate shell trading on OTC market. There is no guarantee that the company can use its fresh start to successfully launch a new business plan and continue to raise enough capital to continue meeting its filing requirements.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not repurchase any of our securities during the three months ended December 31, 2012.  Sales of unregistered securities have been previously reported on Form 8-Ks filed with the Commission.  

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Item 3. Defaults Upon Senior Securities

As of December 31, 2012, we were in default in the payment of principal and interest on the following promissory notes:

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

(1) Incorporated by reference from our Form 8-K filed with the SEC on October 2, 2012.

(2) Incorporated by reference from our Form 8-K filed with the SEC on October 3, 2012.

(3) Incorporated by reference from our Form 8-K filed with the SEC on October 3, 2012.

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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.

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Exhibit  31.1

CERTIFICATION

I, Shulamit Lazar, certify that:

April 16, 2015

/s/ Shulamit Lazar

Shulamit Lazar

Chief Executive Officer, Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Shulamit Lazar, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Ecology Coatings, Inc. on Form 10-Q for the quarterly period ended December 31, 2012 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Ecology Coatings, Inc.